6 · web view2012/04/05 · in the current situation, in which market prices are above the...

Consultation document for Fairtrade Stakeholders:

Review of the Fairtrade Cocoa Premium

Consultation Period 05.04.2012 – 04.05.2012

Project Manager Contact Details Margret Loeffen, Project Manager Standards Unit,

[email protected] – 0049 228 94923283

Practical information

The Fairtrade Premium model for cocoa is currently under review. The purpose of this document is to obtain stakeholder views on various proposals. These proposals are not definitive, so your feedback is important to help us develop final recommendations, balancing the interests of all stakeholders.

In order to facilitate the compilation and processing of responses, we have developed an online version of this questionnaire (only available in English). We kindly ask you to fill in the online questionnaire, under the following link:

http://www.surveymonkey.com/s/CocoaPremiumReview2012

The online consultation covers exactly the same topics and questions as this word document, but includes less background information. Therefore, we recommend that you read the Word document and have it printed next to you when filling in the online form.

If you cannot use the online version, please feel free to fill in this questionnaire in Word, and send it back to Margret Loeffen at [email protected].

Please send us your responses to the questionnaire (either through the online version or the filled-in Word questionnaire) latest by 4 May, 2012.

In June 2012, the Standards Committee (SC) of Fairtrade International will make final decisions on the cocoa Premium. Final decisions will be based on the final proposals, which will take the consultation feedback into account.

The new Fairtrade cocoa Premium level and accompanying rules are planned to be announced by email and on the Fairtrade International website in August 2012.

If you have any questions, please contact the Project Manager Margret Loeffen at [email protected].

Thank you in advance for your feedback.

mailto:[email protected]


http://www.surveymonkey.com/s/CocoaPremiumReview2012


TABLE OF CONTENTS

Practical information______________________________________________________________1

PART 1 INTRODUCTION____________________________________________________________3

1. Background__________________________________________________________________3

2. Objectives___________________________________________________________________3

3. How to complete this document___________________________________________________4

4. Confidentiality________________________________________________________________4

PART 2 CONSULTATION___________________________________________________________5

Information about you and your organization:______________________________________5SECTION A: Fairtrade Premium value________________________________________________5

SECTION B: Earmarking part of the Premium for Fairtrade cocoa beans for productivity and quality

_______________________________________________________________________________6

B1 – The proposal to earmark part of the Premium in general_________________________8B2 – The percentage to be earmarked for quality and productivity investments by the SPO_____________________________________________________________________________8B3 – Investments to qualify as investments in productivity and quality_________________9

SECTION C: Developing an umbrella fund with part of the Fairtrade cocoa Premium___________10

C1 – The umbrella fund proposal in general_______________________________________11C2 – A national, regional or continent-wide fund?__________________________________11C3 – The percentage of the Premium which would feed into the fund__________________12C4 - Combining an earmarked Premium and umbrella fund__________________________13

SECTION D: Idea to be further explored: Premium at scale – applicable for bulk cocoa only_____14

SECTION E: Time of introduction of new Premium rules_________________________________16

SECTION F: Suggestions_________________________________________________________16

PART 1 INTRODUCTION1. Background

Context:

The last Fairtrade cocoa price review, which included a review of the Fairtrade cocoa Premium, took place in 2009-2010. At the end of that review new Fairtrade Minimum Prices for cocoa and the current Fairtrade Premium of 200 USD/MT were decided upon. They became valid on January 1, 2011.

In 2011 the Pricing Unit conducted a project to investigate alternative premium models, which may be more suitable to achieve the objective of scaling up Fairtrade cocoa volumes in the interest of small producers. The outcome of this investigation was that a different premium model for cocoa may help Fairtrade to reach its goals of increasing producer impact. Therefore, the premium value and model (which are the rules around the premium value and use) are now being reviewed. Because the Premium review is a greater priority at the moment, we have separated the review of the Fairtrade Premium, from the review of the Fairtrade Minimum Price. The review of the Fairtrade Minimum Price will only start in the second half of 2012.

