©2009 Rainforest Alliance

The Evolution of Sustainability in

the Cocoa and Chocolate Industry

1

Edward Millard

University of Copenhagen

September 2014

Industry Snapshot 2000

Traditional buying behaviour: cost, quality and service Assumption that supply of cocoa continuous Competition based on: innovation, operational efficiency, distribution Communications based on branding, product qualities Buyers rewarded on margins

Cocoa and Chocolate Supply Chain

Cocoa farmer

Aggregation at source Distribution

Processing

Brand Marketing Own Label

Producers / Groups Exporters / Importers/Processors Brands / Retailers

Production and

Harvesting:

Cocoa beans

Trading and Processing:

Cocoa Beans

Liquor and Butter

Chocolate

Manufacturing:

Chocolate Products

Confectionery

Forces for Change 1. Supply risk

Long term availability of cocoa threatened by: Pests and diseases Failure of intensification Low productivity Farmers substituting cocoa for other crops Young people moving away

Forces for Change 2. Reputation risk

Companies came under attack 2001 for child labour Brands lacked visibility of supply chains Consumers want answers: don’t trust companies Other industries adopting certification

Initial Response 2001-2008

Investigation of problem: first Tulane

report 2007 International Cocoa Initiative formed Industry collaboration with governments World Cocoa Foundation projects Third party certification only in niches,

unlike coffee

Third Party Certification

Kraft first mainstream mover – collaboration Rainforest Alliance Cote d’Or launched with certification seal 2009 Sustainability became a competitive issue Mars launched certified chocolate 2010 Supply chain companies responded by building supply

Growth of Certification 2009-2013

Over one million tons now certified to independent schemes Mars, Hershey, Ferrero all committed to 100% certified cocoa

Rainforest Alliance certified cocoa

9

AT ORIGIN IN THE MARKET

Voluntary Certification Schemes

Verify practices defined in a standard

Set standards through multi-stakeholder consultation Standard reflects mission of organization Apply to individual farms and smallholder groups

Credible voluntary standards are members of ISEAL

Benefits from certification: for Farmers

Study 2011-12 by Committee on Sustainability Assessment

Benefits to environment (Rainforest Alliance)

Forests Protected Hunting, trading or selling wildlife prevented Water bodies protected from untreated waste water or solids Buffer zones along rivers, streams and lakes

Benefits to companies

Positive impact on productivity, quality and reliability of production

Improved traceability

Leadership in sector

Employee satisfaction and retention

Public finance available Salon du Chocolat launch Cote d’Or

Credibility with consumers

14

A changing mood

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Costs: to farmer and to company Market differentiation more difficult Systematic problems remain in sector Attacks from NGOs and media continue Does not address other concerns: food

safety, planting material, farmer financing

Despite benefits, companies see certification as insufficient response

Industry remains under attack

Key Issues: Child Labour, Palm oil, Gender

Greenpeace campaign 2010

Miki Mistrati Documentary 2012

Oxfam Behind the Brands 2013

The next stage of cocoa sustainability

New cocoa sustainability initiatives are characterized by:

Company leadership Independent verification of results Integration into core business Innovative responses to issues

Company-led sustainability

Incorporating third party verification

Nestlé works with UTZ

Certified to ensure a

sustainable supply of cocoa

by helping farmers to

implement good practices

and offering advice on how

to build their businesses.

Nestlé works alongside

Fairtrade to ensure that a

fair price is always paid to

farmers, as well as

investing in long-term

community and business

projects.

Nestlé have partnered

with the Fair Labor

Association (FLA) to

investigate whether

children are working on

cocoa farms which are

supplying its factories

Sustainability as core business strategy

Businesses that address both the direct concerns of citizens and the needs of the environment will prosper over the long term.

Out of CSR team and into senior management

KPIs on social and environmental impact

Sustainability targets in commercial team’s goals

Investing at origin

Forming partnerships and alliances

Innovation in cocoa sustainability: Climate smart cocoa

Lessons

Certification bodies must diversify their approach and increase their value to companies

Companies must retain credible NGO partners

Thank You

Comments welcome