Imagine a world where hot chocolate costs $20, and chocolate-chip cookies are a rarity. Given the impacts of climate change on cocoa beans, this could be the future. Hershey Company is sitting on the forefront of this crisis and witnessing the world’s supply of cocoa melt away. How did we get here, and can we fix it?
Where does life’s most wonderful pleasure come from?
Chocolate comes from cocoa trees called Theobroma, which, like other plants, are sensitive to water, sunshine, temperature, and soil conditions. The high fat-content in beans is harvested and then ground before being mixed with sugar and other ingredients to create cocoa-based products such as drinks, bars, and powder . Harvesting is labor intensive since beans are extracted by splitting cocoa pods and sun-dried for several days prior to packaging and shipment .
In 1874, cocoa production moved from Brazil to Nigeria, which soon became the largest producer of cocoa in the world.
Recently, however, West African production has declined due to climate change impacts on the plant’s growth phases .
- Drought: water deficit is directly correlated with decreased pod sizing, which affects bean size and fat-content ratios
- High temperatures: warmer temperatures increase survival rates for capsids (insects that damage cocoa trees) and other pests which were previously eliminated by colder winters
- Longer wet season / cloudy days: prolonged wetness leads to decreased atmospheric evaporability, which impacts the drying process for cocoa beans. Additionally, unnaturally long wet periods have increased landslides and soil nutrient depletion 
A look at Hershey’s: America’s original “sweetheart”
The Hershey Chocolate Company was established in 1894 by Milton Hershey. What had begun as a small chocolate producer soon expanded into a chocolate empire. With net sales of $6B, Hershey is one of the world’s largest producers of chocolate and sells products in 70 countries.
Despite being one step removed from cocoa production (it purchases its beans from the world exchange), Hershey is highly sensitive to bean price fluctuations, since cocoa accounts for a significant portion of Hershey’s raw material costs. With prices soaring by 60% in the last four years alone, Hershey is facing dire impacts on its business. Global chocolate demand to expected to exceed supply by 980,000 tons in 2020 .
If this trend continues, costs of goods sold will increase such that either Hershey’s profit margins will narrow or price hikes on consumers will be necessary. If margins thin, the company will slash costs elsewhere, either by employing cheaper labor or consolidating its product portfolio. If the company chooses to pass costs onto consumers, it will find itself battling to keep its market share dominance with the price-sensitive “everyday man.” Further, increased prices will force Hershey’s products to directly compete with gourmet European chocolatiers. Both outcomes are detrimental to Hershey, which is scrambling to mitigate climate change effects on its key ingredient.
Unwrapping Climate Change
Hershey has taken action in several key areas to alter cocoa production trends. First, Hershey created a position of “foresight manager” to analyze climate change impact on cocoa trees and forecast weather effects on cocoa supply. Like the Beer Game exercise, Hershey is attempting to understand its ability get its raw materials orders filled. The foresight manager collaborates with other stakeholders to understand these trends . Second, Hershey has invested $10M in capital for R&D projects working to find innovative ways to make irrigation systems more efficient. Irrigation systems are the only means to water plants if rainfall volumes are not sufficient. Third, Hershey has encouraged farmers to plant tall trees around shorter cocoa plants to shade them from the sun . Finally, Hershey launched CocoaLink, a mobile phone project that allows farmers to receive texts and phone calls regarding pests, weather conditions, and contact a real-time hotline to chat with cocoa experts .
Some additional things that Hershey can do:
- Stockpiling: encourage farmers to have a seed stockpile in case natural disaster wipes out seedlings. This can create a seed inventory buffer which serves as an emergency seed stash
- R&D for Soil Retention: invest capital for research to understand whether chemicals or nutrients can be added to the soil to enhance water-retention. This can completely change the African landscape and may not be too costly to implement on a mass scale
- Technology: genetically modifying cocoa plants for more heat and disease resistance
- Government: work with the Nigerian government to create more regional dialogue between farmers to share best practices, resources, or expensive technology. While this is somewhat achieved through CocoaLink, more knowledge-share can be created by rotating various cocoa farmers across different farming communities
Overall, cocoa production remains at high-risk, and given continued global warming, cocoa farmers will indefinitely face pressures unless corporations and governments can agree to come together and fight back. Otherwise, Hershey may have to blow chocolate a kiss goodbye.
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