Current Standards, Prices and Premiums:

Please find the current Standards applicable to cocoa producers and buyers on our website, as well as the table of existing Fairtrade Minimum Prices and Premiums:

Producer standard for small producer organizations: http://www.fairtrade.net/942.html Trade standard: http://www.fairtrade.net/generic_trade_standards00.html Fairtrade Minimum Prices and Premiums for cocoa: http://www.fairtrade.net/793.html?

no_cache=1&tx_zwo3pricing_pi1[productType]=26&tx_zwo3pricing_pi1[country]=0&tx_zwo3pricing_pi1[submit_button]=Go

The current Fairtrade Minimum Prices and Premiums for cocoa beans are:

Type of beansPrice in

USD/MTPremium in

USD/MT Scope Price level

Conventional beans 2000 200worldwid

e FOB

Organic beans 2300 200worldwid

e FOB

In addition to the above, there is a reference price and there are Fairtrade Premiums defined for semi-processed cocoa products produced by certified SPOs, which can be found in the cocoa product Standard and in Annex 1, at the end of this document.

2. ObjectivesThe objectives of this consultation are the following:

Consult on the Fairtrade Premium value (for conventional and for organic cocoa) Consult on the option of an earmarked premium and a fund for dealing with issues beyond

the individual SPO Obtain stakeholder views on the timelines for implementation of the agreed model and

beyond that on our vision for the Fairtrade cocoa Premium (that is, Premium at scale)

http://www.fairtrade.net/793.html?no_cache=1&tx_zwo3pricing_pi1%5BproductType%5D=26&tx_zwo3pricing_pi1%5Bcountry%5D=0&tx_zwo3pricing_pi1%5Bsubmit_button%5D=Go



http://www.fairtrade.net/generic_trade_standards00.html

http://www.fairtrade.net/942.html

3. How to complete this document

When completing this document, please try to provide clear responses and take time to explain your rationale. This will help us to understand why you propose something. You may also put forward alternative proposals or include any other suggestions.

Many questions have sub-questions. We included those to try to avoid a second consultation on details in case a proposal receives stakeholder support. Please also fill out sub-questions, even if you do not support the general proposal which they fall under, so that we can take your views on the details into account in case the general proposal receives the support of most (other) stakeholders.

Please note that this document is a “form”. You cannot click on the background text, you can only click on the multiple choices, and enter your answers in the grey text boxes. To view the background section, please scroll down the document with your mouse.

4. Confidentiality

All of the information we receive from respondents will be treated with care and kept confidential. Results of this consultation will only be communicated in aggregated form (a synopsis of the consultation feedback will be made available to stakeholders and will be available on the Fairtrade International website). All feedback will be analysed and used to develop the final proposal. However, when analysing the data we need to know which responses are from producers, traders, licensees, etc. which is why we kindly ask you to identify yourself below, at the beginning of Part 2.

PART 2 CONSULTATION

Information about you and your organization:

Name of organization:

if applicable, FLO ID:

Contact Person (s) Name(s): Contact details : Tel:

Email:

Please indicate Organization’s country of origin:

Organization’s role(s) in the Fairtrade cocoa supply chain (more than 1 answer possible):Producer selling beans EXW

Producer selling beans FOB

Producer selling semi-processed cocoa (i.e. liquor, powder, butter)

Exporter

Importer

Processors (of semi-processed products, i.e. liquor, powder, butter)

Manufacturer of composite products (i.e. chocolate bars, candy)

Trader

Brand

Licensee (licensee fee payer)

None of the above, specify:

Please describe the consultation you carried out with members of your organization, with partners or with external sources of information in order to complete this document:

SECTION A: Fairtrade Premium value

Background:

The Fairtrade Premium is paid in addition to the price, whether it is the market price (which applies if higher than the Fairtrade Minimum Price), the negotiated price (negotiated to be higher than the Fairtrade Minimum Price) or the Fairtrade Minimum Price. The Fairtrade premium for cocoa is intended for investment in the producers’ business and community, as decided by the general assembly of each SPO.

