Published 3 years ago.
About a 4 minute read.
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Ceres’ new Investor Brief on Cocoa identifies three key challenges posed to the cocoa industry by shifting social and environmental conditions, and the actions companies can take today to mitigate the material financial risks embedded in cocoa supply chains.
With Halloween just around the corner, store shelves across the US are filling
up on one of the country’s favorite sweet treats — chocolate. As an industry
that uses 40 percent of all
produced worldwide, the chocolate industry relies on a robust supply chain for
its success. But increasingly, consumers and investors alike are recognizing the
social and environmental issues involved with producing cocoa — creating more
business risks for companies whose supply chains have already suffered from
Ceres’ new Investor Brief on
identifies three key challenges posed to the cocoa industry by shifting social
and environmental conditions, and the concrete actions companies can take today
to mitigate the material financial risks embedded in
Areas highly suitable for cocoa production are expected to decrease by 9
due to changes in weather conditions associated with climate change. These
physical risks — caused by changing weather patterns — can result in operational
and market risks for companies, as prices and supply volume will become even
Companies that source cocoa can no longer ignore the realities of a changing
climate. They will increasingly need to invest in technologies that support
climate-smart production practices. These practices can include intercropping,
soil fertility management, and drought-resistant plants, some of which have the
added benefits of weed control, water regulation, and biodiversity.
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Several chocolate companies, traders, and cocoa processors — including Barry
Hershey’s, Lindt & Sprüngli,
Mars, Nestlé, Olam
International and Touton — have partnered with the World Cocoa
Foundation to implement sustainable agroforestry systems in their supply
chains, all improving environments where cocoa is grown using sustainable
Farmer displacement due to poverty and civil war has led to an increase in
deforestation in West Africa, with 90 percent of primary forests destroyed
to allow for the expansion of farming operations. Cote d’Ivoire alone has
lost 80 percent of its forests since 1970. 70 percent of this deforestation in
West Africa is in protected areas, and much of this is cocoa-driven. In July
2019, the European Commission introduced the “2019 EU Communication on
Stepping up EU Action to Protect and Restore the World’s
Forests” — outlining
potential increased reporting and due diligence requirements for companies to
guard against deforestation in their cocoa supply chains.
If preemptive action is not taken, company supply chains could be penalized by
the new regulations the EU will consider moving forward. These guidelines, which
are expected to kick off in 2022, are likely to be
by big-name chocolate companies such as Barry Callebaut, Mars, and Mondelez
— all of whom have signed a separate joint
calling on the EU to pass due diligence legislation. Companies can expect the
potential loss of contracts and market access if they fail to measure up to the
new regulations, especially if other chocolate companies in the space are able
to meet the requirements.
The extreme poverty among the
that own the world’s roughly 6 million cocoa farms can lead some to depend on
the use of child labor and expansion of cocoa production into dwindling
protected forest reserves. Last year’s Washington Post
about child labor on cocoa plantations sparked outrage from customers. And as
climate change continues to accelerate, cocoa companies cannot leave their
smallholders behind. In response to this, there is now an increased demand for
While companies such as Hershey’s have stepped up their
to and investigation of child labor in their supply chains, reputational damage
can outlast any policy changes and even increase if implementation of the
policies are lagging. To address this, chocolate companies will have to monitor
and verify the lack of child labor in their supply chains.
Considering the risks posed by climate and human rights issues, chocolate
companies must adapt swiftly to avoid even more negative impacts to their
business than those caused by the pandemic. And they are not alone: The cocoa
industry is a case study for how industries must change in response to the
climate crisis. The challenges faced by the industry are all too common — in
fact, they are the backbone of the Ceres Roadmap to
2030, which guides
how companies should set targets and act in response to climate change.
Published Oct 15, 2020 2pm EDT / 11am PDT / 7pm BST / 8pm CEST
Dr. Julie Nash is director of the food and forests team at Ceres.