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Sweetness follows A rough guide towards a sustainable cocoa sector

Sweetness follows - International Cocoa Organization...ter and cocoa powder. To produce chocolate, cocoa liquor is mixed with cocoa butter, sugar, milk and emulsifying agents. Cocoa

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Page 1: Sweetness follows - International Cocoa Organization...ter and cocoa powder. To produce chocolate, cocoa liquor is mixed with cocoa butter, sugar, milk and emulsifying agents. Cocoa

Sweetness followsA rough guide towards a sustainable cocoa sector

Page 2: Sweetness follows - International Cocoa Organization...ter and cocoa powder. To produce chocolate, cocoa liquor is mixed with cocoa butter, sugar, milk and emulsifying agents. Cocoa

Content 1. Introduction2. The cocoa sector3. Unsustainable practices4. Sustainability initiatives5. Comparison with other commodities6. Complementary trends7. Conclusion8. Recommendations Sources

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The cocoa sector is widely recognized as being an imperfect market that is facing considerable sustainability challenges on the social, economic and environmental fronts. Cocoa plays a crucial role in the livelihoods of millions of rural households across the developing world, and this tropical commodity has the potential to lift many out of poverty. In reality, however, cocoa farmers – like the producers of other commodities –receive only a fraction of the retail value of global chocolate sales.

The cocoa supply chain is a long one: it passes through a complex trading network comprising a large number of inter-mediaries (e.g. collectors, traders, exporters, processors and manufacturers) before it reaches the consumer, who increas-ingly expects assurance of responsible social and environ-mental production from their chocolate brands.

Given the wide array of challenges to sustainability in the sec-tor, it is not surprising that a range of initiatives, programmes and systems have been developed to deal with specifi c

2. The cocoa sector

The cocoa tree evolved in the tropical rain forests of the Ama-zon basin. Evidence of the usage of cocoa beans dates back as far as 1000 BC, when wild forms of the cocoa tree were culti-vated by Meso-American Indians in small, diversifi ed gardens in what are now Belize, Guatemala, Honduras and Yucatán. Nowadays, cocoa is an internationally traded commodity and the key ingredient of chocolate.

There are two main varieties of cocoa tree: the Criollo variety – which produces sweet and special quality cocoa – and the Forastero variety, which produces bulk cocoa. Criollo cocoas are grown mostly in Latin America. Their share of world pro-duction, however, is very small. Forastero cocoas are mainly grown in Africa and Asia. The main cocoa producing countries

1. Introduction

pieces of the sustainability puzzle. The transformation of the cocoa industry into a sustainable economic sector presents an extraordinary challenge to all the stakeholders involved. Cooperation between producers, NGOs, governments, trad-ers, processors and manufacturers is necessary in order to develop these initiatives to their full potential and thus im-prove the working and living conditions at the beginning of the cocoa chain.

This report presents an overview of the world cocoa market and its main stakeholders. It fi rst details the sustainability challenges facing the cocoa sector, then provides an overview of initiatives to manage sustainability in the cocoa chain. It also presents lessons from other commodity chains (e.g. the coff ee and timber chains) in order to illustrate the possibili-ties. Recent developments and trends show the paths to-wards sustainable cocoa production. Without promoting one initiative or another, various critical issues are addressed in the conclusion and recommendations.

are Indonesia, Nigeria, Cameroon, Brazil, Ecuador, Malaysia, Ivory Coast and Ghana (with the last two accounting for al-most 60% of global production). In 2006, the world’s total production of cocoa beans was 3.6 million tonnes. About two thirds of global cocoa production is used to produce choco-late and confectionery.

The cocoa chain is a labour-intensive chain. The International Cocoa Organization (ICCO) estimates that 90% of global co-coa production is produced by some 3 million smallholders. Total worldwide employment in primary cocoa production is estimated at 14 million workers. It is thought that in West Africa there are 1.2 to 1.5 million cocoa farms, with an average size of 3-5 hectares, employing 10.5 million people. The cocoa

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bean is grown and processed on these farms using labour-intensive methods, and its sale is often the main source of family income. Larger scale cocoa plantations exist mainly in Brazil and Indonesia.

Cocoa is generally exported in the form of dry beans. The farmers’ production is purchased by dealers and exported by registered exporters or government marketing boards. Sales are eff ected through contracts or futures markets, principally in New York and London. The market distinguishes between bulk cocoas and fi ne fl avour cocoas. The latter have a pre-ferred fl avour or other characteristics, and thus receive a price premium.

The process of producing cocoa liquor, butter and powder is known as grinding. A part of the cocoa liquor is sold to choco-late manufacturers; the rest is pressed to extract cocoa but-ter and cocoa powder. To produce chocolate, cocoa liquor is mixed with cocoa butter, sugar, milk and emulsifying agents. Cocoa butter is also widely used in such cosmetic products as moisturizing creams and soaps. Cocoa powder is used on a large scale by other food industries for the production of drinks, desserts, ice creams, spreads, sauces, cakes and bis-cuits. The by-products of the cocoa beans – the husks and

shells – are used as organic mulch, soil conditioner and poul-try feed.

