Chocolate Endangered

Temperature increases threaten to send cocoa “yields crashing and prices soaring” according to one industry expert. Chocolate manufacturer Lindt & Sprüngli is working to sustain global cocoa supply…but will it be enough to meet rising demand?

Chocolate is a perfect food, as wholesome as it is delicious, a beneficent restorer of exhausted power…

           Justus von Leibig, 19th century agricultural chemist1

For centuries, chocolate has been a reliable delight, a “perfect food” that today supports a $117B industry.2 Our love of chocolate drives us to consume over 3 million tons of cocoa beans each year, and demand is expected to grow 30% by 2020 as emerging markets embrace the treat.3,4

Despite the global obsession, the future of chocolate is unclear. Anticipated shifts in global temperatures and precipitation raise the question of whether cocoa supply can support demand, or if climate change threatens one of the world’s most beloved indulgences. To investigate these concerns, the International Center for Tropical Agriculture (CIAT) conducted a study of cocoa farmland in Ghana and Cote d’Ivoire, two countries that collectively produce 50-60% of the world’s cocoa. The results were sobering: In less than 20 years, temperature increases will reduce the suitability of almost all cocoa farmland in these areas.5,a By 2050, the cumulative temperature increase of 2.3°C “could send [cocoa pod] yields crashing and prices soaring,” according to Peter Laderach, the lead author of the study.6

ciat-figure-11ciat-figure-12

Maps of Ghana & Cote D’Ivoire indicating changes in land suitability for cocoa farming. Orange coloring indicates land shifting to “less suitable” for cocoa, whereas red coloring indicates the land will be “much less suitable” for cocoa farming.5

For major chocolate manufacturers such as Nestle, Ferrero, Meiji, or Lindt & Sprüngli, the threat of insufficient cocoa supply is no small matter, and how to prevent a shortfall is the $117 billion- question. The enormity of the challenge is only exacerbated by the fact that cocoa farming is extremely fragmented; 80-90% of cocoa is produced by small, family farms of 5-10 acres apiece.3 In an industry divided into 5-6 million farms, most of which do not have significant resources to invest in innovation, it is difficult to develop a unified effort to combat the effects of climate change.
lindt-chocolate

In order to activate and unite efforts across farms, Lindt & Sprüngli (owners of globally-recognized brand Lindt as well as other chocolate brands such as Ghirardelli, Russel Stover, and Hofbauer) have established a Farming Program to communicate, amongst other topics, sustainable farming practices to over 45,000 cocoa farmers.7 For example, Lindt & Sprüngli have explicitly laid out requirements for Ghanaian farmers in its supply chain, with compliance verified through farm visits.8 On top of this, the company requires all of its suppliers to comply with its “Supplier Code of Conduct”, which explicitly states that suppliers must “strive to minimize their greenhouse gas emissions” and “minimize disposal of solid waste, wastewater and other emissions to prevent pollution…”9

While working with cocoa farmers is an important step, Lindt & Sprüngli has also instituted changes within its own operations to reduce its carbon footprint. Initiatives have included shifting electricity sources to a higher share of renewable electricity, funneling waste heat back into the system for use in heating and dehumidifying, and the use of LED lighting. Lindt & Sprüngli has also shifted transportation of goods from trucks to rail, which can reduce the company’s CO2 output by 807 tons in a single year alone. The results of such initiatives on CO2 emissions, and water and energy consumption are shown below.10

reduced-energy-use

Despite these efforts, the fragmentation of the cocoa supply chain still poses an obstacle to real progress. It is unlikely that cocoa farms will be able to innovate and implement change that will make an impact without pooled resources and commitment. However, Lindt & Sprüngli have joined a public-private partnership facilitated by the World Cocoa Foundation that includes collaboration with CIAT as well as Nestle, Mars, Cargill, and other major industry contributors. The focus of the partnership is to develop solutions to address the threat of climate change to the long-term viability of the cocoa industry. According to CIAT’s Mark Lundy, “This new initiative is critical because it inserts solid climate projections for cocoa into private sector decision-making processes, allows for dialogues with public agencies and donors, and prioritizes collective investment plans to ensure a resilient cocoa sector that benefits farmers, companies and consumers into the future.”11

This partnership was announced in May of this year, and it remains to be seen to what extent Lindt & Sprüngli and other major chocolate players will work together to solve this problem. Going forward, the cocoa industry will likely require agricultural innovation that will need to be funded by major players and disseminated at scale. Should this initiative fail to effect that level of scaled change, the small, independent efforts of separate farmers or even separate chocolate companies will likely not have the necessary impact to ensure everyone can satisfy their craving for the “perfect food.”

