Coming from a farming community in eastern Nepal, I remember observing that when we had to buy soap, or a packet of noodles from the market, the prices of those goods would be set. If you wanted a bottle of coke, you knew you had better be ready with 12 rupees.
Even for other goods, such as clothes and shoes, where bargaining was the norm, a price range was set by the seller. The negotiation started when the seller named his price, and then the buyer tried to bring it down a little before settling on the final.
However, it was the exact opposite when farmers were selling their grains or produce. Farmers would put sacks of rice on the family bicycle, load it up and walk to the nearest dealer, who would then tell them the price at which s/he would buy the rice. There was no negotiation involved, you took what they were offering, or walked back home in the scorching heat, with all your rice, and no salt or oil.
It is a situation ripe for exploitation, although it also makes perfect sense. After all, prices for grains are determined each season by demand and supply in commodity markets, outside the individual farmer's control. In the international commodity markets, a sack of rice from Nepal is directly comparable to a sack of rice from Thailand, which is comparable to a sack of rice from Brazil, with prices for all determined in some far-off exchange, like Chicago.
Prices fluctuate from season to season, and the farmer has to get to the dealer before s/he can find out the value of what they are producing.
But an organization in Ecuador, with a little help from the World Bank, is aiming to tilt the price setting power slightly towards the farmers. The organization leading the project, Conservación y Desarrollo (CyD, is working with cacao farmers in Ecuador, empowering them with knowledge of their product and the market. The organization received a Development Marketplace grant in 2008 to implement their project. Two years onwards, they stopped by to share their progress. Watch a video of the project here.
Information asymmetry is one of the biggest problems they are tackling. Farmers do not know how the market values their product. Chocolate being a luxury item, slight variations in taste are valued differently by the market.
To empower farmers, the organization trains them on the organoleptic (taste, smell, feel) characteristics of their cacao, so they know what fine chocolate is, and are able to position their cacao accurately vis-à-vis the global market. Understanding these characteristics make farmers more successful in selling the final product, and in responding to market demands.
The innovative project has trained 11 cocoa growers associations on the sensorial analysis of chocolate, sharing best practices for drying and fermenting cocoa, as well as marketing.
Being able to recognize the various tastes of cacao and how they are valued by the market can help farmers negotiate fairer prices for their cacao. As a farmer from one of the cooperatives put it: “It helps because they can't take advantage of us. For example, an importer, in order to pay less could argue that the cacao has an acidic taste. But now we know the taste of our cacao, we can say 'No, sir, this cacao does not have a taste problem.'"
A second step they are moving towards is to take the commodity cacao, whose price is set in the international market, and turn it into a highly differentiated product (chocolate bars) – thus fetching a price premium.
The associations they have been working with have come up with brand names, logos and which are being showcased at local fairs, so that the products are traceable to the association that produced it.
Challenges remain, not least of which is whether the additional price fetched by a higher quality product, will make up for the forgone quantity when one is producing cacao under stricter growing conditions. However, the project is off to a great start, and farmers are already seeing results.
Like most initiatives funded by the Development Marketplace, the concept for this one is highly replicable. Differentiated markets already exist in major agricultural products such as tea, wine, and cheese, and empowering farmers with the information and skills required to capture more of a price premium on their products could go a long way in lifting their living standards.