Master’s Thesis

Cocoa Sourcing

Sustainability Challenges and Emerging Corporate Response

Author Manuela Wettstein Master in International Affairs & Governance

Supervisor Prof. Dr. Thomas Dyllick Professor of Sustainability Management Institute for Economy and the Environment (IWÖ-HSG)

Cocoa Sourcing Manuela Wettstein

ABSTRACT

The industry is confronted with serious sustainability challenges in cocoa production that may put long term cocoa supply at risk. Although sustainability challenges have been a concern for the industry for some years, the challenges have become more complex and increasingly urgent. Hence, it is analysed how chocolate manufacturers started to address the challenges. Additionally, the influence of these emerging corporate responses on global cocoa sourcing and on the sustainability challenges is assessed. The comprehensive review of the emerging corporate responses of six -based companies shows that the responses represent similar approaches towards sustainable cocoa sourcing. The assessment of the influence on global cocoa sourcing reveals major effects on the cocoa procurement market. About the effect of the emerging corporate responses on the sustainability challenges in cocoa production no conclusive statement can be made because of the incomplete data basis. Overall, the chocolate companies see themselves as being in transition to sustainable cocoa sourcing.

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Cocoa Sourcing Manuela Wettstein

TABLE OF CONTENTS

Abstract ...... I List of Figures ...... III List of Abbreviations ...... IV 1. Introduction ...... 1 2. Research Approach ...... 3 2.1 Analytical Framework ...... 5 2.2 Explorative Study Design ...... 7 3. Global Cocoa Sourcing ...... 8 3.1 Processing and Chain...... 9 3.2 Upstream Supply Chain...... 11 3.3 Cocoa Procurement Market ...... 16 3.4 Industry Stakeholders ...... 18 4. Sustainability Challenges in Cocoa Production ...... 22 4.1 Corporate Sustainability ...... 22 4.2 Sustainability Challenges ...... 26 5. Emerging Corporate Responses ...... 30 5.1 Barry Callebaut...... 32 5.2 Chocolat Frey ...... 34 5.3 Chocolats Halba ...... 36 5.4 Lindt & Sprüngli ...... 38 5.5 Mondelēz ...... 40 5.6 Nestlé ...... 42 6. Influence of the Emerging Corporate Responses ...... 43 6.1 Influence on Global Cocoa Sourcing ...... 45 6.1.1 Upstream Supply Chain ...... 45 6.1.2 Cocoa Procurement Market ...... 46 6.2 Influence on Sustainability Challenges in Cocoa Production ...... 50 7. Conclusion ...... 54 Appendix ...... 58 List of Interview Partners ...... 61 List of Literature ...... 62 List of Internet Sources ...... 65

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Cocoa Sourcing Manuela Wettstein

LIST OF FIGURES

Figure 1: Degrees of Supply Chain Complexity ...... 4 Figure 2: Processing and Manufacturing Chain ...... 10 Figure 3: Supply Chain Map ...... 12 Figure 4: Development of the Price ...... 17 Figure 5: Business Sustainability Typology ...... 24 Figure 6: Overview Sustainability Challenges in Cocoa Production ...... 26 Figure 7: Suitability of Cocoa Production. For Current and Future (2050) Conditions...... 29 Figure 8: Basic Logic Model ...... 50

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Cocoa Sourcing Manuela Wettstein

LIST OF ABBREVIATIONS

ADM Archer Daniels Midland CEN European Committee for Standardisation COCOBOD Ghana Cocoa Board CSR Corporate Social Responsibility CSV Creating Shared Value FLA Fair Labor Association FT Fairtrade International GAP Good Agricultural Practices GRI Global Reporting Initiative ICCO International Cocoa Organization IPCC Intergovernmental Panel on Climate Change KPI Key Performance Indicator LBCs Licenced Buying Companies MNC Multinational Corporation NCP Nestlé Cocoa Plan NGOs Non-Governmental-Organisations PPM Purchasing Portfolio Model QPP Quality Partner Program RA Rainforest Alliance SCM Supply Chain Management TBL Triple Bottom Line WCF World Cocoa Foundation

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Cocoa Sourcing Manuela Wettstein

1. INTRODUCTION

Chocolate is one of the world’s favourite foods. On a normal day, one billion people around the globe eat chocolate (KPMG, 2014, p. 6). In Switzerland, each citizen consumes on average 12kg of chocolate per year. Therewith the Swiss hold the world record in chocolate consumption (KPMG, 2014, p. 3). In general, the global market for chocolate is dominated by Western Europe and North America. However, emerging markets such as China, India, and Russia are increasingly driving growth in the chocolate industry (Wexler & Mukherji, 2014). Due to rising disposable incomes, chocolate has become an affordable treat for the evolving middle class in these countries. The revenues of the global chocolate industry are estimated at US$ 117 billion in 2014 (KPMG, 2014, p. 3).

The basic ingredients of chocolate are cocoa, and powdered milk in the case of milk chocolate (Chocosuisse, 2001, p. 30). In 2013/14 world production of cocoa was at 4.104 million tonnes. A considerable growth since 1971/72 when cocoa production was at 1.6 million tonnes (International Cocoa Organization [ICCO], 2014a). Cocoa is produced by about six million smallholders in Africa, Latin America and South East Asia (UNCTAD, 2008, p. 16). West Africa alone is responsible for around 70% of global cocoa supply. The largest producing country is Côte d’Ivoire with around 30-40% of global production, followed by Ghana with around 20%. Indonesia, Cameroon and Nigeria are other major producing countries (Gilbert, 2008, pp. 23-24). While global demand for chocolate is predicted to continue growing, the supply of cocoa is less certain and might plateau or possibly decline (World Cocoa Foundation [WCF], 2015c, p. 3). Chocolate manufacturers, including Mars and Barry Callebaut, have warned of a one million tonne supply deficit by 2020 if production is not increased (Terazono, 2014). Considering the total production of around four million tonnes, such a deficit would be substantial. However, the International Cocoa Organization (ICCO) relativizes the forecast. The ICCO states that although projections show that supply deficits are likely to occur during the next several years, the industry’s stocks of cocoa beans should cushion the development before production growth accelerates again (ICCO, 2014b). Whereas the actual size of the deficit is contested, it is widely acknowledged that the six million cocoa farmers face significant challenges. Among numerous others, major challenges are low incomes, child labour, poor education, lack of basic infrastructure, and climate change. The various issues result in poverty in farming communities as well as in low cocoa productivity (Goodyear, 2014). It can be stated that the cocoa industry faces complex economic, social and environmental challenges in cocoa production. In other words, the industry is confronted with sustainability challenges that possibly lead to a decline of cocoa supply. As a consequence, the sustainability challenges in cocoa production may put long term cocoa supply and thus the entire industry at risk.

For a long time, sustainability challenges in cocoa production have been neglected. However, at the turn of the millennium, two distinct threats triggered reactions by the chocolate

1 Cocoa Sourcing Manuela Wettstein manufacturers. First, the industry realized the presence of significant risks in the cocoa supply chain due to severe political turmoil in Côte d’Ivoire. Second, the industry became the target of global campaigns by non-governmental-organisations (NGOs), labour unions and the media pointing to child labour and child trafficking in cocoa production (Bitzer et al., 2012, p. 357). In this regard, chocolate manufacturers were subsequently compelled to sign the so-called Harkin-Engel Protocol in 2001. The protocol was developed by U.S. Senator Tom Harking and U.S. Representative Eliot Engel in order to eliminate the worst forms of child labour and adult forced labour on cocoa farms in Côte d’Ivoire and Ghana (Nagle, 2008, p. 141). As a consequence of the protocol, the International Cocoa Initiative was created. The International Cocoa Initiative is a multi-stakeholder initiatives that works towards the elimination of child labour in cocoa producing countries (International Cocoa Initiative, 2014). Although the companies have not fully completed any of the six articles delineated in the Harking-Engel Protocol, the protocol can be considered a milestone. Today, the presence of child labour on cocoa farms is widely admitted and companies support sensitisation efforts in the producing countries. Besides, the governments of Ghana and Côte d’Ivoire established specialized agencies and developed national action plans to address the issue in various economic sectors (Payson Center, 2011, p. 7). Overall, significant investments in cocoa sustainability initiatives were made in recent years (WCF, 2015c, p. 3). The ICCO estimates that around 65 initiatives involving around 60 organisations are addressing various sustainability challenges in cocoa production (ICCO, 2012a). However, in 2012, the ICCO concluded that despite the proliferation of sustainability initiatives not much, if anything, has changed in the producing countries. Consequently, the ICCO demanded that efforts are integrated around a common vision (ICCO, 2012a). At the first World Cocoa Conference in 2012, cocoa industry stakeholders including governments, producers, processors, exporters, traders, chocolate manufacturers and civil society signed the Abidjan Cocoa Declaration. Although the declaration is not a legally binding framework, it outlines a course of action towards a more sustainable cocoa economy (KPMG, 2014, p. 18). In 2014, at the second World Cocoa Conference in Amsterdam, the stakeholders reaffirmed the Abidjan Declaration and identified priority areas for further improvements (ICCO, 2014c). Also in 2014, the World Cocoa Foundation (WCF) announced the industry-led sustainability initiative CocoaAction. CocoaAction aims at boosting productivity and strengthening cocoa community development (WCF, 2014b, p. 1).

Although sustainability challenges have been a concern for the industry for some years now, the challenges are becoming broader, more complex and increasingly urgent (KPMG, 2014, p. 16). Against this background, having a closer look at the sustainability efforts in the industry is indicated. In particular, analysing how chocolate companies started to address the sustainability challenges in cocoa production is of particular interest. Assessing the influence of these sustainability efforts on the challenges in cocoa production is essential. Furthermore, it is interesting to analyse if these efforts cause changes in global cocoa sourcing. Consequently, the overall guiding research question is as follows:

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What is the influence of the emerging corporate responses on global cocoa sourcing and to what extent are they an effective answer to the sustainability challenges in cocoa production?

This research question implicitly entails the assumption that the sustainability efforts are a reaction to the sustainability challenges. However, this is not necessarily the case since the sustainability efforts might be triggered by other reasons. Hence, the motivations of the chocolate companies are also explored. To answer the research question, the initial situation in global cocoa sourcing is delineated first. Conventional global sourcing refers to the predominant approach of chocolate companies in consuming countries to source cocoa from cocoa smallholders in producing countries. Afterwards, the sustainability challenges are described in more detail. For that, the framework of corporate sustainability is introduced. Subsequently, a comprehensive review of the existing corporate responses is provided. Then, the influence of the emerging corporate responses on global cocoa sourcing and on the sustainability challenges in cocoa production is examined. Finally, a conclusion is drawn.

Regarding producing countries, the analysis focuses on countries in West Africa due to the fact that this region produces approximately 70% of global cocoa supply. In particular, the focus lies on the two largest producing countries Côte d’Ivoire and Ghana. Moreover, the sustainability challenges in West Africa are particularly urgent. With regard to consuming countries, the focus lies on Switzerland. The industry depends considerably on cocoa produced in Ghana and Côte d’Ivoire (Earth Security Group, 2015, p. 20). Furthermore, Switzerland hosts some of the global leaders in the industry. Besides, chocolate is one of Switzerland’s most famous export products and is at the heart of the country’s international brand.

2. RESEARCH APPROACH

In order to assess the influence of the emerging corporate responses on global cocoa sourcing and on the sustainability challenges, first of all, an analytical framework is elaborated. Subsequently, the study design and the employed methodology are outlined.

Inherently, the research topic is part of the global supply chain management (SCM) field of research. Basically, a supply chain is “a set of three or more entities (organizations or individuals) directly involved in the upstream or downstream flows of products, services, finances, and/or information from a source to a customer” (Mentzer et al., 2001, p. 4). While upstream refers to the part of the supply chain from the focal firm to the raw material suppliers, downstream describes the part from the focal firm to the end customer. There are three degrees of supply chain complexity: basic supply chains, extended supply chains and ultimate supply chains. A basic supply chain consists of the focal firm, its direct suppliers and its direct customers. An extended supply chain includes the suppliers of the focal firm’s direct suppliers 3 Cocoa Sourcing Manuela Wettstein and the customers of the focal firm’s direct customers too. An ultimate supply chain encompasses all the organizations involved in all the upstream and downstream flows from an ultimate supplier to an ultimate customer. Hence, the ultimate supply chain is better characterized as a supply network (Essig et al., 2013, pp. 5-6). The three degrees of supply chain complexity are illustrated in Figure 1. Generally, the suppliers with whom the focal firm maintains direct contractual relationships are considered first-tier or tier-1 suppliers. The suppliers of a tier-1 supplier are called second-tier or tier-2 suppliers – and so on. These indirect suppliers, that is tier-2 or higher, that have no contractual relationship to the focal firm, are all referred to as sub-suppliers (Grimm, 2013, p. 18). In consequence of the research question, the focus of the research at hand lies on the ultimate supply chain.

Figure 1: Degrees of Supply Chain Complexity

Adapted from: Essig et al., 2013, p. 6

Supply chains exist whether they are managed or not. SCM requires overt management efforts that are coordinated over the respective supply chain (Mentzer et al., 2001, p. 4). SCM can be defined as “the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purpose of improving the long-term performance of the individual companies and the supply chain as a whole” (Mentzer et al., 2001, p. 18). From a focal firm’s perspective, the purpose of SCM is to increase its competitive advantage (Mentzer et al., 2001, p. 15). According to Porter (1980), competitive advantage results from the customer value a firm creates. Basically, there are two types of competitive advantages: cost leadership and differentiation. Within Porter’s framework, SCM can be perceived as being concerned with

4 Cocoa Sourcing Manuela Wettstein either improving the efficiency of a supply chain or its effectiveness (Mentzer et al., 2001, p. 15). In general, there are four reference points for SCM: marketing, sourcing, operations and logistics (Essig et al., 2013, p. 45). In consequence of the research question, sourcing is the reference point for the research at hand. Accordingly, the analytical framework elaborated in the following disregards the other reference points and focuses on sourcing only.

2.1 ANALYTICAL FRAMEWORK

Sourcing has long been a neglected field of business management, despite its impact on the company’s cost structure. However, gradually sourcing has become an important strategic business function in the sense of supply management (Essig et al., 2013, p. 97). Sourcing can be defined as the sum of activities that supply a firm with goods, services, equipment, rights and information from external sources (Gabler Wirtschaftslexikon, 2015). A sourcing strategy is the combination and optimisation of different sub-strategies that concern the number of suppliers, the complexity of the input factors, areal aspects, acquisition time and the location of value creation (Essig et al., 2013, pp. 108-110). A useful framework for identifying the appropriate sourcing strategy is Kraljic’s (1983) purchasing portfolio model (PPM). The PPM has gained high levels of acceptance from both managers and academics and is still applied in practice and used as reference point in research (Dubois & Pedersen, 2002, p. 35). Kraljic’s (1983) model distinguishes between different sourcing situations and offers concrete recommendations for action. According to the PPM, a company’s sourcing strategy depends on two factors: the importance of the item that needs to be purchased in terms of profit impact and the complexity of the supply market in terms of supply risk (Kraljic, 1983, p. 110). Accordingly, there are four categories of items: strategic (high profit impact, high supply risk), bottleneck (low profit impact, high supply risk), leverage (high profit impact, low supply risk) and noncritical (low profit impact, low supply risk). Each category requires a distinctive sourcing approach (Kraljic, 1983, p. 112). Strategic items should be sourced from a few suppliers with whom the focal firm has close, trusting and long-term relationships. The relevant measure is total cost, not price. With bottleneck items the risk should be mitigated and transaction costs should be limited by contracting and stockpiling. Leverage items are generally homogenous commodities for which there are multiple potential suppliers. Thus, leverage items should be sourced mainly on price. Similarly, noncritical items should be purchased in a transaction-based manner and based on price (Pagell et al., 2010, p. 59). Additionally, the relative strength of both, the focal firm and the suppliers, needs to be taken into account. Where the focal firm plays a dominant role, a reasonably aggressive exploit-strategy is recommended. If the suppliers are strong, the focal firm should assume a defensive diversifying-strategy. If neither is the case, the focal company should pursue a balanced-strategy (Kraljic, 1983, pp. 113-114). Basically, Kraljic’s (1983) model states that in this way the company’s limited resources are optimised and thus the company’s profitability is increased (Pagell et al., 2010, p. 59). Although the PPM provides valuable insights for identifying appropriate sourcing strategies, it concentrates on the

5 Cocoa Sourcing Manuela Wettstein dyadic relationship between a focal firm and its direct suppliers only. Kraljic’s (1983) model does not consider sub-suppliers and thus does not cover sourcing strategies beyond the basic supply chain. Also, the PPM is not able to explain why companies engage with sub-suppliers. Since the focus of the research at hand lies on the relation between focal firms and their ultimate suppliers, the PPM in its original form is not directly applicable and needs to be complemented.

