5P4F takes a different approach to collecting money from licensees who support the organization.
Two of the primary differences are to:
a) collect money from as many different links in the supply chain as possible
b) collect money higher in the supply chain to capture as much added value as possible
In this respect, 5P4F acts more like a VAT (value added tax) or GST (Goods and Services Tax) than a licensing fee/royalties system.
The 5P4F approach also recognizes that there may be individuals and/or companies higher up in the supply chain that would like to support the organization but that have no ability to trace the source of some or all of the raw materials they use in the production of their products to the grower. There is no good reason not to devise a means to capture these sources of potential revenue.
A "direct supply chain link' (e.g., a cocoa buyer, broker, or chocolate manufacturer buying directly from a farmer or co-op) that is a 5P4F licensee agrees to follow certain guidelines, for example, paying a price for cacao that is based on the world market price and pays a quality-based premium that provides incentive for the farmers to improve (for example) post-harvest processing techniques and therefore the quality of the cocoa they buy and to engage in sustainable agricultural practices. The buyer reports to 5P4F the amount of cocoa they purchased, the price they paid, and the farmer/co-op they brought the cacao from. This buyer turns around and sells their cacao to an "indirect supply chain link," and pays 5P4F 5% of the sale price. It is up to the seller to decide if they want to mark the price up to cover this cost or to absorb the cost.
If the "indirect supply chain link" is also a licensee of 5P4F, when they sell their (value added) product to the next entity in the supply chain, they also pay 5P4F 5% of their sale price. The seller provides 5P4F a record of their sales to their customer, and the buyer reports their purchases; 5P4F reconciles both sides of the sale as one step in an auditing/verification process.
This process happens at as many links in the supply chain as it happens. Sometimes, the chain is traceable from the farmer to the ultimate consumer, in which case the farmer is paid the cumulative sum of all of the 5 per cents collected by all the links in the chain.
In cases where there is a break in the chain (e.g., one or more of the links is not a 5P4F licensee), the monies that are collected are put into a general fund that provides monies for micro-financing and the educational and other programs 5P4F supports.
In addition to the internal auditing and verification processes 5P4F undertakes to determine whether or not supporters correctly report their contributions, licensees are required to have their accountants independently verify that the amounts being recorded are accurate. This distributes the cost of compliance and reduces the risk that any one licensee can engage in significantly fraudulent behavior.
To distribute the money 5P4F will work with existing organizations that service farmers and farm families. By working with existing organizations that have already developed broad networks of trust relationships 5P4F moves closer to its goal of distributing the maximum amount of money it collects to the people who deserve it most. Three organizations that 5P4F would like to work with are Kiva.org and The Resource Foundation for "traceable funds," and The World Cocoa Foundation with "untraceable" funds.