The Financial Gains of Fairtrade in Ghana

Introduction

The concept of Fairtrade in Ghana has taken a very good shape as a result of tremendous efforts by local farming communities, Oxfam, Comic Relief and other charitable organizations. The main aim of these charities is to prevent farmers who are described as being at the bottom of the supply chain from being exploited by middlemen. Farmers are guaranteed fair prices for their products which are set based on their cost of production. In situations where local market price is higher than the minimum price, market prices are used to determine prices for their products.

Local farmers with the help of these charities and other governmental organisations mobilise themselves into cooperatives. This helped them to pool their resources together for the benefit of their members. One such very important co-op is the Kuappa Kookoo cooperative. From a very humble beginning, Kuappa has grown into a very important limited liability company of great importance.

What gladdens my heart most is the support the Fairtrade organizations are offering to our school children in remote farm communities. These children are given the opportunity to participate in competitions with winners given prizes. Some few lucky ones among them are sponsored to attend conferences abroad. These children are our future leaders so it is very important we invest in their future.

The Principles of Fairtrade

The internationally accepted definition by FINE for Fairtrade is; ‘a trading partnership, based on dialogue, transparency and respect that seeks greater equity in international trade.’ FINE is an association of four international Fairtrade networks. These are Fairtrade Labeling Organizations International, World Fair Trade Organization, Network of European Workshops and European Fair Trade Association.

The campaign for Fairtrade is carried by a group of organisations known as Fairtrade organisations. They campaign for changes in the rules and practices of conventional trade. Fairtrade organisations fall under an umbrella organisation known as International Fair Trade Association (IFAT) which is now known as World Fair Trade Organization (WFTO). The mission of WFTO is to improve the livelihood and well being of disadvantaged producers.

WFTO has prescribed principles which act as guidelines to all fair trade organizations. These principles among other things take account of the environment, safeguarding of natural resources and meeting future investment needs. It also provides for gender equity, providing equal pay opportunities for women and men. Above all, it is against child labor and ensures that the UN convention for the right of the child is respected. (www.ifat.org)

Fairtrade label

In return for following these principles, WFTO registered Fairtrade organizations are allowed to use Fairtrade labeling or certification. The certification system is designed to allow consumers to identify goods which meet agreed standards. The certification is overseen by a standard-setting body known as Fairtrade Labelling Organisations International (FLO). The system involves independent auditing of producers and traders to ensure the agreed standards are met. (www.fairtrade.org.)

Fairtrade makes provision for what is referred to as Fairtrade social premium. This is an annual payment made to farming communities valued at 5% of their sales. This social premium is used by the farming communities to provide schools, water supplies, etc. The premium ensures that communities have the ability to fund long term projects. Finally, Fairtrade believes in strength in togetherness. It therefore requires that farmers organise themselves into associations or cooperatives. This helps the farmers in pooling their resources together and put them in a stronger position when selling their products (www.fairtrade.org.)

Financial Gains

Kuappa Kookoo Company

Fairtrade has brought a lot of financial gains to farmers as well as farming communities in Ghana. One major financial gain of Fairtrade to the ordinary farmer is the establishment of “Kuappa Kookoo” in 1993. This is a farmers’ cooperative with over 45000 farmers. Since its establishment Kuappa has been in the forefront in protecting business interests of farmers. It has also played a major role in helping farmers fight for better deals on the world market.

Kuappa Kookoo has worldwide recognition and has the mandate to handle all Fairtrade premium money paid for Fairtrade products. The premium payment is handled by Kuappa Kookoo Farmers Trust Fund. Money accrued is used to purchase farming implements and distributed to members. An example is the purchase of machetes worth GHc160, 000 which were distributed to members.

Apart from the above, Kuappa Kookoo has a Credit Union division which provides credit and banking services to its members. Members are offered loans to support them in their farming as well as other social obligations. This credit facility is given to members at an affordable interest rate compared to interest rate pertaining on the market. This is a big plus because such credit facilities make it possible for the farmers to expand their farms. They also use it to diversify into other areas so that in times of difficulties they will always have something to fall on.

Kuappa Kookoo has a commercial wing that has an export license and thus purchases and exports cocoa beans for its members via the Cocoa Marketing Company Ltd (CMC). Kuappa members are reported to have produced 63,000 tons of cocoa beans in 2004, representing 8% of Ghana's total production of 736,000 tons. Cocoa provides virtually 100% of members' cash income. Government’s plan to liberalize the cocoa purchasing industry is expected to increase Kuappa’s cocoa export to about 30%. The interesting thing is that Kuappa pays farmers very attractive prices for their cocoa. The prices are usually above the government price. Kuappa also subsidizes agricultural inputs for its members. (www.fairtrade.org.)

Dividend and foreign inflows

Kuappa Kookoo, which began as a cooperative, later metamorphosed into a company. Currently it holds 45% shares Divine Chocolate Inc and received a dividend payment of £47,379 in 2006. Such payments allow Kuappa to pay special bonuses to its members. It also uses it to purchase farming implements and distribute to its members. Kuappa currently owns one-third shares in Divine Chocolate in the US and has two chocolate brands to its credit. These brands are Divine Fairtrade chocolate, and Dubble Fairtrade chocolate. These brands are available in supermarkets all over Europe.