Frameworks that cover the ultimate supply chain are sparse (Tachizawa & Wong, 2014, p. 644). Although trends towards outsourcing and global sourcing have created long, complex and fragmented multi-tier supply chains, key constructs used to analyse such supply chains are based on the dyadic logic. Even when analysing a series of dyads, links among the dyads are not taken into account (Mena et al., 2013, pp. 58-59). Hence, what happens within the complex network of ultimate supply chains is still underexplored (Mena et al., 2013, p. 58). Tachizawa and Wong (2014, pp. 651-656) recently developed a framework that provides an explanation why companies engage with their sub-suppliers. Additionally, Tachizawa and Wong (2014) identified four basic approaches how firms manage their sub-suppliers. In principle, sustainability is one of the main motivations for firms to engage in multi-tier practices (Mena et al., 2013, p. 72). Besides traditional supply chain risks such as quality issues, unpredictable delivery times or supply disruptions, social and environmental issues have become important aspects in global SCM in recent years (Brammer et al., 2011, p. 8). Often, the most serious sustainability issues in the supply chain are generated by sub-suppliers located far upstream. Multinational corporations (MNC) are increasingly held accountable for actions of their sub- suppliers. That is why many MNCs are finding new ways to manage their supply chains in order to reduce such supply chain liabilities (Tachizawa & Wong, 2014, p. 643). Basically, there are four different approaches how firms manage their multi-tier supply chains. The first approach is the so-called “direct” approach. With a direct approach, focal firms have direct access to sub-suppliers. Firms may by-pass their tier-1 suppliers and establish direct contacts to sub-suppliers in order to monitor, govern and collaborate with them. Contacts may be formal, informal or occur on an ad hoc basis. The second approach is the “indirect” approach where focal firms use their power over tier-1 suppliers to make them monitor or collaborate with sub- suppliers. Standards are a major mechanism to coordinate sub-suppliers and reduce information asymmetry as well as transaction costs. Third, there is the “work with third parties” approach. With this approach, focal firms collaborate with or delegate responsibilities to other organisations such as NGOs, governments or certification bodies. Another option is to build coalitions with competitors or other industry members in order to implement industry self- regulation. Lastly, firms can also follow the “don’t bother” approach. Following this approach, firms focus on tier-1 suppliers only and have neither information about sub-suppliers nor the intention to influence them. This approach is mostly found with firms that have limited power in the supply chain or do not face intense pressure from stakeholders. The four approaches are complementary since a firm may simultaneously rely on more than one approach (Tachizawa & Wong, 2014, p. 656). By providing insights into how firms engage in multi-tier supply chain

6 Cocoa Sourcing Manuela Wettstein management and considering the relation between focal firms and their sub-suppliers, Tachizawa and Wong’s (2014) framework is a valuable complement to Kraljic’s (1983) PPM. Each framework sheds light on different aspects of global cocoa souring thereby contributing individually to the overall understanding of global cocoa souring.

2.2 EXPLORATIVE STUDY DESIGN To the best of the author’s knowledge, the influence of corporate responses on global cocoa sourcing and on the sustainability challenges in cocoa production has not been academically analysed yet. Hence, the research method has to be selected appropriately. If a field of research is relatively unknown and only limited presumptions about the conditions exist, explorative study designs are beneficial. In explorative study designs, predominantly qualitative methods are used (Diekmann, 2007, pp. 33-34). Consequently, a qualitative analysis is employed to generate insights into this relatively unexplored field of research.

The research sample consists of members of the Swiss industry association Chocosuisse and represents the companies with the highest sales. Accordingly, alongside the global leaders Barry Callebaut, Lindt & Sprüngli, Mondelēz International and Nestlé, the national leaders Chocolat Frey and Chocolats Halba are taken into account. Other chocolate manufacturers are not considered because of their small volume of annual sales. In order to identify the emerging corporate responses and analyse their influence, data is collected by both primary research and secondary research. On the one hand, publications concerning the corporate sustainability efforts are analysed. In order to draw inferences, the content analysis of the publications is conducted systematically and aims at objectivity (Diekmann, 2007, p. 577). Where available, the most recent corporate sustainability reports and the respective corporate websites serve as the principal source of information. In addition, newspaper articles and publications of international organisations and NGOs are consulted. All publications are analysed according to the same scheme that can be found in the Appendix. The extracted information from the content analysis also serves as the basis for the expert interviews. On the other hand, expert interviews with representatives of the chocolate companies are conducted. To complete the picture, experts from certification organisations and NGOs are consulted as well. The list with all interview partners can be found on page 61. Primarily, the expert interviews aim at receiving additional information that is not contained in the publications. In particular, insights into the companies supply chain and cocoa sourcing strategies are expected. Besides, the expert interviews are intended to reveal current developments in global cocoa sourcing and the influence on the sustainability challenges. With regards to expert interviews, guided interviews have been proven appropriate (Meuser & Nagel, 2009, p. 472). Since expert knowledge is both explicit and implicit, it cannot be inquired by a standardised questionnaire. Therefore, the interviews are conducted on the basis of a semi-structured interview guide. A semi-structured interview guide allows for covering all aspects of a topic and enables comparability of the experts’

7 Cocoa Sourcing Manuela Wettstein responses (Diekmann, 2007, p. 537). The shared contextual and organisational affiliation of the experts also contributes to the goal of comparability. Comparability is essential for identifying similarities and differences, deriving supra-individual knowledge and generating generally valid results (Meuser & Nagel, 2009, pp. 476-477). However, as a research instrument, interviews have also drawbacks. Among others, sources of error are social desirability, characteristics of the questions, the interview situation as well as personal characteristics of the interviewer (Diekmann, 2007, p. 447). Furthermore, during evaluation, interpretation by the researcher might be a source of bias (Diekmann, 2007, p. 545). In order to minimise possible sources of error, all expert interviews follow the same semi-structured interview guide. Although modified, the interviews with the representatives of the certification bodies and NGOs technically follow the same interview guide. The semi-structured interview guide can be viewed in the Appendix.

It is important to note that data is collected on the individual level. Hence, the collected data needs to be consolidated in order to be able to draw inferences about collective global cocoa souring. Therefore, the individual emerging corporate responses are compared to identify similarities and differences. This comparison aims at detecting patterns so that statements about the overall influence on global cocoa sourcing and on the sustainability challenges are possible. Intentionally, the comparison does not provide an evaluation or a ranking of the individual corporate responses.

3. GLOBAL COCOA SOURCING

Cocoa is not only an ingredient in chocolate bars and pralines, but also in a variety of other consumer products such as ice cream, biscuits, dairy products and spreads. While these products are predominantly consumed in developed countries, cocoa is produced in developing countries. Approximately 90% of global cocoa supply is produced by around six million smallholders in Africa, Latin America and South East Asia (UNCTAD, 2008, p. 16). In the following, first of all it is outlined how the raw material is transformed into consumer products. Therefore, the processing and manufacturing chain is described. Second, the structure of the upstream cocoa supply chain and the actors involved are described. Upstream is explicitly mentioned to signal that the marketing of chocolate is excluded from the analysis of global cocoa sourcing. Whereas the industry traditionally differentiates between upstream cocoa processing and downstream chocolate manufacturing, these activities are subsumed in the research at hand. Because the boundaries between several stages of the supply chain have become increasingly blurred in recent years, this traditional differentiation would impede the current analysis of global cocoa sourcing. Hence, upstream supply chain refers to the stages of chocolate manufacturing, cocoa processing and cocoa production. Third, the functioning of the conventional global cocoa procurement market is outlined. Therefore, the analytical framework developed in Chapter 2.1 is employed. Finally, further essential industry stakeholders, which

8 Cocoa Sourcing Manuela Wettstein play a crucial role in global cocoa sourcing, are described. By considering these four aspects of global cocoa sourcing, a solid basis for analysing the influence of the emerging corporate responses on global cocoa sourcing and on the sustainability challenges in cocoa production is established.

3.1 PROCESSING AND MANUFACTURING CHAIN Cocoa beans are the seeds of the Theobroma cocoa tree that grows in tropical environments around the equator and flowers in two cycles of six month. The seeds are enclosed in the cocoa pod, which is the fruit of the cocoa tree. The ideal climate for cocoa is hot and rainy with lush vegetation to provide shade for the cocoa tree (WCF, 2014a, p. 2). Consequently, regions available for cocoa cultivation are limited. Except for regions in countries like Vietnam and Papua New Guinea, untapped cocoa-growing areas are hard to find (Fold, 2004, p. 229).

In principle, the processing and manufacturing chain starts with the harvest of the cocoa pods. Since the first processing steps, namely drying and fermenting, are generally done by the farmers themselves, these activities are attributed to cocoa production. Cocoa processing refers to activities needed to convert cocoa beans to semi-finished cocoa products such as cocoa butter, liquor and powder. Chocolate manufacturing refers to further blending and processing of these semi-finished products and mixing them with other ingredients to make chocolate. The industry distinguishes between two segments: manufacturing industrial chocolate, called couverture, and manufacturing consumer chocolate. Couverture is the basis for consumer chocolate, but is also an ingredient in a variety of other consumer products that contain chocolate (UNCTAD, 2008, p. 10). The processing and manufacturing chain is illustrated in Figure 2 and described in detail in the following.

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Figure 2: Processing and Manufacturing Chain

Source: UNCTAD, 2008

Cocoa Production Typically, a cocoa farm in West Africa covers two to four hectares. While in West Africa a hectare produces 300 to 400 kilogram of cocoa beans per year, a hectare in Asia produces around 500 kilograms and in Latin America up to 600 kilograms (WCF, 2014a, p. 2). Normally, harvesting of cocoa pods begins after three years of tree growth and maintenance (UNCTAD, 2008, p. 7). Peak production levels can be reached by the fifth year and can be continued for about ten years (WCF, 2014a, p. 4). Basically, there are two farming systems for cocoa: monocultures and mixed-crop. Mixed-crop systems are cultivations that combine cocoa with other crops such as timber, avocado, orange or papaya (Chocolats Halba, 2014, p. 49). The dominant system worldwide is the monoculture full sun system (Andres et al., 2014). While monocultures yield revenue gains in the short-term, mixed-crop systems increase the farmers’ incomes in the long-term. On one side, farmers can sale the fruits of the other crops and thus earn more. On the other side, mixed-crop systems are characterized by improved soil quality and minimized pests and diseases, which in turn increases yield in the long run (Chocolats Halba, 2014, p. 50). Thus, mixed-crop is considered a more sustainable system for cocoa

10 Cocoa Sourcing Manuela Wettstein production (Andres et al., 2014). Cocoa is not only a delicate and sensitive crop, but also labour intensive (Terazono, 2014). When harvesting, the farmers remove the cocoa pods from the trees using long-handled steel tools and split it open with a machete or a sturdy stick. Afterwards, the beans are cleaned, fermented and dried. Fermentation takes three to seven days and is the crucial step that produces the chocolate flavour. After the beans are dried for several days, the farmer sells them to local trade agents, buying stations or cooperatives (WCF, 2014a, p. 4).

Cocoa Processing Roasting is commonly considered the first stage of cocoa processing. Cocoa beans can either be roasted with the shell intact or de-shelled and crushed. The latter is referred to as nib roasting. The nib is the inside of the cocoa bean. After roasting, the next major step is grinding. During grinding the beans are milled until the so called cocoa liquor is created (UNCTAD, 2008, p. 7). Cocoa liquor is either directly used as an ingredient of couverture or is further processed. When further processed, cocoa liquor is fed into hydraulic presses that separates the liquor into cocoa butter and cocoa powder (WCF, 2014a, p. 5).

Chocolate Manufacturing In order to produce couverture, the semi-finished cocoa products are mixed with other ingredients and thus poured into conches. Conches are large machines that stir and smooth the mixture under heat. Conching can last from a few hours up to three days. The longer the mixture is chonched, the smoother the couverture becomes. (WCF, 2014a, p. 5). Depending on the recipe, around one-third of cocoa liquor is mixed with two-thirds of cocoa butter (P. Somlo, personal communication, January 26, 2015). If the couverture is sold to third parties it can either be delivered in liquid or solid form. Generally, it is delivered in liquid form to major chocolate manufacturing companies and in solid form to smaller companies such as artisan chocolate manufacturers, patissiers or bakeries. The couverture is used to produce the consumer chocolate and thus even further processed before the chocolate is brought into shape (UNCTAD, 2008, p. 7).

3.2 UPSTREAM SUPPLY CHAIN

The cocoa supply chain is considered significantly more complex than those of other commodities (UNCTAD, 2008, p. 9). This is mainly due to the various intermediate processing and manufacturing stages, each with traded outputs (UNCTAD, 2008, p. 10). There are discrete markets for semi-finished cocoa products, such as cocoa butter, liquor, powder and couverture. In the following, the structure of the upstream supply chain and the actors along the supply chain are described. Therefore, discrete stages are delineated and recent developments are outlined. However, demarcating discrete stages masks the multi-layered and complex structure of the supply chain to a certain extent. Nevertheless, reducing complexity is necessary to provide a clear picture of conventional global cocoa sourcing. While the supply chain map shown in Figure 3 provides an overview of the ultimate upstream supply chain, the discrete

11 Cocoa Sourcing Manuela Wettstein stages are outlined in the following. Although the focus of the research at hand lies on Ghana, Côte d’Ivoire and Switzerland respectively, also global aspects are taken into account in order to support the overall understanding.

Figure 3: Supply Chain Map

Source: Chart is based on inputs from UNCTAD (2008), Chocolats Halba (2014) and Fair Labor Association (2012)

Farmers While there are around six million cocoa farmers, it is estimated that approximately 40-50 million people depend on cocoa for their living (WCF, 2012). Depending on the size of the farm, farmers work alone, employ workers or engage sharecroppers. Sometimes, farms reflect so-called co-proprietary systems were farmers work in cooperation with other family members and share land and income (Fair Labor Association [FLA], 2012, pp. 27-28). Larger farms or smallholders that do not live close to their farm, engage sharecropper who look after their crop. Normally, the sharecroppers receive a part of the cocoa harvest. Basically, there are two types of cocoa workers: volunteers and regular hired workers. While hired works receive a salary, volunteers usually receive benefits such as food and lodging, but not a salary (FLA, 2012, p. 29). The volunteers are mostly family members and friends who help with the harvest during

12 Cocoa Sourcing Manuela Wettstein high season. Family members are not considered as workers by the farmers. After harvesting, fermenting and drying, the farmers sell their beans to local traders, buying stations or their cooperatives. Since most farms are located in distant rural areas, farmers often face an oligopsony or in some regions even a monopsony of purchasers (UNCTAD, 2008, p. 33).

