A Path to Conflict-Free Chocolate? On the heels of the news (and here) that Whole Foods removed Scharffen Berger and Dagoba lines off their shelves in October 2012, I wrote a grant with Dr. Forrer to use different forms of media to draw out the relationship between business and peace in the cocoa industry.
Note: Whole Foods was facing pressure from over 40 of their natural food retailers and cooperatives over concerns that children were being employed in Hershey’s supply chain and thereafter on October 2, 2012 they decided to take action. The following day, Hershey’s announced that it would source 100% of its cocoa from certified agents by 2020. Um…can they realistically make this claim? And if so, why didn’t they make it earlier? How will they source 100% from certified agents? That’s a lot of work for just one commodity, let alone the others that certifiers have to deal with.
Did anyone remember this (the Whole Foods’ decision)?
As a result of Dr. Forrer’s previous research on minerals, timber, and coffee, and our proposed research into cocoa, we decided to start an educational forum to address the challenges associated with global commodities – we call it the Responsible Global Commodities Initiative. Since receiving support from the US Institute for Peace, we have engaged numerous industry leaders in fruitful discussions (see our first Salon webcast below) about how cocoa is grown, harvested, processed, distributed, marketed, and talked about by everyday consumers. And how businesses are proposing to address these damaging impacts to society, the environment, humans, and their own economics (from brand image setbacks).
*You can find a summary and detailed transcripts on the Conflict-Free Chocolate blog here.
We jumped into cocoa because of the effects and impacts this food has on the broader community (even when 99% of consumers are not aware), in particular with the private sector and their efforts to address the negative impacts related to commodities.
Did you know that months later, all of Dagoba chocolate was somehow certified by Rainforest Alliance as sourced using ‘sustainable agriculture’? How is this possible?
There are a host of impacts that we had to dive into to better understand how the term ‘conflict’ could be best understood and how it could help stimulate a possible response by industry leaders and possibly even lawmakers. Some of these impacts include pricing volatility which de-incentivizes small farmers, flooding local markets with excess supply reducing prices, and greater demand on arable land promoting deforestation. Also there is slave labor, with reports that have been brewing for about a decade that cast a shadow on how corporations are operating to sell chocolate at such low prices. Wages paid to farmers as a percent of the total price consumers pay for their beloved chocolate is diminishing in value – so does it make sense to simply pay them more and if we do, what are the impacts of doing this and how does this really address the issue if other stakeholders along the value chain do not have incentives to shift their behavior? Other impacts include environmental degradation including deforestation, investments into farmers themselves (their cacao tree stock is aging), sustainability within the industry with competition against food crops, and certification systems as a solution to these challenges. Our Goal In the cocoa industry, which has historically been rather closed and secretive, we wanted to provide a platform for firms and other stakeholders to open up the channels of communication and have a dialog on the issues the industry faces with the possibility that we might eventually form a better business model that more positively impacts the various stakeholders in the industry.
A Few Takeaways
- The cocoa industry is complex, but it is not too complex that we cannot find solutions – business solutions – to address the negative impacts our current business models exacerbate.
- The term ‘conflict’ is a sensitive one, according to leaders in the industry, and its reference is to something negative, invoking the idea that something has gone wrong. Many in the industry wanted to learn how we defined conflict before they engaged in the conversation, often times referencing the State Departments classification based on war within the state – and not our understanding of conflict. Reducing conflict in the cocoa industry will require more specific identification of the problems within the supply chain, in particular working with procurement officers or sourcing officers to incorporate.
- Firms can make demands for the way in which they want their chocolate to be produced, harvested, processed, and traded – however each stakeholder along the value chain must be incentivized to participate – but putting the entire burden on consumers to pay a higher price (premium) is not necessarily the only answer (via certification).
- We also learned that large traders, manufacturers, or corporations, typically did not want to engage in a public conversation. However the smaller firms are already innovating and looking at how they can reconstitute the way business is done within the industry AND they are eager to share best practices, their stories, and how they are working together with farmers and other stakeholders to address the issues. A tale of two cities, possibly even a David vs. Goliath narrative unfolded as we moved forward.
- Many large firms do not see these challenges (social, environment, labor, etc.) as something they are responsible for, however the smaller firms do. The veracity with which leaders in larger firms claim their limited liability can be a bit sickening, and they have a decidedly savvy language they employ to either remove them from the challenge or divert attention to other challenges. Even the ‘protocol’ established by industry leaders skirts legislative enactment in the Harkin-Engel protocol.
- Traceability is possible, since large firms like WalMart have data computing systems comparable to the CIA – but it is a matter of choice and for management to be convinced that having this data can help them make better decisions. By using third party certifiers, companies can shift their liability to another entity to address traceability – ultimately preventing any internal economic behavioral shift by the firm.
