Cocoa

Cocoa is the key ingredient in one of the world’s most popular sweets – chocolate. The most salient issues in cocoa supply chains include the use of child labor and expansion of cocoa production into protected forest reserves. Climate change also threatens the future viability of cocoa production due to the predicted increase in prevalence of droughts, pests and disease. This brief provides a summary of the main environmental and social factors that affect cocoa production worldwide; however, it spotlights key players in the U.S. and European value chain and provides examples of actions being taken by companies operating or headquartered in the United States.

KEY TAKEAWAYS

  • Cocoa production has grown by more than 50% since 2000, driven by rising demand in the food and beverage industries. A wide range of consumer products are made from cocoa and its derivatives, including processed foods, beverages, pharmaceuticals and cosmetics. 
  • Climate change is expected to threaten the future viability of current cocoa-growing areas, exposing cocoa supply chains to substantial physical climate risk.
  • Roughly 50 million farmers around the world depend on cocoa production for their main source of income. The prevalence of small-holder farmers and the combination of cocoa from different sources at various stages in the supply chain make it difficult to trace cocoa directly to the source and identify potential cases of deforestation and/or human rights violations.
  • In response to increasing media coverage and advocacy efforts, many companies have set public deadlines to eradicate child labor from cocoa supply chains. However, implementation of these commitments continues to lag behind, exposing companies to additional reputation risk.
  • Around two-thirds of all cocoa is produced in Côte d'Ivoire and Ghana, in West Africa, where cocoa has historically been a large driver of deforestation. Despite industry-led attempts to mitigate risks by improving transparency and accountability, some cocoa is still linked to deforestation in protected forest areas, most notably in these two countries.
  • Investors should address business risks in the cocoa supply chain through: directly engaging with their portfolio companies and their suppliers, supporting relevant policies, and joining multi-stakeholder collaborations. Effective implementation of corporate sustainability policies requires portfolio companies to promote commodity traceability and demonstrate a clear approach to supplier engagement, verify compliance with these policies throughout their supplier chain, and disclose  progress on implementation. 

Environmental and Social Factors that Drive Risks

Commodity Background

  • The global chocolate industry, valued at $106 billion, consumes 40% of all cocoa.
  • Cocoa is the key ingredient in one of the world’s most popular sweets – chocolate. Globally, food and beverage industries use 80% of all cocoa, while the remaining 20% goes to cosmetics and pharmaceutical companies, often for use in skincare products. According to recent estimates, the global chocolate market is poised to increase by 7.3% between 2019 and 2025.
  • Cocoa is grown throughout the tropics. Though the crop originated in Latin America (and is still grown in Brazil and Ecuador) and can also be found in Indonesia, almost 80% of it is currently produced in African countries, including Cameroon and Nigeria. Almost two-thirds of the world’s cocoa is grown in just two West African countries, Cote d’Ivoire and Ghana.
  • While most of the world’s cocoa is produced by smallholders in Cote d’Ivoire and Ghana, the processing and manufacturing of finished cocoa products typically occur in Europe. Between 2017 - 2018, European markets exported the highest amount of chocolate, with Germany leading at approximately $4.51 billion, followed by Belgium- Luxembourg ( $3.06 billion), and Italy ( $1.96).

Top Production Regions

Cote d’Ivoire and Ghana are the Leading Cocoa Producers with a combined 62% of Global Production.

Supply Chain

The cocoa supply chain is complex, and cocoa passes through many hands before making it into products sold on supermarket shelves. Cocoa grown by multiple farmers, mostly smallholders, is mixed together at multiple stages of the production cycle. This mixing makes it difficult to trace cocoa back to the individual farm level, where most of the supply chain risks originate. Additionally, the complex nature of this supply chain leads to inequities along the value chain, with only 6.6% of the value of a chocolate bar going to farmers. Downstream manufacturers (35%) and retailers (44%) see the majority of profits from cocoa products, while the remaining 14% goes to grinders, processors, taxes, marketing, transportation and traders. 



 

Company Examples

Nestlé

In a human rights saliency assessment, Nestlé found that the majority of its salient human rights issues were in its supply chain. For its cocoa supply chain, it found that the most salient issues include combating child labor, ensuring access to water, sanitation and hygiene, protecting communities against land acquisition and ensuring a living wage for workers. To address the child labor issues in its cocoa supply chain, Nestlé established a Child Labor Monitoring and Remediation System (CLMRS) in coordination with the International Cocoa Initiative. In 2019, Nestlé reported that its CLMRS monitored 78,580 children in the communities it sources cocoa from, and discovered 18,283 child-laborers within its supply chains, of whom 62% were engaged in hazardous labor. Nestle’s CMLRS currently covers 70% of its supply chain, which it  achieved through investing millions of dollars in efforts to make cocoa farming more sustainable. This system helps Nestlé target its efforts to reduce child labor. Nestlé is also working to create robust grievance mechanisms across its supply chains, informed by  local context, to ensure those mechanisms will be accessible to and meet the needs of communities in its supply chain.

Mars

Mars has actively sought to eliminate deforestation in its cocoa supply chain, both through its own Cocoa for Generations plan and through its action plans submitted as a member of the Cocoa and Forests Initiative, a collaboration between 35 major cocoa companies and producer-country governments  addressing deforestation from cocoa production. In March 2019, Mars released the names of its direct cocoa suppliers for the previous year and committed to achieving traceability to the farm level for 100% of its cocoa supply by 2025. To date, Mars has reported it can trace 95% of its cocoa to the country of origin, 40% to the farmer group, and 24% to the farm level. Mars is one of a few companies that have extended their own monitoring beyond their direct suppliers; while many other companies rely only on third-party certifications to verify that their upstream cocoa supply is deforestation-free.