Impacts of the Cocoa Living Income Differential Policy in Ghana and Côte d’Ivoire

Poverty continues to be a widespread issue among cocoa farmers while chocolate consumers become increasingly sensitive for the sustainability issues associated with the supply chain. The poverty issue is often attributed to the low prices of cocoa and the unequal distribution of profit margins across the chocolate value chain, at least partially. Poverty, in turn, is considered to be the root of further sustainability issues. To raise the value share and price accruing to their farmers by leveraging their collective market power, the two biggest cocoa producing countries Côte d’Ivoire and Ghana jointly announced in 2019 the cocoa Living Income Differential (LID) policy. The question is to what extent and under which circumstances could the policy reach this goal in the long run, considering the numerous unknowns around the details of the policy and market actors’ reactions, and how sustainable it is. To analyse this question, we implement a global multi-regional partial equilibrium model of the world cocoa market to simulate scenarios accounting for alternative assumptions about these unknowns. The study shows that the LID’s effects on prices and welfare of cocoa farmers in the two countries range from none to substantially positive, varying in magnitude with the scenarios. But it also highlights that the farmgate price target, which is reached in Ghana under most scenarios, is reached in Côte d’Ivoire only with additional supply management measures. The two countries’ government budgets and cocoa farmers in other countries lose out substantially in many cases, what is identified, among other issues, as potential threats to the sustainability of the policy that require attention. Evaluated in light of past attempts by governments and other actors to raise farmer welfare in the cocoa but also other agricultural sectors, one policy alternative stands out, although coming with its own challenges.

JRC.D.4 - Economics of Agriculture