Pricing mechanisms in the cocoa sector

Options to reduce price volatility and promote farmer value capture in the cocoa sector.

Price volatility is a common challenge facing smallholder farmers in tropical commodities. Recent developments of a 40% drop in the price of cocoa in West Africa have highlighted how price volatility can undermine the investments in productivity, quality and sustainability for farmers and creates a barrier to reach a living income. In research for GIZ and ISEAL Alliance, Aidenvironment and Sustainable Food Lab provided an overview of existing pricing mechanisms in the cocoa sector to inform a productive discussion on price management.

Aidenvironment carried out desk research and conducted interviews with stakeholders operating in Ghana and Ivory Coast to evaluate the existing pricing mechanisms used in the cocoa sector – at the sector, supply chain, and producer-levels. In Ghana and Ivory Coast for example, the governments have introduced different mechanisms at the sector-level such as fixed farm-gate prices and stabilization funds. This while, supply chain models, like those used by Tony’s Chocolonely, Theo’s, Taza, and Ritter Sport, vary from topping up market prices with premiums to decoupling from market prices altogether. We gained key insights on potential benefits of certain mechanisms and identified key success factors for price management. This resulted in recommendations on when and how to engage in a discussion on price management and what role different actors could play.

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For more information, please contact: Jan Willem Molenaar