Making Trade Work for Africa
Ian Gillson, Research Fellow ODI
Charlotte Borger, The Day Chocolate Company
Helen Jackson, MP
1. The second meeting in the series was held on Wednesday, 20 October 2004. The meeting was chaired by Helen Jackson. The two speakers were Ian Gillson and Charlotte Borger.
2. Ian Gillson began by presenting the case for freer trade. He indicated that freer trade could bring significant economic benefits. Progress on the Doha Round could produce global benefits of US$400 billion and the number of people living on less than US$2 a day could be reduced by 60 million in Sub-Saharan Africa if this were achieved. He explained that often, developing countries are hampered in exploiting trade opportunities by the protectionist policies in the North. For example in agriculture, high tariffs and subsides reduce developing countries' earnings by US$ 75 billion which is 50% more than they receive in aid.
3. Ian stressed however, that the issue of making trade work for Africa is more complicated than this simple schematic. He questioned whether significant liberalisation will happen, especially in the context of the failure of Cancun which was unsuccessful because of EU refusal to move on agriculture, limited US commitment and strong developing country coalitions, for example the G20. He did note however that the July Framework in Geneva sent a political message that the Doha Round was still alive although he felt that the 'devil will be in the detail'.
4. He highlighted that benefits are unevenly distributed as most of the gains will accrue to the largest and most competitive suppliers which are not the poorest. He gave a useful illustrative example of the case of cotton. If cotton subsidies were reduced, 7 countries (Australia, Brazil, Turkey, India, Mexico, Uzbekistan and Pakistan) would receive 70% of the global benefits.
5. He cautioned that some countries would lose out from increased liberalisation as much of Sub-Saharan Africa already receives preferential access to EU markets compared to other developing countries. The EU's 'Spaghetti Bowl' highlighted the complexity through which these arrangements were organised. Decreased protectionism would result in preference erosion for these countries.
6. Ian Gillson raised the key question of whether Africa has the capacity to trade. To illustrate, he highlighted that Africa's share of world exports declined from 4% in 1980 to 1% in 2003. He explained that Africa would benefit greatly from having the same share of world exports as it did in 1980 and the fact that it didn't, was due largely to poor infrastructure, institutional weaknesses, Africa's failure to liberalise and commodity dependence.
7. In looking at what could be done, Ian Gillson indicated that an ambitious Western trade agenda would be in the interests of Africa (and other countries more generally). He suggested that this should consist of:
- Multilateral liberalisation by developed and developing countries within the context of the Doha Round
- Compensation of the 'losers' from preference erosion
- Major investments in trade-related capacity building, infrastructure and improvements to the investment climate
- Avoiding new obstacles that prevent Africa from diversifying into value-added products for example tariff escalation, strict rules of origin and standards.
8. Charlotte Borger then presented a case study of the Kuapa Kokoo cocoa co-operative in Ghana and the Day Chocolate Company in the UK. She began by outlining the popularity of chocolate to consumers in the developed world and noted that the average person in the UK consumed 16kg worth of chocolate a year!
9. Charlotte explained that the Kuapa Kokoo cocoa cooperative was set up by 2000 farmers in Ghana in 1993 following the liberalisation of the cocoa market. It had now grown to a democratically governed and efficiently run organisation, with a membership of 45,000 farmers from 957 village societies. At the 1997 AGM, a decision was taken to target the UK chocolate market and in 1998 The Day Chocolate Company was set up. Charlotte explained that DFID and DTI acted as guarantors for a commercial loan of 450,000 in order to set up the company.
10. In setting up the Day Chocolate Company the objectives were to:
- Produce a high quality, branded, dynamic, affordable
- Fairtrade chocolate for the mainstream market
- To increase awareness of Fairtrade issues amongst consumers, especially children
- To be visible and vocal in the market and act as a catalyst for change
- To pay a Fairtrade price
11. Twin Trading and Body Shop, who are both shareholders in the Day Chocolate Company, were instrumental in helping to set the company up, as were Christian Aid and Comic Relief.
12. Charlotte explained that the benefits for farmers of ownership of the Day Chocolate Company included sole supplier status, certainty of a Fairtrade price (as well as a share of profits), ability to influence the operations of the Day Chocolate Company (through having a seat on the company's Board), access to community development funds, education and health services and support for other income generation opportunities.
13. Charlotte outlined the key factors that influenced the success of the Kuapa Kokoo cooperative and the Day Chocolate Company were:
- A pool of suitably qualified and committed people from the inception phase.
- Relative political stability in Ghana.
- A semi-liberalised cocoa market in Ghana, which provided useful protection in the early stages.
- A guaranteed market for all the cocoa that farmers could grow.
- Farmers' ownership of the Day Chocolate Company.
14. In the discussion that followed five main themes were addressed: value added, surpluses, Fairtrade premium, efficiency of Fairtrade and scope for South-South trade.
i. The discussion on value added made it clear that, while manufacturing chocolate in Ghana would increase the income earned by the country and the farmers, presently, logistical constraints, including access to milk and the need for refrigeration, prevented this from being possible. It was however something that the Day Chocolate Company hoped to do in the future.
ii. The discussion on surpluses was linked to that on the Fairtrade premium. Here it was made clear that increased production of cocoa was not necessarily the objective, rather than an increased proportion of cocoa being sold at a Fairtrade price. In turn, this did not translate into a Fairtrade premium that consumers in the UK would be unwilling to pay.
iii. Questions were raised on the extent to which trade could be considered a development tool. Ian Gillson felt that trade was more about efficiency than development, although it could lead to positive development impacts.
iv. It was felt that there was considerable scope for South-South trade although trade barriers remain significant with most developing countries having an average tariff of 20%. This compares with an average tariff of 4% for developed countries (although there are very high tariff peaks in agriculture).
It was strongly felt that there was a need for genuine participation with African's in the Diaspora on all aspects of African development in order to enable them to define Africa's development needs in a truly participative way. Penny Jackson of the Royal African Society noted that they were aware of a need for this, and explained that they were in the process of putting together a database of Africans in the UK, who would be interested in being consulted (on either a particular issue or region), and invited people to submit their details to this database.
This meeting looked at how trade, and in particular freer trade, could support development in Africa.