So Valentine’s Day is upon us so it seems worth thinking about an interesting supply chain story from Fortune (How Big Chocolate plans to save its cocoa supply, Feb 7). Apparently Hershey and other large confectionary firms are spending heavily in West Africa to help out cocoa farmers. They are targeting both working conditions (in particular, trying to eliminate child labor) and educating farmers. On the one hand, this may seem like so much corporate window dressing to avoid an Applesque avalanche of bad press on just what it takes to put chocolates in the sampler box. On the other, there are very real bottom line implications for the firms in carrying out these programs.
But there is common ground. All industry players benefit if farmers produce more cocoa. Market demand is growing. As nations like India and China grow wealthier, new members of their burgeoning middle classes have developed an appetite for luxury goods such as coffee and chocolate.
At the same time, companies are keeping an eye on environmental and political threats to cocoa yields. Space to grow cocoa is limited; it only thrives in equatorial climates. About a third of the crop grown every year is trashed because of pests and disease. Unstable political conditions in cocoa-producing nations also adds to the volatility in the market. Cote d’Ivoire, for example, produces over a third of the world’s cocoa. In 2011, political unrest surrounding a local election caused the government to cease all exports, which limited the cocoa supply and sent cocoa prices skyward.
Companies need to get on the ground to ensure their supply. Hershey, for example, introduced a program called COCOALINK in 2011. COCOALINK distributes information about climate and pest control via SMS to farmers with cell phones, which most of them already have. “We’re starting to see the benefits when you really get to the farmers and give them the best information,” says Andrew McCormick, the vice president of public affairs at Hershey. “The preliminary results are that it will double crop yields in a couple of years.”
The educational benefits to the local community can go beyond cocoa. Apparently cocoa trees deplete the soil, so it is best if other plants are also grown on the same plot. Thus successful cocoa programs need to encourage farmers to have broader sustainability agendas. The aim is to educate younger farmers so that the cocoa consuming firms have partners to work with for the next few decades.
This is an interesting supply chain story on multiple levels. It involves not only big firms but also governments and NGOs. There are a lot of moving parts that come into play. But plausibly there is a way here that everyone from the growers to the firms to those of us with a sweet tooth can benefit.