On the future of chocolate

Wandering through the Galeries Royales de Saint-Hubert in the heart of Brussels can be a torture for chocolate-lovers (and who’s not?). Many famous Belgian chocolateers have a shop in this 19th century shopping arcade. Think Neuhaus, Léonidas, Godiva… Behind the windows, chocolate in all possible forms and shapes are displayed to lure you inside. The shop keepers are keen to let you try some of this delicous good that the Incas called food of the gods. It becomes very difficult not to spent all the money you have with you -some indeed do. And apperently we don’t have to go to the temples of chocolate to be tempted to buy it. Global sales are growing rapidly now chocolate becomes increasingly popular in China and South-America. Is this growing demand for chocolate a big deal? As long as supply follows demand there’s nothing to worry about, right? But that’s exactly where the problem lies.

Strength is the capacity to break a chocolate bar into four pieces with your bare hands – and then eat just one of the pieces. – Judith Viorst

The Earth Security Group, a non-profit consultancy company, estimates that by 2020 supplies of cocoa will fall short. The Agritrade website even put a number on it: by 2020 we can expect a shortage of no less than 1 million metric tons. West-Africa is the main supplier of the cacao bean, the basic ingredient of chocolate, specifically Ghana and Côte d’Ivoire who provide 60% of global supplies. Climate change, volatile prices and poverty are challenging local farmers, who tend to switch to other crops such as soy or palm trees. For a market estimated to be worth 8 billion euros, that’s a serious threat.

Let’s break down what’s going on. Cocoa is still mainly produced by smallholder farmers in West-African countries. Altogether they provide around 86% of the world’s cocoa. In Côte d’Ivoire, around 600 000 smallholder farms sustain 20% of the population. In Ghana the cocoa production is the major economic activity for 30% of the people. Many families depend on the crop yield and the price they get for the black gold.

The cocoa prices have proved to be very volatile on global markets. The chart below shows both the overall increase in price over the last years, as its large fluctuations on the NASDAQ stock market. It’s not a very tempting idea to make your family income out of a commodity that’s so unsteady. The smallholder farmers often work in very poor conditions and live far below the poverty limit. Child labour is no exception in these families. Many farmers are turning to other, more reliable and profitable crops such as corn and soy.

Evolution of the cocoa price on NASDAQ over the last ten years (graph: NASDAQ)

The Earth Security Index group doesn’t expect this exodus from cocoa farming to stop. There are many reasons that make the business even tougher. Productivity of the cocoa trees has peaked and will likely start to decrease if no action is taken to restore the depleted soil. Add the impact of climate change and the picture becomes even grimmer. It is estimated that unsustainable farming and climate change decreased the available land for cocoa production by 40% during the last forty years. And the predicted change in temperatures and rainfall patterns is not going to help neither.

The International Cocoa Organization estimates that a variety of diseases causes losses as high as 30% or 40% of global production. These diseases are not new, but a warmer climate and pesticide-resistance can make cocoa production more vulnerable to these threats.

We cannot blame the farmers to shift to other crops in their attempt for a better income and living standards. Still the world is eating more chocolate every year. The Western world is still by far the biggest market, but emerging economies seem to have discovered the beloved product as well (speaking about love, chocolate is believed to be an aphrodisiac). There is also a change in taste. Dark chocolate is becoming increasingly popular. It contains up to 80% cocoa instead of the 10% to 30% in traditional milk chocolate. As a result, global demand for cocoa is expected to grow with 30% by 2020. With this soaring demand and dropping supplies, it’s not a big surprise we will fall short in cocoa soon. The graph below visualizes the problem.

Visualization of the predicted mismatch between cocoa suppliers and worldwide demand (graph: SüdWind Institute)

I think we all agree we cannot let this happen. I will not go as far as saying that access to chocolate is a basic human right, but it’s delicious, it makes you feel happy and it contains a lot of antioxidants. How can this mismatch between supply and demand be solved? By ensuring the farmers get a fair price for the cocoa, with a guaranteed minimum price. Tackling corruption in the cocoa supply change and supporting farmers to change to sustainable land use make cocoa farming profitable on the long term.

The fate of cocoa farmers lies in the hand of the multinational chocolate companies and the consumers. Chocolate companies have to rethink the position of the farmers in their business models and ensure they get a bigger share in the profits made out of the end-product. If we really want to keep eating chocolate, we have to take care of the cocoa farmers.

And it’s possible. An example of an innovative business model in the chocolate industry is the Divine Chocolate company. It’s a fairtrade company, which means they only buy cocoa from farmers who get a fair price for their goods. They have gone one step further than traditional fairtrade companies though. The Kuaopa Kokoo co-oporation cocoa farmers in Ghana who provide the cocoa, also co-own the chocolate company with nearly 50% in shares. This way, parts of the profits made out of selling the chocolate bars flows back to the cocoa farmers. The company started to produce for the UK market, but by now they sell at several countries around the globe.

A member of the Kuapa Kokoo co-operation, who supplies and co-owns the Divine Chocolate company (photo: Divine Chocolate)

This example shows that’s is perfectly doable to integrate farmer organisations into the value creation process, resulting in a sustainable business. Participating farmers benefit enormously from being part of the Kuapa Kokoo co-operation. They have invested in developing farming communities and farming skills, with a focus on water, health, education and sanitation to improve standards of living.  Kuapa Kokoo has also taken a lead on addressing child labour, and is piloting a number of environmental initiatives aimed at improving productivity and adapting to climate change.  The Divine dividends have been invested in Kuapa Kokoo’s business, and enabled farmers to have a new machete for each year’s harvest.

Large companies should replicate this kind of initiatives to keep the cocoa farmers in the business. It should also attract new farmers. This change in attitude is already happening. Big players Nestlé and Mars have started to shift to fairtrade chocolate as well. Divine Chocolate stated that in 2013 around 11% of the chocolate sold in the UK carries the Fairtrade label. A good beginning, but if we want to avoid farmers to massively run away from the cocoa business this is far from enough. If you really want to keep eating chocolate, you better pick your brand wisely!

Sources and further reading
Earth Security Index 2015
Divine Chocolate