A - Fairtrade Premium value for cocoa beans

Background:

The Fairtrade Premium is 200 USD / MT of cocoa beans, at FOB level (conventional and organic), which represents 10% of the Fairtrade Minimum Price (FMP)

The Premium is spent as democratically decided by the producer organization

In the current situation, in which market prices are above the Fairtrade Minimum Price level, the Fairtrade Premium is the core financial benefit for Fairtrade for producers

Some stakeholders consider the Fairtrade Premium too high for engaging with Fairtrade on very large volumes of cocoa beans, but other stakeholders claim that the Fairtrade Premium is currently similar to the Premium of other certification schemes.

The actual Fairtrade Premium has only been valid since January 1, 2011 and was the outcome of a long review process. Since circumstances around the Premium level have not changed very much since 2011, the actual Premium is proposed to be retained.

The Premiums for semi-processed products sold by SPOs are derived from the Premium for beans. The relation between those Premiums and the Premium for beans is described in the cocoa product standard in section 4.3.3 (and in annex 1 of this document) and are not proposed to be changed.

Proposed is to retain the existing Fairtrade Premium of 200 USD / MT for cocoa beans (conventional and organic) (and the Premiums for semi-processed products derived of this).

Question A:

Do you agree with this proposal? yes No

Please explain why:

If you do not agree, what Fairtrade Premium value in USD / MT do you propose?

Other comments and suggestions:

SECTION B: Earmarking part of the Premium for Fairtrade cocoa beans for productivity and quality

Background

Productivity and quality have been identified as key factors to improve the income of farmers and to consolidate the business. This is particularly the case against the background of low yields, aged trees, crop diseases and the low use of fertilizers, which affects tree health and results in low and decreasing yields. In combination with de-capitalized farms this leads to indebted or poor farmers trapped in the vicious cycle of non-profitability and lacking access to finance. Investment in productivity is key to gradually getting out of the vicious cycle.

At the same time world cocoa demand is increasing. West- and Central Africa accounts for approximately 70% of world cocoa production today. Today worldwide production is 3.8 million tons and some industry stakeholders claim that demand is expected to exceed supply by up to 1 million tonnes in ten years. Different stakeholders, including producers, government officials and Fairtrade liaison officers confirm the urgent need to invest in cocoa productivity (of good quality cocoa) as a means to increase incomes for farmers. For Fairtrade cocoa an earmarked Premium for productivity and quality has many other benefits. It would enhance the transparency of what funds are used for and can thereby increase the willingness of buyers to invest in the system and to reduce the perceived cost burden of Fairtrade.

Productivity increases can increase the incomes of certified producers (at least in the short and medium turn), while quality improvements can both lead to better prices and improved market access. It is in the interest of producers to take into account the needs of brands in view of long-term partnerships between actors in the supply chain and because this can have a pull effect on demand.

http://www.fairtrade.net/fileadmin/user_upload/content/2009/standards/documents/2011-10-25_SPO_Cocoa_FINAL.pdf

http://www.fairtrade.net/fileadmin/user_upload/content/2009/standards/documents/2011-10-25_SPO_Cocoa_FINAL.pdf

Because cocoa brands do have productivity increases of good quality cocoa high on their agenda, it may be well possible to generate matching funds, e.g. there may be good opportunities that market partners are willing to top up specific Premium investments in productivity to generate very meaningful amounts which allow stakeholders, in collaboration, to set up very effective projects.

What is concretely meant by productivity and quality? The definition of investments (in quality and productivity) for which the earmarked Premium would qualify should represent a win-win for producers and buyers.

Cocoa productivity is defined as a measure of production per tree or per unit area (e.g. hectare), expressed in the quantity of cocoa produced. An increase in the quantity produced per tree or per area means that a farmer has increased productivity.

Cocoa quality is defined as a measure of the superiority of the dried beans and the percentage of high grade beans with the intended flavour profile. Cocoa quality refers to low levels of foreign material, proper fermentation, low levels of diseased and insect damaged beans and low levels of free fatty acid levels. It includes both physical quality (i.e. bean size, waste, foreign material and germination) and flavour quality as a result of good fermentation and drying of the beans.

