Is there a business case for a fully transparent cocoa supply chain?

Featuring excellent speakers Joke Aerts, Open Chain Lead at Tony's Chocolonely, and Paula Byrne, Independent Consultant, Supply Chain Sustainability at Mind Collective, the webinar delved into the timely topic of sourcing cocoa in light of the new European Union Deforestation Regulation. This insightful discussion is still available on demand.

Recorded earlier this month, the webinar took place at a time when cocoa prices were still high, causing market fluctuations. The stark reality of a supply and demand mismatch leading to another deficit of beans this year was a key point of discussion. However, there is a glimmer of hope with expectations of better yields from the current mid-crop in West Africa, potentially easing some of the pressure.

Is there a crisis in the cocoa supply chain?

Byrne said she works extensively with clients to demystify the jargon surrounding the complexity of regulations. She said the pricing issue has been in the media, and cocoa stakeholders have discussed why.

“I would say, what I'm seeing and hearing is these are not new issues, but they are coming to a head right now – and cocoa quantity production has been an issue.

“I think we're in a crisis moment. But there were many opportunities at that moment of crisis. As we know, the industry is suffering from aging stock, deforestation, and aging farmers – and child labour is still a massive symptom of the issues rather than being the main focus.

“I think it is a great thing to see in the cocoa sector moving ahead, moving away from those kinds of headlines … and with the new EU due diligence regulations, you cannot get away from the transparency requirements that will be needed.”

Byrne said transparency is uncomfortable for everyone. “No one wants to air their dirty laundry or get the full data out, but there has to be a full understanding, and that's from a farmer up to a chocolate company to the consumer.

“But I think it's a specific time for cocoa, but from a sustainability and sustainable supply chain issue. We were always going to be here that way; that's my reading of this in 2024 through to 2026, for sure.”

A perfect storm

Aerts agreed that this is not a new crisis—but it is a perfect storm of a crisis, with all the issues coming to a head. “There’s a lot to navigate with the coming regulation, which we applaud and find necessary.”

She pinpointed the years of structural underinvestment in farms and the overreliance on illegal forms of labour.

“Now we are at this crisis of extremely low yields and productivity. For us, it's an interesting time as well … we've been buying cocoa according to our five sourcing principles since 2019. Tony’s Chocolonely and our mission allies have been paying a price that enables a living income, so it's quite a premium on top of farmgate prices.

“And the job we've always been meeting is that you cannot address the structural sustainability problems in cocoa without fundamentally paying cocoa farmers more.

“And now we're in this odd time where the farmgate prices have finally risen to the levels of what we're seeing on the international market price. And the farmgate price resembles something that looks like the living income reference price.

So, the premium is not so high anymore, but we are not at a living income roadmap for farmers. With 30 to 40% of cocoa productivity deficits, people will still be in dire poverty. So you can see that it's a multifaceted monster to tackle.”

Trust

Byrne said it’s all about trust and called for partners in the supply chain, including national governments, to change their practices and introduce new policies.

“I’m not a big fan of crisis moving the needle,” she said. “We’re talking about structural issues, social issues on the farm, family incomes, and also about eradicating child labour.

“So that whole rural development system is not going to be solved by going in with a nice solution or a high price and getting everything sorted in six months or more.

“It’s three to five years if you're lucky, and things fall into place because you're talking about behavioural change.”

Aerts said one of the solutions is also about getting good data, but who generates that data, who feels ownership over it, and who gets to share it?

“I think there's a lot to be done around data governance, with coops front and centre in generating that data and only managing that data. Our focus is very much on getting good data into the programme, and the tech is there.

“The tech is already working, and there are things out there if you don't have to make it as complicated as blockchain. And as Paula says, ‘it is about trust,’ - and the way you generate trust is about having direct relationships and that people at the beginning of the supply chain, at the end of the supply chain, are all fully invested in that transparency being good and accurate and valuable and not burdensome.”

Byrne also pointed out that many of the issues are not new, and when she started working in cocoa 20 years ago, they were the same.

But I think what has happened now is probably a wake-up call. In the sense that this can happen … The climate crisis also shows that we need to feel it before we act in some ways. But I don't call it ‘Doomsday,’ but it's definitely a wake-up call.”

Aerts said that Tony Chocolonely’s working theory, with its five sourcing principles, requires long-term direct relationships with coops to tackle the cocoa supply deficit.

“Tony's open chain commits to those coops that we've worked with for at least five years and beyond, and our mission allies and the other brands that commit to Tony's also agree and commit to five years.

“I'm not going to lie and say that we won't be tested in the mid-crop with the premium being nonexistent with the farmgate prices going up to the living income reference price again, but on a macro level, it is something to be celebrated, but it'll be a challenge for everybody right now to get the cocoa that is needed.

“That part we will figure out; my concern is always with how farmers weather this storm, how they come out of this cocoa-growing year, and how they go into the following year …. But it has been a tumultuous year in terms of getting cocoa out of farms; it has been quite the adventure, and we've learned a lot.”

Byrne said similar problems exist in every supply chain. It is not unique to cocoa. “There isn't a specific crisis in cocoa regarding sustainable supply. There are a variety of issues for sure, but it's not specific.

“So I think those are the key areas around running your data, which allows you to do your diligence assessments. Once you get started getting data, then you can actually improve the data. But if you're getting no data, there's nothing to improve on. And you're getting nowhere.”

Aerts said, “Each partner is dependent on the other in the supply chain – and that is why it’s a chain.”