Local Traders / Buying Stations Due to the fact that many farmers live in remote rural areas with poor infrastructure, mostly local trade agents collect the beans from different farms. In Côte d’Ivoire, these local trade agents are called pisteurs. Pisteurs are engaged by larger local traders or cooperatives and are paid in advance. Usually, they are contracted for a season. Pisteurs keep the difference between what they pay to farmers and what they receive from their contractors as a salary. Mostly, pisteurs have a defined region assigned to them where they buy cocoa beans (FLA, 2012, p. 27). Pisteurs transport the beans to larger villages where the contractors collect the beans. Pisteurs are usually not registered and the supply chain is generally unsteady, because traders sell and buy from anyone. Cocoa procurement mainly occurs through this “unorganized” sector that involves many intermediaries. (FLA, 2012, p. 2). Overall, similar cocoa trading structures exist in Ghana. There, the local trade agents are called purchasing clerks. Purchasing clerks are agents of the licenced buying companies (LBCs). Mostly, the LBCs are privately owned companies. However, also cooperatives may hold a licence. Among these LBCs are local as well as international cocoa traders and processors (World Bank, 2013, pp. 10-12). Local trade agents not only buy cocoa from the farmers, but also provide the farmers with services. Among others, agents provide technical assistance and information on cocoa, offer loans to pay school fees, farm maintenance or emergencies, and put their private vehicles to the disposal of the entire farming community (Baah et al., 2012, p. 46). However, there are reasoned suspicion that the agents adjust weighting scales, under record bean weight and do not pay bonuses to the farmers (Baah et al., 2012, p. 45). The large local traders do not only buy cocoa beans from pisteurs or purchasing clerks, but also from cooperatives or directly from farmers that are more accessible. Depending on their size, they also operate buying stations (FLA, 2012, p. 26). Altogether, it can be stated that the local cocoa trade is rather untransparent and may involve many intermediaries. This makes overall supply chain transparency, monitoring and remediation efforts challenging for chocolate companies (FLA, 2012, p. 2).

Cooperatives Besides selling cocoa to local traders, farmers can also sell their beans to cooperatives. However, this option is only available to farmers that are member of a cooperative. In recent years, the formation of cooperatives has been promoted in the context of sustainability initiatives (P. Heid & K. Brugger, personal communication, January 22, 2015). Since cooperatives buy directly from their farmers, a possibly long chain of local traders is circumvented. Depending on the size and market position, cooperatives sell to larger local traders, exporters, international traders, cocoa processor or even directly to chocolate

13 Cocoa Sourcing Manuela Wettstein manufacturers in consuming countries (P. Heid & K. Brugger, personal communication, January 22, 2015). It is important to note that cooperatives are not necessarily part of a sustainability programme. In the past, cooperatives were not popular among farmers because they often dissolved again and by that farmers lost money. However, as part of the boom of the sustainability initiatives cooperatives became more attractive, especially because in this context cooperatives pay price premiums, provide trainings and other economic and social benefits (D. High, personal communication, February 13, 2015).

Exporters At the turn of the millennium, liberalisation processes in several producing countries resulted in increased horizontal market concentration of cocoa exporters. Simultaneously, international trading companies have taken over exporting operations in producing countries (UNCTAD, 2008, p. 22). By now, the largest local exporting companies are either subsidiaries or closely associated with international cocoa traders. Some international traders have also set up their own purchasing logistics in producing countries and purchase directly from farmers at or close to the farm gate (UNCTAD, 2008, p. 19). Two factors are considered drivers of these processes. The first factor is access to finance. With the liberalization processes, banks became reluctant to finance local operators due to credit risks. International traders on the other hand enjoyed strong credit ratings and received funds from institutional investors. The second factor is economies of scale in the logistics of cocoa overseas transportation (UNCTAD, 2008, p. 20). In Ghana, however, cocoa is exported by the state-run Ghana Cocoa Board (COCOBOD) (World Bank, 2013, p. 11). The COCOBOD is further outlined in chapter 3.4.

International Traders The international cocoa trading market changed considerably during the nineties. Companies with a diversified range of trading interests, such as Cargill and Archer Daniels Midland (ADM), expanded into cocoa trading and displaced previously leading firms. The expanding companies were successful because they transferred logistics knowledge about overseas transportation gained with other commodities to cocoa logistics. Most significantly, they introduced bulk shipment to the cocoa industry, which means that cocoa beans are either loaded into shipping containers or directly into the ship’s hold (UNCTAD, 2008, p. 21). Previously, cocoa was shipped in jute bags. Compared to shipment in jute bags, bulk shipment is up to one- third cheaper (UNCTAD, 2008, p. 20). Consequently, cocoa overseas transportation evolved towards bulk shipment. At the destination port, cocoa beans are stored in pier warehouses until requested by the processors or manufacturers (WCF, 2014a, p. 4). Overall, only eight traders and processors account for about 75% of the global cocoa trade (Fountain & Hütz-Adams, 2015, p. 7).

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Cocoa Processors In recent years, the boundaries between international trading and processing companies blurred. On the one hand, international trading companies integrated backward up to the farmer’s level and forward into cocoa processing. On the other hand, processing companies integrated backward to cocoa trading and export. Fundamentally, market concentration at the cocoa processing stage is high (UNCTAD, 2008, p. 23). Only a few companies remain that sell semi- finished products. Both, economies of scale and scope, are considered drivers of these developments. Especially the need to gain scale in order to operate cost-efficiently is seen as a major factor because cocoa processing is capital intensive. Processing facilities are expensive, require a large tonnage throughput and need to operate on a continuous basis (UNCTAD, 2008, p. 24). Moreover, the processing stage consolidated over time because many major chocolate manufacturers withdrew from the less profitable grinding operations (UNCTAD, 2008, p. 22). For example, Nestlé outsourced its cocoa processing to Barry Callebaut in 2007. As part of the deal, several production facilities were transferred to Barry Callebaut (Nestlé, 2007). Recently, the processing stages was also a venue for major mergers and acquisitions. For example, in 2013, Barry Callebaut bought the cocoa ingredients division from Petra Foods. The acquisition made Barry Callebaut the world’s largest cocoa processor and chocolate manufacturer (Barry Callebaut, 2013). In December 2014, ADM announced to sell its cocoa processing business to Olam in order to refocus on higher-margin businesses. This deal will lift Olam to the top-three cocoa processors globally if it receives regulatory approvals (Bunge, 2014). Traditionally, production facilities for cocoa processing and chocolate manufacturing are located in the consuming countries. However, companies increasingly establish grinding facilities in producing countries. Basically, there are two reasons for that. First, operations are cheaper than in Europe or North America. Second, through grinding the initial volume of cocoa decreases by almost 20%. Consequently, more cocoa can be shipped in one load and thus cost efficiency increases (P. Somlo, personal communication, January 26, 2015).

Couverture Manufacturers The boundaries between cocoa processors and couverture manufacturers blurred in recent years as well. To illustrate this, the top four ranking trading and processing companies – Barry Callebaut, Cargill, ADM, and Bloomer – that account for almost half of the world’s cocoa grinding, also supply about three-quarters of worldwide couverture (UNCTAD, 2008, p. 26). Since Cargill recently agreed to buy ADM’s global chocolate business, concentration also increases further on the couverture manufacturing stage (Bunge & Josephs, 2014). It is expected that the two companies Barry Callebaut and Cargill will produce about 70-80% of the world’s couverture if Cargill’s acquisition of ADM’s chocolate business is approved.

Consumer Chocolate Manufacturers Due to the proportions necessary to make chocolate, chocolate manufacturers need to purchase extra cocoa butter in addition to cocoa beans (P. Heid & K. Brugger, personal communication,

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January 22, 2015). While some chocolate manufacturers process cocoa beans, others purchase both cocoa butter and cocoa liquor. Still others buy couverture only. Over the course, the consumer chocolate manufacturing market gradually consolidated as well. However, consumer chocolate manufacturers vary greatly in terms of size and business interests (UNCTAD, 2008, p. 29). In local consumer markets, multinational chocolate manufacturers compete with small and medium sized chocolate manufacturers. Nevertheless, multinational chocolate manufacturers clearly dominate the market. To illustrate this, the top three chocolate manufacturers, Mondelēz International, Mars and Nestlé, account for nearly half of global market shares in 2013 (Market Line Industry Profile, 2014). Concentration took place mainly due to mergers and acquisitions of smaller companies with strong local brands in national markets (UNCTAD, 2008, p. 30).

3.3 COCOA PROCUREMENT MARKET

After having described the structure of the upstream cocoa supply chain and the actors involved, the functioning of the conventional global cocoa procurement market is outlined. Therefore, the analytical framework developed in chapter 2.1 is employed.

Basically, cocoa is a commodity without many differentiation factors. However, there are two basic varieties with different qualities. Criollo, called flavour cocoa, accounts for less than 10% of global harvest and is largely grown in Ecuador and Venezuela. The beans are rich in flavour and only used for high quality chocolate. In West Africa, solely Forastero beans are cultivated. Although Forastero is commonly considered the standard quality, there are different qualities of Forastero beans depending on the region of origin, the fermentation and drying processes (Chocosuisse, 2001, p. 22). In recent years, also a hybrid variety, called Trinitario, came into the market. In terms Kraljic’s (1983) PPM, cocoa beans are a rather uniform as an item. Recall that, according to the PPM, two factors determine the sourcing strategy of a company: the profit impact and the complexity of the supply market in terms of supply risk of an input item. For chocolate manufacturers, cocoa is undoubtedly the ingredient with the highest profit impact. So far, the actual supply of cocoa has not been of concern. Over the years, there has been a tight relationship between supply and demand (ICCO, 2014b). As a consequence, cocoa can be considered a leverage input item. As a reminder, leverage items should be sourced based on price. Furthermore, when dealing with leverage items, a company should fully exploit its purchasing power and mainly buy on the spot (Kraljic, 1983, p. 112). Especially the conducted expert interviews revealed that cocoa is indeed sourced on a transaction-based manner. The lowest price is what matters in conventional cocoa sourcing (D. High, personal communication, February 13, 2015).

The global market price is determined at the futures markets in London and New York (ICCO, 2012b). The resulting prices provide reference prices for virtually all cocoa traded worldwide (Gilbert., 2008, p. 10). The global market price consists of the futures market price, a

16 Cocoa Sourcing Manuela Wettstein differential, which is either a mark-up or a discount, and a certification premium in case of certified-cocoa beans (A. Gubser, personal communication, April 8, 2015). Cocoa prices are highly volatile. The price is affected by many external factors such as weather conditions, cocoa pests and diseases, political instability or speculation (Goodyear, 2014). Broadly, there are two groups of futures market participants: commercial and non-commercial traders. Commercial traders are participants of the physical cocoa supply chain. Commercial traders do not use cocoa futures contracts to secure the physical supply of cocoa beans, but to offset the risk of adverse price movements. Non-commercial traders do not supply or demand cocoa, but trade at the cocoa futures markets in order to make a profit on price changes (ICCO, 2012b). An overview of the monthly cocoa bean price developments since 1985 can be viewed in Figure 4. During the last 30 years, the lowest price was US$ 860.74 per tonne in February 2000. The highest monthly cocoa price was US$ 3522.10 per tonne in January 2010. The high price volatility of cocoa is clearly shown in Figure 4.

Figure 4: Development of the Cocoa Bean Price

Source: Index Mundi, 2015

The global market price is the dominant factor that influences the price the farmers receive for their beans. Generally, the average farm-gate price correlates fairly well with the global market price (ICCO, 2014f, p. 5). Between 1993/1994 and 2006/07, the average farm-gate price in Ghana was around 54% of the global market price and around 47% in Côte d’Ivoire (Oxfam International, 2008, p. 13). Besides market factors, also government policies in the producing countries influence the farm-gate price (Oxfam International, 2008, p. 12). The farm-gate price is a residual from the global market price when subtracting costs and margins of international traders, exporters, local traders, as well as governmental taxes and fees. Hence, cocoa farmers can be considered price takers (Gilbert., 2008, p. 14). Even when global market prices are high, the farm-gate price does not guarantee a decent income for the farmers (Oxfam International, 17 Cocoa Sourcing Manuela Wettstein

2008). To illustrate this, a very basic sample calculation is provided. As a reminder, farmers in West Africa produce around 300 to 400kg of cocoa beans per year. Thus, when taking into account the highest price of US$ 3522.10 per tonne, a Ghanaian farmer selling 350kg, receives an annual income of US$ 665. This results in 1.8 US$ per day. When taking into account the lowest price of US$ 860.74, the same farmer receives US$ 162 per year, resulting in US$ 0.44 per day. Taking into account the lowest price, a farmer in Côte d’Ivoire, who sells 350kg, receives US$ 142 per year. This results in US$ 0.39 per day. Overall, it has to be stated that cocoa farmers gain very little from an overall profitable global cocoa trade (Fairtrade Foundation, 2015a).

In particular the expert interviews revealed that in conventional cocoa sourcing, companies do not engage in multi-tier supply chain management. In terms of Tachizawa & Wong (2014), companies in conventional global cocoa sourcing largely follow the “don’t bother” approach. Chocolate companies focus on their tier-1 suppliers and do not have information about sub- suppliers. Supply chain transparency is virtually absent. In this context, supply chain transparency means that a focal firm not only knows its basic or extended supply chain, but its ultimate supply chain.

3.4 INDUSTRY STAKEHOLDERS Besides the actors involved in the cocoa supply chain, there are further essential industry stakeholders that play a crucial role in global cocoa sourcing. In the following, these stakeholders are described in order to arrive at a complete picture of conventional global cocoa sourcing.

Cocoa Boards In both countries, Ghana and Côte d’Ivoire, state-run cocoa marketing boards exist. While in Ghana, the cocoa supply chain combines elements of privatization with strong governmental presence, the cocoa sector in Côte d’Ivoire is almost fully liberalised (World Bank, 2013, p. 10). In Ghana, the COCOBOD oversees nearly all aspect of the cocoa supply chain (World Bank, 2013, p. 1). Besides cocoa export, the COCOBOD is responsible for cocoa quality controls, pest and disease controls as well as the distribution of planting and other input materials such as subsidized fertilizers and tools. The COCOBOD issues the licences to the LBCs. The LBCs are required to collect the beans, pay the farmers a guaranteed floor price, conduct certain quality controls and sell the beans at a fixed price to the COCOBOD for export. In return, the COCOBOD retains a share of the world cocoa price. In principle, farmers as well as cocoa traders and processors operate relatively well within the COCOBOD framework (World Bank, 2013, p. 1). Nevertheless, the COCOBOD is also criticized for being inefficient and bureaucratic (A. Hüsser, personal communication, January 29, 2015). In contrast to Ghana, the government of Côte d’Ivoire ceded control over the cocoa sector as a consequence of market liberalisation. The process was triggered by the World Bank and the International Monetary

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Fund. Market liberalisation was intended to increase production efficiency and to achieve higher prices for the farmers by linking the local and the international market prices (Oxfam International, 2008, p. 7). During liberalisation, existing governmental institutions for cocoa quality control were abandoned. As a result, the quality of Ivorian cocoa beans began to decrease. Local traders bought beans of mediocre quality if they were considered saleable (Fold, 2004, p. 231). The inferior quality of cocoa beans was one of the main reasons why Côte d’Ivoire re-established a cocoa marketing board in 2012 (Hütz-Adams & Fountain, 2012, p. 14). Besides improving cocoa quality, the cocoa marketing board aims at increasing yields, guaranteeing farmers 60% of the world market price and strengthening the formation of cooperatives. Basically, Ghana’s COCOBOD system serves as a role model. Although the tense political situation in Côte d’Ivoire might impede the process, the cocoa marketing board is considered a positive step in restructuring the cocoa sector (Hütz-Adams & Fountain, 2012, p. 14).

ICCO The ICCO is a governmental organisation that was established in 1973 to put into effect the International Cocoa Agreement that was negotiated at the United Nations International Cocoa Conference. States that are either producing or consuming countries are members of the ICCO (ICCO, 2014d). The ICCO is organized in three bodies: the International Cocoa Council which is the highest decision-making body, the Consultative Board on the World Cocoa Economy which is an advisory body consisting of experts from the private sector, and the ICCO secretariat located in London (ICCO, 2014e). The organisation plays an important role, especially in research and dialogue facilitation between producing and consuming countries (Hütz-Adams & Fountain, 2012, p. 13). With the seventh International Cocoa Agreement, negotiated in 2010, the ICCO was mandated to work towards a sustainable world cocoa economy. This explicit mandate is considered an important breakthrough (ICCO, 2014d). In 2012, the ICCO organized the first World Cocoa Conference where all major stakeholders of the industry attended and signed the Abidjan Cocoa Declaration, demarcating a course of action towards a more sustainable cocoa economy. The second conference took place in Amsterdam where the previously reached agreement was reaffirmed (ICCO, 2014c). The World Cocoa Conference is considered a potentially useful starting point for launching sector-wide approaches addressing the sustainability challenges (Hütz-Adams & Fountain, 2012, p. 13).

