The South American country of Peru is the 8th largest cocoa producer and the 7th largest coffee producer in the world. Due to strong interest in the cocoa and coffee sectors for a so-called “Living Income Benchmark” in Peru, the Anker Research Network was commissioned to conduct a study to estimate the living income for a typical family of four. The Anker Research Network specialises in conducting research and providing expertise on living wages and living incomes. This study was co-financed by the Swiss State Secretariat for Economic Affairs (SECO) from the fund for so-called Small Grant Facilities for members of the Swiss Platform for Sustainable Cocoa (SWISSCO). This fund enabled innovative pilot projects and efforts to achieve SWISSCO goals, principles and targets.
An important instrument in international cooperation
A “Living Income Benchmark Study” is a comprehensive analysis conducted to estimate the income required for a household to afford a decent standard of living. It aims to determine the amount of money necessary for individuals and families to meet their essential needs, such as nutrition, housing, healthcare, education, clothing, transportation, communication, household essentials, recreation, and emergency funds.
A "Living Income Benchmark" is an important instrument in international cooperation. So far, no such benchmark has been measured for cocoa and coffee farmers in Peru. The new benchmark for coffee and cocoa growing regions in Peru gives all interested stakeholders an idea of the annual income required for a household to afford a decent standard of living.
The study estimated the living income and wage for coffee- and cocoa farmers and their families in four regions in Peru (San Martín, Cajamarca, Junín and Cusco). These regions encompass around 492 000 coffee and cocoa farmers.
The estimated family living expenses (that is living income) for the four cocoa and coffee growing regions of Peru in May/June of 2022 were estimated at Peruvian sol (PEN) 2,371 per month in San Martín. This corresponds to 638 US dollars (USD). In the other regions studied, the level of living income is as follows: Cajamarca PEN 2,146 (USD 576). Junín PEN 2,101 (USD 565). Cusco PEN 2,359 (USD 665).
The average living income for the four regions is PEN 2,244 (USD 604) (see Figure 2 below). This is the monthly net income necessary for a typical family of four (two adults and two children) to pay for a low-cost nutritious diet, decent healthy housing, adequate healthcare, education of children through secondary school, clothing, and all other essential expenses.
The Living Income Benchmark for all regions is much higher than the national poverty line and the national minimum wage estimated at PEN 1,653 (USD 445) respectively PEN 1,681 (USD 452).
Fairtrade Max Havelaar will use the results
The findings of the living income benchmark address a research gap and provide valuable information on the costs of a decent standard of living for families in cocoa and coffee growing regions.
However, to be able to assess the gap between the current income of coffee and cocoa farmers in those regions and the calculated living income, further studies need to be carried out. The cocoa and coffee sectors of Peru, led by work of the government’s national action plans, are seeking to compile existing data to calculate the income gap. The Ministry of Agriculture, UNDP Peru, Sustainable Food Lab, Solidaridad and Rikolto for instance, are developing an approach in the regions of Cajamarca and San Martin to assess the income gap, aiming to align the metric of living prosperous income with Peru's National Plan of Action.
Fairtrade Max Havelaar plans to use the study results to calculate a living income reference price for coffee from Peru (expected to be published in the fourth quarter of 2023) as part of their holistic living income strategy. A similar exercise for the cocoa sector is envisioned but still under discussion.
Adjustments to the living income benchmarks are essential for long-term impact, including annual inflation adjustments and comprehensive revisions every five years.
Prime example for measuring living income
The Anker methodology is widely accepted as the prime example for measuring living wages and living incomes and it has played an important role in catalysing wage and income improvement in global supply chains. The methodology has been successfully utilised in over 50 studies across more than 40 countries. By combining primary data from fieldwork with the analysis of secondary data from official sources, this methodology effectively determines the needs and cost of living of the population under study.
The Anker methodology defines a “decent standard of living” as having access to a basic and nutritious diet, adequate housing, education, healthcare, clothing, transportation, communication, household essentials, recreation, and emergency funds. The net living wage is calculated by dividing the net annual income required by the number of full-time equivalent workers in the family (see Figure 1 below).
Adding social security contributions, income taxes, and other deductions gives the gross living wage, also known as the living wage. This approach aims to ensure individuals and families can meet their essential needs and have a reasonable quality of life.