Traditionally, most cocoa beans are processed in the United States and the Netherlands: each country processes over 400,000 tonnes per year. As with other commodities, one of the key features of the cocoa chain is the growing dominance of multinationals in trading, processing and manufacturing activities. Although there are a large number of companies involved, a small number of well-known multinationals domi-nate the market: between them, Cargill, ADM, Barry Calle-baut, Petra Foods and Blommer account for more than half of the total trade and grinding activities. Nestlé, Mars, Hershey, Kraft and Cadbury Schweppes are the main producers of chocolate confectionery.

Global consumption of chocolate and other cocoa products is dominated by Europe (53%) and North America (26%). In 2005, the average consumption of chocolate confectionery was 4.3 kilos per head. It is expected that the demand for cocoa will increase in, for example, Russia, Japan, Brazil and China. The retail sector is the main distribution channel for chocolate products. A consumer can choose from a bewilder-ing variety of diff erent brands and supermarket private label chocolate products.

Figure 1 The cocoa chain

Poultry feed

Farms

Cocoa beans

Traders

Supermarkets and other shops

Consumers

Cocoa hulls

Feed industry

Cocoa butter

Cosmetics

Cream, soap Drinks, ice cream, biscuits, etc.

Food industry

Cocoa powder

Cocoa grinders

Chocolate, confectionery

Confectionery industry

Cocoa liquor

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Figure 2 Cocoa stakeholder organizations

Producing countries International Cocoa Organization (ICCO)

An intergovernmental organization set up in 1973 to implement the international cocoa agreement. At present, 42 countries represent-ing 80% of the worldwide production and 70% of the worldwide consumption are signatories to this agreement. The fi rst mention of a sustainable cocoa economy can be found in the International Cocoa Agreement 2001.

The Cocoa Producers Alliance (COPAL)

An intergovernmental organization that unites the cocoa producing countries. Its members are: Ghana, Nigeria, Brazil, Ivory Coast, Cam-eroon, Dominican Republic, Gabon, Malaysia, Sao Tomé, Principe and Togo. COPAL focuses on suffi cient supply at good prices, technical information, improvement of the mutual socio-economic relations and the promotion of cocoa consumption.

Traders 1. London International Financial Futures Exchange (LIFFE)

2. Options Exchange New York Coffee, Sugar and Cocoa Exchange (NY CSCE)

Commodity exchanges. The cocoa contracts are meant to eliminate the price risk (hedgers) and are bought and sold for purposes of speculation (speculators). Only 1.5-2% of the total number of contracts bought and sold on the LIFFE result in a physical delivery of cocoa.

1. The Federation of Cocoa Commerce (FCC)

2. Cocoa Merchants Association of America (CMAA)

The FCC is a European system for closing cocoa contracts. Its pur-pose is to monitor the cocoa trade via the harmonization of cocoa contracts and the provision of arbitration services. In the USA, the CMAA is the agency to contact for the international trade.

European Cocoa Association (ECA)

A relatively new trade organization representing the European cocoa sector. Its members are engaged in the trade of cocoa beans, the storage and distribution of cocoa beans and their processing into paste, powder and butter, and the production of chocolate.

Processors and manufactures

International Confectionery Association (ICA)

A worldwide forum in which more than 2,000 companies in 23 countries are represented. The members include the CMA (Confec-tionery Manufacturers of Australia), the ABICAB (Brazilian Chocolate, Cocoa & Confectionery Manufacturers Association), CAOBISCO and CMA.

Chocolate Manufacturers Association (CMA)

An organization for the processors and manufacturers of chocolate in the USA. The purpose is to carry out joint research (American Cocoa Research Institute; ACRI), to provide information about choco-late and to stimulate its consumption. The members represent 90% of the trade in the USA. The World Cocoa Foundation was set up in 2000 to support farmers in the cultivation of cocoa.

Association of the Chocolate, Biscuit and Confectionery In-dustries of the EU (CAOBISCO)

A sector association at the European level for manufacturers of chocolate, cake, pastry and sweets. Together, its members process 50% of all the cocoa beans that are produced.

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3. Unsustainable practices

The importance of commodity sectors as vehicles for poverty reduction and sustainable development is evident: these sectors have not only a positive economic impact on but also a closely related social and environmental sig-nifi cance for the overall development of communities. Cocoa is an important commodity in terms of value traded globally, and plays a crucial role in the livelihoods of millions of rural house-holds across the developing world. In addition to the 3 million small-scale cocoa farmers who depend on cocoa as their primary source of income, co-coa exports contribute signifi cantly to foreign exchange earnings and govern-ment revenue.

The concept of sustainable develop-ment in this realm includes such as-pects as ‘economic viability for farmers’, ‘environmental conservation’ and ‘social responsibility’. Translating these broad concepts into daily practice is strongly linked to the belief system of a stake-holder. Sustainability is interpreted in diff erent ways at diff erent levels of the cocoa chain: for a farmer, a guaranteed income is important; for a country, the volume and export revenues are signifi cant; and for many consumers, a responsible production process is a major issue.