With the earmarked Premium, it will be left up to the general assembly of the producer organization to decide in a democratic manner which types of measures aiming at increasing productivity and quality the Premium is invested in, in accordance with agreed stakeholder guidelines published by Fairtrade. This helps to assure that the measures taken are adapted to the livelihoods of the farmers and take their constraints and opportunities into account. It helps to avoid a one-size-fits-all approach to increasing productivity and the risks that would be associated with that.

Auditing the earmarked Premium The Premium and earmarked percentage would be mentioned in the Fairtrade Pricing database, similar to how this is done for coffee. FLO-CERT would check that the Premium is actually used for productivity / quality improvements, but will not check its impact as such. FLO-CERT will require that:

- The producer organization has a plan on how to use the earmarked Premium within 3 years. - This plan is approved by the General Assembly of members.- The producer organization justifies in which way the proposed use of Premium money will

contribute to increasing productivity and / or quality.- There is appropriate management and monitoring of expenditure of the productivity

Premiums (based on an analysis of needs or on a base-line study undertaken by the SPO).- The money may be used as seed money to leverage additional funds, as long as these

addition funds are then invested in quality and productivity.

Aims: To increase overall farmer income via productivity/quality improvements To demonstrate to the industry that Fairtrade is committed to encouraging cocoa

productivity and quality improvements To attract additional industry investment into productivity and quality programs of

Fairtrade SPO’s

Although the above mentioned proposal is in principle for all cocoa beans worldwide, depending on the feedback from different regions Fairtrade International may decide to apply this proposal only to specific geographical regions. The earmarking proposal is not meant to apply for semi-processed cocoa products purchased from certified producers.

Issues around productivity and quality are both important for producers of speciality and organic cocoa and for bulk cocoa, but the greatest importance of this proposal and the greatest opportunities for additional industry investments are for conventional cocoa. It is therefore worthwhile to reflect on whether the proposal should apply for all Fairtrade producers or only for Fairtrade producers of bulk cocoa.



B1 – The proposal to earmark part of the Premium in generalEarmarking part of the Fairtrade Premium for productivity and quality investments by the SPO that receives the premium.

Question B1:


Please explain why:

Do you think the earmarked Premium should only be for conventional bulk1 cocoa or also for speciality and organic cocoa?

Only conventional bulk cocoa Bulk, speciality and organic cocoa

Please explain why:


B2 – The percentage to be earmarked for quality and productivity investments by the SPO

The above mentioned percentage of 25% of the Premium for beans to be earmarked is only a proposal. This would imply the same as the percentage of Premium of Fairtrade coffee which is earmarked for productivity and quality. Based on the current aggregate Fairtrade cocoa sales, this would imply earmarking about 2.5 million USD per year for global productivity and quality improvements. Your feedback on what is an appropriate percentage is welcome.

Options:

Option 1 25%

Option 2 Less than 25%

Option 3 More than 25%

Question B2:

Which option do you consider more appropriate? Option 1 Option 2 Option 3

If you choose option 2 or 3, please specify the percentage you propose: %

Please explain why:


1 The world cocoa market distinguishes between two broad categories of cocoa beans: "fine or flavor" cocoa

beans, and "bulk" or "ordinary" cocoa beans. As a generalization, fine or flavor cocoa beans are produced from

Criollo or Trinitario cocoa-tree varieties, while bulk cocoa beans come from Forastero trees. – Source ICCO

B3 – Investments to qualify as investments in productivity and quality

To define what falls under the scope of the productivity and quality earmark it is necessary to provide an operational definition that can guide producer decision making and that provides criteria that can be audited. For this purpose, Fairtrade International proposes to define them as interventions at both SPO and member level directed at productivity and quality enhancements. This includes inputs, equipment, and training to be used at the farm level. It also includes actions at the organizational level to help cooperatives provide improved services to their members, such as setting up schemes for improved input and pre-finance provision as well as investments in post-harvest services such as transport, storage, packaging and handling, which all impact quality. Also, investments in the technical, vocational and managerial skills of cooperatives geared at improved productivity and quality, as well as technical and agronomic support services would be included.