There have been some vital financial inflows from major charities towards the course of Kuappa. Such inflows came as a result of Fairtrade in Ghana. Comic Relief-London alone is reported to have provided Kuappa with three grants totalling £328,387 to help develop Kuappa. DFID has also supported Kuappa in the establishment of Kuappa Farmers Credit Union. It also financed Kuappa Impact assessment survey and gave a credit guarantee for Day Chocolate Company. In 2006, original Day Chocolate founder The Body Shop also donated its shares of 14% in Divine Company to Kuappa Kookoo thus increasing Kuappa’s holding in Divine to 45%. (Divine /DFID report 2007)

Support for farmers in Africa has attracted attention from well meaning organizations across the globe. Foundations like Bill & Melinda Gates Foundation granted $23 million to the World Cocoa Foundation to help farmers in West Africa improve production and obtain higher prices and market access for their products. The grant is also to help about 200,000 cocoa farmers in Côte d'Ivoire, Ghana, Nigeria, Cameroon and Liberia double their income by 2013 (http\\seattletime.nwsource.com).

Divine Chocolate Ltd

Another major financial gain of Fairtrade in Ghana is the establishment of Divine Chocolate Ltd. Since its establishment Divine has been marketing chocolate products from cocoa produced by Ghanaian small-scale farmers. These chocolate products are made from cocoa beans purchased directly from Ghanaian farmers. In 2006 alone Divine used 1211 tons of cocoa beans. This figure increased to 1420 tons in 2007. The company thus serves as a ready market for the farmers. The company has its own Fairtrade brand name and most supermarkets in the UK are converting their own-label chocolate to Fairtrade, supplied by Divine.

Divine also raised an amount of $181.650 for a Fairtrade social premium on behalf of farmers in 2006. It again raised an amount of $213.000 in 2007. Aside of all these, Divine spent an amount of £209,500 in support of producers.

Divine which was set up in 1999 with a DFID guarantee loan of £400,000 had a turnover of around £8.9 million in 2006. This increased significantly to £10.7 million in 2007. Currently the turnover of the company is £12. The good news to Ghanaians farmers with regards to the success story of Divine Chocolate Ltd is that they own 45% of the company. The farmers therefore received an amount of £47,379 in the form of dividend in 2006 from Divine. (www.divinechocolateshop.com)

The growth potential of Divine is very high considering the fact that the UK chocolate market alone is believed to be worth £3.4 billion a year and that of USA, is estimated at $13 billion. Divine Chocolate Inc has plans to capture fair share in these two markets. The company’s share in these markets will definitely trickle down to the local farmers in Ghana who own part of the company. (www.divinechocolateshop.com).

Community projects

Fairtrade has contributed tremendously in the development of some farming communities. A case in point is the support Milani Limited gave to the people of Adabra in the Gomoa District. Milani Ltd. is a major fresh fruit producer and exporter in Ghana. It is a leader in the cultivation and export of fresh MD2 pineapples which the company also processes into fresh juice for the local market. This company provided a three-classroom block at the cost of GH¢3,000.00 to the people of Adabra and other ten surrounding villages. (www.modernghana.com)

This project was funded from the Fairtrade premiums earned by the company for producing and exporting their produce under Fairtrade conditions. Premium is described by Fairtrade as an additional percentage price paid by consumers on top of each box of Fairtrade labelled products sold by FLO certified producers in developed countries. The company itself is reported to have made gains of GH¢50,000 since it became Fairtrade certified in 2005. (www.modernghana.com)

Gains from cocoa

Ghana has annual cocoa production of around 400,000 tons and took over Indonesia’s position as the world's second largest cocoa producer after Côte d’Ivoire. Ghana earned $715 million from export of cocoa in 2003. Considering the fact that cocoa represents around 30% of Ghana's total export earnings, this figure is quite encouraging. The second most important export commodity in Ghana is gold. Ghana produced a record level of 736,000 tons of cocoa in 2004. This increase in production was attributed to higher prices on the world market and the government’s cocoa spraying exercise.

A price of cocoa for the period was reported to be at an average of $1,600/ ton. The increase in price was attributed to market uncertainty caused by the political situation in Côte d’Ivoire, the world’s largest cocoa producer. Ghana’s cocoa is of high quality and attracts a premium price on the world market. Amidst the boom in cocoa prices Kuappa is reported to have received a Fairtrade minimum price of $1600/ton for Fairtrade sales, plus the Fairtrade premium of $150/ton for investment in commercial, social or environmental projects. Sales to the Fairtrade market account for around 3% of Kuappa’s total production and increased from 450 tons in 1999 to 1,800 tons in 2004.

(www.fairtrade.org.uk)

Core competence of Kuappa

Kuappa has very good potential for future growth. This is because of the inflows it receives from Fairtrade as premiums and dividends from Divine. It also engages in the lucrative business of buying and exporting cocoa beans. These receipts will definitely ease the cash flow problems of Kuappa. What the company needs to do now is to concentrate on its core business and should not over expand. Currently the company has about five divisions. As a limited liability company which is fairly new, over stretching its business activities could pose a future problem.

The company should consider increasing its holding in Divine and rather scale down some of its activities. The core competence of Kuappa from the look of things is commercial trading in cocoa beans. It should concentrate on this and consider out sourcing from other companies. Kuappa could be the hen which would lay the golden egg so the stakeholders need to put in much effort to keep it as a going concern.

Conclusion

Fairtrade has contributed immensely to the well being of farmers in our communities. It has provided price stability and ready market to our hard working farmers. It has also contributed in bringing the exploitation of farmers to the attention of world leaders. The best way forward is to make sure the gains from Fairtrade trickle down to the ordinary farmers. The gains must be shared fairly so that the farmers reap the benefit of their sweat. Few people at the top should not hijack these gains at the expense of the farmers and farming communities.

Francis Kwaku Egu (Finance & Investment Analyst), UK

Research Associate- Licensed International Financial Analyst (LIFA) –USA

[email protected]