Certifying Organisations Certifying organisations aim at improving the livelihoods of farmers in developing countries by improving the social, environmental and economic conditions in global food production (Berne Declaration, 2015). To consumers, certification organisations provide credible information about the nature of the production process by labelling particular products (Dragusanu et al., 2014, p. 222). The International Institute for Sustainable Development

19 Cocoa Sourcing Manuela Wettstein considers UTZ Certified, Rainforest Alliance (RA), Fairtrade International (FT) and Organic1 as global sustainability standards (International Institute for Sustainable Development [IISD], 2014, p. 131). The standards and certification processes are very similar. There is about an 80% overlap between UTZ, RA and FT (A. Aerni, personal communication, February 12, 2015). FT is also known as Max Havelaar in Switzerland. Furthermore, producer organizations often hold several certifications (Dragusanu et al., 2014). Despite, each standard focuses on a distinct aspect. FT focuses on improved terms of trade and long term business relationships in order to tackle poverty and empowering producers in developing countries. FT cocoa producers are audited regularly. The organization requires the formation of democratically organized cooperatives, secures a fixed price premium of $200 and a minimum price of $2000 per tonne. Since the requirements of the FT standard are extensive and complex, farmers often do not fully understand them. Moreover, costs of certification are high and forming a cooperative can be tedious (Berne Declaration, 2015). UTZ Certified emphases good agricultural practices2 (GAP) and farmer trainings in order to increase productivity and cocoa bean quality while safeguarding the environment (A. Aerni, personal communication, February 12, 2015). UTZ has a reliable traceability system and demands farmers to be compliant with a code of conduct. Traceability means tracking the cocoa beans from their origin to their destination at any time. Farmers are audited annually by a third party. UTZ neither secures a minimum price nor a fixed premium. Chocolate can be labelled with UTZ if at least 40% of contained cocoa is certified (Berne Declaration, 2015). RA is an environmental protection organization that promotes conserving biodiversity and sustainable livelihoods for farmers. The organization supports mixed-crop farming systems and trains farmers in efficient farm management. Farmers are audited annually. RA does not secure a minimum price or a fixed premium. Chocolate with the RA label contain 90% certified ingredients (Berne Declaration, 2015). Largely, Organic cocoa is grown in the Dominican Republic, Ecuador, Peru and Mexico. The aim of Organic is ecological farming without the use of pesticide, synthetic fertilizers and genetically modified organisms. Certified cocoa farmers need to comply with regulations of importing countries. Organic cocoa is becoming popular and farmers can achieve higher prices than with conventional cocoa (Berne Declaration, 2015). In 2011, the European Committee for Standardisation (CEN) initiated the development of an overarching standard on sustainable cocoa (Hütz-Adams & Fountain, 2012, p. 12). Since CEN recently joined with the global ISO system, also producing countries are able to engage in the development process. However, it is expected that it will take several years before the standard will be mature (Fountain & Hütz-Adams, 2015, p. 23). Furthermore, there are concerns about the inclusion of stakeholders and that the process leads to a lowest common denominator standard that does not account for progress made in recent years (A. Hüsser, personal communication, January 29, 2015). Whether certification processes achieve their

1 International Federation of Organic Agriculture Movements 2 Broadly defined, GAP are practices that address environmental, economic and social sustainability for on-farm processes, and result in safe and good quality products. In recent years, a multiplicity of GAP codes, standards, and regulations have been developed. Although aiming at similar objectives, scopes vary widely (FAO, 2015). 20 Cocoa Sourcing Manuela Wettstein intended goals is controversially debated (Dragusanu et al., 2014, p. 217). A recent literature review on the impact of FT in the coffee sector suggests that FT achieves many of its goals. For example, farmers receive higher prices and engage in more environmental friendly farming practices (Dragusanu et al., 2014, p. 234). However, further research is necessary since existing evidence is both mixed and incomplete (Dragusanu et al., 2014, p. 223).

Civil Society Civil society refers to a variety of different organisations and consists of national as well as international NGOs, developing organisations and trade unions. Civil society is not a uniform group of stakeholders. While some organisations are active in the field in the producing countries, others are campaigning in consuming countries. Some are contractual partners of the chocolate companies to implement the sustainability programmes, others are conducting research. For example, a consortium of European civil society organisations publishes the Cocoa Barometer, an overview of the state of sustainability in the cocoa sector (Cocoa Barometer, 2015). It is estimated that approximately 60 organisations are involved in the cocoa supply chain, especially with regards to sustainability issues. (ICCO, 2012a). To illustrate this, the Fair Labor Association (FLA) identified ten international organisations and nine local organisations that address sustainability issues in Nestlé’s supply chain in Côte d’Ivoire alone (FLA, 2012, p. 14). Among many others, familiar international organisations are Oxfam, IDH, Südwind, Bill & Melinda Gates Foundation and in the case of Switzerland Berne Declaration.

World Cocoa Foundation The World Cocoa Foundation (WCF) is an industry organisation with more than 100 member companies that represent around 80% of the global cocoa and chocolate market. (WCF, 2015a). The goals of the WCF are ensuring sustainable supply of quality cocoa, empowering farmers and farming communities and promoting sustainable production practices that maintain and increase crop diversification and biodiversity. To achieve these goals, the WCF partners with industry members, governments, research institutes, NGOs and donors. In 2014, the WCF announced the industry-led sustainability initiative CocoaAction. Among the companies that have committed to CocoaAction are industry heavy-weights such as ADM, Barry Callebaut, Blommer, Cargill, Ecom, Ferrero, Hershey, Mars, Mondelēz, Nestlé, and Olam (WCF, 2015a). CocoaAction attempts to scale and leverage corporate sustainability efforts (WCF, 2014b, p. 1). CocoaAction aims at boosting productivity and strengthen community development in Côte d’Ivoire and Ghana (WCF, 2015c, p. 3). By 2020, 300’000 farmers in Côte d’Ivoire and Ghana should profit from the measures taken by CocoaAction (WCF, 2014b, p. 1). Therefore, CocoaAction intends to provide improved planting materials, fertilizers and trainings. Community development is promoted through education, child labour monitoring and women’s empowerment. CocoaAction is organized around six work streams, namely planting material, fertilizer and soil fertility, community development, government and donor alignment, innovation and future forms of agricultural extension work and measuring progress and impacts

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(WCF, 2015c, p. 3). The initiative will be measured against six key performance indicators (KPI) and its progress will be reported publicly (WCF, 2014b, p. 1). In order to develop KPIs, CocoaAction members held workshops with the governments of Côte d’Ivoire and Ghana as well as other stakeholders with expertise in measurement systems in November 2014. In January 2015, a timeline was presented to create specific indicators associated with the agreed upon six high-level KPIs (WCF, 2015c, p. 6). Among these high-level KPIs are the number of farmers who are applying a minimum number of GAP, the number of farmers who are adopting recommended planting materials to rehabilitate a minimum percentage of their old or non- productive cocoa trees and the number of children participating in child labour as defined by the International Labour Organization Convention 182 (WCF, 2015c, p. 6).

4. SUSTAINABILITY CHALLENGES IN COCOA PRODUCTION

By having considered four aspects, namely the processing and manufacturing chain, the upstream supply chain, the functioning of the cocoa procurement market and the industry stakeholders, a clear picture of conventional global cocoa sourcing is provided. Hence, a solid basis for analysing the influence of the emerging corporate responses on global cocoa sourcing and on the sustainability challenges in cocoa production is established. The sustainability challenges in cocoa production have become more complex and increasingly urgent in recent years. Therefore, the sustainability challenges are described in more detail. However, first a common understanding of sustainability and in particular of corporate sustainability needs to be established.

4.1 CORPORATE SUSTAINABILITY Today’s understanding of sustainability dates back almost 30 years to the publication of the so called Brundtland Report by the World Commission on Environment and Development in 1987. According to the report, “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (World Commission on Environment and Development, 1987, p. 43). Despite being vague, it is probably the most cited definition and clearly marks a milestone (Dyllick, 2004, p. 423). Over the years, the definition of sustainability or sustainable development evolved, but the concept and its content largely remained loose and unclear (Dyllick, 2003, p. 235). Nevertheless, it is generally accepted that three principles are essential to the understanding of sustainability. First, the principle of maintaining capital. While this principle is common sense in business, it is less accepted with regards to ecological and social capital (Dyllick, 2004, p. 424). Ecological capital refers to renewable and non-renewable natural resources and encompasses the idea that nature is providing services. Social capital denotes both human capital and societal capital. Societal capital includes social infrastructure such as education, health and public services. Since ecological and social capital have become scarce or strained, maintaining or even raising all 22 Cocoa Sourcing Manuela Wettstein three capitals has become increasingly important (Dyllick & Muff, 2015, p. 8). Second, the principle of durability, which means that short-term aspects should be integrated into a long- term perspective in order to maintain economic development in the long run. Since pressure from financial markets to realize short-term financial gains has increased, short-term success is more and more achieved at the costs of long-term success. Third, the principle of three- dimensional value creation, namely the triple bottom line (Dyllick, 2004, p. 424). The term triple bottom line (TBL) was coined by John Elkington (Elkington, 1997). Meanwhile the TBL has become the core and dominant principle so that the concept is increasingly used as a synonym for sustainability (Milne & Gray, 2013, p. 14). By now, sustainability has become a matter of concern for businesses (Caprar & Neville, 2012, p. 231). It can be stated that sustainability has moved into mainstream business thinking (Gilbert et al., 2011, p. 35). Basically, the motivations for corporations to include sustainability are either normative, coercive or instrumental. While coercive motivation refers to state regulation, normative motivation includes two aspects. The first aspect includes business ethics and core values of a company. The second aspects includes compliance with a voluntary standard or with organisations urging for sustainability (Caprar & Neville, 2012, p. 239). Instrumental motivation encompasses a variety of reasons, which are ultimately beneficial to the company (Dyllick, 2003, p. 239). Among others, instrumental motivations are increasing operational efficiency, creating business opportunities, minimising business risks or maintaining acceptance and legitimacy in order to keep the “license to operate”. Basically, there are two different approaches towards corporate sustainability (Dyllick, 2003, p. 236). Either a company focuses on reducing the negative impact of its activities or the company focuses on positively contributing to solving social and environmental problems. With regards to environmental problems, the latter approach means contributing to solve problems such as climate change, biodiversity loss, ocean acidification, chemical pollution or biochemical pollution (Rockstrom et al., 2009). Regarding social problems, this includes addressing problems such as poverty, food security, energy security, education, health, sanitation, gender equality and social equity (Dyllick & Muff, 2015, p. 5).

Research on corporate sustainability is numerous and manifold, especially in recent years it gained traction. However, it is far from clear what it means to integrate economic, environmental and social aspects in order to achieve business sustainability (Dyllick & Muff, 2015, p. 12). According to Dyllick and Muff (2015), there are three types of research on corporate sustainability. Research that focuses on the issues companies take into account, research that is concerned with organisational perspectives and research that concentrates on the values created by companies (Dyllick & Muff, 2015, pp. 7-11). Especially early research focused on the issues that companies take into account. Typical topics of research that is concerned with organisational perspectives are resource efficiency, supply chain risks and environmental management systems (Dyllick & Muff, 2015, p. 9). Elkington’s TBL, for example, belongs to the third type of research that concentrates on value creation. Another

23 Cocoa Sourcing Manuela Wettstein important concept that belongs to this third type of research is Creating Shared Value (CSV) developed by Michael Porter and Mark Kramer (2011). CSV can be regarded as a milestone in understanding corporate sustainability. The concept is based on the idea of the interdependence of business and society: business needs a successful community and communities need successful businesses (Porter & Kramer, 2011, p. 6). CSV is integral to a company’s competitive position and thus its profitability (Porter & Kramer, 2011, p. 16). Accordingly, the reason for a company to embark on CSV is gaining competitive advantage. Basically, shared value involves creating economic value in a way that also creates value for society by addressing its needs and challenges (Porter and Kramer 2011, 4). In brief, this can be done in three distinct ways: by reconceiving products and markets, redefining productivity in the value chain and building supportive industry clusters at the company’s locations (Porter & Kramer, 2011, p. 7). In 2009, Nestlé publicly launched CSV as its overarching corporate strategy (Nestlé, 2007, p. 9). Another important approach belonging to this third type of research is the Social Business concept ascribed to Muhammad Yunus. Accordingly, social businesses are profit-making companies that are created to address social and environmental problems (Yunus, 2010).

To clarify the meaning of sustainability in business, Dyllick and Muff (2015) developed a typology for business sustainability. The typology identifies three types of business sustainability and points to three major shifts that are necessary to become a truly sustainable business. The schematic approach of the business sustainability typology can be seen in Figure 5.

Figure 5: Business Sustainability Typology

Adapted from www.truebusinesssustainability.org The business-as-usual perspective which – in a nutshell – reflects Milton Friedman’s approach that “the business of business is business” serves as a baseline (Dyllick & Muff, 2015, p. 14).

24 Cocoa Sourcing Manuela Wettstein

The business-as-usual perspective is one-dimensional and takes only economic concerns into account. By including social and environmental concerns too, a business shifts to Business Sustainability 1.0. Although the three-dimensional concerns are included in business practices, creating shareholder value remains the primary business objective. Besides, the organisational perspective remains inside-out. Inside-out refers to reducing the negative impact of the company’s activities. Thus, Business Sustainability 1.0. can be defined as “[…] an approach to business that creates shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments.” (Dyllick & Muff, 2015, p. 14). Examples from the food industry that illustrate Business Sustainability 1.0 are: developing sustainability policies and codes of conducts that cover issues in sustainable sourcing, creating dedicated organizational and management structures, and introducing procedures for verification and certification (Dyllick & Muff, 2015, p. 15). Shifting from Business Sustainability 1.0 to Business Sustainability 2.0 implies broadening the stakeholder perspective and pursuing a TBL approach. Business Sustainability 2.0 companies create social and environmental value not as a side-effect, but as a result of deliberately defined goals and programmes that address specific issues or stakeholders. These firms aim at producing and reporting measurable results in sustainable development areas, while doing this in a profitable way. Business Sustainability 2.0 can be defined as “[…] managing the triple bottom line – a process by which firms manage their financial, social and environmental risks, obligations and opportunities. These three impacts are sometimes referred to as people, planet and profits” (Dyllick & Muff, 2015, pp. 15-16). Examples from the food industry include: integrating sustainability objectives into the planning and reporting cycles, establishing incentives and accountability mechanisms to ensure that objectives are achieved and reporting about achievements in a transparent and externally verified way (Dyllick & Muff, 2015, p. 16). Making the shift from Business Sustainability 2.0 to Business Sustainability 3.0 requires a change in the organisational perspective. The perspectives shifts from reducing the negative impact of business activities to positively contribute to solving environmental and social problems. Making a positive contribution to solving sustainability issues becomes the main purpose. A firm of type Business Sustainability 3.0 translates sustainability challenges into business opportunities. “A truly sustainable business […] looks first at the external environment within which it operates and it then asks itself what it can do to help resolve critical challenges that demand the resources and competencies it has at its disposal”. Examples from the food industry include: alleviating poverty, supporting smallholder farmers, providing healthy products, reconstructing supply chains, and changing the rules of the game by lobbying and creating new institutions (Dyllick & Muff, 2015, p. 19). Certainly, becoming a truly sustainable business is a huge challenge for existing companies, especially for corporations that face strong pressure from financial markets to create high shareholder value. However, in the light of the global sustainability challenges, it might just become a necessity (Dyllick & Muff, 2015, p. 21).

