The economic disruption to many sectors from the COVID-19 pandemic is a strong reminder that consumer markets can change drastically in response to social and environmental drivers. COVID-19 has caused major financial losses for some industries, while driving demand for products like hand sanitizer, toilet paper, and chocolate. If you’ve been feeling a stronger-than-usual inclination to drown out stress in some sweet, chocolatey goodness this past year, you’re not alone. Chocolate sales rose by over 5% between March and August of last year, and sales of premium chocolate increased by almost 13% compared to sales in 2019, according to the National Confectioners Association.
Unfortunately, chocolate purchases have inherent consequences for their far-reaching global supply chains. At the source, poverty is endemic in cocoa farming communities, almost all of which are smallholders. These smallholders, while integral to chocolate production, receive only 7% of profit from end product chocolate sales (compared to the 44% and 35% received by manufacturers and retailers, respectively). The COVID-19 pandemic hasn’t helped matters as the global recession drives down cocoa prices. Poverty drives socially and environmentally harmful practices, such as deforestation and child labor in cocoa farming communities, which can have long-term negative impacts on financial performance and resiliency and for both cocoa farmers and corporate buyers.
What’s in your chocolate bar
Though cocoa originated in the rainforests of South America, today close to three-quarters of the world’s supply is grown in West Africa. Partially driven by cocoa production, many of the forests in West Africa have been cleared in the past 30 years, and what remains is a biodiversity hotspot (the Guinean Forests of West Africa), which is home to endemic and endangered species, like chimpanzees and forest elephants.
Poverty drives many farmers to employ their children (and occasionally trafficked child migrants from neighboring countries) on their cocoa farms, despite much of the work being dangerous and labor-intensive. Though child labor and deforestation may increase short-term income, these actions ultimately erode the resiliency and well-being of cocoa farming communities by damaging ecosystem services and future generations’ education prospects.
Companies that produce and sell cocoa products – especially public-facing consumer goods companies – have become wary of negative publicity linking their supply chains to deforestation and child labor. This publicity erodes public trust, has repercussions for the company’s purchasing relationships with vendors or clients and may create legal trouble. Several chocolate brands have already faced lawsuits over child labor in their cocoa supply chains.
Proliferation of promises with mixed follow-through
A growing number of influential companies are taking steps to assess and mitigate the business risks posed by deforestation and human rights abuses in their cocoa supply chains. In a new report by Supply Change, Trends in the Implementation of Ethical Supply Chains, more than half of the 65 companies reviewed have made commitments to address deforestation or other sustainability issues in their cocoa supply chains. However, many companies have a way to go to implement these goals in ways that 1) cover all operational and souring locations, all suppliers, and all product lines, 2) are linked to ambitious time-bound targets to achieve zero gross deforestation, and 3) use appropriate cut-off dates for how recently cocoa produced on converted forestland is acceptable for the supply chain.
Eliminating deforestation in cocoa supply chains is particularly challenging the further down the supply chain you go. Cocoa farmers are typically separated from cocoa exporters and grinders by multiple intermediaries (e.g., cooperatives, small local traders, etc.). Traceability (tracking commodity volumes through different stages in the supply chain) and supply chain mapping (identifying all supply chain actors) are important components of cocoa policies, but identifying the individual farms and ensuring no deforestation or human rights abuses have taken place is still difficult for companies to achieve. Results from the new Supply Change report reflect this: just over half of companies (36) were aiming to achieve traceability to the farm level.
A menu of solutions
Credible certification systems with robust no-deforestation and human rights criteria are one way companies address this and ensure they are sourcing environmentally and socially responsible cocoa. Companies sourcing certified cocoa often require fewer resources to achieve farm-level traceability, monitoring, and supplier engagement goals. The largest certifier of cocoa, Rainforest Alliance/UTZ, certified over one million metric tons of cocoa in 2019. Their process includes regular evaluations and audits of the farmers they certify to ensure that they abide by environmental and social standards that align with sector-wide expectations for best practice.
However, many companies choose to trace cocoa supplies to the farm level and/or engage with suppliers on sustainability issues on their own, rather than relying on a certification standard alone. In fact, Supply Change found that 68% of companies (44/65) engaged with their suppliers and encouraged compliance with trainings and workshops or high-quality resources (e.g., cocoa trees, fertilizer, etc.). Although about one-third of companies had policies for responding to suppliers that were not compliant with their commitment, few disclosed detailed criteria for suspending, excluding, or reinstating suppliers, and few required time-bound resolution plans for suppliers to achieve compliance.
The Cocoa & Forests Initiative (CFI) is one collaboration that is driving action on cocoa-driven deforestation, especially through farm-level traceability and supplier engagement. CFI is a multi-stakeholder platform established by the World Cocoa Foundation and the IDH Sustainable Trade Initiative, which brings together the national governments of Côte d’Ivoire, Ghana, and recently Colombia; 35 companies (almost all of which are major cocoa buyers, including Mars – see below); and various environmental organizations to collaborate and implement complementary actions to eliminate cocoa-driven deforestation.