In the cocoa sector, each of the pillars of sustainable development – namely the social, the environmental and the economic pillar – is threatened. The debate centres on specifi c topics within the three pillars, which are described in the following text boxes.

Figure 4 The three pillars of sustainable development

The social pillar: focus on forced labour and child labour

Ten years ago, media attention was paid to children being traffi cked and forced to work on cocoa farms in West Africa. As a result, politicians, government offi cials, social activists and representatives of the cocoa indus-try signed a protocol ‘to oversee and sustain eff orts to eliminate the worst forms of child labour in the growing and processing of cocoa beans and their derivative products’ in compliance with ILO Convention 182. The initial deadline to eliminate the worst forms of child labour and forced labour from West African cocoa farms (i.e. July 2005) was not met. Six years on, there is no tangible result on paper or in practice, and the discussion regarding social sustainability in the cocoa sector is still linited to the subject of forced labour and child labour. A holistic discussion is needed in order to improve the working and living conditions at the beginning of the cocoa chain. This approach implies paying attention to such issues as the right to organize and collective bargaining, gender and ethnic equality, prohibition of dis-crimination and equal pay for equal work. Collective action on the part of all stakeholders involved is necessary. The following example shows that philanthropy support of companies is valuable, nevertheless it cannot be an excuse to avoid corporate social responsibility throughout the cocoa chain.

World Cocoa Foundation (WCF) is supporting programs that help to strengthen the communities in which cocoa farmers and their families live. These programs focus on education for children in cocoa farming communities and health issues like HIV/AIDS preven tion, and malaria. To date WCF supported two programs. A program of the International Foundation for Education and Self-Help (IFESH), the United States Agency for International Development and The Hershey Company on improving the quality and accessibility of education in farming communi-ties in Ghana and Cote d’Ivoire. So far the program has trained 3,396 teachers and provided improved quality of education for 137,033 primary and secondary school students. The CLASSE (Child Labor Alternatives through Sustainable Sys-tems in Education) program aims at improving basic and agricultural education. CLASSE partners are Winrock International, Mars Incorporated, Norwegian As-sociation of Chocolate Manufacturers, Cloetta Fazer AB and the United States Dept. of Labor. The program focuses on children ages 11-20. To date, 1.686 youth participated in the program.

8

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The environmental pillar: focus on deforestation and soil degradation

Small-scale farmers grow cocoa trees in hot, rainy environments, mostly in areas near the equator. Because cocoa is a delicate, sensitive crop, co-coa seedlings are often sheltered by other trees, such as banana plants, plantain plants, coconut palms or hardwood trees. Several environmental problems are related to the production of cocoa, namely deforestation, loss of biodiversity, soil erosion and the use of agrochemicals. - Conversion of primary forest habitat: estimates indicate that cocoa

production is probably responsible for the loss of 8 million hectares of tropical forest. Future deforestation for cocoa production is likely to happen.

- Soil erosion: erosion in cocoa agroforestry plots is likely to be higher than in natural forests because the leaves do not decompose quickly and they suppress other vegetation. Due to intensive cocoa production soils loose fertility, which explains why cocoa plantations move to fer-tile ground and are replaced by conventional agriculture.

- Cocoa is originally a shade tree, and should be intercropped with other tree crops to maximize biodiversity conservation. Recently, a new high yielding cocoa variety called CCN-51 has been planted in Ecuador. This cocoa tree is resistant to many cocoa diseases and plant density can be nearly doubled, to 1,200 trees per hectare in mono-culture.

Cocoa farming has a high potential to negatively impact the environment. Its impacts should therefore be addressed systematically and on a large scale. Compensation and rewards for ecosystem services (CRES) is a relatively new approach for achieving resource conservation and restoration. The World Bank’s BioCarbon fund is one of the largest biodiversity CRES programs. This program aims to sequester carbon while promoting biodiversity conservation and poverty alleviation co-benefi ts. In cocoa there are a few examples that try to integrate CRES concepts. Conservation International and CIFOR are exploring how sustainable cocoa production can support biodiversity corridor management goals in West Africa (e.g. Kakum National Park Ghana). WWF’s Macroeconomics Program Offi ce has been developing Agroforestry/Carbon approaches in Africa with ICRAF and other partners. In addition CATIE (Costa Rica) has ongoing projects on biodiversity conservation and carbon seques-tration in small indigenous farms in Costa Rica and Panama.

Economic pillar: imbalance in revenue and power

In the original and simplifi ed sense, commodities were things of value and of uniform quality that were pro-duced in large quantities by many diff erent producers. A characteristic of commodities is that their prices are determined as a function of their market as a whole. As a result, the price a farmer receives is not within his or her control. The farmers’ gate price is dictated by the commodity exchanges, even though only 1.5-2% of the total number of contracts bought and sold on the ex-changes result in the physical delivery of cocoa. Cocoa farmers receive on average 6–8% of the retail value of global chocolate sales, which are estimated at US$ 42–74 billion annually. In relation to the estimated 3–14 million cocoa farmers and workers, this implies a yearly revenue of US$ 980–1,726 per farmer (and of US$ 210–370 per worker) without deducting the expenses.

