With annual sales of $7.4 BN and a product portfolio consisting of renowned brands such as Hershey’s, Reese’s and Kisses, The Hershey Company (Hershey) is one of the largest chocolate producers globally. Given that West Africa currently accounts for 70% of the world’s supply of cocoa beans, cocoa products sourced from this region are the most significant raw material in Hershey’s chocolate production supply chain. West Africa is particularly well-suited to cocoa production due to the high yields associated with the warm and humid climate.
However, climate modelling indicates that this region is increasingly growing warmer and drier. In fact, experts predict that by 2030 parts of West Africa will be too hot and dry to adequately produce cocoa. As a result, the world may face a significant decline in cocoa production due to the combined effects of climate change and farmers choosing to switch to more lucrative crops. This poses a significant threat to Hershey’s supply chain, especially in light of an expected 2% annual increase in demand for chocolates globally. Given that cocoa trees are productive over a 25-year period, an immediate adaptive response to climate change is necessary. With more than 2 million smallholder cocoa farmers, sustainability of cocoa production will only be achieved through a wide-spread shift to more adaptive cocoa tree varietals as well as practices resilient to the effects of climate change.
Realizing the potential to play a significant role in ensuring a shift towards a sustainable supply chain, Hershey has started to implement short-term and long-term solutions to address this problem. Hershey has developed both internal and industry-wide initiatives aimed at increasing cocoa sustainability. Internally, Hershey has developed a 21st Century Cocoa Sustainability Strategy with the goal of sourcing 100% certified and sustainable cocoa by 2020. This strategy focuses on modernizing cocoa farming through the following two initiatives:
- Distributing one million higher yielding, drought- and disease-resistant trees to cocoa farmers in West Africa by 2017
- Providing farmers with a three-year training program that can lead to UTZ certification as producers of sustainable cocoa
Across the industry, Hershey has combined forces with 8 leading chocolate companies to form CocoaAction, which has an aim to double the yields of 300,000 farmers through improved planting materials, fertilizer, and improved agricultural practices by 2020. Since its inception in 2016, this initiative has already successfully supplied 147,000 farmers with interventions to improve their productivity.
While Hershey has made significant progress towards ensuring sustainability of cocoa, current internal and industry-wide efforts fell short in terms of reach and innovation. With current efforts estimated to reach less than 10% of cocoa farmers by 2020, Hershey needs to implement a strategy with a wider reach in order to effectively combat the effects of climate change by 2030. Firstly, while the public sector and non-profits have invested in R&D of resilient cocoa trees, there still exists gaps in the market for cocoa trees and farming techniques adapted to changing climatic conditions. As a result, Hershey should spearhead a research partnership with other chocolate producers and local governments that ensures sufficient resources are dedicated towards the development of inputs highly adapted to changing climatic conditions. Secondly Hershey also has a role to play in ensuring wide spread dissemination of these innovations and best practices. To enable this, Hershey can work with private and public-sector partners to address both credit constraints and information asymmetries that have historically prevented smallholder farmers from reaping the full benefits of innovations in agriculture. By partnering with mobile phone operators and local organizations, Hershey could leverage high cell-phone penetration to cost-effectively deliver precision agriculture (e.g. through providing agronomic and weather information) as well as access to financial services (e.g. credit and insurance). By equipping smallholder farmers with access to both the information and funding necessary to use these new innovations, Hershey can ensure increased productivity of existing farmers as well as attracting new farmers to cocoa production; averting a potentially devastating chocolate shortage by 2030!
In order for the strategy outlined above to be effective, Hershey will need to collaborate across both the private and public sectors. How can Hershey effectively align incentives and diminish competing priorities across these actors? Going forward, it will also be important for Hershey to consider how to effectively diversify its supply chain to minimize supply risks. What are some approaches that Hershey could use to accomplish this?
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