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Beyond Fair Trade: Why are Mainstream Chocolate Companies Pursuing Social and Economic Sustainability in Cocoa Sourcing? Stephanie Barrientos Paper to ILO/IFC Better Work Conference October 2011

Work in Progress – Comments Welcome Dr Stephanie Barrientos Institute for Development Policy and Management, Brooks World Poverty Institute University of Manchester Oxford Road Manchester M13 9PL s.barrientos@manchester.ac.uk

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Beyond Fair Trade: Why are Mainstream Chocolate Companies Pursuing Social and Economic Sustainability in Cocoa Sourcing? Stephanie Barrientos

1. Introduction Fairtrade began to expand within the mainstream of chocolate retailing in the UK in the 2000s, when supermarkets began selling ‘own brand’ Fairtrade chocolate. However a number of large chocolate confectionary companies are now looking beyond Fairtrade, and adopting wider strategies to promote social and economic sustainability in their cocoa-chocolate value chains. This includes Cadbury/Kraft, Nestlé and Mars as well as some processors, which have established initiatives to support cocoa farmers and their communities in the South. In addition many companies are adopting Fairtrade, Rainforest Alliance and/or Utz certification for some of their main product ranges. This paper examines to what extent this is driven by civil society pressure or deeper commercial concerns over the social sustainability of agricultural sourcing within a changing cocoa-chocolate sector? It explores how the reshaping of cocoa-chocolate value chain networks over recent decades have contributed to a (dis)articulation between changing consumer oriented value chains and a fragile production base which mainstream companies are now trying to shore up. This paper draws mainly on research carried out on the sourcing of cocoa by Cadbury(Kraft) from Ghana. This research has thrown light on the fragility of a value chain where cocoa productivity is low and younger farmers are deserting cocoa farming to pursue their aspirations through other avenues, undermining the future social sustainability of cocoa sourcing. It also draws on complementary research in the Dominican Republic and India, as well as stakeholder interviews held between 2010-11.1 The paper examines various initiatives which companies are now pursuing to address socio-economic sustainability in their cocoa sourcing. Whist the paper focuses on the role of the Cadbury Cocoa Partnership in addressing more grass root development issues facing cocoa farmers involving community based initiatives, it considers this as part of a broader array of strategies which companies and civil society actors are pursuing. Analysis of the cocoa-chocolate value chain has to drawn on analysis of global value chains and production networks, to examine the dynamics of agro-processing and manufacture in value chains classified as ‘bi-polar’ (Fold 2002; Kaplinsky 2004). Associated research on fair trade initiatives has combined it with convention theory to examine the changing role of norms and standards as a driver of quality standards (Raynolds and Wilkinson 2007). These approaches have provided important insights into the reshaping of the cocoa-chocolate value chain from the consumer/producer end. However, rising concern with social and economic sustainability leads us beyond analysis of value chains and conventions involving defined commercial entities and informed consumers. We also need to examine deeper socio-economic embeddedness of commercial operations within diverse and fragmented

1 This paper is based on independent research carried out between 2005 – 2011, funded by Cadbury/Kraft, on

the social and economic sustainability of cocoa production in Ghana and India, plus a related study carried out by Berlan(forthcoming) in Dominican Republic. In this paper I do not go into the specific research methodology and findings of those studies which are being published elsewhere (see Barrientos and Asenso-Okyere et. al. 2008; Berlan forthcoming 2011; and Berlan, Barrientos and Singh forthcoming 2012). Additional research was undertaken on Corporates, Standards and Sustainability under Capturing the Gains Research Programme

(www.capturingthegains.org). Here, I examine the wider implications of the research in terms of corporate engagement in the social and economic sustainability of cocoa production. I am grateful to my research collaborators in the UK, Ghana and India for their immense contributions to the country studies. I take sole responsibility for the analysis presented in this paper. The views presented here in no way represent those of Cadbury/Kraft, whose funding was for independent research studies to be made publicly available.