25 Cocoa Sourcing Manuela Wettstein

4.2 SUSTAINABILITY CHALLENGES Sustainability challenges in cocoa production are generally uncontested. Despite the recent proliferation of sustainability initiatives, the challenges have remained an. An overview of all the challenges identified during primary and secondary research can be found in Figure 6. The challenges are allocated based on the degree of “closeness” to the respective sustainability dimension. However, due to the interrelation and the complexity of the sustainability challenges, the allocation to a sustainability dimension is an intended simplification. This way a structured view of the numerous challenges is provided.

Figure 6: Overview Sustainability Challenges in Cocoa Production

Source: Chart is based on inputs from Hütz-Adams & Fountain (2012), Chocolats Halba (2014) and Barry Callebaut (2014c) Although the existence of the sustainability challenges is widely recognized, the actors along the cocoa supply chain differ in their assessment of the severity and the priority of the challenges. Based on the conducted expert interviews and the secondary research, three key challenges could be identified: the farmers’ low income, the lack of basic infrastructure and the poor school and vocational education of the farmers. Therefore, these key challenges are outlined in more detail. However, this does not mean that the other challenges are not considered by the emerging corporate responses. 26 Cocoa Sourcing Manuela Wettstein

The low income of the smallholders is widely seen as the principal key challenge. Fundamentally, there are three aspects to income: price, quantity and costs. A group of NGOs estimated that even to reach the absolute poverty line of US$ 1.253, the farmers’ income would need to increase by more than 200% in Ghana, and almost by 1,000% in Côte d’Ivoire respectively4 (Hütz-Adams & Fountain, 2012, p. 6). Although the estimation might be contested due to data availability and calculation procedures, the message is straightforward: the profitability of cocoa farming is well below of what is sustainable. Collectively, the residual farm-gate prices are considered as too low. In addition, the quantity of produced cocoa per hectare is seen as too low. Especially in West Africa the yields are significantly below of what is potentially possible (P. Somlo, personal communication, January 26, 2015 / N. Moret, personal communication, March 26, 2015). Yields can be as low as one-tenth of what producers should be able to achieve (IISD, 2014, p. 137). On the other side, farming as well as living costs are relatively high. Input costs such as wages, prices for fertilizers and farming tools are crucial factors for the profitability of the cocoa farming business. A low net income of cocoa farmers is not only a result, but also a cause of other sustainability challenges. Among others, low net incomes result in poverty in farming communities, atrocious working conditions as well as child and forced labour. Moreover, low net incomes result in low productivity because smallholders lack the resources to invest in farming equipment, farming inputs and replacing old trees that are past their peak of productivity. In addition, old trees are more vulnerable to pest and diseases which in turn reduces yields even more. The unsustainability of the low net income of cocoa farming manifests in the fact that younger generations abandon cocoa farming. They either switch to more profitable commodities such as rubber or palm oil, or head for the cities in the hope of finding a better livelihood (Terazono, 2014). As a result, the average age of cocoa farmers is estimated at 51 years (KPMG, 2014, p. 12). While in Ghana life expectancy of males at birth is 64 years, it is 57 years in Côte d’Ivoire (CIA, 2015). Consequently, the cocoa farmer population is about to decline. A shortage of cocoa farmers in the coming years is a likely scenario.

The second key challenge in cocoa production is the lack of basic infrastructure in the producing countries, especially in the rural areas where cocoa is produced. There is a lack of electricity, roads, sanitation and schools. Moreover, access to potable water or health care services are limited (Barry Callebaut, 2014c, p. 5). This lack of basic infrastructure renders live in cocoa producing areas unattractive and encourages the rural exodus. Although infrastructure is commonly considered the states’ responsibility, the governments do not invest enough in the rural areas where the cocoa farmers live (D. High, personal communication, February 13, 2015). Surely, this arises from the fact that both, Ghana and Côte d’Ivoire are lower middle income countries. While in 2013 the GDP per capita of Ghana amounts to US$ 3,500, the GDP per capita of Côte d’Ivoire is at US$ 1,800 (CIA, 2015). In brief, the resources for investments in

3 At 2005 purchasing-power parity as defined by the World Bank 4 Estimation details can be found in the Cocoa Barometer 2012 (Hütz-Adams & Fountain, 2012, p. 28) 27 Cocoa Sourcing Manuela Wettstein basic infrastructure are limited. In Côte d’Ivoire, the lack of basic infrastructure also stems from a decade of political turmoil including two civil wars. However, since the end of the second civil war in 2011, the political and economic situation improved noticeably. Côte d’Ivoire achieved an annual GDP growth rate of around 9% since 2012. President Alassane Ouattara has placed emphasis on improving the business environment and overhauled the cocoa sector. Moreover, the government recently announced to spend US$ 4 billion on agricultural sector development over the next three years in order to improve crop yields, rehabilitate roads and improve storage conditions (Country Reports, 2014, p. 2). Nevertheless, the political situation remains fragile and overall security depends on the continuation of United Nations peacekeeping operations (Euler Hermes, 2014). Ghana on the other hand has a track record of a functioning democratic system and peaceful transfer of power among political parties (Euler Hermes, 2014). In 2011, the government introduced the National Policy on Public Private Partnership, which aims at increasing private sector involvement in infrastructure and public service delivery (The PRS Group, 2014, p. 1). However, the current government of President John Dramani Mahama fails to rein in large fiscal and budget deficits (The PRS Group, 2014, p. 1). Ghana is currently facing economic difficulties stemming from a sharp drop in gold prices. While Ghana has become an oil producing country in 2012, the new source of revenue also bears risks (The PRS Group, 2014, p. 16). The ability and capacity to manage oil wealth is yet to be tested (The PRS Group, 2014, p. 21). Besides limited resources, also corruption and favouritism account for the lack of basic infrastructure in both countries. In the Corruption Perceptions Index5 ranking 2014, Côte d’Ivoire ranks 1156 with a score of 32. Ghana ranks 61 with a score of 48 (Transparency International, 2014). Nonetheless, the outlook for more investments in basic infrastructure in both countries is favourable.

The third key challenge in cocoa production is the poor school and vocational education of the smallholders. Illiteracy among cocoa farmers is very common. For example, in Côte d’Ivoire, the literacy rate in rural areas were cocoa is grown is less than 50% (Barry Callebaut, 2014c, p. 4). With regards to cocoa sourcing, illiteracy makes information and knowledge transfer by anything written impossible. For example, record keeping, reading instructions or access to online market information is just not feasible. Furthermore, there is also a lack of modern cocoa farming knowledge. In other words, smallholders use outdated farming methods, let their cocoa trees grow too tall, do not know how to handle pest and diseases adequately and inappropriately apply fertilizers and pesticides (Nestlé, 2012). Moreover, smallholders lack the expertise that would be required to grow cocoa economically beneficial and in a socially and environmentally responsible manner (Chocolats Halba, 2013, p. 10). Uninformed agricultural practices harm the environment. The soil is exhausted, soil fertility depletes and water is polluted (FLA, 2012, p.

5 The Corruption Perceptions Index ranks countries/territories based on how corrupt a country’s public sector is perceived to be. It is a composite index, based on corruption-related data from expert and business surveys carried out by a variety of independent and reputable institutions. Scores range from 0 (highly corrupt) to 100 (very clean). http://www.transparency.org/ 6 175 countries were assessed. 28 Cocoa Sourcing Manuela Wettstein

6). This in turn reduces the output of the cocoa trees. Misapplication of agro-chemicals also compromises the health of farming communities. These issues are aggravated by the fact that most cocoa is grown in monoculture full sun systems, despite the fact that cocoa trees require shade at all stages of growth (Andres, et al., 2014). With monocultures, the humus rich top soil deteriorates, soil nutrients are lost due to leaching and nutrients cannot be mined from sub-soil spheres (Chocolats Halba, 2014, p. 31). Against this background it becomes clear that the poor school and vocational education of smallholders is a central sustainability challenge in cocoa production. Poor farming knowledge results in cocoa yields that are well below potential yields and thus reinforces the challenge of low incomes.

Besides these three key challenges, there are numerous other important sustainability challenges. One aspect that is not on the current agenda, but potentially has a huge impact on cocoa production is climate change (D. High, personal communication, February 13, 2015). Under the “business as usual” scenario of the Intergovernmental Panel on Climate Change (IPCC) the average rainfall in the cocoa growing regions of Ghana and Côte d’Ivoire is predicted to decrease only insignificantly (Läderach et al., 2013, p. 846). In fact, the crucial driver of climate change impact on cocoa is the increasing temperature. If not compensated by more rainfall, higher temperatures lead to evapotranspiration that increases the risk of droughts to which cocoa is highly vulnerable (Läderach et al., 2013, p. 847). Figure 7 shows the expected reduction of suitable areas for cocoa production in Ghana and Côte d’Ivoire by 2050. Shrinking suitable areas clearly is a risk for future cocoa supply. Moreover, it also means that there will be fewer income opportunities, which worsens poverty in these regions.

Figure 7: Suitability of Cocoa Production. For Current and Future (2050) Conditions.

Source: Läderach et al., 2013, p. 848

29 Cocoa Sourcing Manuela Wettstein

Altogether it can be stated that the numerous sustainability challenges in cocoa production are severe, complex and highly interrelated. The identified key challenges are of immediate concern to the industry because they may put the global cocoa supply at risk. The emerging corporate responses intended to address these challenges are outlined in the next chapter.

5. EMERGING CORPORATE RESPONSES

In recent years, there has been a significant increase of sustainability initiatives from cocoa processors, trading companies and chocolate manufacturers. The forms of the initiatives vary from company-specific projects to joint actions with other companies and cooperation with governmental institutions, NGOs, multi-stakeholder initiatives and certifying organizations. A company that is not involved in at least one programme is hard to find (Hütz-Adams & Fountain, 2012, p. 12). On these grounds, it is analysed how the six companies in the research sample respond to the sustainability challenges in cocoa production. In order to be able to identify the influence of these emerging responses on global cocoa sourcing and on the sustainability challenges, a comprehensive review of is provided.

First of all, key figures of the respective corporate sustainability programmes are briefly sketched out in Table 1. On the one hand, it can be seen when the sustainability programmes were launched and how many cocoa beans are sourced. Furthermore, the share of sustainably sourced cocoa is shown. On the other hand, Table 1 provides an overview of the spending on sustainability programmes. While some figures are publicly published by the companies themselves, others represent rough estimates by industry stakeholders or are projected based on reported information and general data from the industry. Where the figures are estimated, the respective approach is explained. While some companies report past investments, others refer to future investments. Moreover, the figures could not be collected for the same year due to publishing cycles of the companies.

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Table 1: Figures Emerging Corporate Response Barry Chocolat Chocolats Lindt & Mondelēz Nestlé Callebaut Frey Halba Sprüngli Start of sustainability 2005 2010 2008 2008 2012 2009 programme Cocoa beans sourced… …in tonnes 940,621 8,500 2,500 70,0007 450,0008 400,000 …sustainably9 9% 75% 100% 13% 10% 23% Spending on sustainability programmes… …total in CHF 40 M10 5.72 M11 1.65M12 8 M 13 416 M14 110 M15 … Ø p.a. 4 M 1.43 M 0.55 M 1.14 M 41.6 M 11 M …p.a. p. tonne in 4.25 168.25 220.00 16.29 92.44 27.5 CHF

It is important to note that there is no common understanding in the industry of what sustainable cocoa sourcing is (P. Somlo, personal communication, January 26, 2015). Basically, certified beans or beans sourced through the corporate sustainability programmes count among sustainable cocoa. Thus, in the following this pragmatic definition is employed to demarcate sustainable cocoa sourcing from conventional cocoa sourcing. During primary and secondary research it has become evident that most companies consider themselves as being in transition to sustainable cocoa sourcing. In relative terms, the smaller chocolate manufacturers spend more on sustainability programmes. Barry Callebaut, Lindt & Sprüngli, Mondelēz International and Nestlé still source the predominant part of their cocoa beans conventionally. While Barry Callebaut was an early mover, laggard Mondelēz caught up and launched the most extensive sustainability programme in terms of total spending. To be able to further identify similarities

7 Lindt & Sprüngli does not communicate the quantity of sourced cocoa beans. Based on the Corporate Sustainability Reports 2013 and 2014 rough estimations are possible. Accordingly, Lindt & Sprüngli sources less than 2/3 of their cocoa beans from Ghana. The programme is considered to be fully rolled-out in Ghana because 100% of the cocoa beans are traceable. The programme comprises more than 45’000 farmers. Since 2008 the average cocoa yield in Ghana is ~400kg/ha. On average the farm size in Ghana is 2-3ha. The estimated figure is rounded up. 8 Mondelēz does not publish data on cocoa sourcing. Source: Fountain & Hütz-Adams, 2015. 9 Sustainably produced cocoa beans refers to certified beans or beans sourced through corporate sustainability programmes. 10 2012-2022 11 Chocolat Frey does not communicate on program spending. Based on publicly available data rough estimations are possible. Accordingly, Chocolat Frey paid CHF 1 Million premiums for farmers in West Africa for the harvest 2013/14. Assumption: Each year, Chocolat Frey paid CHF 1M between 2010 and 2014 to farmers in West Africa. The industry-wide proportion of cocoa sourced from West Africa is used as proxy. 12 2010-2012 13 Lindt & Sprüngli, 2015, p. 3: “More than USD 8 million since 2008”. Average exchange rate USD/CHF during 2008-2014 was approximately 0.98 (Source: www.oanda.com). 14 2013-2023 (exchange rate USD/ CHF, 4.3.2015: 1.04) 15 2012-2022 31 Cocoa Sourcing Manuela Wettstein and differences, the approach of each of the six companies is described in detail in the following.

5.1 BARRY CALLEBAUT Barry Callebaut is the world’s leading cocoa processor and chocolate manufacturer. The company is considerably vertically integrated, meaning that it incorporates the cocoa-chocolate chain from purchasing cocoa beans to selling consumer chocolate in the business-to-business market. While Barry Callebaut is listed at the Swiss Stocks Exchange, the Jacobs Holding AG holds 50.11% of the shares (Barry Callebaut, 2014a). During the 2013/14 harvest Barry Callebaut sourced 940,621 tonnes of cocoa beans, which amounts to almost a quarter of worldwide cocoa production (Barry Callebaut, 2014b, p. 133). Besides innovation, expansion and cost leadership, sustainable cocoa is one of the four strategic pillars of Barry Callebaut’s corporate strategy. In comparison to other large companies, Barry Callebaut started early to deal with sustainability challenges (Berne Declaration, 2013, p. 52). Among the identified challenges are low productivity, lack of basic infrastructure, low access to education and thus a low rate of literacy, child labour, poor access to health services and limited access to potable water and sanitation (Barry Callebaut, 2014c, pp. 4-5). Since Barry Callebaut is fully dependent on cocoa, a sustainable industry is of fundamental interest to the company (A. Gubser, personal communication, April 8, 2015). Barry Callebaut considers the ability to obtain sufficient cocoa of the right quality as the most central challenge. Barry Callebaut launched the sustainability programmes in order to ensure industry viability (P. Somlo, personal communication, January 26, 2015).

In 2005, Barry Callebaut established the Quality Partner Program (QPP) to encourage farmers to grow cocoa in a sustainable way. In 2012, the company launched Cocoa Horizons, an initiative funded with CHF 40 million over ten years. Cocoa Horizons builds on QPP and represents Barry Callebaut’s current approach towards sustainable cocoa (Barry Callebaut, 2014c, pp. 6-7). In 2014, Barry Callebaut fully acquired the Biolands Group from which it sourced certified cocoa already since 2000. The Biolands Group works directly with unorganized farmers and village coordinators (Barry Callebaut, 2014c, p. 8). The sustainability team of Barry Callebaut comprises 58 people worldwide. 35 employees are located in Côte d’Ivoire. The team includes ecologists, agronomists, trainers, geographers, trainers, controllers and auditors (Barry Callebaut, 2014c, p. 6). At corporate level, there is a cross-functional Corporate Social Responsibility (CSR) Steering Committee chaired by the CEO. The committee includes the executive committee, selected top managers, the head of sustainable cocoa and the head of CSR communications (Barry Callebaut, 2014, p. 8). In order to implement the cocoa sustainability programmes, Barry Callebaut works with 90 cooperatives that represent about 40,000 farmers across West Africa. Furthermore, Barry Callebaut works together with external partners and development experts. In addition, Barry Callebaut engages

32 Cocoa Sourcing Manuela Wettstein in industry wide sustainability initiatives. For example, Barry Callebaut is a member of CocoaAction. Moreover, the company is a signatory to the Harking-Engels protocol and promotes child protection as a member of the International Cocoa Initiative (Barry Callebaut, 2014c, p. 30).

