15 December 2021
Chocolate companies face deforestation risks from unknown cocoa supplies
A lack of transparency about deforestation in the cocoa supply chain is creating reputational and regulatory risks for commodity traders and chocolate manufacturers.
By Erasmus zu Ermgassen
Chocolate thrives on mystery – which flavours will you get in your Christmas selection box? What lies behind your advent calendar door? How much deforestation was caused by your chocolate bar? And how many children worked to produce it?
These latter two mysteries are probably not what chocolate brands have in mind. Yet the reality in the west African country of Côte d’Ivoire (Ivory Coast), the source of more than 40% of the world’s cocoa beans , is that cocoa farmers do not earn a living income , more than three-quarters of a million children work on cocoa farms and one-fifth of cocoa is grown in ‘protected areas ’. Cocoa is also one of the largest causes of deforestation globally , as forests continue to be cleared to make space for new cocoa plantations.
Consumers rely on companies in the supply chain – retailers, manufacturers and traders – to ensure that the products they buy are not associated with these negative impacts. But what do the world’s chocolate companies know about their supply chains? Here Trase presents new data that reveals the origin and state of transparency of cocoa exports from Côte d’Ivoire.
A cocoa bean’s journey
Cocoa pods are harvested by hand by hundreds of thousands of smallholder farmers across Côte d’Ivoire, cutting open each pod with a cutlass, extracting the delicate beans.
These cocoa beans are either bought ‘directly’ from cocoa farmer cooperatives by international cocoa traders, such as Barry-Callebaut (a Swiss/Belgian/French company), Cargill (American), Cémoi (French), Touton (French), and Ecom Agroindustrial (Swiss), or bought ‘indirectly’ through other local middlemen (‘pisteurs’ and ‘traitants’) who collect cocoa beans from local villages, aggregate them, and then make deals with the traders who may first take possession of the beans at a warehouse near the port.
From the port, beans are then exported to countries like the Netherlands, USA, Belgium, and Malaysia, where they are processed into cocoa butter and eventually made into the chocolate brands which you recognise and love.
While companies have some visibility about the origin of beans sourced directly through cooperatives, and may even engage directly with farmers by providing training and other support, indirect sourcing is a black box – origin unknown.
To better understand cocoa production and the risks associated with it, Trase mapped Côte d’Ivoire’s cocoa supply chain using publicly available production and trade data.
Cocoa beans were first traced back to specific regions (départements) in Côte d’Ivoire by combining detailed shipping data on how much each trader exported in 2019 with information from cocoa companies about which farmer cooperatives they buy from.
More than two-thirds of all exports were handled by traders who disclose some information about their suppliers (55%), or exported by farmer cooperatives themselves (13%). The volumes each trader bought from cooperatives was estimated from the number of member farmers in each cooperative and data on cocoa production per farmer; the remainder of their cocoa being indirectly sourced through traitants.
Indirect and undisclosed sourcing are blind spots
Trase’s new data reveals the scale of the challenge that companies face in tracing cocoa from bean to bar.
Overall, less than half (44%) of cocoa beans exported from Cote d’Ivoire can be traced back to a cooperative using publicly available data. The remainder are indirectly sourced from local intermediaries by major traders (24%), or exported by traders who disclose no information about their suppliers (32%). The fraction of direct versus indirect sourcing varies among traders. Approximately 30% of Olam’s and Barry Callebaut’s sourcing is indirect, while Sucden and Touton source more than 60% indirectly.
This means that cocoa trading companies and the chocolate manufacturers further along the supply chain do not know where a large part – in some cases the majority – of their cocoa comes from.
Due diligence rules loom large
Despite its scale, indirect sourcing is not accounted for in most corporate sustainability reporting. The Cocoa & Forests Initiative (CFI), for example, is a multi-stakeholder initiative between the Ivorian government and 35 major chocolate companies and cocoa traders handling more than half of Côte d’Ivoire’s cocoa exports . CFI members submit annual progress reports on sustainable sourcing, but these reports are limited to directly sourced volumes only. CFI members report that 74% of directly sourced cocoa is traceable to farm . When you add indirect sourcing, the overall percentage of cocoa that is traceable falls closer to 50%.
This lack of transparency could become a regulatory risk for companies. The EU, which buys two-thirds of Côte d’Ivoire’s cocoa exports, has proposed due diligence legislation which places a legal obligation on companies to demonstrate that imported products are not linked to recent deforestation. It includes a requirement to identify the farm of origin of deforestation-risk products, such as cocoa. Indirect sourcing is diffuse, comprising informal, fluid relationships between farmers and local middlemen which make tracking cocoa beans back to farms extremely challenging, perhaps impossible.
Need for collaborative solutions
One solution is for collaborative, landscape-level action. As Trase demonstrates, cocoa can be traced back to specific départements or landscapes more readily than it can be tracked to specific farms. To control deforestation and account for indirect sourcing, companies could collaborate, define, measure and improve sustainability across entire landscapes, rather than focusing on any one specific (direct) supply chain.
In 2017, the CFI identified four priority areas within Côte d’Ivoire to take forward this approach Its most recent progress report describes these projects as “being set up”, indicating a need for greater progress.
Beyond indirect sourcing, one-third (30.3%) of imports into the EU are handled by smaller trading companies which do not disclose information about their suppliers in Côte d’Ivoire. While greater transparency is required from these smaller firms, establishing traceability may be a prohibitive challenge.
Support could be provided by Côte d’Ivoire’s coffee and cocoa board (CCC), which is investing in GPS mapping of cocoa farms and already operates an online database for tracking cocoa beans from the first buyer (the cooperative or pisteur/traitant) to the port. Making this data public would allay potential company concerns about disclosing commercially sensitive information and help all trading companies, regardless of size, to trace cocoa beans back to their origin.
Chocolate has a special place at Christmas and many other celebrations. Yet the lack of transparency about where the majority of world’s cocoa supplies come from and its links to deforestation and other impacts, presents risks for traders, manufacturers and retailers. Trase’s work to map the cocoa supply chain is the first important step to understanding and tackling these risks.
To reference this article, use the following citation: Ermgassen, E. zu. (2021). Chocolate companies face deforestation risks from unknown cocoa supplies. Trase. https://doi.org/10.48650/7KRA-8F19