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Notes

[a]   It should be noted that as temperature increases, some areas that had previously been too cold to grow cocoa may shift to a suitable temperature. If this did occur, however, it does not imply a net negligible effect on the system. In such a scenario, farmers who had previously produced chocolate would need to identify another crop to sustain themselves, while chocolate manufacturers would need to identify farmers in new cocoa-suitable areas who would be willing to shift to cocoa farming. On top of the impact to farmers, it is likely that the newly suitable land will not be existing farmland. In that case, deforestation would be required in order to accommodate the cocoa “migration,” with affected countries likely including Liberia and Cameroon. Significant uncertainty surrounds the impact of such activities, as well as whether the system could absorb the anticipated increase in cocoa demand alongside these threats to its supply chain.12

Sources

[1] Justus von Leibig, qtd. in Cocoa and Chocolate: A Short History of Their Production and Use by James McKellar Bugbee of the Walter Baker & Company (Applewood Books, 1886).

[2] “A Taste of the Future”, KPMG, June 2014. Accessed 11/3/2016. https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/taste-of-the-future.pdf

[3] World Cocoa Foundation. “Cocoa Market Update,” (April 2014). Accessed 10/30/2016. http://www.worldcocoafoundation.org/wp-content/uploads/Cocoa-Market-Update-as-of-4-1-2014.pdf

[4] “The Earth Security Index 2015”. Earth Security Group, 2015. Accessed 11/3/2016. http://earthsecuritygroup.com/strategy-briefs/earth-security-index-2015

[5] Predicting the Impact of Climate Change on the Cocoa-growing Regions in Ghana and Cote d’Ivoire, International Center for Tropical Agriculture, Sept. 2011. Accessed 10/30/2016. http://dapa.ciat.cgiar.org/wp-content/uploads/2011/09/ghana_ivory_coast_climate_change_and_cocoa.pdf

[6] Jason Gordon, “Too hot for chocolate?” September 29, 2011. Accessed 11/4/2016. http://dapa.ciat.cgiar.org/too-hot-for-chocolate/

[7] “Sustainably Sourced Cocoa Farming Program”, Lindt & Sprüngli. Accessed 11/3/2016. http://www.lindt-spruengli.com/fileadmin/Global_content_all_access/Sustainability_Corporate/5_Sustainability_Governance/Downloads/LindtSprungli_Sustainable_Cocoa_Brochure.pdf

[8] “Further Documents”, Lindt & Sprüngli. Accessed 11/3/2016. http://www.lindt-spruengli.com/sustainability/sustainability-governance/documents/#c1946

[9] “Lindt & Sprüngli Supplier Code of Conduct and Compliance Declaration”, Lindt & Sprüngli, 2016. Accessed 11/3/2016. http://www.lindt-spruengli.com/fileadmin/user_upload/corporate/user_upload/Sustainably/Supplier_Code_of_Conduct_and_Compliance_Declaration.pdf

[10] “Sustainability Report 2015”, Lindt & Sprüngli, 2015. Accessed 11/3/2016. http://www.lindt-spruengli.com/fileadmin/Global_content_all_access/Sustainability_Corporate/5_Sustainability_Governance/Downloads/LindtSprungli_SustainabilityReport_2015_EN.pdf

[11] “Leading Cocoa and Chocolate Companies Join Together to Help Cocoa Farmers Adapt to Weather and Climate Impacts”, World Cocoa Foundation, May 31, 2016. Accessed 11/3/2016. http://www.worldcocoafoundation.org/wp-content/uploads/FINAL-CSC-program-announcement-5-31.pdf

[12] Georgina Smith, “Sticky: Chocolate meltdown: Feeling the heat”, International Center for Tropical Agriculture, April 4, 2016. Accessed 11/3/2016. https://ciat.cgiar.org/climate-change/chocolate-meltdown-feeling-heat

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9 thoughts on “Chocolate Endangered

  1. Thanks for your post! This is a really interesting example of competitors coming together to address a challenge, rather than simply resign themselves to mutually assured destruction. As Lindt & Sprüngli work together with their competitors to teach sustainable farming practices to the very fragmented cocoa production market, do you think that this will reveal opportunities for consolidation of small farms? That is, I wonder if some of the sustainable practices may necessitate increased cooperation among fairly independent small farmers in order to implement (if some require significant capital investment, for example, or increased monitoring and control of shared resources like water for irrigation).

    I’m also curious as to how the big chocolate players will evaluate the success of their partnership. The challenges they face seem to be quite similar to those of the coffee industry, which, according to another blog post, seems to be addressing the problem on a firm-by-firm basis thus far. Coffee and cocoa are grown in similar regions–I wonder if there might even be cross-industry partnership potential to teach sustainable farming practices in a way that leverages the resources and knowledge of even more large firms without the shadow of competition. In any case, it is heartening to see the big chocolate firms at least attempt to set aside their identity as competitors to work together to solve this problem. Hopefully they will be able to report good results soon!