Cocoa productivity is defined as a measure of production per tree or per unit area (e.g. hectare), expressed in the quantity of cocoa produced. An increase in the quantity produced per tree or per area means that a farmer has increased productivity.

Cocoa quality is defined as a measure of the superiority of the dried beans and the percentage of high grade beans with the intended flavour profile. Cocoa quality refers to low levels of foreign material, proper fermentation, low levels of diseased and insect damaged beans and low levels of free fatty acid levels. It includes both physical quality (i.e. bean size, waste foreign material, germination) and flavour quality as a result of good fermentation and drying of the beans.

The earmarked Premium could thus be used for any measures that seek to improve cocoa productivity or quality. These measures should seek to address the prevailing problems which reduce productivity and bean quality, of which the following are some common examples:

Depleted soils through little or no use of inputs Ageing tree stocks (which can be solved through replanting, ideally with higher yielding

varieties Insufficient disease control The use of outdated farming techniques

Quality issues can be controlled at the farm and SPO level through proper harvest and post-harvest practices, such as the elimination of diseased and insect damaged pods, the removal of waste material from (whole) beans, proper fermentation practices and effective drying.

The producer organization justifies in which way the proposed use of Premium money will contribute to increasing productivity and / or quality and the FLO-CERT auditor will judge whether the investments qualify as such, based on the yet to be agreed and published guidelines by Fairtrade International. If producers are in doubt, they would be able to contact the Producer Services and Relations unit at Fairtrade International for advice.

Question B3:

Do you agree with the above mentioned definitions? yes No

Please explain why:


SECTION C: Developing an umbrella fund with part of the Fairtrade cocoa PremiumOne of the outcomes of the research phase which preceded this Premium review project, was an idea brought forward by some stakeholders to set up an umbrella fund with part of the Fairtrade cocoa Premium. Since this idea was only brought forward towards the end of the pre-review project, as a suggestion by some stakeholders, it has not yet been consulted on and some operational details would still have to be defined. We do however think that the idea is worth exploring further and therefore would like to obtain your feedback on it. If the idea would be positively received, operational details would still have to be investigated before the idea can be implemented. Those details would be determined after this consultation, if the general proposal receives positive stakeholder feedback. The process of defining further operational details of the proposal is not planned to include another full stakeholder consultation. However, depending on the outcomes of our further investigations, we will involve key stakeholders in the development of the final, detailed proposal, before implementing it. The questions below are therefore a general assessment of the desirability of stakeholders to set up an umbrella fund. General information on how it possibly could work and on some operational issues as well as a rational for the proposal is presented below. Details on the implementation and operational details will need further investigation and are not covered in the text below.

Background

At the moment SPOs decide independently on all their investments, including the use of the Premium. Investments in overarching themes are very limited and economies of scale are not likely to develop, in particular for smaller SPOs. Meanwhile, certain national, regional or continent-wide issues may be more effectively and efficiently dealt with in a coordinated manner, to maximize producer impact. Such wider issues which the umbrella fund could target are issues which are common between different SPOs and for which funding is needed. The proposal is that part of the 200 USD Premium per metric ton of beans received by each SPO would be paid into an umbrella fund.

Possible examples of common issues which the fund could be used for are capacity building on good agricultural practices, programs focussed on quality improvements, access to agricultural inputs, pre-financing solutions, strengthening contracting and negotiation skills, developing producer organisational export capacity, etc. Further research and discussions with key stakeholders, such as the producer networks is required to develop a detailed list of projects or activities which would be eligible to invest such a fund in.

The decision on what projects the fund would be invested in would be left up to elected representatives of SPOs paying into the fund. This committee of elected SPO representatives is not proposed to have an office, nor involve any fulltime positions, but function like many boards do, with the people on the committee gathering a few times (e.g. 2 or 3 times) per year to take decisions on which proposals to invest in. In addition to SPO representatives, it might be useful to have some independent members on the committee which decides on the use of the funds. It may also be useful to have someone from the Fairtrade International Producer Services and Relations Unit and / or staff of the Producer Network (e.g. CLAC, AFN) on that decision making committee. More details on the role, mandate and members or the committee would require further investigation.

