Of moldy tomatoes and foul deals: How fair is free trade?

Posted on Posted in en, Stories

Cocoa and chocolate trade is way more political and complicated than what it seems to be at first sight. We’ve already written about this extensively in respect to distinct stages in the trade and production chain. The Economic Partnership Agreement (EPA) between the EU and Africa also concerns our chocolate. But what does this agreement really mean?

Our new chocolate bars are stacked quickly and efficiently. There are 10 bars in one box, 16 boxes in one carton and 48 cartons on one pallet. Soon, they will embark on a journey to Europe. Customs-free. Thanks to the free trade agreement EPA between the EU and Africa, in our case Ghana, fairafric chocolate may be shipped exempt from duty. This sounds pretty good so far, but nonetheless,  critical voices ar rising about this agreement. Why is that?

The agreement was brought into being because the European Union sees Africa as a key market. By 2050 a fourth of the world’s population will live in Africa, according to calculations made by the European statistical office Eurostat. Africa is the „sleeping giant of the world economy“, they say. The EU want to develop this key market, ideally before other big players like China take over.

With the free trade agreement, the EU now wants almost duty-free access to many markets, one of which is the Ghanaian. In theory this sounds fair, but in practice Ghana had to drop their customs duties almost completely in order to keep on exporting cocoa. What is left may be a profit for the EU, but for non-EU countries like Ghana things are not looking too good – the EPA agreement puts Africa in a worse position than before in its trade relationship with Europe. Thus, the incentives to process raw materials in the country are further declining. But why did this free trade agreement turn out to be a virtual one-way street?

 

Protest against agricultural policy in Kenya (picture-alliance / dpa / Stephen Morrison)

 

1. Subsidies – from the question of customs duty to the tomato

Thanks to the EPA, the EU is now able to grant enormous subsidies for their own goods to be exported – these goods then become so cheap they are sometimes sold below their production value. Robert Kappel, a development economist, explains: „The inequal balance of trade is directly related to the massive export subsidies for European goods.“ In short, this free trade agreement with Ghana means a duty-free market access for subsidized EU agricultural products. The consequences are enormous: For example, Europe exports cheap tomato pastes to Ghana, which the Ghanaian people prefer to buy, as they can be stored for a long time. The prices for the local tomatoes – especially during the dry season – are way higher than those of the imported pastes. Since tomato consumption is now declining due to the imported paste, the Ghanaian tomatoes go moldy on the fields and numerous jobs in agriculture disappear.

“Although we have our own factories that can process regional tomatoes, the production was shut down because the local dealers can’t keep up with the low prices of foreign tomato products”, says Kwabena Nyarko Otoo, research director of the Ghanaian trade union. Tomatoes from Italy and also from non-EU countries like China are strongly subsidized and are now flooding the Ghanaian market. Food imports account for 80 percent of the food consumption in Africa, according to the research director. The Ghanaian tomato farmers can’t put up with this competition. “That’s why they emigrate to Italy as harvesters in order to pick tomatoes, which then destroy the market in Ghana”, Otoo summarizes.

2. Colonial Structures – from tomato to cocoa beans

Cocoa is one of Ghana's main cash crops. Unlike tomatoes, Europe can’t flood the Ghanaian market with cocoa beans. However, the cocoa market is subjugated to a global trade system that has been formed over centuries. Usually, chocolate production is based in the Global North,  which is why the profits don’t stay in Ghana. We have already repeatedly reported on this topic.

The serious consequence: Even if the amount of agricultural goods in Ghana were to increase by a factor of 10, this couldn’t compensate this inherently unfair trade system.  After long hours of research, there is a sobering realization at the end: Even in fair trade, the old structures of the world trade are replicated, with only a few exceptions: Most African exports are still raw materials, which then are processed in the Global North.

 

 

3. Non-tariff Trade Barriers

This expression doesn’t just sound daunting, but it really is. What it refers to are protectionist requirements which all foreign exporters need to meet if they want to export to the EU. One group argues these are simply unattainable standards that are implemented in order to make the market access more difficult for foreign suppliers. Others argue like European Parliament member Elmar Brok: “We actually have too high health standards and consumer protection standards. But at the same time, we are not willing to lower our health standards.”

 

4. Currency Politics

The different currencies  involved also play a major role in this issue. According to Robert Kappel, Africa is missing its own currency politics that are designed for the needs of  national economies. Instead, African currencies are often artificially overvalued and attached to the US Dollar or the Euro. This leads to two serious consequences: a rise in prices of African export products and prevention of foreign investment in African countries. If you dive further into this topic, you will soon find the causes of these currency politics: The CFA franc zones in West and Central Africa – a remainder of the French colonial times – are an attempt to maintain some sort of currency colonialism: “Due to the overrated currency of the CFA franc we impede the industrialization of African countries. Like this, their companies can never become competitive on the world market”, says the development economist Kappel.

It looks like the free trade agreement is currently a one-way street to Europe that guarantees the Global North cheap imports and large profit margins by processing the products outside of Africa.

 

 

Is there a way out?

A lot of people are wracking their brains over this, but according to Kappel, founding German-African chambers of commerce would be the most sensible thing to do: These should deal “with the marketing of African products in Europe so that African companies get the chance to enter European markets. Not only with raw materials and agricultural products, but also with industrial goods”. Of course, we think that's a great idea, but unfortunately, politics hasn’t paid much attention to this idea so far.

By creating production opportunities in African countries, like fairafric is already doing it in the chocolate industry,  many new jobs can be created. This would also be an enormous catalyst for the inner-African trade and would promote a lively exchange of goods, explains Francisco Marí, expert of agricultural trade for Bread for the World. Numerous other experts within the EU hold exactly the same opinion, for example Cornelia Füllkrug-Weitzel, president of Bread for the World: “The EU must offer Africa new, fair trade relations, just like the German Chancellor promised at a G20 event. This includes that African states must be able to protect themselves from cheap EU exports. It would be best to suspend the EPAs of the EU with Africa and negotiate about new fair agreements”. But Gerd Müller, the German development minister, deliberately omitted this delicate topic on his last Africa trip in early 2019. Thus, urgent questions remain unanswered: How does a truly fair trade on equal terms look like? How could this agreement come into being while violating the rules of the world trade organization WTO (Since the European and the African trade partners aren’t equally strong, the EU combines structural aid for Africa with trade)? And above all: Will we ever learn from our history?