Those of us who live in cities often idealise life in the countryside. We imagine a life without worries, where time passes more slowly and where "the land provides". However, reality rarely matches expectations.
In Latin American countries, thousands of family farmers live below the poverty line. High levels of hunger and malnutrition, precarious housing, and the risks involved in farming in the countryside today challenge the public and private sector. With solutions come new approaches, and one approach at the centre of the debate is that of a living income.
What is a living income? How is it calculated? Why has it become important for governments, aid agencies and companies in the last few decades? We talked to Stephanie Daniels, member of the International Board of Directors at Rikolto and Senior Program Director of Agriculture and Development for the Sustainable Food Lab, one of the co-hosts of the Living Income Community of Practice.
One of Stephanie’s roles is as part of a facilitation team for the International Coffee Organization (ICO) Working Group on Living Prosperous Income, which has committed to work on closing the income gap in all ICO coffee-growing countries. Peru has been a leading country in the ICO taskforce, and a living income benchmark study was commissioned by the ICO with funding from the coffee industry to identify the income threshold for a coffee-growing family to live in dignity. In Peru, Rikolto was one of the critical stakeholders which linked the study to both farmer organisations and the regional platform in Cajamarca, Peru’s largest coffee growing region. Stephanie shares with us the current status of work on the living income at a global level, and the solutions, investment, and synergies she has gathered from stakeholders in Peru and in the world.
What is a living income? How does it connect with other concepts?
The concept of a living income comes from that of a living wage, but is defined for a household rather than a worker. Farmers are independent businesspeople, and they can have many ways to make their income. So a living income refers to the net income that a family would need to cover the costs of a basic but decent standard of living. The standards of decent living are defined by international conventions on the quality of diet, housing, and non-food, non-housing items like education, health, transport and clothing, with a margin for emergencies.
After understanding what the costs of a decent standard of living are, the more difficult aspect to understand is the net income of farming households. If you are working with coffee farmers, you need to know what the costs of growing coffee are, such as inputs, labour and the cost of land. Ideally, you also gain an insight into the percentage of their entire income that comes from coffee, and factor in the net income from both coffee and non-coffee sources. A living income gap assessment calculates whether this net income can, theoretically, allow farmers to cover the cost of a decent living. The cost of living and actual income are two sides of the same coin.
Living income is also a concept that is part of a sustainable livelihood, because an income alone does not guarantee a good quality of life. For example, everyone needs access to good healthcare, education, good infrastructure, gender equality, and so on. For farming families, just having the monetary means is not enough, not without a public sector that provides good services or a civil society that supports work on women’s empowerment, for example.
What is the scope of living income initiatives around the world?
The term is mostly used in agricultural sectors with formal value chains, such as cocoa, coffee, vanilla and tea. It has significant momentum in the cocoa sector. For example, the governments of Ghana and Cote d’Ivoire are working on setting minimum farm-gate prices and an additional differential price on the export price of cocoa. They are negotiating with the entire chocolate industry to shift the value delivered to farmers. And in the past years, five platforms have been founded in Belgium, France, Germany, the Netherlands and Switzerland to bring together the cocoa industry, civil society and European governments. All of them have living income as an important outcome pillar.
The concept of living income is also gaining importance in the coffee sector. The International Coffee Organisation has a 2020-2030 roadmap, in which measuring the gap between actual and living incomes is one of the milestones for reaching economic resilience and prosperity. The ICO is investing in living income benchmark studies, studies of actual income, and income gap analyses, as well as supporting their member countries and the industry to establish public-private partnerships to improve incomes.
Which methodology is used for living income studies? How reliable are the results?
The organisations in the Living Income Community of Practice have looked at different methodologies to measure benchmarks and actual incomes. With regard to the first, the community has largely agreed that the Anker Research Institute methodology is the most robust, for two reasons: the fact that the methodology builds on decades of work from the ILO and WHO, and the central quality control for comparability across countries.
There are multiple methods for measuring actual incomes, and a number of resources have been developed within the technical advisory committee of the Living Income Community of Practice, but innovation and new tools are also being worked on by several organisations. These can all be found on the website at www.living-income.com/resources.
Who is behind these efforts? What are the roles of the public and private sectors?
The principal actors driving living income efforts at the moment are European governments, donors and the industry. For example, the recent living income benchmark study in Peru was funded by the industry through the ICO. The ICO drew up the contract with the researchers, and no direct payments were made from companies active in Peru to the researcher. This way of working adds another layer of accountability.
