Shocking news for some of you out there: The great creation called Nutella is not produced by the Germans, but Italians. And some bad news: Nutella, produced by Italian chocolatier Ferrero and loved almost globally by every child and adult, may not be around for too long. The reason? Global warming, a phenomenon exacerbated by the need for one ingredient making up of the Nutella awesomeness, destroying the natural habitat of other two key ingredient crops.
Ferrero sources the best ingredients out there to produce its iconic product Nutella: Hazelnut from Turkey, palm oil from Malaysia, cocoa from Nigeria, and sugar from Brazil come together at one of the 20 factories across the world to create the unique hazelnut chocolate spread. The company consumes one quarter of the world’s annual hazelnut supply1.
Not for too long, it seems. Production of palm oil, a key ingredient to Nutella, is an exacerbating factor to global warming, which threatens production of hazelnut and cocoa, the other two key ingredients.
Palm oil is used in thousands of products that many people use every day, from baked goods and ice cream to household cleaning products and shampoo—and can even be found in fuel
tanks. Palm oil production often cause the destruction of carbon-rich forests and peatlands. When deforestation and peatland drainage occur to make way for oil palm plantations, the isolated carbon is released into the atmosphere as carbon dioxide, contributing largely to global warming.2
To what extent is the supply of cocoa and hazelnut affected by global warming?
According to PWC, the supply risk can be viewed in two dimensions3:
- The magnitude of impact of climate change on the commodity
According to International Center for Tropical Agriculture, vast areas of the world’s top cocoa producers will become less and less suitable for cocoa production as global temperatures climb up4. Studies have shown that hazelnut yields are also highly sensitive to temperature and highly dependent on constant rainfall5.
- The concentration of suppliers
If a certain area can no longer produce a crop, is Ferrero not a large enough organization to secure the supply elsewhere? Unfortunately, supply of both crops are very concentrated. Nearly two-thirds of the global crop comes from just four countries in West Africa: Côte d’Ivoire, Ghana, Cameroon and Nigeria.6 Turkey, the leading producer of hazelnuts and providing about 72% of the world supply, is one of three European and Central Asian countries which will be most affected by extreme weather events in the future7.
What actions should Ferrero take moving forward, as it faces an unsustainable model, inflicted partly by its own actions?
There seems to be three strategies, with differing levels of feasibility:
- Change the product mix to become less dependent on crops that are at high supply risk
In short term, this solution is the least feasible to implement. With hazelnut and cocoa key ingredients to almost all iconic products produced by Ferrero, it takes a long-term view for the chocolatier to largely move away from products that are dependent on cocoa and hazelnut. Also, this approach would mean moving away from the core company competency of producing fine chocolate.
However, given that global warming is highly likely to reduce global supply of both crops and hence increase prices; the company’s profit margins would benefit from mixing products with less supply risk such as dried fruit, to its chocolate products.
- Enforce sustainability in own supply chain
Ferrero is already a member of The Roundtable on Sustainable Palm Oil (RSPO), formed in 2004, the major certification body for palm oil. Though the RSPO provides criteria for “certified sustainable palm oil” (CSPO) and offers that certification, their standards do not yet represent the best science regarding forest conservation and carbon emissions. Certified sustainable palm oil is not guaranteed to be deforestation-free, nor is the destruction of peatlands banned2, 8. Clearly, given its market power, the company could advocate for higher transparency of palm oil sources within the organization.
- Invest in supplying from a larger number of producers that are geographically dispersed
Although production of cocoa and hazelnut seem to be under threat in the primary regions that source these crops, there are still other parts of the world that can produce or are expected to start producing these crops with the changing climate. Ferrero could take a longer-term view and look into sourcing from more suppliers; however this would have a negative effect on overall transportation and supplier management costs and does not necessarily guarantee secure supply of the crops as these new regions could also be adversely affected by global warming in longer time periods.
 Thanks to Nutella, the world needs more hazelnuts http://www.npr.org/sections/thesalt/2014/09/16/347749070/thanks-to-nutella-the-world-needs-more-hazelnuts
 Palm oil and tropical deforestation http://www.ucsusa.org/global_warming/solutions/stop-deforestation/palm-oil-and-forests.html#.WBvqk_orJPY
 Business-not-as-usual: Tackling the impact of climate change on supply chain risk http://www.pwc.com/gx/en/services/advisory/consulting/risk/resilience/publications/business-not-as-usual.html
 Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, Ghana and Côte d’Ivoire https://www.researchgate.net/publication/257548214_Predicting_the_future_climatic_suitability_for_cocoa_farming_of_the_world%27s_leading_producer_countries_Ghana_and_Cote_d%27Ivoire
 The effect of climatic conditions on hazelnut yield in Giresun (Turkey) http://www.marmaracografya.com/pdf/26.15.pdf
 Cargill corporate website http://www.cargill.com/corporate-responsibility/responsible-supply-chains/cocoa/index.jsp
 The calm before the storm http://www.wwf.eu/?255876/The-calm-before-the-storm
 Ferrero corporate website https://www.ferrero.com/group-news/Ferrero-Palm-Oil-Charter