The Fairtrade Minimum Price Differential: Ensuring a fairer deal for cocoa producers
Are you growing cocoa in Cote d’Ivoire or Ghana or trading cocoa from these countries? If this is the case, keep an eye out for the bi-annual communications from Fairtrade International and FLOCERT informing about the Fairtrade Minimum Price Differential for cocoa applicable to cocoa transactions for the upcoming season.
The Fairtrade Minimum Price Differential is the difference between the Fairtrade Minimum Price (FMP) and the national reference price in Cote d'Ivoire and Ghana, as indicated in the Cocoa Fairtrade Standard 4.2.1. The Standard requires traders to pay a price differential for Fairtrade cocoa beans if national reference prices in these countries fall below the FMP. This mechanism ensures that the price the producers receive is not below the FMP.
When does the price differential apply?
- Cote d'Ivoire: When the Valeur FOB Garanti published by the Conseil du Café-Cacao is below 2,400 USD/MT
- Ghana: When the contracted price with the Cocoa Marketing Company is below 2,400 USD/MT
Fairtrade International calculates the price differential per season, based on the national reference prices in Cote d'Ivoire and Ghana and announces it in early April and early October each year. At FLOCERT, we share this information with our certified cocoa customers via e-mail. You can find the past announcements on Fairtrade International's website.
We've put together the most frequently asked questions you might have about the price differential below. Should you have any further questions, please do not hesitate to get in touch with your regular point of contact at FLOCERT.
Frequently Asked Questions
- Who is responsible for paying the differential?
The Fairtrade Cocoa Standard explains that the differential has a similar payment mechanism to the Fairtrade Premium. For this reason, the company responsible for paying the Fairtrade Premium in your supply chain is also responsible for paying the differential.
- Who is responsible to convey the differential to producers?
The same company that is responsible for conveying the Fairtrade Premium in your supply chain is also responsible for paying the differential.
- What is the timeline for paying or conveying the differential?
The timeline is the same as with the Fairtrade Premium.
- Is there any deduction possible to this differential?
No, there is no deduction possible.
- As a producer organisation, how should we handle the differential?
If you receive a differential, this needs to be transparently reflected in your accounting system (how much was received as differential and what was done with it) so that the auditor can trace it.
Please note that as of October 2021, to comply with Cocoa Standard requirement 4.2.4, producer organisations need to transfer any FMP differential payments to their members within 30 days of receipt by the organisation. Details can be found in the Interpretation note by Fairtrade International here.
- What will the auditor request during a producer audit?
The auditor will check in your accounting system if the differential received and used is clearly identified and traceable. Please make sure you can show in the documents how much differential you have received and how it has been distributed to members.
The auditor will also check in your General Assembly minutes if the use of the differential has been presented along with all the other requirements under the Fairtrade Standard for Small-scale Producer Organisations.
- What will the auditor request during a trader audit?
The auditor will check all the compliance criteria relevant to you under the Fairtrade Trader Standard. Note that your contract (compliance criteria 4.1.0.02/ 184.108.40.206 or 220.127.116.11 if you source from Ghana) will still need to include all the points currently mentioned in the standard, adding the differential when applicable.
With regards to the differential:
If you are responsible for paying the differential, the auditor will check in sampled transactions that the differential is included in the contract, and if you have calculated it correctly. Please use the same exchange rate as mentioned in the official bi-annual Fairtrade International or FLOCERT communications to state the differential due in the contract.
The auditor will also check proof of payment of the differential together with the Premium. Fairtrade International recommends that you also use the same exchange rate as in the communication mentioned above to state the Premium due in the contract. Accurate and identifiable reporting in Fairtrace will also be checked.
If you are responsible for conveying the differential, the auditor will ask for proof of payment of the differential, if this has been done on time, and if it is transparently identified in the documents provided to producers. The auditor will check that no deductions have been made to the differential. Accurate and identifiable reporting in Fairtrace will also be checked.
- As a trader, how do I report the differential in Fairtrace?
When you are a trader, please report the differential together with the price paid (national reference) under the field "Total Price (excl. FT Premium)", and add a note explaining what amount refers to the price paid (national reference) and what refers to the differential.
- How shall the differential appear in contracts (or MoUs in Ghana)?
Please indicate in the contract if a differential will be paid, its amount and payment date, in line with the Standard requirements. In order to comply with requirements of local legislation to state the amounts of Premium in local currency (i.e. XOF), it is recommended to use the same exchange rate as stated in the respective cocoa price differential announcement letters by Fairtrade International and FLOCERT to calculate the Fairtrade Premium payment to producers in XOF.
- How shall the differential appear in other documentation?
Please make a clear differentiation in documentation (invoices and payment orders) between Price, Premium and differential so the financial flows are fully traceable.
- As a trader, if I source from several producer organisations, how can I calculate which organisation has to receive this differential and how much?
This should be the same method of calculation that is used for the Fairtrade Premium:
- For traceable products: The differential paid must correspond to the exact volume purchased from each of the producer organisations. The producer organisation must divide this amount between each member based on their individual deliveries, without deduction.
- For mass balance products: The total price differential amount needs to be divided amongst all the certified organisations that have supplied, in a proportionate way to the volume supplied by each of them. Similarly, the producer organisation must divide this amount between members, without deduction.