Silly me. I thought the world’s cocoa farmers, most of whom are poor, would surely benefit when global chocolate companies, including Hershey’s, Mars and Nestle, made major commitments to buy certified cocoa. Hershey’s and Mars pledged to certify 100 percent of their cocoa as sustainably produced by 2020, while Nestle has made a variety of commitments to certification.
It’s more complicated than that, as I should have known. It always is, isn’t it? I learned a little more about cocoa farmers and certification while reporting a story for Guardian Sustainable Business about Hershey’s.
The top of the story, unfortunately, was inadvertently mangled a bit in the editing process (it happens, but rarely) and so while you are free to read it as published in the Guardian, I’m going to post an earlier version here, and I’ll add a comment at the end. Here’s the story:
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Three years ago, following a campaign by activist groups, the Hershey Company announced that it would use 100% certified cocoa in its chocolate products by 2020. The activists, including the International Labor Rights Forum, Green America and Global Exchange, declared victory, albeit with reservations.
Since then, things have grown complicated. Hershey’s is making progress in its sustainable sourcing: the company says that, in 2014, 30% of its cocoa came from certified, sustainable sources. It expects to hit 50% in 2016, a full year ahead of schedule. “This has become a way of doing business in the future,” J.P. Bilbrey, Hershey’s chief executive, told Guardian Sustainable Business.
When Hershey’s made its commitment, some in the industry feared that there would not be enough certified cocoa to satisfy Hershey’s, Mars, Ferrero and other sustainability-minded companies. But, as Bilbrey says, “Capitalism is a wonderful thing. If you demand something, those that supply it to you will provide that particular product.”
What’s less clear is how much of a difference this sustainable sourcing is making in the lives of cocoa farmers. Hershey’s, which had revenues of $7.4bn last year, won’t say how much of its profits have trickled down to suppliers, nor will it say how much business it does with each of its three nonprofit certifiers – Fair Trade, Rainforest Alliance and UTZ Certified. However, the chocolate maker – as well as its certifiers and the activists who pushed it to source certified cocoa – all agree that certification alone isn’t enough to lift the incomes of cocoa farmers.
And that hits at the heart of long-term sustainability. If those incomes don’t rise, there’s a very real risk that the next generation of farmers will give up on the business. “Even with the highest premium paid (for certified cocoa), farmers are way deep in poverty,” says Judy Gearhart, executive director of the International Labor Rights Forum.
Han De Groot, executivee director of UTZ Certified, a nonprofit based in Amsterdam, agrees. After visiting certified cocoa farmers in Cote D’Ivoire, he wrote: “There is still too much poverty to have a decent and sustainable life.”
Hershey’s efforts go beyond certification
Certification is only part of Hershey’s efforts. It also works with several partners, including the Bill and Melinda Gates Foundation, US AID, and Cocoa Action, to support efforts designed to help farmers and their families in West Africa. Its projects include Learn to Grow, a program that trains farmers on best agricultural, business and environmental practices, and CocoaLink, which distributes low-cost mobile phones to farmers. Last month, it announced plans to distribute Vivi, a nutritious peanut-based supplement, to poor school children in Ghana.
For now, the Ghanaian nutrition program is charity, but it could evolve into a business, Bilbrey said. “We’re going to experiment with this, and if turns out to be a good idea, where the kids can get some basic nutrition, as part of their lunch program, we’ll look to expand it.”
But, while they’re charitably-minded, these efforts also have a business impact: they’re all aimed at securing a long-term supply of cocoa. “We want to take cocoa farming from being a way for farmers to subsist to being an attractive vocation for the next generation,” says Leigh Horner, vice president for corporate communications and social responsibility at Hershey’s.
The trouble is, cocoa farming in West Africa – where more than 60% of the world’s cocoa is grown – is a difficult business. Most farmers work on small farms that have old trees farm practices that have not been modernized. According to Cocoa Barometer 2015, a report by a group of nonprofits, they struggle with low and fluctuating cocoa prices, a lack of farmer organization, insufficient infrastructure, uncertain land tenure and a lack of market power.
