The Long-term Net Income of Cocoa Producing Households is What Really Matters. Here’s How We Can Support

Author Piera Waibel

Managing Director | Head Raw Materials & Sustainability
Lindt Cocoa Foundation | Lindt & Sprüngli (International) AG
Farmers working on additional income generation activities. Photo by Lindt & Sprüngli.

A lot of discussion on increasing cocoa farmer income focuses on higher yield and higher prices and/or premiums. In my opinion, these discussions and solutions are too limited, and some shifts in thinking are needed to achieve long-lasting change.

First, we need to stop talking about income and focus on net income. Costs have the same influence on what ultimately ends up in ones’ pocket as sales value does. Looking exclusively at growth or increased production neglects the rise in labor and input costs associated with a production increase, which is still promoted in high-input, high-output farming models. Strategic efforts to lower the cost of inputs, increase their quality, and generally deliver them more efficiently to farmers can have a demonstrable impact on net income, ultimately raising the profit margins for smallholder farmers.

Second, a “cocoa farmer” is often not just a cocoa farmer. The KIT – Royal Tropical Institute study “Demystifying the Cocoa Sector in Ghana and Côte d’Ivoire” points out that cocoa farming households produce several crops and have several income sources. However, cocoa is – still, and depending on the alternatives – the most attractive crop to grow for many. In households where cocoa is the first or second most important crop, 61% of the total income came from cocoa in Ghana. This number rises to 66% of total income in Côte d’Ivoire.

Third, a household does not only have costs associated with income generation activities, but also for maintenance and upkeep of the household itself. The Living Income Reports (Ghana, Côte d’Ivoire), prepared for the Living Income Community of Practice, found that more than half of a living income benchmark is being spent on food. With improved infrastructure (such as roads and better access to markets), household costs could be reduced.

Within this context, increasing farm gate prices or farmer premiums are important mechanisms to consider, but they are only a part of the solution contributing to higher net income for households producing cocoa. It’s time to move towards holistic and well-balanced solutions.

The Lindt & Sprüngli Farming Program (present in the Dominican Republic, Ecuador, Ghana, Madagascar, and Papua New Guinea) currently develops, tests and implements such holistic solutions in different origins. All activities are ultimately targeted at increasing the net income of farmers, their families, and communities.

The overall approach is structured in four different levels of activity:

  1. Sustainable intensification of cocoa cultivation
  2. Creation of additional income sources
  3. Stabilization of cash flow and secure income
  4. Community infrastructure
Ecuador training on organic inputs making, including economic analysis vs. synthetic inputs Photo by Lindt Cocoa Foundation

A sustainable intensification of cocoa cultivation – fostered through targeted products and services for farming households – will result in increased cocoa production using the same (or smaller) growing areas, and increase the positive impact on an intact environment. To avoid additional costs growing faster than additional income from sales, farmers need to build up the knowledge required to make informed decisions. Given an available investment amount (time or money), which investment leads to the best results? Is it pruning because it also lowers my cost for pesticides? Or is it irrigation? Are there other ways such as managing water through regenerative agriculture methods that are not as expensive and provide long-term solutions? Also, the question of “make or buy” is highly relevant. Do I invest money in buying inputs, or do I invest time in making them myself? How much is my time worth? How much would I get if time is invested somewhere else? More than 400 field staff are engaged in the Farming Program to support farmers in group training and individual coaching sessions in answering questions like these, while the necessary products and services are made available.

Then, even with higher net incomes from cocoa, cocoa farm sizes are often too small to result in a decent standard of living. Thus, the creation of additional income sources becomes relevant. As land becomes scarce and deforestation a major issue, expansion of farm size is often not an option. Furthermore, diversified income streams make sense from a risk perspective. In our Farming Programs, we encourage beekeeping, vegetable farming, pig, chicken, or snail rearing. Loans offer start-up capital in Ghana and Ecuador, combined with capacity building and support. These activities not only create additional income, but also lower household food expenses.

To stabilize cash flow throughout the year (cocoa or other agricultural crops are seasonal), the Farming Program fosters the creation of Village Savings & Loan Groups, while savings should always come before loans. To secure incomes in the long-term, the Farming Program pilots activities on land and tree tenure, climate-smart farming practices, (dynamic) agroforestry and regenerative agriculture. These No-Deforestation & Agroforestry Action Plan activities deliver on our commitments as part of the Cocoa & Forests Initiative. Long-term volume commitments with suppliers and farmers further incentivizes longer-term investments.

Farmers working on additional income generation activities Photo by Lindt & Sprüngli
Madagascar drinking water system Photo by Helvetas Swiss Intercooperation

And last but not least, improved community infrastructure creates the enabling context. Why can a farmer in Ecuador or the Dominican Republic manage five hectares of cocoa alone while their colleagues in Ghana indicate it is too much work and require additional labor? There are more sophisticated answers than this one, but my belief is – in short – that it’s because the Ghanaian farming household spends more time outside the farm to cope with life. Instead of riding a horse, or a motorbike or driving a car on a paved road, farmers in Ghana often must walk. They spend hours collecting water every day for household needs, while others just turn on the faucet. Although our influence is somewhat limited in this area, we invested considerable funds over the last years in access to clean drinking water.

While there is still a lot to learn about what works best, a holistic approach of lowering costs, diversifying and stabilizing income, and investment in infrastructure is key to increasing net-household incomes over the mid- and long-term.