Leading Companies Increasingly Want Farmers Paid A Living Income

We’ve come quite a long way in getting companies to support a Living Income for farmers.

Just seven years ago, the Living Income Community of Practice gathered companies, civil society organizations, and certifiers to discuss corporate responses to low income levels among smallholders in agricultural supply chains.

I personally attended an in-person workshop, where enthusiastic conveners and civil society representatives introduced the topic of Living Income, defined as the net annual income required for a household to afford a decent standard of living for all its members. At the time, the business community considered Living Income as a relatively progressive topic. Companies were present and listening intently, but few had started any meaningful work to enable producers in their supply chains to earn a Living Income.

Today, Living Income is a crucial consideration among leading companies and their supplier companies throughout the agricultural supply chain:

• Several companies have issued corporate commitments or positions to Living Income, including World Cocoa Foundation members Olam, Hershey, and Unilever.
• Leading companies have made concerted efforts to raise income and wages in their supply chains. The latest example comes from Nestlé’s income accelerator program that pays a cash incentive to cocoa-farming households for activities such as enrolling children in school, diversified income activities, and good agricultural and agroforestry practices.
• Beyond Chocolate, Belgium’s civil society/government/industry cocoa sustainability platform, has committed to farmers earning a Living Income by 2030. Similar goals are set by the Swiss Platform for Sustainable Cocoa and the Dutch Initiative on Sustainable Cocoa.
• Several Living Income benchmarks are in place for cocoa-growing areas in Côte d’Ivoire and Ghana, and several studies have been conducted on how to raise income levels, authored by, for example Mondelez and Mars.

There are several reasons for this change in approach to Living Income. These include human rights due diligence legislations, investor and civil society pressure, and reputational impacts from increased media coverage about child labour in cocoa.

Companies have also recognized that farmers who can invest in their farms, while also covering family costs, make for a more stable and resilient supply chain. These farmers are better prepared to survive crop diseases, temporary price fluctuations, and climate impacts. These more stable and resilient supply chains can build investor confidence in company performance.

Enabling smallholder farmers to reach a Living Income is not easy. In Côte d’Ivoire and Ghana, the average cocoa-growing farmer earns less than 40% of a Living Income. Governments in these leading cocoa-producing countries introduced the Living Income Differential (LID) initiative–a mandatory higher price on produce from cocoa-growing farmers. The cocoa and chocolate industry declared support for the LID. However, when it was time to test it in the first cocoa harvest season starting in late 2020, production exceeded demand, and leading to a price decrease. Indications from the 2021 season look more positive.

Sustainalytics is seeking to advance corporate action on Living Income by maintaining dialogues with companies, speaking at events, sharing best practices, and collaborating with stakeholders. It recently collaborated with IDH, The Sustainable Trade Initiative, to coordinate an investor endorsement of the organization’s Living Income and Living Wage roadmaps. Sustainalytics convened 45 global investors, representing more than 6.3 trillion euros in assets under management,  to publicly support the IDH roadmaps. These roadmaps demonstrate tangible actions that companies can take to address Living Income and Living Wages in their supply chains. To date, about 30 companies are working with IDH to align their Environment, Social and Governance strategies.

Sustainalytics’ Thematic Engagement on Child Labour in Cocoa, where Living Income is a focus area, has enabled meaningful dialogues with cocoa and chocolate companies for cocoa-growing farmers. Our team reviews their progress biannually and encourages action through corporate commitments, strategies, and implementation. Our 2022 review showed an improvement from our baseline in 2019. Companies in the engagement also indicate a scale-up in implementing Living Income targeted actions in cocoa-growing communities.

It’s not easy deciding what companies can do to significantly increase smallholder farmers’ income. Price is a factor, but differences in farm sizes make it difficult to substantially improve income levels for the smallest producers. Increasing productivity is often the industry’s go-to action to increase income, but market demand is variable and may not be able to support higher production. What’s more, overproduction in some cases may produce an unsustainable surplus, which depresses prices. Companies, market participants and other key stakeholders generally agree that income diversification is important. But in practice, income opportunities available to smallholder farmers do not alone close Living Income gaps. The industry could benefit from a mix of solutions to achieve Living Income more broadly. Regardless, income-enabling interventions must be scaled up.