The vision of Barry Callebaut’s sustainability strategy is “to be the leader in innovation, implementation, and impact in cocoa sustainability globally” (Barry Callebaut, 2014c, p. 6). Barry Callebaut aims at improving the livelihoods of cocoa farmers, promoting entrepreneurial farming, increasing productivity and supporting community development (Barry Callebaut, 2014c, p. 6). The overall goal is to make cocoa farming an attractive profession again (A. Gubser, personal communication, April 8, 2015). Eight activities support these goals: farmer training, child labour mitigation efforts, paying price premiums, informing about premiums paid and how they have been used, implementing a documentation system to trace the beans from the farmer to the warehouses, building water infrastructure, improving access to education and independently verify QPP (Barry Callebaut, 2014c, pp. 36-37). Regarding farmer trainings, Barry Callebaut installed model farms to demonstrate best practices and held farmer field schools in Côte d’Ivoire. Moreover, Barry Callebaut opened a vocation training centre in Côte d’Ivoire in 2013. The centre aims at teaching the top of the knowledge-pyramid, namely trainers and cooperative managers, in GAP, post-harvest management techniques, optimal use of inputs, crop diversification and basic business skills (Barry Callebaut, 2014c, p. 18). The training is provided by Barry Callebaut employees (A. Gubser, personal communication, April 8, 2015). Regarding community development, Barry Callebaut invests in improving access to education and clean water. Since 2013, the Cocoa Horizons Truck, a multi-purpose mobile unit, brings farmer training, basic health care, education services and child labour sensitization directly to the cooperatives that are involved in QPP (Barry Callebaut, 2014c, p. 32).

In recent years, Barry Callebaut has increased direct sourcing from buying stations and cooperatives and buys less at the terminal market (P. Somlo, personal communication, January 26, 2015). Besides, traceability gained in importance for Barry Callebaut. Customers do not only require certified cocoa, but also want to know where their cocoa is coming from (A. Gubser, personal communication, April 8, 2015). Thus, Barry Callebaut aims at making sustainable cocoa fully traceable from all origins (Barry Callebaut, 2014c, p. 7). However, implementing appropriate large-scale tracking systems is costly (P. Somlo, personal communication, January 26, 2015). Barry Callebaut offers both traceability procedures, mass balance and segregation, to its customers. In order to do so, Barry Callebaut uses the traceability tools from the certifying organisations and developed own systems that provide information about the physical location of the beans, their quality and their origin (A. Gubser, personal communication, April 8, 2015).

Barry Callebaut reports according to the Global Reporting Initiative (GRI). The latest report was based on version G3 (Barry Callebaut, 2014, p. 2). Barry Callebaut has defined KPIs in

33 Cocoa Sourcing Manuela Wettstein order to measure progress in sustainable sourcing. The company reports extensively on measures taken towards more sustainable cocoa sourcing and lists around 14 output measures. For example, how many farmers have been trained or how many classrooms have been built. Barry Callebaut reports to source 84,000 tonnes of cocoa through own sustainability programmes of which 54,000 tonnes are certified (Barry Callebaut, 2014c, p. 34/38). 84,000 tonnes corresponds to 9% of total cocoa sourced by Barry Callebaut during harvest 2013/14. Included therein are cocoa sourced through QPP, Biolands, certified cocoa as well as cocoa sourced as part of customers’ sustainability programmes (A. Gubser, personal communication, April 8, 2015). In addition, Barry Callebaut purchases sustainably produced cocoa from other suppliers. The total volume of sustainable products sold in the fiscal year 2013/2014 amounts to approximately 13% (Barry Callebaut, 2014c, p. 34).

In 2012, Barry Callebaut and other chocolate manufacturers have warned of a one million tonne supply deficit by 2020 if demand for chocolate grows as predicted and cocoa supply stagnates. However, from a present-day perspective such a deficit cannot be confirmed anymore. Nevertheless, it is clear that if no actions are taken towards a more sustainable cocoa production, the likelihood deficits in supply would be higher (A. Gubser, personal communication, April 8, 2015). A substantial deficit would be critical for Barry Callebaut since the company fully depends on the availability of cocoa beans. In order to accelerate efforts in the future, Barry Callebaut plans to expand the Cocoa Horizon initiative into a dedicated legal entity, which facilitates customer and donor participation in Barry Callebaut’s sustainability programmes. Furthermore, Barry Callebaut states to expand its programmes across other geographical areas. Besides, Barry Callebaut aims at establishing monitoring processes in partnership with CocoaAction to be able to report on the programmes’ impact (Barry Callebaut, 2014c, p. 40).

5.2 CHOCOLAT FREY

With a market share of around 35%, Chocolat Frey is the market leader in the Swiss retail market (Chocolat Frey, 2013). The company belongs to M-Industry, a coalition of subsidiaries of , the largest retailer in Switzerland. Chocolat Frey mainly produces for Migros, but also for wholesale, travel retail and export. The private label market increasingly takes on greater significance for Chocolat Frey (N. Moret, personal communication, March 26, 2015). Sustainability is anchored in Migros’ philosophy and thus also in Chocolat Frey’s business practices. Nevertheless, it can be stated that the campaign from the NGO Berne Declaration for more sustainable cocoa in 2009 raised the awareness for the issues in cocoa production within Chocolat Frey’s company management (N. Moret, personal communication, March 26, 2015). Another reason why Chocolat Frey increasingly advances its sustainability activities is securing cocoa supply.

In 2013, M-Industry introduced a sustainability strategy which is binding for Chocolat Frey (M-Industry, 2015). Furthermore, Chocolat Frey is integrated in the sustainability programme

34 Cocoa Sourcing Manuela Wettstein of the Migros Group since many years (N. Moret, personal communication, March 26, 2015). Chocolat Frey decided to source UTZ-certified cocoa already in 2010. Chocolat Frey is convinced that certification is the right way for more sustainability in cocoa production (N. Moret, personal communication, March 26, 2015). In order to further embed sustainability within the company, Chocolat Frey established a dedicated sustainability team in 2010. The team is responsible for the overall strategy and the coordination of the different activities within the company, but also for the partnerships and sustainability projects in the origin countries. The head of the sustainability team is reporting directly to the company’s management. Besides, there is a dedicated environmental management team that is responsible for all activities related to the ISO14001 system. The inclusion of sustainability goals into personal employee’s objectives is not required by the management. However, the responsibility to implement sustainability measures to achieve the goals lies with the different departments (N. Moret, personal communication, March 26, 2015). Chocolat Frey does not publish financial data regarding sustainability investments. However, for the harvest year 2013/14 Chocolat Frey paid CHF 1 million of UTZ-premiums to cocoa producers in West Africa (West, 2014, p. 8). Alongside UTZ-certified cocoa, Chocolat Frey focuses on establishing direct long term relationships with selected certified farmer organisations in the producing countries (N. Moret, personal communication, March 26, 2015). Chocolat Frey guarantees to buy certified beans from these selected organisations for several years. Through the guaranteed sales of certified beans, the partner organisations in the producing countries have a certain economic security. Moreover, through the premiums, the partner organisations receive a return on their certification investments (West, 2014, p. 8). As a result of the partnerships, Chocolat Frey has a relatively stable supply chain that is transparent up to the farmer level. Transparency is seen as a pre- condition for taking measures in the supply chain to improve sustainability. Furthermore, transparency is indispensable for credibility and trust (N. Moret, personal communication, March 26, 2015). Together with its partners, Chocolat Frey determines how the premiums are used. While half of the premiums are paid directly to the farmers, the other half is used for social projects, training materials and farming inputs. Due to trainings, where farmers learn how to best cut the trees, handle diseased pods and apply fertilisers, cocoa yields can be increased (West, 2014). However, financial transparency with regards to the usage of premiums is in some cases a challenge in certain origin countries (N. Moret, personal communication, March 26, 2015).

Employees of Chocolat Frey visit important partner organisations in the producing countries two times per year. During the visits, Chocolat Frey engages farmers in conversations in order to identify their needs as well as to assess whether their situation improves (N. Moret, personal communication, March 26, 2015). Previously conducted impact assessments have revealed that measuring impact is very difficult. Especially, establishing causality is problematic. Besides being expensive, academic approaches are often also not suited for the local conditions. That is why, for the moment, Chocolat Frey focuses on personal conversations with farmers and

35 Cocoa Sourcing Manuela Wettstein representatives from the partner organisations during visits in the field (N. Moret, personal communication, March 26, 2015). According to the objectives of the sustainability strategy of Migros and M-Industry, several KPIs have been defined to measure progress regarding sustainability. Internally, Chocolat Frey reports on approximately 50 economic, ecologic and social KPIs. Most KPIs are going to be published in the first sustainability report of M-Industry (N. Moret, personal communication, March 26, 2015). Currently, Chocolat Frey does not publish a distinct sustainability report. In 2014, Migros announced that only sustainably produced, UTZ-certified cocoa is used for its chocolate product lines produced by Chocolat Frey (Migros, 2014). However, due to the fact that Chocolat Frey does not only produce for Migros, this does not imply that 100% of Chocolat Frey’s cocoa is sourced according to UTZ. In 2014, 75% of the overall 8,000 tonnes were UTZ certified. By the end of 2015 Chocolat Frey aims at sourcing 90% of the cocoa beans according to UTZ. Overall, Chocolat Frey follows a continuous improvement approach. Although obtaining good quality cocoa is a challenge in certain origin countries, Chocolat Frey considers the one million cocoa supply deficit by 2020 unrealistic. In general, Chocolat Frey expects to be well positioned for the future and thus currently does not need to adjust its cocoa sourcing strategy (N. Moret, personal communication, March 26, 2015).

5.3 CHOCOLATS HALBA

Chocolats Halba is a chocolate manufacturer owned by Coop, the second largest retailer in Switzerland. The company is a specialist in private label chocolate and thus, focuses on the business-to-business market. Coop is not only the owner, but also the largest customer of Chocolats Halba. Due to the company’s size and the increased competition in the market, Chocolats Halba decided to concentrate on a niche market in 2008. As a subsidiary of Coop, the focus on sustainably produced chocolate was relatively obvious (P. Heid & K. Brugger, personal communication, January 22, 2015). Accordingly, Chocolats Halba introduced a sustainability strategy that became an integral part of the corporate strategy. Chocolats Halba’s approach to corporate sustainability is embedded in the company’s vision: “We are the leading Swiss chocolate maker in terms of quality and sustainability”. Besides being ethically motivated, the two main reasons why Chocolats Halba sources sustainably are securing resources and maintaining quality (Chocolats Halba, 2013, p. 10). Chocolats Halba considers the ability to buy sufficient cocoa of the right quality in the future as the most central challenge in cocoa sourcing (Chocolats Halba, 2013, p. 4). Other major sustainability challenges are child labour, poverty, monocultures and the impact of climate change (Chocolats Halba, 2013, p. 4).

Chocolats Halba’s cocoa sourcing strategy is based on three pillars: buying directly and only FT certified cocoa, promoting mixed-crop systems and eliminating child labour (Chocolats Halba, 2013, pp. 11-14). In 2012, Chocolats Halba paid CHF 830,730 FT premiums which represents a huge increase compared to CHF 107,975 in 2010 (Chocolats Halba, 2013, p. 25).

36 Cocoa Sourcing Manuela Wettstein

In 2012, the cocoa procurement and the sustainability department were merged. The new department “Sustainability and Cocoa Purchasing” is one of six departments of Chocolats Halba’s divisional management (Chocolats Halba, 2013, p. 7). Furthermore, Chocolats Halba established sustainability within standard operational processes and defined management objectives (P. Heid & K. Brugger, personal communication, January 22, 2015). Chocolat Halba sources directly from three cooperatives that are part of FT’s system. Through direct sourcing, local trade intermediaries are excluded and farmers receive a higher share of the international cocoa price (Chocolats Halba, 2013, p. 11). Since 2012, Chocolats Halba also sources cocoa from its flagship project in Honduras. Together with the NGO Helvetas Swiss Intercooperation, the Swiss State Agency for Development and Cooperation, the Swiss State Secretariat for Economic Affairs, Swisscontact and the Coop Sustainability Fund, Chocolats Halba started to revitalize the cocoa sector in Honduras that was destroyed by a hurricane in 1998. The Honduran cooperative cultivates cocoa as part of a mixed-crop farming system and is certified as FT and “Converting to Organic” (Chocolats Halba, 2013, p. 12). Mixed-crop systems are considered to be a holistic approach to address the sustainability challenges in cocoa production. Consequently, Chocolats Halba started a reforestation project together with a specialized partner. This way, Chocolats Halba initiates the planting of timber trees in order to diversify the cocoa farmers’ income (Chocolats Halba, 2013, p. 13). Reforestation is also part of

Chocolats Halba’s CO2-neutral programme. By planting timber trees within the own supply chain, Chocolats Halba compensates all its CO2-emissions that could not be reduced otherwise

(Chocolats Halba, 2013, p. 4). Additionally, the company was able to introduce the first CO2- neutral chocolate to the market (P. Heid & K. Brugger, personal communication, January 22, 2015). In principle, eliminating child labour is considered to be the responsibility of the cooperatives. However, Chocolats Halba supports the cooperatives by buying their cocoa, paying premiums and financing projects (P. Heid & K. Brugger, personal communication, January 22, 2015).

Chocolats Halba has developed several indicators to measure, monitor and report on its efforts. While having introduced own KPIs as part of the sustainability strategy, Chocolats Halba uses indicators developed by Coop and provided by the GRI (P. Heid & K. Brugger, personal communication, January 22, 2015). The latest sustainability report was based on GRI version G3.1. In total, Chocolats Halba sources around 2,500 tonnes of cocoa beans (Chocolats Halba, 2013, p. 6). While 100% of sourced cocoa beans are certified, only 32% of purchased cocoa butter were certified in 2012 (Chocolats Halba, 2013, p. 11). Because there is no market for certified cocoa powder, the FT premium is added to the cocoa butter price. Hence, if FT certified cocoa butter is available, it is very expensive (P. Heid & K. Brugger, personal communication, January 22, 2015). Thus, Chocolats Halba is still required to buy conventional cocoa butter, where traceability is an issue due to production processes (P. Heid & K. Brugger, personal communication, January 22, 2015). However, the cocoa bean supply chain is fully transparent and traceable. Chocolats Halba expects a considerable cocoa supply deficit in the future, but

37 Cocoa Sourcing Manuela Wettstein the size is dependent on demand developments and the effects of productivity enhancing initiatives. During the last two years, global productivity could be increased. However, Chocolats Halba anticipates that the potential has been fully exploited now and thus a limit has been reached (P. Heid & K. Brugger, personal communication, January 22, 2015). Chocolats Halba expects to be well positioned for future challenges in cocoa sourcing due to its direct and fair sourcing approach as well as long term business relationships with the cooperatives. It is anticipated that business partners, which have been supported over many years, continue to supply Chocolats Halba with sufficient quality cocoa beans in the future (P. Heid & K. Brugger, personal communication, January 22, 2015).