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producer contexts and how these interplay with the dynamics of global sourcing. The concept of embeddedness draws on analysis of social and economic relations in the development of a market economy (Polyani 1944), which has more recently been applied to examination of global production networks (Henderson, Dicken et al. 2002; Hess 2004; Neilson and Pritchard 2009). In this paper we draw on these different approaches to examine how evolution of bi-polar value chains have contributed to (dis)articulation between consumer and producer ends of the chain. 2 This informs both consumer concerns for ‘fairness’, and adverse producer perceptions of their future in cocoa production, leaving companies increasingly concerned about the future sustainability of sourcing for mainstream quality chocolate markets. Concern by companies with socio-economic sustainability in their value chains has been compounded by recent estimates that with growing markets in the South, demand for cocoa is likely to outstrip supply by 2020 if no action is taken. Mainstream chocolate companies have been drawn into promoting initiatives around the socio-economic sustainability of cocoa sourcing in the context of an increasingly concentrated chocolate-cocoa value chain combined with a fragmented production base that saw a secular decline in price during the 1990s. But it is argued their concern is also prompted by social contestation, both through consumer groups campaigning for fairer trade as well as younger farmers pursuing exit options by seeking alternative occupations. The result has been a rebounding or ‘double movement’ where companies have themselves had to step into the role of addressing socio-economic sustainability within their cocoa value chains. Whether this is sufficient to address deeply embedded social issues within cocoa producing countries is questionable. As one agricultural development analyst commented: ‘Companies are now running around Africa like NGOs, but they don’t really know what to do’. The paper is organized as follows: Section two examines the changing profile of the cocoa-chocolate sector over recent decades in relation to producers, the cocoa-chocolate value chain and consumers as the context in which (dis)articulation has arisen. Section three examines conceptual approaches involving analysis of ‘value chain networks’, convention theory and socio-economic embeddedness which have helped to analyse transformation in cocoa-chocolate value chains since the 1980s. Section four examines how the issue of social and economic sustainability has emerged as the cocoa-chocolate sector has been transformed. It examines how civil society campaigns around poor socio-economic conditions of producers, including child labour, have drawn companies out of their ‘commercial box’ to collaborate in addressing social issues at the core of cocoa sourcing. It considers how this sit within a competitive commercial context involving different civil society initiatives including Fairtrade, Rainforest Alliance and Utz certification, and the pursuit of social and economic sustainability initiatives by mainstream chocolate companies. Section five concludes, and asks whether more structural shifts are needed, both within value chains, but also through wider re-thinking of development strategies in a global commercial context.

2. Changing global context of cocoa-chocolate sourcing It is important to situate current challenges facing cocoa production in the context of significant changes in the global cocoa and chocolate sectors over the past 20 years. This has seen a sector predominantly characterized by small scale family farming at production

2 The term ‘(dis)articulation’ has different disciplinary interpretations providing a double meaning which is

appropriate here. In anatomy, articulation is the location at which two or more bones make contact, which has parallels with the commercial linkages between firms in a value chain. In sociology, articulation is the process by which particular social groups appropriate cultural forms and practices for their own use, which has parallels with engagement by social actors at different nodes of value chains. Where these interactions are disconnected or involve tensions, we can talk of disarticulation.

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level shift from state-led export models to ‘bi-polar’ global value chains as the channels through which cocoa is sold internationally. In this section we examine this shift, with a particular focus on Ghana, which has been both affected and to some extent bucked, the trend. It is argued that the processes undergone in the cocoa-chocolate value chain have lead to a (dis)articulation between a concentrated chocolate market and a fragmented cocoa producer base. This, it will be argued, is at the heart of the current concern by mainstream companies with the social and economic sustainability of cocoa sourcing. Cocoa is a tree crop which can only be grown in certain locations 8° north or south of the equator. Farming is largely carried out by small scale producers, who are responsible for an estimated 90% of world production (WCF 2010). The majority of cocoa sourcing is from West Africa accounting for over 70% of all cocoa exports, with Cote d’Ivoire and Ghana the largest and second largest exporters respectively (ICCO 2008; WCF 2010). West African cocoa production is characterized by small scale family based cocoa farming (1 – 2 hectares or less being common), with over 2 million estimated small scale cocoa producers. New supplier countries have expanded production, particularly in Asia, increasing supply of cocoa onto the world market. In some countries, cocoa is plantation-grown on larger estates and commercial farms (such as Indonesia) or both small and large farms (such as India). From the 1950s to 1980s, the predominant model of support for cocoa farmers was through state dominated export marketing boards or caisses (Daviron and Gibbon 2002; Fold 2002; Losch 2002). The marketing boards used to set farmer prices, had monopoly control over cocoa purchases, provided the sole export channel and were responsible for overseeing exports. The international cocoa market was largely characterized by arms-length trading through commodity markets (London and New York), either through spot or forward contracts. Whilst there were many problems with marketing boards, they provided an important pillar of support to small scale producers and ensured quality of cocoa exported. During the 1980s this system was transformed through agricultural liberalization and dismantling of the marketing boards in most producing countries under Structural Adjustment programmes pursued by the IMF and World Bank. Ghana was the only large cocoa producer to resist this process. It partially liberalized the sector through the introduction of private buyers at a local level who had to be registered as Licensed Buying Companies (LBCs). But it kept its cocoa marketing board COCOBOD, which oversaw the LBCs, set the minimum producer price to be paid for cocoa each year, and continued to act as the sole export channel, ensuring quality of cocoa exported. The outcome of the strategy of liberalisation in most countries was to expose small scale producers directly to the international market, and even in Ghana COCOBOD could only provide a partial buffer to the vagaries of the global trends (Barrientos, Asenso-Okyere et al. 2008; Barrientos and Asenso-Okyere 2009). Changing Global Coco-Chocolate Value Chain Following liberalization, the number of specialised cocoa traders involved in trading on forward and spot markets declined rapidly, and simultaneously, consolidation took place in the cocoa-processing industry. Four firms accounted for 42% of the market in 2003/4, with only three of them (Archer Daniels Midland (ADM), Barry Callebaut and Cargill) accounting for 40% of the market by 2008 (Barrientos, Asenso-Okyere et al. 2008; Oxfam 2009). Processors (otherwise known as grinders) increased their upstream integration in many cocoa-producing countries, particularly where liberalization had opened up entry through abolition of state marketing boards. At the same time there has been a trend to increasing outsourcing of processing by manufacturers to specialised processors by manufacturers (Fold 2002, 2005). Only a few manufacturers, including Cadbury, continued to be involved in both the processing of cocoa beans as well as the manufacture of chocolate. Consolidation in the cocoa-processing industry, combined with developments in chain logistics (bulk transportation, information technology and communications), allowed companies to reduce