  2. Like the title and the picture! Three thoughts related to this.
    First, can they invest in or partner with agricultural technology companies to work on new method that can increase cocoa yield?
    Second, can they substitute cocoa with something else to make it taste similar and add tryptophan to it so that chocolate still have the same effect of releasing serotonin? Food/ingredient substitution technology is developing fast and can be safe and healthy for some kinds.
    Third, can they educate consumers to consume more low cocoa level chocolate? Not sure whether this is feasible as dark chocolate is proved to be more healthy.. Or can they expand into related snack categories to diversify their product mix and reduce the risk brought by low cocoa yield in the future? Or can they “attack” other industries/users of cocoa to reduce global cocoa demand in the future so even with lower supply price can still be in the same level as today?

  3. Thanks for the great post! Although, I think I may go binge on chocolate right now while I can ;).

    The investment with competitors in cocoa suppliers reminds me a lot of our IKEA case on Friday. I think it’s a great move for these companies to invest in their supply chains. It provides diversification in their business and protection of their supply. I do wonder, if the chocolate companies could start investing in alternatives to chocolate. Will our food consumption habits change so much in the future that the market will demand something entirely different? It would be very interesting to hear how some of these companies are thinking about the future of food aside from protecting their current supply chains.

  4. Cocoa and thus chocolate are indeed threatened by the climate change. I agree with the points above, yet I feel the urge to raise doubt on the solutions proposed and add a few proposals.
    More precisely, although it is great for Lindt & Sprüngli to set guidelines, it is questionable whether Ghana farmers will be able to adapt. As the temperature rises, COGS (e.g. water, pesticides costs) will increase and farmers will most probably not be in place to sustain their yields. Lindt & Sprüngli should establish monitoring mechanisms, trainings and directly invest to ensure that the farmers get machinery/systems required.
    Additionally, as the world is becoming hotter, Lindt & Sprüngli should either purchase land and operate their own farms (could be even used as beacons to demonstrate best practice to farmers) to ensure quality and quantity of raw materials or explore new areas that are now (or will soon become) suitable for cocoa cultivation.

  5. Great post! This information made me curious to find out what options there are to genetically modify cacao to sustain a wider range of temperatures. If cacao is particularly sensitive to climate change relative to other crops, has anyone experimented with this? It turns out, no, there has been no GMO cacao developed yet, partially because of the complexity of the crop and partially because of public pressures to avoid GMOs. (http://theplate.nationalgeographic.com/2015/03/18/can-gmos-save-chocolate/) It sounds to me like this may be the best option to satisfy the demand for cacao as temperatures continue to rise.

  6. Thank you so much for the post. I suspect every chocolate lover will be reading this one!

    What intrigues me most about this article is the moves by Lindt & Sprüngli and other chocolate manufacturers towards sustainable practices despite that they of themselves will likely only have a marginal impact on global warming. This includes the supplier Code of Conduct explicitly stating that suppliers ‘strive to minimize their greenhouse gas emmissions’, and Lindt & Sprüngli increasing their share of renewable energy as an input. It is inspiring to see this role-modelling by the manufacturers.

    Naturally, Lindt & Sprüngli will also have to plan for the scenario in which global warming continues apace. It is almost certain that these efforts will have to revolve around the supply chain. I was inspired by the ITC eChoupal case where, with a highly fragmented supply chain, through innovative use of technology to educate farmers and improve their ability to invest in farming and crop technology, ITC has been able to greatly increase soya bean output. With a similarly fragmented supply chain, perhaps Lindt & Sprüngli and the other chocolate manufacturers could learn from this case, and look at ways to invest in their farmers through technology, to educate them and encourage further investment by the farmers, thereby increasing their yields. Longer term, as mentioned in some of the previous blog posts, it may also be critical to develop more resistant strains of the cocoa bean, for instance learning from the work that Indigo Agriculture is currently conducting. It will be fascinating to see whether the manufacturers are able to work together in achieving this.

  7. I think that Lindt & Sprungli’s move to work with cocoa farmers in developing countries makes a lot of sense. Vertical integration would be another option, but as we discussed in our IKEA case, it comes with trade offs. Many other multi-national firms have had success working with farmers in developing countries to grow raw materials that meet their specifications. Multi-national specifications are often more stringent than the specs in the developing market, so it can take several years of working with local farmers before the raw materials can be used.

  8. I like to hear that people are coming together to solve the problem. Although for those who are small producers, even coming together will not be enough to help them overcome the challenges they will face. I wonder if maybe with climate change that other areas of the world may become suitable to grow it as well.

  9. This was a great analysis of a very important issue for several African economies. Cocoa makes up an enormous proportion of a country like Ghana’s exports, and climate change is therefore a major threat to sustaining economic growth. It is vital that the governments of cocoa-producing countries work with the key private sector players as well as research institutions to develop a more complete picture of different regions’ vulnerability, identify mitigation strategies and implement innovative techniques to switch to a more robust production system. Your point about the dominance of small farmers is also key; for these farmers to survive and adapt to new environmental challenges, they need much better access to information, training and agricultural inputs, as well as more comprehensive insurance schemes to encourage them to think long-term and invest in their operations.

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