Civil society groups are working to provide tools that companies can use to develop and implement policies to address cocoa-driven deforestation beyond collaboration with CFI. For instance, the environmental advocacy organization Mighty Earth is supporting companies by addressing monitoring and traceability gaps through its interactive Cocoa Accountability Map of over 2,000 cocoa cooperatives in Côte d’Ivoire and proximate deforestation. A growing number of companies are using the Accountability Framework to identify and align their cocoa policies, commitments, and actions with the best practices recommended by leading civil society groups. In fact, Supply Change identified six companies – including top cocoa buyers like Cargill, Barry Callebaut, and Mars – that explicitly described using the Accountability Framework to align their definitions and approaches on supplier engagement, traceability, and measuring progress. It is suspected that more companies are doing the same without public disclosure.
Company Spotlight: Mars
Mars, one of the largest manufacturers of chocolate products in the world, sources around 400,000 metric tons of cocoa annually, or about 8% of the cocoa produced worldwide in 2020-2021. Mars is also one of the largest privately-owned companies in the United States and manufactures well-known chocolate brands like M&Ms, Snickers, and the eponymous Mars Bar.
The company has prioritized addressing deforestation and child labor in its cocoa supply chain in recognition of the fact that cocoa is integral and irreplaceable to its brand; Mars has a target to source 100% from deforestation-free cocoa by 2025, plus goals to improve cocoa farmer incomes, eliminate child labor, and reduce greenhouse gas emissions in its cocoa supply chain.
Nonetheless, Mars still has areas in which it could improve its cocoa policies. The 2021 Easter Chocolate Scorecard, which was produced by Green America, Mighty Earth, and Be Slavery Free, acknowledged Mars’ above progress but noted that they needed improvement in areas such as transparency and traceability, agroforestry, and livable incomes for farmers.
A key aspect of Mars’ strategy is supply chain mapping and tracing all cocoa volumes from the final product back to individual farms. In 2019, Mars released the names of all of its direct (“tier 1”) suppliers, and in 2020, the company released the names of all the farm groups (“tier 2”) in its supply chain. As of 2020, Mars was able to trace one-third of its cocoa to a farm boundary, allowing satellite monitoring and third-party auditors to detect forest loss and protected area encroachment.
Mars’s actions to address deforestation have been facilitated by the growing infrastructure of tools and initiatives. Mars is a signatory to the Cocoa & Forests Initiative, and is currently taking steps to achieve the targets laid out in its action plan. The development of their cocoa policy, including definitions and best practices, were also informed by the Accountability Framework.
What’s Next for Ethical Cocoa?
Though not as sudden or drastic as the changes inflicted by the COVID-19, environmental and social factors from cocoa production are shifting consumer markets for cocoa and chocolate products. The new report by Supply Change indicates that a number of influential companies have no-deforestation commitments for their cocoa supply chains, and are implementing strategies to trace their cocoa supply, engage with suppliers, and source certified-sustainable cocoa. However, company actions often fell short of full alignment with the best practices outlined in the Accountability Framework. For many companies, opportunities to improve their alignment with the Framework will involve more detailed reporting on approaches for assessing risk and resolving non-compliance issues with suppliers, time-bound targets for achieving no-deforestation, and establishing cut-off dates for forest conversion.
Alignment with the Accountability Framework, which recommends best practices for addressing commodity-driven deforestation in supply chains, is a useful benchmark for companies to know that they are approaching cocoa-driven deforestation effectively. As pressure grows from consumer preferences and due diligence requirements by import countries, companies that can demonstrate success in achieving ethical supply chains will have a competitive edge in consumer markets and incur fewer costs from issues such as regulatory fines and lawsuits.
Given the complexity and opacity of cocoa supply chains, individual company actions can only go so far in reducing negative impacts on forests and farmers. Thus, corporate engagement with multi-stakeholder initiatives, such as the Cocoa & Forests Initiative, that boost collective development of farm mapping, satellite monitoring tools, and programs to help farmers is key for all companies to achieve their commitments. This harkens the proverb, “if you want to go fast, go alone; if you want to go far, go together.”
Compared to the palm oil and timber sectors, awareness and engagement from companies on deforestation from cocoa production are still nascent. Unsurprisingly, there is a learning curve for companies making and implementing commitments in cocoa supply chains, as shown by the mixed uptake and reporting around best practices. Though there are a growing number of tools and initiatives to support companies, many are in their first few years, and the impacts are still unclear. As companies make progress toward building ethical cocoa supply chains, tools like the Accountability Framework will be crucial to driving positive outcomes for people and forests in cocoa-producing regions.
To learn more about how the Accountability Framework has been used in the two years since its launch, visit https://accountability-framework.org/2-year-anniversary/
The author would like to thank Kate Ellis, Philip Rothrock, Stephen Donofrio, and Leah Samberg for their contributions. This post is the first in a series on the cocoa supply chain. Look out for the next installment in the coming weeks!