The development of an umbrella fund is proposed to take place in regions in which an earmarked Premium would not be applied. Both proposals are thus intended to be mutually exclusive.

Aims:

The fund would enable the Fairtrade Premium to reach a wider network of Fairtrade SPOs, thereby reaching more farmers and their communities

It would motivate SPOs and farmer members to participate in producer networks, hereby strengthening the producer voice and producer movement

It encourages collaboration and key learning around premium investments amongst the network and promotes producer solidarity and planning in solving common SPO issues

The development and funding of common projects may aid the development and functioning of producer networks at a national and or regional level.

It would demonstrates additional transparency and rigor in premium investment decision making, which can help to scale up volumes and with that lead to more producer benefits

It provides Fairtrade farmers with a collective fund to attract matching funding initiatives It maintains the key Fairtrade principle of farmers collectively making decisions on the

use of the Fairtrade Premium, depending on their key priorities, however executed at a collective level rather than a single SPO level.

C1 – The umbrella fund proposal in general SPO’s contribute part of the Fairtrade Premium of 200 USD / MT to a collective

premium fund A democratically elected collective body representing the SPOs would make decisions

on how the premium fund is invested for example:o On cross cutting themes deemed as being priority areas by the members of the

committee of SPO representatives AND/ORo Granting funding for proposals from different member SPOs

Question C1:

Do you agree with this proposal of setting up an umbrella fund with part of the Fairtrade Premium received by SPOs for investments in overarching issues in general? yes No

Please explain why:

Who do you think should sit on the decision making committee in charge of deciding on investments?

Producer (SPO) representatives only

Producer (SPO) representatives and independents

Producer (SPO) representatives, independents and Fairtrade International / producer network representatives


C2 – A national, regional or continent-wide fund?

Background:

The above mentioned proposal is currently open as to whether the fund would be national, regional or continent-wide. It could be at a regional level e.g. West African, South American, etc. or at a country level e.g. Ivorian, Ghanaian, Peruvian, Ecuadorian etc., or continent wide, e.g. : Asian, African and (producing countries) in the Americas. Note that it could also be possible to implement a combination of regional funds and national funds depending upon what makes the most sense. For example, in some regions the amount of Premium generated is still low and therefore it may not be justifiable to implement a fund with the associated management costs (e.g. Asia). While in Ghana, Ivory Coast and Dominican Republic national funds may be meaningful, regional funds could also be interesting in West Africa, and South and Central America.

A regional fund and even more so a continent-wide fund would strengthen regional collaboration. A larger geographical scope would also help to mobilize more capital into each fund and increase the potential for economies of scale. It would also make opportunities for exchange wider. On the other hand, a regional or continent wide fund compared to a national fund could mean that the voice of each individual cooperative is on average smaller and could make it in some instances more difficult to find common issues which the fund should target. In terms of the management cost of running the fund, the scale of a regional fund may lead to cost reductions, whereas the management at national level may be cheaper due for example to lower travel or communication costs for the SPO representatives (and independents, if applicable) elected to the decision making body of the fund.

What is perhaps most important, is that the amount of money annually feeding into the fund is sufficient to justify setting up a fund in the first place and allows for meaningful investments. Because of the volumes of cocoa sales required to have a sufficient amount of Premium to feed into the fund, this proposal may be more relevant for countries in which large volumes of cocoa, that is bulk cocoa is produced.

Question C2:

Would you prefer a continent-wide, regional of a national fund? (multiple answers, that is a combination, is possible)

Continent wide (i.e. African, Asian and American) For which continents?

Regional (e.g. West African or South American) For which regions?

National Which countries to have a national fund?