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the size of cocoa stock they held, and buy more directly from farmers (Kaplinsky 2004; Fold 2002, 2005). Ghana partially resisted this trend, with only two international companies (Amarjaro and Olam) becoming Licensed Buying Companies. Concentration also occurred on the manufacturing side of the industry. By 2005, the top ten manufactures accounted for 43% of world sales of chocolate confectionary (ICCO MC/10/6/2007). It was estimated that six companies controlled 57.4% of the world chocolate-confectionery market by 2008 (Oxfam 2009). Concentration continued following the acquisition of Cadbury by Kraft Foods in 2010. As shown in Table 1, Kraft is now positioned as the world’s largest chocolate confectionery company, followed by Mars and Nestlé. Chocolate manufacturers now focused more directly on cultivating consumer demand where branding could enhance value added. Chocolate-confectionery markets have also been rapidly changing and are now more differentiated. Whilst many consumers focus on low price, there is growing sensitivity to factors such as chocolate quality as well as social and environmental processes of production for which some are prepared to pay a premium. Three market segments are emerging: (i) high volume low-value bulk chocolate; (ii) mainstream quality chocolate; and (iii) high-quality ‘niche’ chocolate (including single origin, Fairtrade and organic). Aggregate growth in chocolate confectionary has averaged 2-3% per annum over the past decade. However, growth in the high-quality niche end of the market has been much higher, albeit from a low base. For example there has been a ten-fold growth in UK retail sales of Fairtrade chocolate-confectionery between £32m in 2008 to £343m in 2010 (Fairtrade 2011). Manufacturers and processors within the cocoa-chocolate value chain are having to be increasingly responsive to trends in this differentiated consumer market.

Table 1 Top Five Chocolate Manufacturers 2010

Company Net Sales 2010 (US$ millions)

Kraft Foods Inc (USA) 16,825

Mars Inc (USA) 15,000

Nestlé SA (Switzerland) 11,265

Ferrero Group (Italy) 8,763

Hershey Foods Corp (USA) 5,703

Source: Candy Industry January 2011

Consumption of chocolate is traditionally highest in developed countries of the north, which both have high consumer incomes and are more temperate. Chocolate melts at body temperature (one of its main appeals) and therefore needs to be stored in a cool environment. Estimates for per capita chocolate consumption in 2008 were Germany 11.4 kgs, UK 10.3 kgs and USA 5.1 kgs per annum (ICCO 2010). However, the largest growth in chocolate consumption is currently coming from rapid expansion of emerging markets in the South. Much of this growth is being generated by countries in Africa the Middle East, Latin America and particularly in China and India. Whilst India has a low per capita consumption of chocolate of 300 grammes per capita (2007 - FMCG Marketeers), its estimated growth in consumption of 8-10 % per annum (industry sources; Datamonitor 2010). It has been forecast that chocolate sales will rise by around 15 per cent to $93.5bn between 2009-2013 (Byrne 2009).The reasons include rising incomes, changing consumer trends and the expansion of cool chain distribution networks able to keep chocolate at a low temperature. Whilst consumers in the South are not necessarily as quality sensitive as the North, this could change as social networking exposes them to consumer trends in the North. Cadbury launched Fairtrade certified chocolate products (including Dairy Milk) in South Africa in June

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2011, with the possibility of other African countries joining soon. Many Chinese consumers are reputed to have an affection for dark (high cocoa content) chocolate (industry sources).

Challenges Facing Cocoa Production With the demise of marketing boards farmer prices in most countries have been set by international markets. The period after the mid-1980s, saw a downward trend in world prices, reaching a trough in the late 1990s. Although there was a partial recovery after 2000/1 (see Figure 2), in real terms average world market prices for cocoa were 13% lower in 2005/6 than in 1993/4 (ICCO MC/9/2 2007). Without protection, farmers have been directly exposed to price fluctuations, reflecting changes in international cocoa prices and variations in international values of domestic currency (ICCO MC/6/4 2006). In Ghana, COCOBOD partially protects farmers from annual seasonal price volatility, and ensures a price higher than the prevailing international average through a premium paid for the quality of Ghanaian beans. But prices have still been subject to annual variations and international trends. The World Bank (2008) estimates that developing country claims on value added in the cocoa sector declined from around 60 percent in 1970-2 to around 28 percent in 1998-2000.3 Since the mid 2000s the world price of cocoa has been increasing, and reached an all time high of US$ 3,625 per metric ton in January 2010 (WCF May 2010), with an average of US$ 3130.6 throughout 2010 (See Figure 2). Figure 2: Cocoa average annual prices 1981-2011 ($/tonne)