- The certification business model is full of loopholes: it depends on serious marketing capabilities. The evolution is to have certifiers of certifiers. How do we really know what’s happening? If our goal is to bring awareness to the issues, certification systems have partially served this purpose; many leaders indicate that anywhere from 0-2% of their consumer base really pays attention to the details, the rest use other identifiable metrics such as price, color, shape, and word of mouth among others. Ultimately the labels are an overall branding mechanism that positively is associated in consumers’ minds – similar to how Whole Foods represents a brand, but not all their products necessarily are ‘conflict-free’ or even supportive of small farmers.
So what is ‘conflict-free’ chocolate? Dr. Forrer and I came up with the following as a premise to our discussions and we use cocoa as one commodity that has transferable characteristics to other commodities globally. We believe that responsible global commodities are internationally traded goods which are excavated, grown, harvested, processed, and/or distributed in a way that comports with global policy’s, company standards, and local conditions such that the activities have a positive net impact on the relevant communities (stakeholders), the natural environment, and business by sustaining competitiveness. We are designing a Responsible Commodities Standard that highlights what smaller firms are doing and the direction larger firms can take to better deliver equity to stakeholders while still maintaining their competitiveness. Conflict-free chocolate is quite complex – which is why we are getting false choices from firms: do we leave behind unemployment in Africa when we exit to other regions of the world in order to remain free of slave labor or do we deforest the jungles of Indonesia to meet ever expanding demand? Our belief is that we can get rid of slave labor, keep our forests intact, and deliver chocolate to those who enjoy it – but we will have to create a new model that balances these societal needs with that of a longer term outlook for the industry and the earth. Which manufacturers use conflict-free chocolate? The reality is that the way in which cocoa is farmed, aggregated, traded, transported, and finally processed pulls from multiple sources that have not been traced – even when certification labels have been placed on product. So who can claim they are ‘conflict-free’? Unfortunately, only a few chocolatiers (in terms of overall market share) sourcing from areas where citing’s of indentured labor have not been witnessed; therefore if you source from countries outside of West Africa (Cote d’Ivoire, Ghana, Nigeria, Cameroon – which constitute 60% of world production) you are likely to be ‘conflict-free’ in terms of labor – however when it comes to environmental degradation, if you source from Indonesia (about 15% of total production), you fail to fall into the ‘conflict-free’ category since governance there is not as strict for their forests. Here are some companies we know who are doing great work with their sourcing (not an exhaustive list; company – cocoa source)
- Theo Chocolate – DRC, Ecuador, Dominican Republic, Costa Rica, Peru, Tanzania
- Madecasse – Madagascar
- Taza – Belize, Dominican Republic, Bolivia
- Equal Exchange – Peru, Paraguay, Ecuador
- Tcho – Ecuador, Peru, Ghana, Madagascar
- Alter Eco – Ecuador, Peru
- Chocolate Mamas – Tanzania
Do you know others doing good work? Please do share with us!
*Slave Free Chocolate’s directory of ethical chocolate companies looks at this list through the lens of both the social and human impacts, however there are other areas that have not been analyzed. In addition, their analysis focuses on former conflict zones which had poor governance leading to the issues we have with ‘slave labor’ today. However, other firms in Africa, such as Chocolate Mamas in Tanzania and Madecasse in Madagascar, do not succumb to the same environment as those countries in West Africa. In addition to the definition of ‘conflict-free’ above, we are using the framework below to better understand the direction we could move to get there. For greater applicability, we have developed a checklist for our standard which builds upon what current frontier companies are doing as they reshape and re-imagine how our business models can reflect present day realities while staying true to universal values. Based on what (business) stakeholders are already managing, our standard checklist includes the following 7-point framework and pursuant themes:
- Social – supports community disparities/inequality? supports community disintegration/break up?
- Human – uses slave labor? harms health of humans via pesticides? are living wages not paid?
- Environmental – harms natural resources/ecosystem? Fossil-fuel dependent? poor waste management / or externalization of waste?
- Political – is it supported by multiple stakeholders? was democracy (or maybe not democracy, but were people given the chance to be heard?) used in formulating the idea/initiative/activity?
- Governance – is corruption inherent/abusive? are transactions secretive (non-transparent)?
- Financial – is it competitive? Is only the bottom line considered in management decisions? does it promote poverty?
- Systems View – agro-ecological (organic, sustainable, agroforestry, conservation, or biodynamic, etc.) farming methods? is the scale inappropriate to ‘large’ or ‘small’ / internal or external / singular or plural? Do these transactions lead to peace or promote conflict?
In our view, producing, distributing, processing, branding and then selling responsible chocolate or ‘gw-chocolate’ (“good-will” chocolate) encompasses answering yes to at least 4 of these questions as they relate to all parts of the business.