5.4 LINDT & SPRÜNGLI

Lindt & Sprüngli ranks among the global top ten chocolate manufacturers and is the worldwide leader in the premium chocolate segment (Lindt & Sprüngli, 2015a, p. 6). The company operates twelve production sites in Europe and the USA. Lindt & Sprüngli distributes its products not only through numerous partners, but also through own retail shops and Chocolate Cafés (Lindt & Sprüngli, 2014a, p. 15). Social responsibility is one of the core values anchored in Lindt & Sprüngli’s credo. The others are: quality, commitment, customer orientation and profitability (Lindt & Sprüngli, 2014b, p. 9). Securing long term supply of high quality cocoa in order to successfully maintain growth is a main driver for Lindt & Sprüngli to address sustainability challenges in cocoa production (Lindt & Sprüngli, 2014b, p. 4). In 2013 a conducted issue materiality analysis revealed that traceability is key to improve sustainability in cocoa production (Lindt & Sprüngli, 2014b, p. 10). Moreover, traceability is important to ensure the availability of high quality cocoa beans (P. Waibel, personal communication, February 09, 2015). Lindt & Sprüngli considers the low development status in the rural agricultural areas of producing countries as one of the most central challenges in cocoa production. Furthermore, the lack of support from local governments as well as corruption are significant challenges (P. Waibel, personal communication, February 09, 2015).

In 2008, Lindt & Sprüngli launched the so called Lindt & Sprüngli Farming Program in Ghana. Since then, Lindt & Sprüngli invested more than CHF 8 million to improve sustainability in cocoa production (Lindt & Sprüngli, 2015a, p. 12). In 2013, the company substantiated its approach towards sustainable cocoa sourcing by formalizing its Farming Program and establishing the Lindt Cocoa Foundation (Lindt & Sprüngli, 2014b, p. 4). Also, Lindt & Sprüngli refined the sustainability governance within the company’s organisation. Besides a CSR committee of the Board of Directors, there is a Sustainability Executive Team that comprises representatives of different departments. A designated sustainability manager organises the meetings of the Sustainability Executive Team, coordinates all sustainability activities within Lindt & Sprüngli and also with external partners (P. Waibel, personal communication, February 09, 2015). The overall objective of Lindt & Sprüngli’s cocoa

38 Cocoa Sourcing Manuela Wettstein sourcing strategy is to secure the supply of high quality cocoa while improving farmer’ livelihoods and contributing to sustainable agricultural development (P. Waibel, personal communication, February 09, 2015). The Farming Program mainly aims at enhancing traceability, increasing cocoa yields and cocoa quality and thereby improving the working environment and livelihood of farmers and their communities (Lindt & Sprüngli, 2014b, p. 14). The programme consists of five pillars: farmer organization and traceability, capacity creation and training, monitoring and performance management, external assessments and improvement activities (Lindt & Sprüngli, 2014b, p. 18). Regarding programme implementation, Lindt & Sprüngli closely cooperates with Source Trust (P. Waibel, personal communication, February 09, 2015). Source Trust is a non-profit organisation promoting sustainable farming practices to improve cocoa bean quality and crop yields (Source Trust, 2015). The organisation implements projects in the regions where Lindt & Sprüngli is sourcing from (Lindt & Sprüngli, 2014b, p. 15). Generally, Lindt & Sprüngli sources from farmers that are part of the projects the company finances (P. Waibel, personal communication, February 09, 2015). To supplement the existing activities, Lindt & Sprüngli established the Lindt Cocoa Foundation. It is a charitable foundation that financially supports third-party projects that aim at improving capabilities and capacities of farmers and fostering enabling environments for them (Lindt Cocoa Foundation, 2015). Lindt & Sprüngli deliberately refrains from certifying its products by third-party organisations because certification is considered an administrative exercise. Lindt & Sprüngli focuses on professionalizing farmers by implementing projects on the ground (P. Waibel, personal communication, February 09, 2015). In recent years, Lindt & Sprüngli shortened its cocoa supply chain, purchased from fewer suppliers, signed more long term contracts and increased its activities in the field (P. Waibel, personal communication, February 09, 2015).

Lindt & Sprüngli defined several KPIs to measure progress (P. Waibel, personal communication, February 09, 2015). Therefore, the company developed a distinctive verification guide (Lindt & Sprüngli, 2015a, p. 14). Basically, the supply chain partners are required to implement internal monitoring and performance management systems to verify that farmers follow the standard outlined by Lindt & Sprüngli (Lindt & Sprüngli, 2015b, p. 2). Moreover, in consultation with the supply chain partners, Lindt & Sprüngli decides which auditors are used for the external assessment (Lindt & Sprüngli, 2015b, p. 10). The external audits are paid by the suppliers (P. Waibel, personal communication, February 09, 2015). Recently, Lindt & Sprüngli partnered with the Committee on Sustainability Assessments (COSA) to improve the KPIs and to expand the monitoring and evaluation system in Ghana towards an impact assessment (Lindt & Sprüngli, 2015a). Since Lindt & Sprüngli is a signatory to the United Nations Global Compact, the company publishes a Communication on Progress report. The reporting guidelines of the GRI were considered in drafting the latest report (Lindt & Sprüngli, 2015a, p. 31). Lindt & Sprüngli neither communicates the total quantity of processed cocoa beans nor the percentage of beans sourced via the Farming Program since that would allow inferences on Lindt & Sprüngli’s cocoa mixture (P. Waibel, personal

39 Cocoa Sourcing Manuela Wettstein communication, February 09, 2015). By now, 100% of cocoa beans from Ghana are traceable. 13% of all cocoa beans sourced by Lindt & Sprüngli are also verified according to the distinctively developed verification guide (Lindt & Sprüngli, 2015a). Lindt & Sprüngli committed to source 100% traceable and verified cocoa beans from Ghana by 2016 and from all countries by 2020 (Lindt & Sprüngli, 2014b, p. 16). However, that does not cover cocoa butter and cocoa powder. In 2014, Lindt & Sprüngli started to evaluate options to establish a traceable and verifiable supply chain for cocoa butter and powder (Lindt & Sprüngli, 2015a, p. 15). Lindt & Sprüngli started to expand the Farming Program to Ecuador in 2014. In 2015, the company will evaluate the expansion of the programme to other origins (Lindt & Sprüngli, 2015a, p. 15). Lindt & Sprüngli currently does not expect a considerable cocoa supply deficit by 2020. CEO Ernst Tanner states that demand for cocoa is exaggerated, especially regarding China and India. Also, he assumes that the various projects aiming at increasing productivity are successful and thus lead to more cocoa supply (Handelszeitung, 2015).

5.5 MONDELĒZ

Mondelēz International is the world’s largest chocolate company (Mondelēz International, 2013, p. 2). In fact, Mondelēz is the leading chocolate manufacturer by generating a 17.5% share of the global market's value (Market Line Industry Profile, 2014, p. 12). Being a public U.S-American company, Mondelēz is listed at the NASDAQ stock exchange. However, its European headquarter is located near . In particular, the company’s chocolate brands, Toblerone, Milka and Cadbury, are produced in Europe. Besides chocolate, Mondelēz offers products such as biscuits, gum, candy, beverages, cheese and grocery. Among Mondelēz’s most famous brands are Oreo, Trident, Jacobs, and Philadelphia (Market Line Industry Profile, 2014, p. 23). Mondelēz introduced its programme towards more sustainable cocoa sourcing due to the increased challenge of rising demand and dwindling supply. The business rationale is the primary reason for Mondelēz to source cocoa sustainably. Mondelēz is a growth company and therefore needs farmers who want to produce cocoa (V. Mahin, personal communication, March 05, 2015). Therefore, the main issue is that cocoa farming is not an attractive business. Due to the small farm sizes and the lack of skills and knowledge, productivity and incomes are low. Besides being a physically demanding job, cocoa farming is not a reputable profession (V. Mahin, personal communication, March 05, 2015).

In 2012, Mondelēz launched its call-for-wellbeing programme (Mondelēz International, 2014a). As part of this programme, the Cocoa Life programme was introduced. Cocoa Life defines what cocoa sustainability means for Mondelēz and envisions “empowered, thriving cocoa communities as the essential foundation for sustainable cocoa” (Mondelēz International, 2013, pp. 1-2). Cocoa Life is overseen by a multi-stakeholder council consisting of senior business representatives, origin representatives and advisors from international NGOs. The Cocoa Life programme director acts as secretary for this council. Around a dozen people

40 Cocoa Sourcing Manuela Wettstein manage the Cocoa Life programme in both, the consuming and producing countries. Although the core group is relatively small, the Cocoa Life programme is a piece of many people working at Mondelēz, especially in the cocoa procurement department (V. Mahin, personal communication, March 05, 2015). Mondelēz committed to invest US$ 400 million over ten years to the programme (Mondelēz International, 2014a, p. 6). The programme is part of Mondelēz’s profit and loss statement, hence not financed through a foundation (V. Mahin, personal communication, March 05, 2015). Cocoa Life is based on three principles: holistic and farmer centric, committed to partnerships and aligned with Mondelēz’ sourcing. The latter means that the programme is implemented with farmers in Mondelēz’ supply chain. The company aims at making cocoa farming a livelihood that lifts people out of poverty. Cocoa Life focuses on five areas: efficient farming practices, supporting communities, creating improved livelihoods by promoting complementary sources of income, inspiring the youth to cocoa farming and conserving the land (Mondelēz International, 2014a, p. 7). To implement the programme, Mondelēz partners with communities, governments, NGOs, International Organizations and supply chain partners. The programme is implemented with farmers within Mondelēz’s supply chain (Mondelēz International, 2014a, p. 6). Besides having developed its own corporate sustainability programme, Mondelēz is a board member of the WCF and is also part of CocoaAction. Moreover, the company is active in the Bill & Melinda Gates Foundation West Africa Cocoa Livelihoods programme. By buying around 16,000 tonnes of FT certified cocoa per year for Cadbury Dairy Milk, Mondelēz is the biggest purchaser of FT Cocoa. Cadbury Dairy Milk was the first mainstream chocolate brand that became FT certified (Fairtrade Foundation, 2015b).

The Cocoa Life programme stresses measuring, monitoring and evaluating. Therefore, Mondelēz partnered with Harvard University in order to set up an independent verification framework. Annually, a Harvard research team conducts an independent evaluation in Cocoa Life communities to measure the programme’s impact. Every three years, a Harvard research team conducts a holistic study including control group communities outside the programme. Besides, a third party organization verifies the flow of cocoa from Cocoa Life communities into Mondelēz’s supply chain on an ongoing basis (Mondelēz International, 2014b). For that, Mondelēz partnered with FLOCERT, the global certification body of FT, at the beginning of 2015 (Mondelēz International, 2015). Mondelēz publishes a sustainability progress report. However, the report does not follow any voluntary standard guidelines. In 2013, 10% of Mondelēz’ cocoa was sustainably sourced, largely through existing certification partnerships (Mondelēz International, 2014c, p. 6). Because the Cocoa Life programme started in 2012, Mondelēz is still in the start-up phase. Programme development, implementation and especially verification takes time. Mondelēz expects an exponential growth of its sustainably sourced cocoa in the upcoming years (V. Mahin, personal communication, March 05, 2015). Mondelēz states that eventually all of its cocoa is going to be either certified or sourced through Cocoa Life. However, the company does not publish a date. The programme is seen as a learning

41 Cocoa Sourcing Manuela Wettstein process. Although supply and demand balance issues are expected in the future, Mondelēz believes in working market mechanisms and does not speculate on the size of future cocoa supply deficits (V. Mahin, personal communication, March 05, 2015).

5.6 NESTLÉ

Nestlé ranks among the top three chocolate manufacturers globally (KPMG, 2014, p. 11). The company has a market share of 14.2% of the global chocolate confectionary market (Market Line Industry Profile, 2014, p. 12). Moreover, Nestlé is one of the largest food and beverage companies worldwide. Among the company’s product portfolio are baby foods, bottled water, coffee, dairy products and pet care products. Overall Nestlé offers over 4,000 different brands and operates a network of 468 factories located in 86 countries (Market Line Industry Profile, 2014, p. 26). As mentioned in chapter 4.1, Nestlé publicly launched the CSV framework as its overarching corporate strategy (Nestlé, 2007, p. 9). Accordingly, in order to be successful over the long term and to create value for shareholders, Nestlé aims at creating value for society (Nestlé, 2014, p. 8). In this regard, Nestlé published a number of commitments of which one is responsible sourcing. Supply chain transparency and the farmers’ low incomes are considered the most central sustainability challenges in cocoa production. In particular, child labour is of great concern. Moreover, the environmental and social infrastructure as well as climate change are considered major challenges (D. High, personal communication, February 13, 2015).

Nestlé’s approach towards sustainable cocoa sourcing is laid down in the Nestlé Cocoa Plan (NCP) which was launched in 2009 (Nestlé, 2014, p. 12). The three pillars of NCP are enabling farmers to run profitable farms, improving social conditions and sourcing good quality, sustainable cocoa. The basis is a multi-stakeholder approach and a transparent cocoa supply chain (Nestlé, 2014, p. 158). Nestlé committed CHF 110 million to NCP for ten years (FLA, 2012, p. 9). NCP is managed by one person who is part of the confectionary strategic business unit. Additionally, Nestlé has a dedicated Responsible Sourcing team. The team is not massive, but leverages its work through local contacts (H. Parsons, personal communication, February 27, 2015). Overall, Nestlé’s corporate governance with regards to sustainability includes a variety of committees and councils. For example, there is the CSV Council where John Elkington and Michael Porter are among the 12 members. Another example is the Nestlé in Society Board, which is chaired by the CEO (Nestlé, 2015, p. 20). In principle, the publicly made commitments are a version of internal management objectives (H. Parsons, personal communication, February 27, 2015). Nestlé supports its tier-1 suppliers in implementing NCP. Currently, Nestlé differentiates between two ways of cocoa sourcing: through the standard cocoa supply chain on one side and through the NCP supply chain on the other side. A central aspect of NCP is plant propagation (Nestlé, 2012). To address the problem of low yields and ageing cocoa trees, Nestlé invests in research and development of new high potential cocoa plantlets. By 2014, Nestlé distributed more than a million such plantlets to farmers (Nestlé,

42 Cocoa Sourcing Manuela Wettstein

2014, p. 160). Farmers that are member of an NCP cooperative can apply for them (FLA, 2012, p. 9). Although the plantlets are free of cost, the farmers have to make a considerable investment by cutting down old trees and digging holes not only for new cocoa trees, but also for other crops such as bananas (D. High, personal communication, February 13, 2015). This way, Nestlé promotes mixed-crop farming systems. Another aspect of NCP are farmer field schools that focus on GAP including pruning trees, pest control and use of pesticides. The farmer field schools in Côte d’Ivoire are held by an Ivorian NGO (Nestlé, 2012). Additionally, Nestlé invests in social projects (FLA, 2012, p. 11).

Nestlé sources between 35 and 40% of its cocoa from Côte d’Ivoire (FLA, 2012, p. 8). In 2012, the FLA conducted an assessment of Nestlé’s cocoa supply chain in Côte d’Ivoire. The analysis laid the foundation for further cocoa supply chain improvements. In principle, Nestlé wants to move away from an untransparent supply chain, where the origin of cocoa beans is unknown and the lowest price is the ultimate measure. It is considered a major business risk not knowing about the supply chain. Instead, a more transparent, direct and cooperative procurement approach is intended (D. High, personal communication, February 13, 2015). Traceability down to the farm level is not intended because administrative efforts would be too excessive for both Nestlé and the farmers (D. High, personal communication, February 13, 2015). To measure improvements with regards so sustainable cocoa sourcing, Nestlé developed several KPIs. While some indicators are easy to measure, for example the tonnage of cocoa bought through NCP or counting farmers trained, others are extremely difficult. Regarding measuring and evaluating impact, Nestlé is working together with other stakeholders in the context of CocoaAction (D. High, personal communication, February 13, 2015). In 2014, Nestlé purchased about 400,000 tonnes of cocoa, which represents more than 10% of the global cocoa production (Nestlé, 2014, p. 158). Thereof, 91,801 tonnes were purchased through the NCP, which amounts to 23% of total cocoa purchased. 88% of cocoa sourced through the NCP were UTZ or Fairtrade certified (Nestlé, 2015, p. 104). Nestlé reports extensively on its CSV strategy. The latest report was prepared according to the GRI G4 guidelines. Overall, Nestlé is planning to buy ever higher proportions of cocoa through the NCP (D. High, personal communication, February 13, 2015). Although Nestlé expects more deficits than surpluses in the upcoming years, a one million tonne supply deficit by 2020 is considered unlikely due to basic supply and demand mechanisms. In principle, the communication of the one million tonne supply deficit pointed to the fact that no one was investing in cocoa and that this had to change (D. High, personal communication, February 13, 2015).