Source: Bloomberg

http://www.indexmundi.com/commodities/?commodity=cocoa

Two explanations have been put forward for the secular decline in prices during the 1985-2005 period: (i) oversupply fuelled by liberalisation and the entry of new producing countries (particularly in Asia); (ii) increasing concentration of ownership and control at the downstream end of the chain counter posed with decreasing concentration and increased liberalisation at the upstream growing end. In this commercial environment, increases in consumer prices have not been passed onto producers, and the share of final chocolate price going to producers has declined (Morisset 1998; Kaplinsky 2004). Looking at the total

3 World Bank (2008) World Development Report, Washington DC.

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cocoa-chocolate value chain, One estimate puts the indicative cocoa producer share of the cost of a bar of milk chocolate is 4%, with other ingredients accounting for 6% (Gilbert 2007).4 This is compared to the processor/manufacturer share of 51%, advertising 6.5% and retail share of 28%, with transport and shipping costs accounting for the difference. Oxfam (2009) estimate that the share of cocoa in the final price of an average bar of chocolate is approximately 3.5% - 6.5% depending on the cocoa content (Oxfam 2009). More recent rise in cocoa prices has been associated with production uncertainty (particularly in Cote d’Ivoire), rising consumer demand and a general rise in commodity prices following financial the crisis. If changes in output were solely related to price movements, as market economists predict, then a rise in prices should lead to a rise in production (albeit with a time lag for new plantings to come into harvest). But despite recent price rises, the sector faces significant challenges in generating sufficient growth in the supply of cocoa in face of rising demand. Since liberalisation many countries have experienced: (a) a decline of quality (due to poor agricultural practices and producers short cutting drying and fermentation); (b) low productivity in small scale farming. A standard response from industry and donors has been to promote programmes to train farmers in new methods of production and provide technical support (such as provided by Technoserve and related initiatives). However, there has been a growing realization by companies that the problems are more deep seated. A study commissioned by Cadbury into the socio-economic sustainability of the cocoa value chain in Ghana, one of its principle sourcing countries, was commissioned in 2005. 5 Cadbury currently buys nearly two thirds of its total cocoa from Ghana, which is used in all of its UK products.6 Cadbury is positioned within the mainstream-quality chocolate segment of the consumer market for chocolate confectionary. It differentiates itself from other mainstream brands through the specific flavour and quality of its chocolate. Ghanaian cocoa has a quality premium over other supply sources, it thus provides an essential cocoa source for maintaining the quality of Cadbury products. An important aspect of the study was to examine both the commercial and social aspects of production in order to assess the prospects for future socio-economic sustainability. The cocoa sector in Ghana has an estimated 720,000 farmers and is characterised by small-scale family based farming. The Cadbury study found that levels of productivity on cocoa farms was 40% of potential output and productivity was lower amongst older farmers. With little scope for the expansion on virgin lands, future supply depended on raising productivity in the sector.7 The average age of farmers was 51 years, and productivity was found to be lower amongst older farmers. Although COCOBOD and the Ministry of Agriculture had invested in programmes to enhance production, the study found many challenges. These included poor access to farm level services and lack of farmer information or awareness. Hazardous work, including that performed by children, remained a problem on poor family farms which were unable to afford rising labour costs.8 Social services and infrastructure in

4 Oxfam (2002) estimated cocoa to be 3.7% of the retail price of a standard UK solid milk chocolate bar.

5 For the full report see: Barrientos, S., K. Asenso-Okyere, et al. (2008). Mapping Sustainable Production in

Ghanaian Cocoa. London, Cadbury. Cadbury took the view from the outset that the research should be independent and made publically available (i) because the issues were of concern to the whole chocolate confectionary industry and (ii) a single company, even as large as Cadbury, was unable to address the issues alone. 6 Financial Times 10 March 2009

7 The study was undertaken in six communities across three regions: Ashanti, Western South and Eastern

Regions. The case study was based on a survey of 217 farmers, focus group discussions (45 owner-operators and caretaker operators, 12 youth and 12 women), 24 life histories and key informant interviews with actors in each community. 8 Following media exposures on child labour in West African cocoa, the International Cocoa Initiative was formed

to address the problems. Its members include the International Union of Food Workers (IUF) and key chocolate manufacturers, Cadbury being one. See: http://www.cocoainitiative.org/

