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.

Fairtrade International
Fairtrade International (FI) is a multi-stakeholder, non-profit organisation focusing on the empowerment of producers and workers in developing …
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Fairtrade Minimum Price
The Fairtrade Minimum Price (where it exists) is the minimum price that must be paid by buyers to producers for a product to become certified against …
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FLOCERT
The independent Fairtrade Certification body, offering Fairtrade Certification services to customers in more than 120 countries. FLOCERT GmbH, a …
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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.

Fairtrade
Fairtrade refers to all or any part of the activities of Fairtrade International eV, FLOCERT, Fairtrade Producer Networks, National Fairtrade …
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Producer
The term Producer refers to any type of producer set-up as found in the Fairtrade Standards: Hired Labour, Small-Scale Producer Organisations, …
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Trader
An organisation with Trader Certification. It may have either a seller or buyer role in transactions depending on its business relationship with the …
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Frequently Asked Questions

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.

Fairtrade Premium
An extra sum of money, paid on top of the selling price, that farmers or workers invest in projects of their choice. They decide together how to …
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Supply chain
Business entities involved in the supply and purchase of materials, goods or services from raw materials to the final product. In contrast to a chain …
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The same company that is responsible for conveying the Fairtrade Premium in your supply chain is also responsible for paying the differential.

The timeline is the same as with the Fairtrade Premium.

No, there is no deduction possible.

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.

Auditor
A person qualified to carry out audits on behalf of a certification body. Learn more about the audits carried out by FLOCERT auditors.
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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.

Small-scale Producer Organisation
Legally registered organisation of farmers who are not structurally dependent on permanent hired labour and who manage their production activity …
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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/ 4.1.0.22 or 4.5.0.31 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.

Fairtrade Trader Standard (GTS)
Requirements that traders must meet, irrespective of the product traded, in order to obtain a Fairtrade certificate. …
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Compliance Criteria
A translation of the requirements of the Fairtrade Standards, binding guidance documents and FLOCERT certification rules into verifiable control …
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Fairtrace
FLOCERT’s collaborative reporting and assurance platform available for all Fairtrade-certified supply chain actors. It captures Fairtrade …
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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.

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.

Please make a clear differentiation in documentation (invoices and payment orders) between Price, Premium and differential so the financial flows are fully traceable.

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.

Mass Balance
The Fairtrade practice which requires certified customers to ensure that the output amount sold as Fairtrade must be equivalent to the input amount …
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