Like other commodities, cocoa has the potential to lift many out of poverty. Realizing more margin through add-ed value, redistribution of margins across the supply chain or creating new forms of ownership are ways for a farmer to realize more income. However, the question whether the cocoa farmer is achieving a viable income can be answered only for a specifi c location. An example of new market ap-proaches that directly create more income for the farmers involved is the successful Divine Chocolate formula. The largest shareholder of Divine Chocolate Ltd is Kuapa Kokoo, the Ghanaian farmers’ cooperative from which it buys all its cocoa. Kuapa Kokoo holds 45% of the ordinary shares in Divine Chocolate. Mr Ohemeng Tinyase, MD of Kuapa Kokoo said, ‘For us, farmer ownership always made Divine Chocolate special. For the fi rst time our members benefi t as owners of a wonderful chocolate brand, and not only as suppliers of excellent, fairly traded cocoa.’

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Projects in practice

West Africa ‘Farmer Field Schools’ www.worldcocoafoundation.orgSustainable Tree Crop Programme www.treecrops.orgSUCCESS Alliance www.thesuccessalliance.orgACCESSO Programmewww.worldcocoafoundation.orgUpcocoa Projectwww.iscom.nl/upcocoa

4. Sustainability initiatives

Certifi ed Cocoa 8 March 2007 - The Hershey Company is working to create a supplier code of conduct that goes above and beyond just cocoa suppliers. ‘We are working with the code to build compliance from inside the company as well as our suppliers,’ said John Long, Hershey’s VP of Corpo-rate Aff airs. ‘We plan to be transparent about the code with shareholders. Our plan is to post it on our web site, posting it as we roll it out. Our objective is to be success-ful.’ Hershey Press Release

Codes of conduct and the certifi cation of cocoa have prolifer-ated in recent years in response to the growing consumer concern about food production methods and the impact of these methods on the poor and the environment. Certifi ca-tion is the procedure by which a certifi cation body gives writ-ten assurance that the quality of the cocoa and the produc-tion process have been assessed and that both conform to specifi ed requirements. Codes of conduct require suppliers to meet standards on food safety, working conditions and envi-ronmentally friendly production. This market-based approach to the sustainable development of the cocoa sector has given rise to a number of opportunities for producers, for example training, access to new markets, and enhanced effi ciency and revenues. The adoption and implementation of these codes could directly improve and protect the economic, social and environmental conditions of a cocoa grower. However, full ac-cess by those who are the most in need is restricted by vari-ous obstacles, for example limited demand, and investment and audit costs.

For the cocoa sector, there are four global initiatives, namely Fairtrade, Organic, Rainforest Alliance and Utz Certifi ed. Their characteristics are briefl y presented in fi gure 6. This fi gure does not constitute an exclusive list of initiatives; other initia-tives deserve discussion, but such is not possible given the limited scope of this report.

‘While there is much work to be done, we are making progress and remain focused on the right issues,’ said David Zimmer, secretary general of the Association of the Chocolate, Biscuit & Confectionery Industries of the EU (CAOBISCO). ‘In partnership with other key stakeholders, we must now build upon these successful programmes to help children, families and cocoa farming communities.’

The transformation of the cocoa industry into a sustainable economic sector presents an extraordinary challenge to all the stakeholders involved. Cocoa stakeholders have devel-oped various initiatives, programmes and systems to deal with specifi c pieces of the sustainability puzzle (see Figure 5). Cooperation between producers, NGOs, governments, trad-ers, processors and manufacturers is necessary in order to develop these initiatives to their full potential and thus im-prove the social, environmental and economic situation at the beginning of the cocoa chain.

International multi-stakeholder initiatives – such as the In-ternational Cocoa Initiative, the World Cocoa Foundation and the International Cocoa Organization – face signifi cant chal-lenges to sustainable development at the production end of the supply chain. With these forums for debate and coopera-tion amongst policy makers, private-sector players and other stakeholders, there is the chance to design and implement an

equitable and participatory cocoa trading system. By support-ing NGO and farmer organization initiatives, it is possible to turn their stated commitment to sustainability into action.

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Initiative Mission Stakeholders & funding Sustainability statement

International Cocoa Initiative (ICI)www.cocoainitia-tive.org

Established in 2002 ‘to oversee and sustain efforts to eliminate the worst forms of child labour and forced labour in the growing and processing of cocoa beans and their derivative products’ (ILO Convention 182 on the worst forms of child labour and ILO Con-vention 29 on forced labour).

Governments, industry, cocoa producers, labour organizations and NGOs.

Funded by its industry members.

‘Today, let us each remember that chil-dren everywhere deserve a childhood, an education and an opportunity to escape the cycle of poverty’Peter McAllister, ICI Executive Director

World Cocoa Foundation (WCF)www.worldcocoa-foundation.org

Started in 2000 as an industry-driven initiative to promote a sus-tainable cocoa economy through economic and social development and environmental conservation in cocoa growing communities.