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the cocoa regions were limited. An important finding was that the youth was deserting the cocoa sector, which they viewed as an occupation of last resort and low esteem. They sought a better life in the urban sector, in occupations perceived as more modern, with higher earning potential (Barrientos et. Al. 2008). Challenges to the long term sustainability of Ghanaian cocoa thus had economic and social dimensions, and both were thus found to be significant. Other reports have also confirmed similar trends in many countries (Oxfam 2009; Fairtrade 2011). Whilst rising prices will help to stimulate supply, there are important constraints on market forces operating at farm level. Firstly, an ageing small-holder farmer population is less innovative or responsive to price movements nor able to expand production or increase productivity sufficiently. Secondly it takes 5 years from planting a cocoa tree to it going into full production indicating significant time lags. Thirdly the move out of cocoa production (and agriculture more generally) by many small scale producers for whom alternative opportunities have greater appeal. If the challenges are deepely embedded in the social and economic fabric of the sourcing countries, market or production-led responses alone are unlikely to be sufficient. Chocolate companies and trade analysts are becoming increasingly concerned about the long term viability of cocoa sourcing. As a result of rising demand and constraints on production there are increasing concerns as to whether the growth of supply will be sufficient to meet growing consumer demand, especially for quality cocoa required to meet a differentiated market. Cocoa production is projected to rise by 6% to 3.98million tons by 2013, but industry estimates are that by 2020 4.5 million tones will be required to meet growing demand (Fairtrade 2011 citing a World Cocoa Foundation meeting held 2010). Such projections, even if over pessimistic, are causing alarm amongst cocoa processors and chocolate manufacturers. In sum, the process of liberalization in the cocoa sector did not lead to the predominance of a ‘free’ market across the whole cocoa-chocolate value chain. At production level, liberalization and dismantling of marketing boards exposed farmers directly to a more open market. But at an international level, the cocoa-chocolate sector went through a significant process of restructuring, with a decline in international traders and increasing concentration amongst retailers of chocolate-confectionery, chocolate manufacturers and cocoa processors. Whilst liberalization meant farmers were more exposed to global markets, they were now facing more concentrated buyers. This facilitated (dis)articulation between a fragmented production base at the supply level where ‘free market’ pricing operated and a bi-polar chocolate value chain dominated by oligopolistic processors and manufacturers at the demand level. Chocolate manufacturers are now facing a more differentiated market, with consumers in the quality segments increasingly aware of the socio-economic origins of the chocolate they buy. Across the global cocoa-chocolate value chain, changes in the chocolate confectionary manufacture and consumer segments are out of synch with those at the level of cocoa production.

3. Socio-economic embeddedness of Cocoa-Chocolate value chains The above overview of changes in the cocoa-chocolate sector indicate that conventional economic analysis of free markets is insufficient to understand changes taking place in the global cocoa-chocolate sector. Whilst price movements play a role, a deeper analysis is needed of an increasingly integrated cocoa-chocolate value chain linked to rapidly changing producer and consumer markets. In order to analyse the soico-economic challenges of cocoa production, two dimensions are examined here, analysis of commercial value chains, and also the concept of socio-economic embeddedness advanced through global production network (GPN) analysis. Socio-economic embeddedness can be understood as involving a process of mediation between commercial and social actors linked to a commercial value

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chain in any location. (Henderson, Dicken et al. 2002). Here we examine the relevance of this concept to an analysis of the changing cocoa sector. Global value chain analysis has provided an important framework for examining the increasing integration of firms across countries, from production to consumption. It investigates how firms have increasingly moved from operating through arms length markets facilitated by intermediaries to operating through more integrated inter-firm networks. These link producers, exporters, importers, manufacturers, retailers and consumers across international borders. The rise of dominant or lead firms within coordinated networks of suppliers enables lead firms to: (a) focus on acquiring ‘economic rents’ through branding and targeting at the consumer end of the chain; (b) use their increased commercial power to bargain over more favorable terms of exchange with weaker suppliers and producers; and (c) to facilitate governance (power) over subcontractors and producers across their global supply base (Gereffi, Humphrey et al. 2001; Kaplinsky and Morris 2002). Detailed analysis of the contemporary cocoa chocolate value chain described above has led to it being characterised as featuring ‘bi-polar governance’. One pole is composed of the concentrated group of processors, who increasingly have operations in both producing and consuming countries. The second pole is composed of the large chocolate manufactures, whose operations along the chain are much more limited. (Fold 2002; Kaplinsky 2004). This helps to unpack the changing business profile of the two dominant groups of companies, in a context where global linkages to consumers and producers are more direct. GVC analysis tends to focus on the inter-firm linkages, and requires complementary analytical insights to explore how their commercial activities are embedded in diverse social producer and consumer markets. The concept of social embeddedness arose through early analysis of the emergence of a market economy as a self-regulating form of economic organization in which social relations are intertwined (Polyani 1944). In a contemporary commercial setting, the concept of embeddedness has been highlighted through analysis of global production networks (Dicken, Kelly et al. 2001; Henderson, Dicken et al. 2002; Hess 2004). This approach examines the complex ways in which commercial networks of firms are embedded within different territorial, institutional and societal contexts across which commercial relations play out (Henderson et al). It helps to analyse value chain networks as they have advanced and become more complex across a range of sectors and countries. Applied to cocoa-chocolate, a GPN approach opens up a wider space to analyse commercial engagement of companies with both consumers and producers, where sourcing takes place through millions of small scale farmers embedded in diverse socio-economic developing country contexts. A socio-economic perspective combined with GVC/GPN analysis has been adopted by a number of writers to explore the changing dynamics of consumer markets in the North. This literature has drawn on analysis of the institutional environment (both formal and informal) in which companies operate across national borders, and the norms and conventions which shape the social construction of quality within diverse markets. Institutional and convention theories have has provided insights into the rise of Fairtrade and other certification schemes which have grown rapidly in consumer markets (Ponte 2002; Renard 2003; Barrientos and Smith 2007; Raynolds and Wilkinson 2007). Firms maximising economic rents at the consumer end of a chain have become increasingly sensitive to new consumer trends. They have to adapt not only to changing demands relating to product quality but also to the social and ethical expectations that shape consumer purchasing decisions. Fairtrade and related voluntary certification schemes provide a ‘mark’ of approval which endorse company commitment to certain principles in their commercial value chains. Their credence comes about through involvement of civil society organizations with sufficient reputation and engagement in development to ensure those principles are adhered to. However, large companies do not approach certification with a common motive, some are