However, it is also important to understand that living income studies build on national data. For example, the work done by the Peruvian government to measure the levels of poverty forms the basis of the living income study in that country. As such, it is a methodology that any government collecting economic data about their population can apply.
How are countries and companies using these studies?
A number of countries are already using the results of living income studies to build solutions. For example, the Madagascan government has referenced a living income study in its effort to smooth out price volatility for vanilla farmers. The Mexican government is starting a consultation in all of their coffee-growing regions about barriers to reaching a living income. Peru is looking for ways that the concept could be linked to their National Coffee Plan of Action. Quite a few corporate players are developing programmes with living income as a goal – Nestle’s Income Accelerator Programme, for instance, which is using conditional cash transfers, increased and better mobile money systems, and better and targeted technical assistance to try and improve cocoa farmers’ income. Government programmes like the ones in Ghana and Cote d'Ivoire aim to increase the price and also create a better national agricultural census system. This would allow the government to deliver better services to farmers and also, ideally, to track the economic impact of higher prices.
The results of these studies feed into multi-stakeholder dialogues not just in sectors such as vanilla, tea, cocoa, and coffee, but also cotton and palm oil. We see this happening in a number of European countries, where consumers are starting to care even more about fair trade, deforestation and human rights, and governments feel the need to prevent the importing of goods linked to deforestation and human rights abuses. There is also an active debate between civil society, producer governments and the European Union. It points out that farmers earning a living income is a precondition for preventing deforestation and promoting human rights. This is ground-breaking, because it recognises that farmers first need to make a good living, before they can make the sustainability investments that buyers are asking them to make. We are turning the sustainability debate on its head.
To use the example from Peru, how was the living income study implemented? Which actors were involved?
In Latin America, the ICO living income benchmark studies are taking place in Peru, Honduras, and Mexico with the support of the Sustainable Food Lab and the Anker Institute. The coffee and cocoa sectors commissioned the study in Peru to research the cost of a decent standard of living – the cost of a decent standard of diet, housing and non-food, non-housing essentials like education and health, with a margin for emergencies.
In Peru, the study was carried out in four regions deemed representative of all cocoa and coffee-producing regions, including in terms of the cost of living there. The Ministry of Agriculture selected the regions. The UNDP supported the process and linked it with the National Action Plan for Peruvian Coffee.
Rikolto was a key partner to identify stakeholders, particularly in the Cajamarca region where Rikolto works with the Coffee Multi-Stakeholder Platform of Cajamarca. The cooperatives and farmers were part of the research. In November 2022, the study was presented to the government, to the industry and to civil society.
Peruvian stakeholders have just taken a first look at the results of the study. What are some of the reactions from farmers, the government, and the private sector?
To present the results, we held meetings with private sector stakeholders as well as with the Peruvian Ministry of Agriculture, the Peruvian Coffee and Cocoa Chamber, the National Coffee Board, the Cajamarca Multi-Stakeholder Coffee Platform, regional and municipal governments, and the Latin American and Caribbean Coordinator of Small Fair Trade Producers and Workers. Many of these actors are also closely connected to the work of Rikolto in the country.
People in general were positive about the methodology. The question from farmers was: how will the industry and donors use this information to make real changes in farmers’ incomes? Topics that were raised in the consultations were that the country needs a better data system to record core agricultural data variables, like production costs. That came up as a real opportunity for the public and private sectors to come together to devise a robust data system to understand farmers’ actual yields, farm size, production costs, etc., as well as the need for better access to healthcare in remote regions and improvement in the weak negotiating bodies at national level.
Which recommendations and investment opportunities emerged from the study?
Firstly, that a clear message should come from the different parts of the coffee and cocoa sectors about the key barriers and challenges for small producers and the key pillars in the national action plans that need partnership and investment.
Secondly, participants highlighted the organic and agroecological production in Peru as an opportunity to diversify farmers’ incomes – such as ideas for generating payment for ecosystem services and carbon markets, which should be explored at scale. The industry (particularly net zero companies) needs to invest in this, and a stronger international system for carbon and ecosystem payments is needed to remunerate Peru’s farmers who are growing coffee in agroforestry systems.
And lastly, having clear data on production costs and the costs of sustainable production can help negotiations between cooperatives and buyers, and also the national promotion of fair prices for coffee and cocoa.
Having an organised agricultural sector in terms of good data and research is a real need for countries like Peru that produce cocoa and coffee. There is a real opportunity for the private sector to invest, but this needs to be led by national actors. Living income studies are key in changing the focus of the discussion from "what do producers need to produce" to "what do producers need to live a decent life".