A partnership of industry, government, international agencies, trade associations and NGOs.

Funded by industry and private foundations.

The WCF supports programmes to make cocoa farming a sustainable, successful way of life for farming families. WCF-sup-ported programmes drive sustainable cocoa farming.

International Cocoa Organization (ICCO) www.icco.org

In 2007, ICCO is organizing a ‘Round Table towards a sustain-able world cocoa economy’. It is also compiling a database of ongo-ing sustainable cocoa initiatives.

The Round Table will bring togeth-er all stakeholders in the world cocoa economy: cocoa farmers, managers of cooperatives, ex-porters, traders, processors and manufacturers, government of-fi cials, and non-governmental and other private organizations active in the cocoa and chocolate supply chains.

The ICCO Round Table is funded by the Ghana Cocoa Board in con-junction with the Dutch Ministry of Agriculture, Nature and Food Quality.

ICCO members should be working col-lectively towards a world cocoa economy that is ‘economically viable, ecologically sound and socially acceptable’.

Cocoa Verifi cation Working Groupwww.cocoaverifi -cation.org

In a protocol it signed in 2001, the cocoa/chocolate industry made a commitment to establish a system to certify that cocoa beans and their products are being produced under fair labour conditions – par-ticularly without using child labour or forced labour.

Independent of industry and governments.

Funded by industry.

‘ ...the industry in partnership with other major stakeholders will develop and implement credible, mutually accept-able, voluntary, industry-wide standards of public certifi cation, consistent with applicable federal law, that cocoa beans and their derivative products have been grown and/or processed without any of the worst forms of child labour.’

Figure 5 International multi-stakeholder initiatives

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Stakeholders

Farmers Companies/Industry Governments NGOs Trade Unions/Consumer Groups

International Organisations1

Figure 6 Overview of the focus and commitment of the various stakeholders

Stakeholders involved

Stakeholders not involved

1 international organisation, research institute and other

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Initiatives Sustainability Indicators *

Social Environmental Economic Corporate Governance

Operational aspects

Round Table for Sustainable Cocoa economy

(RTSC)

World Cocoa Foundation (WCF)

International Cocoa Initiative (ICI)

Certifi cation programmes1

Capacity building programmes2

1 Certifi cation programmes: Fairtrade, Rainforest Alliance, Utz Certifi ed, Organic2 Capacity building programmes, for example: West Africa ‘Farmer Field Schools’,

Sustainable Tree Programme

* Sustainability adapted from the CSR-Frame of Reference for corporate social

responsibility developed by the CSR Platform. www. mvoplatform.nl

Indicators developed

Indicators not developed

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Figure 7 Cocoa production standards

Fairtrade Organic Rainforest Alliance

Utz Certifi ed

(in development for cocoa)

Mission To ensure equitable trad-ing arrangements for disadvantaged smallhold-ers who are organized into cooperatives

To create a verifi ed sus-tainable agriculture sys-tem that produces food in harmony with nature, supports biodiversity and enhances soil health

To integrate productive agriculture, biodiversity conservation and human development

To implement a global decency standard for responsible cocoa growing and sourcing

History and development

Began in the Nether-lands in 1970s as ‘Max Havelaar’. Now several national organizations under the umbrella of the Fairtrade Labelling Organization (FLO). Cof-fee was the fi rst labelled product (1989)

Began in the early 1970s as a farming movement and developed into an in-ternationally recognized system

Since 1991, the Rainforest Alliance and the Sustain-able Agriculture Network have been developing and implementing best practices and standards for commodity crops

Founded in 1997 with cri-teria based on scientifi c fi eldwork. Utz Certifi ed Foundation launched in 2002

Requirements for farmers

Smallholders organized in democratically run or-ganizations, ban on most toxic pesticides, integrat-ed crop management

Use of non-synthetic nutrients and plant pro-tection methods, soil conservation

Sustainable farm man-agement, integrated pest management, worker welfare, community relations, biodiversity conservation through maintenance of shade cover or protection and restoration of native for-est reserves

Good agricultural prac-tice and worker welfare, based on adoption of EurepGAP standards, ILO, traceability and food safety

Label use 100% Fairtrade cocoa 95% organic cocoa Two types of label:1. 100% Rainforest Alli-ance cocoa2. Minimum 30%-90% Rainforest Alliance cocoa with a seal indicating the percentage of certifi ed cocoa

90% minimum Utz Certifi ed cocoa

Price premium

Minimum price and fi xed premium

Minimum price and fi xed premium

Negotiable premium Negotiable premium

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Commodity Issues Characteristics Obstacles Solutions

Coff ee Social and economic benefi ts for small-scale producers and workersPesticide usage

Many small-scale farm-ers and plantationsVery volatile priceFive multinationals buy 50% of green coffee productionConsumers recognize coffee as end product