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more ‘market driven’ and others more ‘quality driven’ (Raynolds 2009). Engagement between large corporate and civil society organizations brings to the fore an inherent tension between commercial and social goals. At its heart lies an asymmetry of power relations between lead firms occupying an oligopolistic position, a relatively fragmented global supply base, and civil society organizations supporting farmers and workers. This relationship has been described as being akin neither to a market nor a state led relationship. Rather, it is a bargaining model, in which the commercial power of lead firms predominates (Nathan and Kalpana 2007). The imbalance allows dominant processors and manufacturers to increase the value they extract from the chain when negotiating with weaker fragmented suppliers. However, there are also forms of countervailing power which can be exerted from within or without the chain. This has been described in the terms of ‘value chain struggles’ between commercial and social actors (Neilson and Pritchard 2009) involving social contestation of corporate activity. Such analysis helps to explain the growth of Fairtrade and similar certification schemes, in products such as chocolate. These arose through civil society advocacy against perceived injustices of mainstream trade, and was stimulated in the 1990s by rising concern about the detrimental effects of declining prices on small scale farmers. Fairtrade, it can be agued, thus arose as a form of social contestation of corporate power within value chains socially embedded within producer markets in the South and consumer markets in the North. However the current challenges facing the cocoa chocolate sector appear deeper than certification alone can address. Following decades of value chain neglect, younger more productive farmers are leaving cocoa production. Economic growth within the South is not only generating rising demand for chocolate, it is also providing alternative options for the farmers who traditionally produced its key raw material. We are entering a wave which has echoes of Polanyi’s argument that the excesses of markets tend to disembed the economy from the social conditions that gave rise to it and in which it operates (Polanyi 1944). This movement of the market, in turn, generates a counter-movement to re-embed the economy in practices and institutions of social regulation which constrain market excesses. This result is what Polanyi termed a ‘double movement’ of the economy resulting in struggles over new forms new institutions, actors, and jurisdictional claims (Mayer and Pickles 2010). Whilst chocolate processors and manufacturers have enjoyed commercial success through their oligopolistic position to extract value, this has contributed to potentially adverse repercussions where farmers see cocoa as having low esteem and providing poor rewards or opportunities. Younger farmers are pursuing their own form of ‘social contestation’ by exercising their ‘exit option’ and leaving the value chain altogether. In the cocoa-chocolate sector, state marketing boards and agricultural extension services traditionally played a role in supporting farmers. But in their absence, companies themselves are having to step into the breach. Let us now consider the implications in relation to the strategies chocolate manufacturers and processors are adopting.

4. Strategies to promote social sustainability and Fairtrade Cocoa

Over the last ten years, international chocolate manufacturers have come under increasing pressure to address issues of social and economic sustainability in their value chains – particularly at farmer and worker level. Different factors have contributed to these pressures at the consumer and more recently producer ends of value chain networks. Increasing media campaigns around the use of child and trafficked labour in cocoa production, with a focus on West Africa, have plagued chocolate companies since 2000, and promoted their engagement in wider stakeholder initiatives. Chocolate companies have gradually awoken to the vulnerability of cocoa sourcing (particularly quality cocoa beans) at the producer level as quality and productivity decline, with younger cocoa farmers seeking alternative options. Increasingly they are promoting initiatives to boost cocoa production and support farmers.