Please explain why:

What is the minimum value of Premium money for the development of an umbrella fund to be worthwhile? USD / year

Do you think the fund should only be for conventional bulk cocoa or also for speciality and organic cocoa? Only conventional bulk cocoa Bulk, speciality and organic cocoa

Please explain why:


C3 – The percentage of the Premium which would feed into the fund

The above mentioned percentage of 25% for the regional fund is only a proposal. 25% would represent about 2.5 million US dollars per year across the world. With a continent-wide or regional structure the fund would be greatest in (West) Africa with more than half of the global Fairtade Premium coming from that region, whereas the amounts in Asia may in practice not make it worthwhile to apply the proposal to this continent. In Latin America it varies by region, with the Caribbean being able to generate the largest fund in the Americas.

Please note that the proposal is to implement, (if supported by stakeholders), in each country or region either an umbrella fund or an earmarked Premium, but not both. This implies that the remaining Premium, e.g. 75% (150 USD per MT of beans), would in any case remain fully at the free disposal of the SPO. Your feedback on what is an appropriate percentage is welcomed.

Options:

Option 1 25%

Option 2 Less than 25%

Option 3 More than 25%

Question C3:

Which option do you consider more appropriate? Option 1 Option 2 Option 3

If you choose option 2 or 3, please specify the percentage you propose: %

Please explain why:


C4 - Combining an earmarked Premium and umbrella fund

Background

The earlier mentioned proposals of an earmarked Premium and the umbrella fund can be combined. This would mean that the umbrella fund would serve to implement the earmarked Premium (in which case the earmarked Premium would thus be paid into the fund, not invested in productivity and quality at individual SPO level). For each SPO either 25% is proposed to feed into an umbrella fund or (in geographical locations where there is no umbrella fund) 25% if proposed to be earmarked. For each SPO 75% of the Fairtrade Premium continues to be spent as freely decided by the general assembly of the SPO. The difference here in proposal B4 (compared to B1) is only that the Premium in any umbrella fund would be used for productivity and quality investments (and not for other projects).

This combination of ideas may help to achieve the aim of improving productivity and quality, while having the benefits of an umbrella fund in terms of encouraging collaboration between SPOs and achieving economies of scale. Note also that in particular many projects related to productivity and quality investments require considerable funds. Moreover, productivity and quality investments are one of the main areas which many SPOs have in common and for that reason economies of scale can be achieved by working together. The projects which the fund would invest in would still be decided by a committee made up of SPO representatives (and independents, if applicable), (but the funds would have to be invested in quality and productivity projects).

Proposal:

Investing part of the Fairtrade Premium in an umbrella fund earmarked for investments in productivity and quality.

Question C4:


Please explain why:


SECTION D: Idea to be further explored: Premium at scale – applicable for bulk cocoa only

Background

If it could dramatically scale up sales volumes, it may in the long term be in the interest of producers to accept a slightly lower Fairtrade Premium per MT, but much higher amounts of Premium in total. In order to help chocolate licensees commit to drastically scale up their volumes, the cost of the Fairtrade system is sometimes seen as a bottleneck. In the long term, in combination with a minimum price or in combination with high market prices (when market prices are above the Fairtrade Minimum Price), we may have to think more strategically about the Fairtrade Premium and set it at a level at that maximizes total producer impact and allows for sales growth. Note also that for SPO’s there are economies of scale with respect to Fairtrade certification and clear advantages to selling much larger amounts of cocoa under Fairtrade conditions. If these would require accepting a lower Premium income per unit sold (but still considerable increases in the total Premium income), it may be worth reflecting on this.

A combination of productivity increases and increased aggregate sales volumes are proposed to trigger any reduction in the Premium at scale model. This would assure that with the model producers would continue to benefit from more total income and total Premium from achieving larger sales volumes. When the model is triggered by aggregate sales, this assures that any changes in the Premium apply to all operators. This would avoid price competition between operators based on different minimum costs of Fairtrade cocoa as a result of a different Premium level applying in one supply chain compared to another. The Premium model would remain transparent; the Pricing Unit at Fairtrade International would announce any changes in Premium centrally, which would then become applicable to all operators. It is feasible to measure the two indicators, average productivity and aggregate sales volumes. The aggregate sales volume is recorded in the Fairtrade system. There may also be mechanisms within the Fairtrade system for recording average productivity amongst Fairtrade cooperatives, e.g. through monitoring and evaluation data, but this needs further evaluation.

