Nestlé cash transfer scheme could boost farmer income, but will it?

A new initiative from Nestlé intends to use conditional cash transfers to tackle several long-running problems with the cocoa supply chain that threaten both human and planetary health, as well as trace exactly where every batch of cocoa came from.

The company’s “income accelerator program” will compensate farmers in the world’s primary growing regions in West Africa, which produce the company’s cocoa, for avoiding harmful actions such as child labor and deforestation by paying them cash to keep their children in school and protecting the environment around their farms. Nestlé plans to spend 1.3 billion Swiss francs ($1.4 billion) on the initiative by 2030.

Each farmer who participates will get an additional 500 Swiss francs per year, which is a 20 to 25% increase in annual income, according to Darrell High, manager of Nestlé Cocoa Plan, the company’s sustainability initiative. Experts in cocoa supply chains and sustainability say the program has many positive aspects, but warn it alone cannot solve all of the industry’s problems, and paying a fair price for the commodity remains essential.

High said the company has seen progress with past programs to incentivize farmers to take specific action, but that it wanted to do more.

“We thought well, what if we bring all these things together? What if we bring them together so we have this broad range of support for the families plus we have an incentive as well,” he said.

“But what’s more interesting is the changes that that should incentivize and trigger for the future: with better pruning, better agricultural practices leading to increased productivity, the encouragement to pick up new income sources or alternative incomes … the incentive to put the kids in school, which is one element of the fight against child labor,” he added.

The company also announced in January that it seeks to reach “full traceability” in its supply chain to “transform” the industry. Traceability helps ensure that cocoa is coming from a farm certified by one of four main organizations that verify sustainability practices. High said Nestlé eventually wants all of its cocoa to be certified.

Current standards for cocoa allow for traceability from the farmer to the cooperative level, but the next buyer in Nestlé’s supply chain is a large international supplier. At that scale, both conventional and certified cocoas get mixed together during processing, making it impossible to continue verifying their exact origin.

“Now we need to move on from that and we need something a bit more rigorous in the industry. So that’s why we want to go to segregation, where you only have … certified cocoa in your supply chain and it’s no longer mixed with conventional cocoa,” High said. “It has various challenges, but that’s what our team will need to look at. That’s why this is announced but we don’t have the answer yet on how to do it.”

Nestlé piloted the conditional cash transfer program with 1,000 families in 2020 in Côte d'Ivoire, and the company will now incorporate lessons it learned as it scales to 10,000 farmers in the country who are part of 18 cooperatives, according to High. If that larger program is successful, it will be scaled to the rest of Côte d'Ivoire and to Ghana in 2024, and eventually the rest of its global cocoa supply chain by 2030, High said.

Payments are divided between the farmer and their spouse. High said giving money specifically to women can help ensure that the extra funds are going toward things such as improved nutrition for children.

Before 2013, High said, the company had no visibility into child labor in its supply chain. But a program put in place then has been largely successful at tracing where children are working in cocoa fields and why some cocoa-growing families view their children’s labor as a necessity.

“We’ve learned a lot with that and seen what works and what doesn’t. And then that makes you think ‘then what else could we do?’” High said. “It’s bad for the kids and it’s bad for farming families if these kids aren’t going to school and they’re doing hazardous tasks that are bad for [their] health. It’s bad for everybody.”

Monitoring for compliance with the program requirements will take place at various points in the year, High said. Pruning season is from March to July, so cocoa trees will be checked toward the end of that period. Farmers will also receive payments for planting shade trees on their land — which helps create optimal conditions for growing cocoa — and diversifying their income by growing other crops or raising livestock.

Children’s school attendance will be monitored at the beginning of the school year to ensure they are enrolled, then checked throughout the year to be sure they are actually in classrooms.

None of the payments will depend upon how much cocoa a farmer produces.

Nestlé will pay at what High calls “pinch points” throughout the year, such as at the beginning of the school year or when food supply is low. Payments may also be split, where families receive half for the promise of doing something and the other half for completion.

Antonie Fountain, managing director of the Voice of Organisations in Cocoa, a network of NGOs working on cocoa sustainability, said the Nestlé program is different from many past initiatives that aim to boost farmer income. He said he consulted with the company as they were developing it.

“Almost all of the poverty alleviations that we’ve seen so far — they’ve just been different variations riffing off the same theme, which is: If the farmers would just grow more cocoa they would escape poverty. And this actually is a real break with that. I find that to be quite valuable,” Fountain said, also lauding Nestlé’s focus on gender parity by giving payments directly to women.

“I’m not kidding myself that I think this will solve all the problems, but there are some really novel concepts to this approach that I think are very valuable and worth trying and worth doing well,” he continued. “But they cannot be a substitute for some of the other things that companies need to do, like paying their farmers a fair price. It’s both/and, it’s not either/or.”

But raising the minimum price paid for cocoa has its own problems, High said. While it would funnel more money to households, it could also increase the incentive to boost yields to capitalize on the higher prices. This means it could actually cause deforestation as farmers seek more land to plant and force children back into the fields as expanded operations require more hands.

Megan Passey, head of knowledge and learning at the International Cocoa Initiative, which tackles child labor in cocoa, said boosting prices for one commodity such as cocoa could also have unintended consequences for other commodities. Farmers could abandon other crops that are needed as part of a nutritious diet to produce cocoa if it were to become more lucrative, she said.

ICI conducted a pilot project in partnership with ECOM in 2020, studying the impact of cash transfers for cocoa farmers in Ghana. They measured a 9% percentage point decrease in child labor, Passey said.

But even though the program had the intended effect and was considered successful, the sector’s child labor rate is still around 50%, she said.

“On the one hand the decrease in child labor is great — it’s significant and it’s comparable to other cash transfer schemes. On the other hand, clearly, it’s not solved the problem and child labor remains relatively high,” Passey said. “It really pushes home that increasing cocoa prices is definitely part of the solution, and increasing income for cocoa farmers is part of the solution — poverty is a big deal — but just focusing on income is not likely to solve the child labor problem on its own.”