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Media exposure of the use of child labour (including the worst forms of child labour and trafficking of children)9 in cocoa farming, particularly in West Africa.10 It prompted increasing NGO concern with the issues (Anti-slavery International 2004). Exposés of child labour and trafficked labour have remained in the media attention, with a BBC Panorama Programme in the UK highlighting it again in 2010. There are debates over the causes of child labour in family based farming which have traditionally drawn all family members into production, and this is seen as a form of apprenticeship for children. Civil society organizations highlight poverty driven by low producer prices at farm level, rising labour costs and lack of educational facilities due to constraints on state spending as factors compounding this issue(Anti-Slavery 2004). Media exposure of the use of child labour in West African cocoa farming prompted the Harkin-Engel Protocol in the US (Tulane 2007; Tulane 2009). This was introduced under the threat of legislation to force the labelling of bars of chocolate in the US as being slave-free. The chocolate industry has since engaged in significant initiatives to support the cocoa sector. These include the International Cocoa Initiative (ICI), which provides the basis for cooperation between key companies in the global chocolate industry, concerned politicians, members of the labour movement and key civil society actors engaged in combating the worst forms of child labour and forced labour in growing and processing of cocoa beans and their derivative products (see www.cocoainitiative.org). Other industry bodies, such as the World Cocoa Foundation have also pursued greater social strategies in the cocoa sector in order to address child labour. Within Ghana, the Ministry of Manpower, Youth and Employment developed a National Plan for the Elimination of Child Labour and is playing a key role in a collaborative programme with COCOBOD and the chocolate industry on addressing labour issues. An important outcome of these initiatives has been increasing engagement by companies in issues at the base of their value chains, and realization that issues of social development, however remote, can affect them commercially. Campaigns over child labour in cocoa raised company awareness of social and economic issues in their value chains. But many chocolate companies soon realized that the root causes were more deeply embedded in the social sustainability cocoa sourcing, with serious implications for the future of their supply base. One of the first companies to explore this was Cadbury, whose concerns led to it commissioning research into the socio-economic sustainability of procurement of cocoa from Ghana discussed above. Cadbury (now part of Kraft Foods) has sourced cocoa from Ghana for over 100 years, and it is a large scale exporter of the quality cocoa it needs to maintain its position in the mainstream quality segment of the chocolate confectionery market. It has a longstanding commercial relationship with the country and, reflecting its Quaker origins, has long provided social support through philanthropic and corporate social responsibility activities.11 The company thus had a strong interest in ensuring the future sustainability of supply. From the perspective of Cadbury, it was clear from the study that poor socio-economic sustainability at the local level was going to create challenges to future supply. In the long run Cadbury saw itself as just as dependent on cocoa farmers as they are on Cadbury. To help address the social and economic challenges identified by the research it commissioned, Cadbury launched the Cocoa Partnership in 2008 to support cocoa farming in its main sourcing countries (Ghana, India, Indonesia and the Caribbean). It took the decision to invest £45 million sterling to support the work of the Cocoa Partnership. This was an alliance with different stakeholders including UNDP, Anti-Slavery International and Care

9 The definition of Child Labour is derived from the United Nations Convention on the Rights of the Child and ILO

Conventions 138 and 182 (see chapter 9). 10

These issues have received considerable coverage in the TV and the print media in the UK and the US since 2000 (see Berlan 2009 for a review of some of this coverage). 11

Cadbury Schweppes (2006) Living Our Values : Yesterday, Today, Tomorrow, Corporate and Social Responsibility Report, London, Cadbury.

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International. Local alliances were also formed within each country, which in Ghana included COCOBOD and local NGOs. Cadbury decided solutions needed to be sought through dialogue at community level, if they were to be sensitive to the future needs of farmers themselves. The aim of the Cocoa Partnership in Ghana is to enable local NGOs and farmers to bring their perspectives together, and to build action plans. It facilitates the creation of a bottom up and top down agenda, without which solutions are less sustainable. According to David Croft, Director of Conformance & Sustainability at Cadbury, Cadbury is just as dependent on their cocoa farmers as they are on Cadbury (personal communication). Cadbury has leverage on a global scale and has initiated similar work in the Dominican Republic and India. The aims of the Cocoa Partnership are to enhance business strategy and opportunities for farmers, promote sustainable livelihoods, and support community centred development. Following this Cadbury announced in 2009 that it planned to convert its Cadbury Dairy Milk (CDM) bars and drinking chocolate in the UK to Fairtrade later in the year. It is estimated this will lead to a tripling of the Fairtrade cocoa sourced from Ghana. Cadbury’s motive was to further enhance the commercial and social sustainability of cocoa farmers. Gains would come both through greater price stability (via a guaranteed minimum price) and through access to the Fairtrade social premium.12 Cadbury have subsequently launched Fairtrade products in a number of countries, including South Afirca in June 2011. An important rationale for Cadbury Fairtrade certification was the building of long term relationships in Ghana, and consolidation of the Cocoa Partnership.13 Kraft Foods is committed to the goals of economic, social and environmental sustainability, and increasing its sourcing of sustainable agricultural commodities that have been certified by 25% between 2010-15 (Kraft Foods 2010). Therefore conversion to Fairtrade is part of an integrated strategy of promoting socio-economic sustainability within cocoa production and a value chain which supports that. Other companies soon followed similar strategies aimed at promoting socio-economic sustainability in their value chains. Nestlé launched their Cocoa Plan in 2009 to help to tackle key issues facing cocoa farmers, their families and communities in order to create a better future for cocoa farming. It covers all aspects of a cocoa bean’s journey, starting with farmers and ending with the consumer. The Cocoa Plan pulls together a broad range of important initiatives and expands them further. Nestlé is investing CHF 110 million in the Plan to help improve the livelihoods of farmers and their communities, as well as enhance the sustainability and quality of cocoa grown for generations to come. In 2010, Nestlé committed its leading KitKat bar to Fairtrade certification.14