Note that Fairtrade does not want to implement a Premium at scale model at this moment, but we merely would like to collect stakeholder views on such a model. In the case of positive feedback, we would investigate this idea in further detail over the coming months and submit a more concrete proposal on this for stakeholder consultation prior to deciding upon it.

The vision: Sliding scale premium, in which the Premium per unit reduces when the total

volumes sold as Fairtrade and productivity increase. A combination of sales volumes and productivity increases (a pre-requirement for

premium reductions) would assure that average household income and average premium revenues continuously increase.

Reductions of the premium would be triggered by a certain level of total (aggregate) realized sales volumes of bulk2 Fairtrade cocoa in the previous year AND measured productivity increases (compared to a base year) among producers of this type of cocoa.

The same premium reduction would apply to all Fairtrade bulk cocoa buyers and sellers (with the possibility of this only being applied to certain types of cocoa or to certain regions).

The Premium would gradually reduce to, but not drop below 150 USD / MT Because this model depends on achieved productivity increases, it will most likely

only come into force in the medium and longer term.

Aims: This model shall help to prevent premium costs becoming a hurdle for Fairtrade to

move from tens of thousands of tonnes of cocoa to hundreds of thousands of tonnes of cocoa sales.

This model aims to present a win-win situation for producers as well as other actors in the cocoa value chain by supporting the increase of Fairtrade volumes and assuring continuous average income and premium increases for cocoa producers.

Question D:

Do you agree with this idea to be further explored? yes No

Please explain why:

Do you agree with the principle of a combination of productivity increases and aggregate sales volumes triggering different levels of Premium reduction in the Premium at scale model? yes No

Please justify why:

If you think the Premium at scale should be triggered by other indicators than aggregate sales volumes and average productivity, what (measurable) indicators do you think should trigger Premium reductions?

Please justify why:

Currently close to 50000 MT of cocoa per year are sold as Fairtrade certified, with a total production by Fairtrade certified SPOs double that. At what aggregate volume of tonnage should the Premium at scale in your view start to be applied?

Please justify why:


SECTION E: Time of introduction of new Premium rules

Background:

2 The world cocoa market distinguishes between two broad categories of cocoa beans: "fine or flavor" cocoa beans, and "bulk" or "ordinary" cocoa beans. As a generalization, fine or flavor cocoa beans are produced from Criollo or Trinitario cocoa-tree varieties, while bulk cocoa beans come from Forastero trees. – Source ICCO

The main trading season for cocoa starts in September. Because contracts may already be in place, it will be difficult in August to implement changes to the Premium model. Therefore, any changes in the Premium model would become valid on January 1, 2013.

Because it would take some time to set up an umbrella fund, the implementation of umbrella funds would be aimed for January 1, 2013, but could potentially take longer.

(The idea of a Premium at scale model, even in the case of positive stakeholder feedback, is not considered here for implementation, since that idea would require further research).

It is proposed to implement the new Premium model on January 1, 2013. Umbrella funds would only be implemented when all operational details have been put in place, but ideally also on January 1, 2013.

Question E:

Do you agree with the proposal above? yes No

Please explain why:


Question F:


Annex 1: Premium for cocoa semi-processed products purchased from certified producers

The value of the Fairtrade Premium for semi-processed products is derived from the average

processing yield calculated by the producer. Only if this information is not available to the producer

the following values apply:

The Fairtrade Premium for semi-processed products is subject to the same rules as any other

Fairtrade Premium and follows section 4.3.2 of the Generic Trade Standard.

Processing yield from

beans

Fairtrade Premium

Beans - USD 200/MT

Liquor 0.8 USD 250/MT

Butter 0.376 USD 530/MT

Powder 0.424 USD 470/MT

Butter and Powder

(0.8) USD 250/MT

6 · web view2012/04/05 · in the current situation, in which market prices are above the...

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