Understanding the context

Living wage and living income in agricultural supply chains:

Far-reaching challenges

Since paying even minimum wages often remains aspirational in agricultural commodity sourcing, any ambitions around paying a ‘living income’ for farms and, where applicable, for farm workers typically remain a long-term shot in an uncertain direction.

This is also due to the fact that buyers often have only a limited influence on how the buying price of a commodity is set, since commodities are often sold by large cooperatives and the prices are set at a market rate.

Cocoa

With respect to the cocoa sector, the average household income of cocoa farmers in Cote d’Ivore is $2707/year. This is significantly below the living income of $7318/year, but above the extreme poverty line of $2276/year.

7% of all farmers currently earn a living income.[1] Provided a buyers source cocoa at scale, it is often not possible to buy cocoa produced locally.

Improving productivity offers a major potential win-win for farmers and companies. Gaps between current and achievable yields remain huge, particularly in Africa: estimates from Uganda suggest a 34% yield gap in sorghum and a 40% yield gap in barley. Cocoa yields in some countries of West Africa could be doubled. But companies can misjudge the trade-offs from a farmer’s point of view. Without availability of adequate market demand, improving yields is meaningless. Worse, rapid production increases can destabilize markets and cause price collapses. Also when risk minimization and cash flow dominate farmers’ decision-making, it is rational for them to be suspicious of investment now for uncertain returns later. Thereby addressing living income requires a broader array of interventions than merely supporting yield increase.

Coffee

In coffee production, on the other hand, low prices, excessive volatility and low yields not only affect farmers’ income, but also:

  • reduce interest of farmers and future generations to engage with coffee farming
  • cause labour shortages during harvest time

Many small farms and rural enterprises are not very productive and operate on low margins. To keep their costs down, employers may prefer child laborers who are paid less than adults or not paid at all. Today, there is a tendency among farmers to stop growing coffee due to decreased income per smallholder farm unit, due to a combination of low market prices, lower productivity, higher labour costs and pests and diseases.

Engagement findings

Living income is central to many issues in the agri-food supply chain:

  • Child labour
  • Education
  • Deforestation

Centrality of living income needs to be recognized by companies

Trace ability and long-term farm-level relationships are crucial and currently often lacking

[1] https://www.fairtrade-deutschland.de/fileadmin/DE/01_was_ist_fairtrade/05_wirkung/studien/study_true_cost_cocoa_farmer_income_2018.pdf