Overproduction Establish parallel markets for Fairtrade and organic coffeeCertifi cation initiatives (e.g. Rainforest Alliance and Utz Certifi ed) addressing the mainstream market Multi-stakeholder sustainable baseline standards: Common Code for the Coffee Community (4C)

Palm oil Land rights of local communitiesBiodiversity lossEnvironmental impacts

New demand for use as biofuel

Consumers do not rec-ognize palm oil as an ingredient

Round Table for Sustainable Palm Oil (RSPO) in the process of establishing production standards and certifi cation system

Timber Land rights of local communitiesBiodiversity lossEnvironmental impacts

Consumers recognize timber in processed products

Lack of dominant players in the timber market

The Forest Stewardship Council (FSC) is a multi-stakeholder initiative that has established production standards and a certifi cation system: FSC parallel market with high price premium

Sugar Social and economic benefi ts for small-scale producers and workers-Biodiversity lossEnvironmental impacts

New demand for use as biofuel

Heavy government regulation Market is not concentrat-ed and is divided along national interests

Better Sugarcane Initiative

The sustainability of a commodity chain has many dimen-sions. The balance of benefi ts and negative impacts is diff erent for every commodity chain, and each commodity chain has its own geographical and social distribution. Therefore, the issues addressed by sustainability initiatives and the best approach to these issues also diff er between commodity chains. Various characteristics of commodity chains play a role, for instance, product, production process, production chain, and the political and regulatory environ-ment.

A successful sustainability initiative for a specifi c commodity must deal with the commodity’s specifi c characteristics: there is no universal solution. The way in which specifi c sustain-ability initiatives in other commodity chains deal with these characteristics can help to transform the cocoa industry into

5. Comparison with other commodities

a more sustainable sector. Several examples are presented in fi gure 7.

Cocoa is often compared to coff ee, as the two ‘hot drinks’ share several characteristics, starting with the production by small-scale farmers. The main sustainability issues are comparable, as is the market structure, with some dominant players active in both commodity sectors. But compared to coff ee, cocoa is processed further and into a larger variety of products (which also contain other ingredients). Never-theless, cocoa is recognizable to end consumers in most products, and therefore diffi cult to substitute. In this respect, cocoa resembles timber more than coff ee. On the other hand cocoa butter can be substituted fairly easily, just as palm oil. Combining sustainability eff orts with the sugar sector, which is used in many products in combination with cocoa, is also worth considering.

Figure 8 Commodity characteristics

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6. Complementary trends

The increasing demand for sustainability in the cocoa sector is creating new market opportunities for farmers, industry and governments. Complementary trends in the cocoa mar-ket are driven by, for example, the supply of cocoa beans, the chain dynamics, cocoa substitutes and consumer demand.

Supply is insecure due to the ageing of cocoa trees, the domi-nant position of Ivory Coast, and the potential devastating ef-fect of such pests as witches’ broom and the cocoa pod borer. As a result, processors are focusing on sourcing new locations and developing pest-resistant trees and new insecticides. Fur-thermore, industry’s increasing demands for effi ciency and traceability are resulting in activities being shifted across the cocoa chain. The outsourcing of cocoa trade and processing by the chocolate industry, and the integration of processing and marketing activities by cocoa processors are going hand in hand with the development of smaller scale, dedicated processing facilities. This is resulting in a volume-driven co-coa chain and another parallel cocoa chain that is focused on value added products.

The responses of cocoa growing countries to these supply dynamics and the increasing demand for cocoa are of the utmost importance to farmers. Especially the governments of Indonesia and Ghana regard cocoa as a high opportunity crop and are investing heavily in future production. Also the process of adding more value to cocoa growing, besides the traditional exporting of cocoa beans, is taking place. In recent years, the grinding capacity in such origin countries as Ivory Coast, Malaysia and Brazil has grown considerably.

Although substituting other vegetable fats for cocoa is a threat to cocoa producing countries and farmers, it might

create opportunities for mixed agroforestry systems and income diversifi cation. In the European Union, Directive 2000/36/EC was implemented in 2003. The aim of this direc-tive is to allow the use of up to 5% of a limited number of ex-otic vegetable fats in the production of cocoa. These fats are illipe, palm oil, shea, sal, mango kernel and kokum gurgi. The impact of this legislation on the global cocoa market is still limited, as only 15 manufacturers have incorporated cocoa butter substitutes in their recipes. However, as cocoa prices rise and manufacturers adapt their recipes, a future shift to vegetable fats can be expected.

In the Unites States, the Food and Drug Administration (FDA) is in the process of changing the legal defi nition of chocolate in order to allow manufacturers to substitute ‘safe and suit-able vegetable fats and oils’ for cocoa butter. Currently, the FDA does not allow a product to be referred to as ‘chocolate’ if it contains any of these ingredients. The public and some chocolate companies are against the proposal, as it would decrease the quality of chocolate and have a negative impact on cocoa farmers and cocoa producing countries.

