Attempts to calculate a Living Income in the Cocoa Sector and why

Attempts to calculate a Living Income in the Cocoa Sector and why

GISCO Expert Workshop
Attempts to calculate a Living Income in the
Cocoa Sector and why we need this
Friedel Hütz-Adams, Antonie Fountain & Dr. Eberhard Krain
Eschborn
28th of October 2014
Content
1 Introduction and Definitions
2 Methodological Steps
3 First Attempt to calculate Living Income
4 Measures & Activities towards a living income
5 Conclusion & Next steps
Introduction and Definitions
Do we need this debate in the cocoa sector?
YES!
We need it to
• Define a sustainable income
• Have a benchmark for projects :
• Do they support farmers to reach a decent income?
• Is the income sufficient to invest in a better cocoa production?
• Do they generate enough income to attract young people?
Introduction and Definitions
Living Wage:
The remuneration (in cash and kind) received for a
standard work week by a worker, sufficient to afford
a decent standard of living for the worker and her or
his family.
Decent standard of living include food, water, housing,
education, health care, transport, clothing, and other
essential needs including provision for unexpected events.
Living Income: Income (in cash and kind) sufficient to afford a decent
standard of living for the income earner and his
family. Applies to entrepreneurs, and/or selfemployed people, such as small-holder farmers.
Factors Influencing Living Wage
PRODUCTION
• Labour income = volume (amount of hours/days) x
wage rate
CONSUMPTION
• Number of “consumption units“ of a household (HH)
• E.g. The Asian Floor Wage is based on 3 consumption units
(2 adults and 2 young children)
LEVERS
• Wage rate fixing (e.g. minimum wage regulation)
• Indirectly: Improving negotiation power of workers (e.g.
through labour unions)
Factors Determining a Living Income
PRODUCTION
• Volume and price of a range of agricultural products
• Available work force (labor units) and labor costs
• Available land
• Natural conditions: e.g. rain, soil fertility
• Socio-economic conditions: farmer’s knowledge and skills;
• Infrastructure, access to inputs (costs!) and financial services
CONSUMPTION
• Number of household members (consumption units)
• Availability core services (school, healthcare, water, etc)
LEVERS
• Price = small (farmer is “price-taker”); perhaps influenced
through cooperatives: economies of scale, negotiation power
• Increased Volume and improved Quality = Main Lever
• Switching from one commodity to another (diversification)
• Regulation and infrastructure: government support
Methodological steps
1) Establishing the Living Income Line
2) Determining household & farm composition
• Number of consumption units, dependants & work force
• Resource base (farm size) & composition of typical crop areas
3) Calculating household income
• sources of income (both in cash and in kind)
• Gross margin calculation for typical selected crops, for focus crop &
competitive crops
 for current & improved production level
4) Gap – Analysis
• Calculating price and productivity increase necessary for attaining
Living Income
All this information can be used in negotiations between producers/ producer
organisations and off-takers
Measures & Activities towards a Living Income
Farmers
Farmers
• Improve farm management and operations
• farm entrepreneurship
Towards aand agronomy
• good agricultural practices
Companies
NGOs
• DiversificationLiving
• Increase in quality, productivity and scale
• Form producer groups
• Hope for a price that covers costs and
Public
Standards
allows aSector
decent live
Income
HH Income of diversified cocoa model farms
(per person per day)
Scenario 1 (with potential)
6 HH members
3.6 ha total farm size
Current
Improved
Scenario 2 (representative)
5 HH members
2.0 ha total farm size
Current
Improved
Production
Production
(constructed on WCF Study &
SCB Programme data)
(constructed on Harvard Study &
SCB Programme data)
Measures & Activities towards a Living Income
Farmer Revenue
Of which
Cocoa %
gross
Net
Total Yield income,
Yield: per Farm size
Costs per Costs per Income
(t per
$2000 per ton
ha, kg
(ha)
farm
from
farm)
cocoa
ton
Income
cocoa and
others
100%
400
2,5
1
$2.000
$500
$500
$1.500
100%
400
5
2
$4.000
$500
$1.000
100%
1000
2,5
2,5
$5.000
$500
100%
1000
5
5
$10.000
100%
1000
2,5
2,5
100%
1000
5
50%
500
50%
500
gross
income,
Net
Costs per Income
$1000 per farm
from
cocoa
ton
Income
cocoa and
others
$1.500
$1.000
$500
$1.000
$1.000
$3.000
$3.000
$2.000
$1.000
$1.000
$1.000
$1.250
$3.750
$3.750
$2.500
$1.250
$1.250
$1.250
$500
$2.500
$7.500
$7.500
$5.000
$2.500
$2.500
$2.500
$5.000
$1.000
$2.500
$2.500
$2.500
$2.500
$2.500
$0
$0
5
$10.000
$1.000
$5.000
$5.000
$5.000
$5.000
$5.000
$0
$0
2,5
1,25
$2.500
$750
$938
$1.562
$3.124
$1.250
$938
$312
$1.874
5
2,5
$5.000
$750
$1.875
$3.125
$6.250
$2.500
$1.875
$625
$3.750
Conclusions
1) We need model farm household income reference lines
2) We need capacity building towards GAP
3) We need companies willing to do pilots with this
thinking
 Question: What are the experiences in the
projects: Is there a way forward towards a
decent income and sustainable farming?
Contacts
Friedel Hütz-Adams
[email protected]
Tel.: +49 228-763698-15
Antonie Fountain
[email protected]
Tel. +31624276517
Thank you!
Dr. Eberhard Krain
[email protected]
Tel. +49 6196 79-1467
References

Berenschot (May, 2012), „Living Wage: Wages in International Supply Chains: An Inventory
Report“

Cocoa Barometer (2012)

Cocoa Barometer (2014 – forthcoming)

Cocoa Barometer Consortium (2014): Defining a Decent Living, Living Income for Smallholder
Cocoa Farmers, Draft

Ethical Tea Partnership & Oxfam (May, 2013), “Understanding Wage Issues in the Tea
Industry: Report from a multi-stakeholder project”

Findeisen, M-T et. al.: Getting an Understanding of Income and Activities towards a Living
Income for Small-holder Farming Households.(Draft) (2014)

Hanna, Noura (June 2014): Living Income Approach, Discussion Paper, UTZ on behalf of
ISEAL

ILO: Minimum wages: Wage-fixing machinery, application and supervision, Report III (Part 4 b)

Sustainable Agricultural Network, (2013) “Rainforest Alliance and Sustainable Agriculture
Network Living Wage Workshop, January 30, 2013, Royal Tropical Institute Amsterdam,
Report

World Cocoa Foundation (April, 2013), „WCF CLP 9th Steering Committee Pre-read”