Bill and Melinda Gates Foundation initiated a large programme working with partners GTZ (the German Development organisation), World Cocoa Foundation and private sector companies (including Kraft, Hershey and Mars). The Gates Foundation launched the programme with $48 million in grants to help small cocoa and cashew farmers in sub-Saharan Africa significantly increase their incomes so they can lift themselves out of hunger and poverty. The aim is to strengthen the entire agricultural value chain—from seeds and soil to farm management and market access—so that progress against hunger and poverty is sustainable over the long term.15 Some of these companies (including Mars and some other Kraft Food ranges) committed to certification through Rainforest Alliance (RFA). Mars, for example, is working with RFA to enhance social and environmental sustainability of

12

Cadbury, as the manufacturer of CDM, is also certified under the FLO-Cert system. 13

Fairtrade Foundation statement ‘Cadbury Dairy Milk commits to going Fairtrade’ 4 March 2009. 14

See http://www.thecocoaplan.com/the-cocoa-plan/ and Javier Blas ‘Falling Cocoa Yields in Ivory Coast’ Financial Times 28 May 2010 15

See http://www.gatesfoundation.org/press-releases/Pages/african-cocoa-and-cashew-farmers-090218.aspx

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cocoa farmers, and provide traceability of its chocolate to sustainable sources (industry source).

The last three years has thus seen a rapid move by a number of large scale chocolate confectionery companies to invest in social and economic sustainability at the base of their value chain networks. A number of factors have played a role. Civil society and media campaigns, and successful expansion of Fairtrade and other certified products have been an important stimulus. Projections of rapid future growth in markets within the South, and concerns over demand outpacing supply have also played a role. But if these were the only factors, companies could rely on the forces of supply and demand raising cocoa prices and output, and certification satisfying the niche end of the consumer market. However, the drivers appear to be deeper. Companies are realizing that the socio-economic embeddedness of their sourcing base in poor and ageing farmer communities with low productivity within the south make them increasingly vulnerable commercially. Projections regarding future cocoa supply and demand is a serious challenge, but is linked to wider processes of socio-economic change in cocoa producing countries which market forces alone are unlikely to address.

5. Concluding Remarks

This paper has examined a complex process of change taking place in the cocoa chocolate sector, and the challenges it poses to mainstream chocolate companies. It has considered these changes from two aspects: the commercial dynamics of a bi-polar value chain increasingly dominated by a few large processors and manufacturers sourcing from a fragmented supply base; and the socially embedded nature of that commercial activity in producer and consumer contexts which are rapidly changing. Here we reflect on some wider development implications of the two. Firstly, commercial value chains and production networks, rather than traditional arms length markets, are playing a critical role in shaping contemporary global development (for better or worse). Lead companies are more concentrated and integrated into the producer and consumer markets in which they operate. Consumer markets have become more differentiated, with middle income consumers becoming more aware of quality and the social origins of their purchases. The view that this is only a feature of Northern consumers should not be taken for granted. In an era of global social networking and ICTs, there is an emerging awareness amongst Southern consumers. Cadbury would not have launched Fairtrade brands in South Africa were this not a possibility. But for too long companies and often governments have assumed that commercial success could be built on an infinite supply of ‘surplus’ cheap labour and raw materials from developing countries. This has resulted in a (dis)articulatioin between consumer oriented value chains, and their producer base. In some sectors, such as cocoa, the cracks are beginning to show. Whilst there are tensions between commercial and social pressures, we are (hopefully) seeing the beginning of a revisioning of socio-economic sustainability in cocoa production. Secondly, there is a realization that companies alone are unable to address the issues. Cadbury took an early view that it could only influence change in cocoa communities by working from the bottom up in alliance with local and international civil society organizations. Many other companies are working in various alliances with international development agencies and local organizations. But whether this is enough is questionable. The ICCO (2011) estimates that there are currently 60 initiatives to support cocoa farmers worldwide. It is concerned that whilst this will boost production, it will also fan volatility in the market. But deeper development issues are involved, such as endemic rural poverty, traditional land tenure systems, child labour, gender inequality (women often play an unrecognized role in family based cocoa farming), and structural inequities within a cocoa-chocolate value chain

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where farmers have long reaped little reward for back breaking work. Civil society organizations (Oxfam 2009; Fairtrade 2011) are calling for renewed public-private alliances, and reforming an international trade regime so that the rights and well being of farmers and workers are more systematically promoted. In the long term, farmers need to see a future in cocoa farming if the cocoa-chocolate value chain is to be viable. Thirdly, underpinning these changes is the shift of chocolate confectionery consumption South, with the rate of growth globally predicted at 2-3% per annum but in developing countries at 6-8% (albeit from a low base). This is a dramatic change for a product based traditionally on raw material production in the South and consumption of the manufactured good in the North. But this is a reflection of a wider development shift that has been occurring through rapid economic growth in Asia, Africa and Latin America compared with economic stagnation and crisis in Europe and North America. The challenge chocolate companies face is double edged – it is the growth of new income opportunities in the South that is both creating new demand for their products and luring younger more productive farmers and workers away from producing its key ingredient. Long term strategies pursued by companies are therefore entwined with a wider development process involving a broad range of development actors and processes. It is in this context that business is waking up to and engaging with the challenges of development.

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