As consumer demand in a country is linked to the devel-opment of that country, it is clear that cocoa markets will emerge in Brazil, Russia, India, Japan and China. The con-sumer demand in Europe and the United States is changing towards increasing demand for specialty chocolate products, with high cocoa content or sugar free or natural sugar, and specifi c countries of origin. In recent years, new market-ing concepts like Green and Blacks (dark organic chocolate bought by Cadbury’s), Origin Chocolates (Valhrona) and Di-vine Chocolate have been marketed successfully.

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7. Conclusion

The growth in recognition of the importance of sustainability in cocoa production amongst producers, governments, com-panies, NGOs and consumers has put the cocoa sector at a crossroads. Based on our overview of the diff erent initiatives, programs and systems dealing with specifi c pieces of the sustainability puzzle, it is clear none of them links the three pillars of sustainable development. With respect to the main initiatives, supported by the cocoa industry, sustainability is narrowed down to child labour, environmental conservation and agricultural production practices. Examples include the agricultural programs of the WCF and the attempts of the ICI to ban child and forced labour along the cocoa chain. With a view to promoting greater sustainability in the cocoa produc-tion and raise standards across the cocoa sector as a whole the following observations can be made:

1. The companies supporting the WCF and ICI are mainly the same, setting the agendas in diff erent forums.

2. The stakeholder composition of ICI is relatively strong, in-tegrating NGOs, companies, trade unions and institutional organisations. The WCF combines 70% of all industry play-ers.

3. Both ICI and WCF concentrate to improve the cocoa pro-duction practices in West Africa, especially Ghana and Ivory Coast. The larger part of the value chain and produc-ing countries (Congo, Nigeria) receive limited attention around sustainability.

4. The philanthropy support of companies is valuable, never-theless it is not an excuse to avoid corporate social respon-sibility throughout the cocoa chain.

5. The existing initiatives to promote sustainability are project-based, non-transparent, not based on existing civil society structures, and operate country wise on a relative small scale.

6. Purchasing practises, transparency and governance are not tackled in any of these initiatives.

Although each of the current initiatives off ers some level of economic, social or environmental benefi t to producers an integral approach towards a more sustainable cocoa sector is lacking. The Round Table on a sustainable cocoa economy of the ICCO is the fi rst attempt from governmental side to bring

together the diff erent stakeholders in the cocoa sector to discuss the way forward. The Round Table off ers the unique opportunity for all stakeholders to identify the characteristics related to sustainable production practices together, and de-fi ne the tools and a common action agenda. In order to fully take advantage of these opportunities however, it is clear that a high level of cooperative action between stakeholders themselves and at the public policy level, will be necessary to enable the development of integral solutions. Agreement about what is minimally needed is the starting point to en-sure an international level-playing fi eld for sustainable cocoa.

The four major global standards for cocoa like Fairtrade, Or-ganic, Rainforest Alliance, Utz Certifi ed all off er the possibility to companies, governments and civil society to support sus-tainable produced cocoa. The market share of certifi ed cocoa is growing and off ers new opportunities for the chocolate manufactures to credibly market sustainable produced cocoa, for instance the chocolate of Fairtrade Divine and Organic Vivani. Combining certifi ed cocoa with sustainable produced sugar, both used together in many products is a future chal-lenge for global standards and the industry alike.

While analysing the diff erent sustainability activities in the cocoa sector, the overall developments look promising. How-ever, compared to other commodities like coff ee and timber, cocoa is clearly lagging behind in organising the sustainabil-ity debate within the sector as a whole. In cocoa, minimum standards and/or codes of conduct as a mean for worldwide sustainable production, could help the industry to make their eff orts transparent and at the same time guarantee bet-ter working and living conditions for the cocoa farmers and workers in Asia, Africa and Latin America.

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8. Recommendations

This rough guide on sustainability in the cocoa chain has revealed the inability of the diff erent cocoa stakeholders to link the three pillars of sustainable development. Nevertheless, there is an urgent need to address the social, environmental and economic situations simultane-ously and raise the standards to ensure quality cocoa now and in the future. The ICCO Round Table for a Sustainable Cocoa Economy presents an unique opportunity to all stakeholders to understand and jointly take action on the considerable sustainability challenges. The recommenda-tions summarized below can be taken into consideration when developing specifi c strategies towards a more sus-tainable cocoa chain.

Recommendation 1: In an eff ort to build shared under-standing and approaches to sustainability in the cocoa chain at a global level, the ICCO can open up to non-private bodies e.g. NGOs, small-farmer organisations and labour unions. Key stakeholders can support government and industry to develop a public/private shared vision towards a sustainable cocoa sector linked to the national levels. At the national level, multi-stakeholder cocoa platforms can design specifi c action plans to develop and implement sustainable practices effi ciently throughout the cocoa chain in their country. In order to make the discussion on a sustainable cocoa economy transparent and clear, all stakeholder groups in the cocoa sec-tor are encouraged to develop a ‘shared vision’ on a sustain-able cocoa economy.

Recommendation 2: Although around 3 million small-scale farmers are active in the cocoa supply chain, represen-tation at (inter-)national level is lacking. Producer govern-ments together with industry and NGOs have to create an enabling environment for small-producer associations and cooperatives to join and provide input in the sustainable co-coa debate.