All of this translates into low wages and very hard work. According to The Fairness Gap, a detailed report published last December by the International Labor Rights Forum, the average farmer with two hectares of land makes about $755 per year in Cote d’Ivoire and $983 per year in Ghana; this translates to $2.07 per day and $2.69 per day, respectively,.
The report says:
Despite myriad projects aimed at improving education, increasing productivity, and implementing cocoa certification, the collective impact has been limited and the industry has been unable to solve the root cause of the problem: the very low prices paid to farmers.
Does certified cocoa guarantee prices to farmers? Often no.
Part of the problem may be the fluctuating market floor. Only one of Hershey’s certifiers – Fair Trade USA – actually guarantees a minimum price to cocoa growers. It requires that a $200/metric ton premium, which is about 10% above the market price, be paid to farmers.
“We believe that a meaningful level of investment, channeled directly to farmers, is needed in order to make meaningful change,” says Elan Emanuel, senior manager of cocoa supply for Fair Trade USA. He acknowledges, however, that competing with other certifiers “can be a challenge for Fair Trade – it can be a tougher sell to explain to brands why it’s important to pay a fixed premium.”
UTZ Certified and Rainforest Alliance, both of which certify more cocoa globally than Fair Trade, don’t guarantee a premium but they say that their certified cocoa sells at higher prices because of the growing demand for certified crop. What’s more, they say, their training programs for farmers lead to higher yields and better quality cocoa, which delivers more income to farmers.
A independent study of cocoa farmers in Cote D’Ivoire commissioned by the Rainforest Alliance found that the net income – defined as a farmer’s revenue from cocoa sales, minus the costs of income – was significantly higher on cocoa farms certified by the RA. Certified farms, in fact, received $403 USD per hectare – almost four times the $113 USD commanded by non-certified farms. Training in best agricultural practices accounted for most of the difference, the study said.
UTZ Certified’s Han de Groot has argued that guaranteeing cocoa farmers a premium distorts the market by because it removes the incentive for them to adopt better agricultural practices. “If we want to bring good practices to scale, the market is an important pulling force,” he has said. “Using a minimum price is not helping that practice to grow.”
But, regardless of whether or companies use minimum pricing, there seems to be considerable evidence supporting the benefits of certification. The most comprehensive review of certification was done by the global consulting firm KPMG in 2012 for the International Cocoa Organization. KMPG found that there are “more advantages than disadvantages of certification at farm, cooperative and also at community level,” but cautioned that “there is insufficient independent literature focusing on the impact of cocoa certification.”
Put simply, we really don’t know whether certification – or the other farmer aid programs launched by Hershey’s and the rest of the industry – are doing enough to improve the lives of farmers and make cocoa farming an attractive way to earn a living, in the long term.
There’s no doubt that Hershey’s is trying. But trying isn’t the same as succeeding.
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I’m going to have to revisit this topic because, as I said, there’s a lot of complexity to it. But here’s a final thought. I emailed Joe Whinney, the ceo of a wonderful company called Theo Chocolate (my story about them is here), to ask how much they pay farmers in the Democratic Republic of the Congo, where they source cocoa. Joe replied:
As of yesterday the New York price for cocoa was $3,286 / metric ton.
Our current price paid FOB for Congo beans is $4,050 and FOB for Peru is $3,950. The farmer receives approximately 60-85% of this FOB price based on a variety of circumstances including but not limited to how much post-harvest process the farmer does, cost to deliver the cocoa to port and any special training services provided to the farmer that are not funded by outside parties.
So Theo is pay way, way more than even Fair Trade, and making sure that more of the money flows through to the farmer. Of course, a Theo chocolate bar costs a lot more than a Hershey bar, so the comparison isn’t exactly fair. But maybe the lesson is that we all need to pay more for chocolate if we want to deliver a decent livelihood to the cocao farmers at the distant end of the supply chain.