Recommendation 3: Internationally accepted legal frameworks such as the core labour standards of the In-ternational Labour Organization (ILO) and conventions on Biodiversity provide a basis for a sustainability framework in

the cocoa sector. Governments are encouraged to ratify and enforce international, local legislation and taxation measures relating to a sustainable cocoa sector.

Recommendation 4: Change is unlikely to happen unless the drivers in the chain recognise and accept their responsi-bility to contribute to the improvement of working and living conditions at the beginning of the cocoa chain. The confec-tionary industry, traders and other companies should take their corporate social responsibility serious and adhere to a decent code of conduct, incorporating the core labour rights of the International Labour Organization (ILO).

Recommendation 5: The opportunity to link cocoa growing to new fi nancial mechanism and climate change is an opportunity for the whole sector. By linking programs to sequestering carbon and biodiversity conservation as well as poverty alleviation an integral approach of sustainability can be realised. Projects in practice should be expanded to diff er-ent cocoa producing countries to gain more understanding of the potential benefi ts and threats of this approach.

Recommendation 6: To ensure the production of high quality cocoa now and in the future and bring many small-scale farmers out of poverty, the sustainable cocoa chain debate has to be incorporated in the broader world trade debate e.g. WTO (Trade and Environment Committee, Core ILO standards), UNCTAD, IISD (Sustainable Commodity Initia-tive), EU (Action plan for commodities) and U.S. Commodity Futures Trading Commission.

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Sources of fi gures/tables

Literature

Footnotes

Colofon

19

Important links and literature

Sources

- Chocolate, Chris Bright, in: Good Stuff ? – A Behind the scenes

Guide to the things We Buy, World Watch Institute, Washing-

ton, April 2004

- CAOBISCO-ICA 2007 see http://www.caobisco.com/english/

pdf/consumptionchoco.pdf

- Clay, Jason: World Agriculture and the Environment: A Com-

modity-By-Commodity Guide To Impacts And Practices, 2004

- Consumer International: From bean to cup: how consumers

choice impacts upon coff ee producers and the environment,

United Kingdom, 2005

- CSRwire: WASHINGTON, DC- May 30, 2007

- Global witness: Hot Chocolate: how cocoa fuelled the confl ict

in cote d’ivoire, June 2007

- ICCO: Annual Report 2005/2006

- ICCO: Sustainable Cocoa Economy: a comprehensive and par-

ticipatory approach, June 2007

- ITC/UNCTAD/WTO: Cocoa: A Guide to Trade Practices, 2001

- Laird, S.A., C. Obialor and E.A. Skinner; An Introductory Hand-

book to Cocoa Certifi cation, a feasibility Study and Regional

Profi le of West Africa, Rainforest Alliance, New York, 1996

- Novib/CREM: Sustainable Drivers for Change in the Cocoa

Chains, 2006

- UNCTAD: G-24 Discussion Paper Series, Commodities under

Neoliberalism: The Case of Cocoa, The Haque, January 2004

- The impact of directive 2000/36/EC on the Economies of those

countries Producing Cocoa and Vegetable Fats other than Co-

coa Butter, LMC, 2006, http://ec.europa.eu/agriculture/eval/

reports/chocolate/fullrep_en.pdf

- The International Cocoa Initiative:

http://www.cocoainitiative.org

- http://www.cifor.cgiar.org/publications/pdf_fi les/News-30.pdf

- http://www.worldagroforestrycentre.org/downloads/publica-

tions/PDFs/WP14960.PDF

- http://www.worldcocoafoundation.org/diff erence/building-

communities.asp

Sources of fi gures

Fig 1: Adapted from Profundo: Strategic analysis of the pro-

duction chains of palm oil, rice and cocoa, 2006

Fig 2: Adapted from Novib/CREM: Sustainable Drivers for

Change in the Cocoa Chains, 2006

Fig 6: Adapted from the CSR-Frame of Reference for corpo-

rate social responsibility developed by the CSR Plat-

form, a coalition of Dutch Civil Society Organizations

(CSOs) that are actively promoting CSR (http://mvo-

platform.tuxic.nl/fi les/Publicaties/MVO%20Normen/

CSR%20frame%20of%20reference.pdf). The underly-

ing items have been used to make an indication of the

score for the fi ve selected sustainability items: social,

environmental, economic, corporate governance and

operational aspects

Fig 7: Adapted from Consumer International, 2005, p. 28

Fig 8: Adapted from Ministry of Housing, Spatial Planning &

Environment (VROM): Increasing the sustainability of

EU and Dutch Commodity trade through more eff ective

policies, 2007

Colofon

Text Coffee Coalition, Sjoerd Panhuysen, Bärbel Weiligmann, CREM, Anouk van Heeren,

Oxfam Novib, Gine Zwart Cover photo Lineair Fotoarchief Photos istock, Crisja Ran GO, Tegenwind Design Crisja Ran GO, Amsterdam Graphs Crisja Ran GO Print Drukkerij Artoos, Rijswijk 2007

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