6. INFLUENCE OF THE EMERGING CORPORATE RESPONSES

In the previous chapters, the basis for the analysis of the influence of the emerging corporate responses has been established. First, conventional global cocoa sourcing has been outlined. Second, the sustainability challenges have been described. Finally, a comprehensive review of

43 Cocoa Sourcing Manuela Wettstein the existing corporate responses has been provided. As a result, it is now possible to identify the influence of the emerging corporate responses on global cocoa sourcing and on the sustainability challenges in cocoa production. In the following, their influence is assessed extensively. As explained in Chapter 2.1, the collected information needs to be consolidated in order to be able to draw inferences about the overall influence. Accordingly, the individual emerging corporate responses are compared first. Subsequently, the influence on global cocoa sourcing and on the sustainability challenges is examined separately.

Based on the comprehensive review, it can be stated that the awareness for the sustainability challenges in cocoa production increased considerably during recent years. Overall the sustainability challenges are a major concern for the chocolate manufacturers. Both, the conducted expert interviews and the secondary research, revealed that essentially two factors account for these concerns. On the one hand, the increased cocoa supply risk is a driver of concern. All experts stated that securing long term cocoa supply is one of the main reasons why the company engages in sustainability efforts. On the other hand, reputation risks seem to play a crucial role. Almost all experts indicated that chocolate companies increasingly face pressure from NGOs and consumers. In principle, the conducted research indicates that not the sustainability challenges themselves triggered the emerging corporate responses, but the consequences thereof, namely the increased supply and reputation risk. In other words, the motivations of the chocolate companies are largely instrumental. Having said this, also normative motivations could be identified. Chocolate manufacturers also state that corporate values and ethical concerns are reasons for their sustainability efforts.

When comparing the individual corporate responses, overall seven similarities can be detected. First, all companies aim at increasing yields and improving farmer livelihoods. Also, all companies support farmer trainings and invest in community development and infrastructure. Second, except for Lindt & Sprüngli, all companies source certified cocoa besides having developed own corporate sustainability programmes. Third, supply chain transparency and cocoa traceability are prominent aspects of the approaches towards more sustainable cocoa sourcing. Fourth, paying price premiums, shortening the supply chain and establishing long- term partnerships with suppliers are main characteristics of the programmes. Fifth, the implementation of the programmes has generally been outsourced to suppliers or third parties. Only Barry Callebaut – being a tier-1 suppliers of the other companies – also employs staff to implement the programmes. Sixth, all six companies established sustainability governance and management structures. Additionally, all companies employ at least one person who is responsible for the respective sustainability programme. Mainly, the dedicated employees facilitate internal change towards more sustainable cocoa sourcing and coordinate with external partners regarding programme implementation. Finally, all companies have defined KPIs and report on their sustainability efforts.

44 Cocoa Sourcing Manuela Wettstein

Apart from these similarities, the corporate responses also differ in three aspects. First, the sustainability programmes differ with regards to the financial inputs as sketched out in Table 1 in Chapter 5. In relation to the amount of sourced cocoa, the small companies spend more on sustainable cocoa sourcing than the larger companies. Moreover, the programmes are varyingly strong endowed with human resources. Second, Chocolat Frey and Chocolats Halba source higher shares of sustainable cocoa than Barry Callebaut, Lindt & Sprüngli, Mondelēz International and Nestlé. The larger MNCs still source the predominant part of their cocoa beans conventionally. Third, the individual sustainability programmes emphasise different aspects of the otherwise shared approach. While some companies focus on paying price premiums, others stress traceability or increasing yields.

Altogether, more similarities than differences could be identified. Thus, it can be concluded that the emerging corporate responses of all six companies represent similar approaches towards sustainable cocoa sourcing. In principle, the Switzerland-based companies do not differ considerably from chocolate companies based in other countries (A. Hüsser, personal communication, January 29, 2015). Basically, the findings, which result from the analysis of the six companies in the research sample, allow for reasonable inferences on the industry level. It can be expected that the consolidated emerging corporate responses have an identifiable influence. However, qualitative methods, as used in this explorative study design, only allow for presumptions about their influence. In order to establish a causal relationship between the consolidated emerging corporate responses and observable changes in global cocoa sourcing and in cocoa production, extensive further research would be necessary. Therefore, in the following only propositions about the influence are made.

6.1 INFLUENCE ON GLOBAL COCOA SOURCING Similarly to the analysis of conventional global cocoa sourcing, the assessment of the influence on global cocoa sourcing is conducted in steps. Accordingly, first the influence on the upstream supply chain is examined. Subsequently, the influence on the functioning of the cocoa procurement market is evaluated. For that, the developments in the cocoa procurement market are outlined and the analytical framework, depicted in Chapter 2.1, is employed.

6.1.1 Upstream Supply Chain One common feature of all six corporate approaches towards sustainable cocoa sourcing is the collaboration with cooperatives. The formation of cooperatives has been promoted by certifying organisation and corporate sustainability programmes. Several experts stated that especially certification organisations are considered to have created basic structures that facilitate collaboration between chocolate companies and cocoa farmers in the first place. However, it is unclear if an increase of cooperatives has been triggered (A. Aerni, personal communication, February 12, 2015). Some interviewed experts suspect that until now only the readily reachable

45 Cocoa Sourcing Manuela Wettstein farmers were involved in sustainability efforts. Organising farmers is fairly effortful and takes time (A. Aerni, personal communication, February 12, 2015). As a result, no clear statement about changes on that stage of the supply chain is possible. Accordingly, it is also unclear if changes take place further upstream in the supply chain. Since the cooperatives buy directly from their farmers, it is expected that with certified cocoa the local trade agents disappear (P. Heid & K. Brugger, personal communication, January 22, 2015 / N. Moret, personal communication, March 26, 2015). The supply chain further downstream seems not to be affected by the emerging corporate responses. Cocoa is merchandized through international traders regardless of whether it is conventional or certified cocoa or purchased from farmers, who are part of a corporate sustainability programme (A. Hüsser, personal communication, January 29, 2015). Nevertheless, there appears to be certain pressure on international traders since cocoa processors are integrated backward and gradually emphasise direct sourcing. However, since cocoa is still largely sourced conventionally, these efforts seem not to substantially threaten cocoa traders yet. Furthermore, it is unclear if the current consolidation processes on the cocoa processing stage could be attributed to the sustainability efforts in the industry. Withdrawing ADM publicly states that it sells its cocoa processing and chocolate manufacturing businesses in order to refocus on higher-margin businesses and to dampen the volatility of its earnings (Bunge, 2014). Although efforts towards sustainable cocoa sourcing might reduce margins, the volumes of sustainably sourced cocoa are considered too small to have such large scale effects yet. Therefore, it has to be concluded that the influence of the emerging corporate responses on the supply chain is not identifiable.

6.1.2 Cocoa Procurement Market The conducted primary and secondary research revealed that there are three major effects of the emerging corporate responses on the cocoa procurement market. First, the market for certified cocoa experienced a considerable boom because chocolate manufacturers gradually source more certified cocoa. Second, supply chain transparency and cocoa traceability are prominent aspects in sustainable cocoa sourcing, while both are virtually absent in conventional cocoa sourcing. Third, the cocoa sourcing strategies have changed.

Certification Between 2008 and 2012 certified cocoa grew by 69% per annum (IISD, 2014, p. 135). In 2012, 22%16 of globally sourced cocoa was compliant with a global certification standard (IISD, 2014, p. 137). 13% of global cocoa production is certified by UTZ (IISD, 2014, p. 146). UTZ certified cocoa grew from 5,000 tonnes in 2009 to 500,000 tonnes in 2012, representing an average annual growth rate of 362%. With 406,000 tonnes, RA compliant cocoa accounts for 9% of global cocoa production in 2012. Between 2009 and 2012, production of RA compliant cocoa grew by a rate of 223% per year. Cocoa compliant with the FT standard accounts for 2.8% and

16 This figure is adjusted for multiple certification (IISD, 2014, p. 131) 46 Cocoa Sourcing Manuela Wettstein

Organic cocoa accounts for approximately 2.5% of the global cocoa production (IISD, 2014, p. 142). Commitments by major chocolate manufacturers are seen as key drivers for the recent growth of certified cocoa production (A. Aerni, personal communication, February 12, 2015). With regards to certified cocoa, the price premiums paid to the farmer or the farmers’ organisations is an important aspect. With 18%, highest premiums are paid for Organic cocoa. Lowest premiums, which amount to about 5%, are paid for UTZ certified cocoa (IISD, 2014, p. 135). Except for Lindt & Sprüngli, all companies in the research sample rely on certified cocoa as a measure for sustainable cocoa sourcing. The expansion of certified cocoa production is promising, but entails also challenges. In particular with regards to the speed of growth it is challenging to ensure that the claimed sustainable practices are actually applied. For example, costly monitoring systems and support institutions in the field have to be established. (IISD, 2014, p. 153). According to UTZ Certified, coordination efforts have risen considerably. Although the organisation has become more professional, was able to employ specialists and establish local presences, maintaining quality is a constant challenge (A. Aerni, personal communication, February 12, 2015). Generally, there seems to be consensus among the interviewed experts that certification has limits and is not sufficient for sustainable cocoa sourcing. Basically, the sustainability challenges in cocoa production are more comprehensive than what is addressed by certifying organisations. For example, certification does not address the lack of basic infrastructure. Consequently, all six companies developed own corporate sustainability programmes that go beyond certification. In the context of certified cocoa, supply chain transparency and cocoa traceability have become prominent topics. Notably, certification is seen as having laid the foundations for cocoa traceability (A. Gubser, personal communication, April 8, 2015).

Supply Chain Transparency and Cocoa Traceability Several interviewed experts indicated that chocolate companies started to know about their supply chain only recently. In this regard, the FLA’s assessment of Nestlé’s supply chain in Côte d’Ivoire is considered a good benchmark (A. Hüsser, personal communication, January 29, 2015). Unquestionably, for large MNCs supply chain transparency requires considerable efforts which come at a certain cost. Nevertheless, several experts consider transparency and traceability as the foundations of sustainable cocoa sourcing. For example, Lindt & Sprüngli sees traceability as the basic requirement to credibly claim sustainable cocoa sourcing (P. Waibel, personal communication, February 09, 2015). Traceability is also seen as a precondition that allows for adopting measures to improve sustainability in the supply chain (N. Moret, personal communication, March 26, 2015). Additionally, traceability functions as risk minimization because it enables corrective actions if quality issues occur (P. Heid & K. Brugger, personal communication, January 22, 2015). Another aspect of traceability is that it permits the indication of origin and thus also serves marketing purposes (P. Somlo, personal communication, January 26, 2015). All six companies identify transparency and traceability as the major difference between conventional cocoa sourcing and sustainable cocoa sourcing.

47 Cocoa Sourcing Manuela Wettstein

Achieving supply chain transparency and cocoa traceability is challenging. Basically, there are four reasons for that. First, traceability is a challenge because in cocoa production and in the local cocoa trade there is no consistency, no documentation and no record keeping (D. High, personal communication, February 13, 2015). Second, cocoa beans are mixed at different points along the supply chain. For example, smallholders often do not deliver full bags and thus local traders add beans from other smallholders (P. Waibel, personal communication, February 09, 2015). Besides, local traders sell and buy from anyone (FLA, 2012, p. 2). It is also known that local traders deliberately manipulate delivery by mixing beans of different qualities. Moreover, there is smuggle between Ghana and Côte d’Ivoire, depending on where the price for the beans is higher (P. Heid & K. Brugger, personal communication, January 22, 2015). Another point, where cocoa beans are mixed, is bulk shipment. Third, also cocoa processing and chocolate manufacturing methods affect the traceability of cocoa. Fundamentally, there are two types of production systems: continuous flow and batch (P. Somlo, personal communication, January 26, 2015). Batch production basically means that production takes place in lots. Continuous flow production means that cocoa is processed without interruption. Continuous flow production is the standard method in the industry because it is more cost efficient. However, the batch system would be better suited for traceability (P. Somlo, personal communication, January 26, 2015). Fourth, establishing traceability requires additional financial investments. For example, in order to be able to identify the physical location of a bean, an elaborate IT- based tracking system is necessary (P. Somlo, personal communication, January 26, 2015). Basically, two different levels of traceability have become important in recent years (A. Aerni, personal communication, February 12, 2015). On one side there is segregation. With a segregation approach, certified cocoa is kept separate from non-certified cocoa along the entire supply chain, meaning also during processing and manufacturing (A. Aerni, personal communication, February 12, 2015). Segregation has the advantage that the chocolate manufacturer gets exactly the beans he wants or needs (P. Heid & K. Brugger, personal communication, January 22, 2015). Of course, segregation can also be used to ensure that a particular chocolate contains a certain amount of cocoa from a specific origin. On the other side there is mass balance. Mass balance refers to administrative traceability. With mass balance a chocolate manufacturer buys a certain amount of certified cocoa for a particular chocolate product. However, certified cocoa gets mixed with non-certified cocoa somewhere between the farm and packaging. Consequently, the particular chocolate product does not necessarily contain the certified cocoa, but other products contain certified cocoa as well (A. Aerni, personal communication, February 12, 2015). With mass balance traceability is generally ensured up to the first factory door when purchasing from cooperatives (A. Gubser, personal communication, April 8, 2015). Mass balance is the predominant approach used for certified cocoa since segregation involves extra costs for buyers and processors and thus is more expensive (A. Aerni, personal communication, February 12, 2015). While in conventional cocoa sourcing transparency and traceability are virtually absent, both are prominent aspects in

48 Cocoa Sourcing Manuela Wettstein sustainable cocoa sourcing. Hence, it can be concluded that the emerging corporate responses have promoted supply chain transparency and cocoa traceability.

Sourcing Strategies As part of their sustainability programmes, companies started to source from fewer suppliers, enter more long-term contracts and shorten their supply chain by sourcing directly from cooperatives. For example, Barry Callebaut signs long-term supply agreements and formulates so called memorandums of understanding with its customers (A. Gubser, personal communication, April 8, 2015). Moreover, it seems that suppliers are increasingly required to offer not only the product, but also services in addition. In this regard, suppliers are expected to offer a package that includes activities to improve sustainability in the field (P. Waibel, personal communication, February 09, 2015). Moreover, entities further upstream, such as cocoa traders, are expected to change their business models from only buying and selling cocoa towards managing the cocoa supply chain and implementing sustainability programmes (P. Waibel, personal communication, February 09, 2015). In the context of sustainable cocoa sourcing, companies also seem to bear higher costs due to transparency and traceability efforts, paying price premiums, employing people responsible for sustainability programmes, financing projects in the field and establishing structures for measuring, monitoring and reporting. Besides, it seems that in sustainable cocoa sourcing companies focus less on price. Although prices still have to be competitive, companies demand transparency and change to mutually beneficial sourcing approaches (D. High, personal communication, February 13, 2015). Altogether, it can be concluded that regarding sustainable cocoa, chocolate manufacturers follow different sourcing strategies than with regards to conventional cocoa. As described in Chapter 3.3, conventional cocoa is mainly sourced on the spot and the lowest price is what matters. Recall that according to Kraljic’s (1983) PPM, two factors determine the sourcing strategy for a particular item: the profit impact and the supply risk. It seems that the supply risk of cocoa increased to the extent that cocoa is no longer considered a leverage item, but a strategic item. Overall, the just outlined aspects of sustainable cocoa sourcing reflect the elements of a sourcing strategy that is indicated for strategic items. According to Kraljic’s (1983) PPM, strategic item should be sourced from a few suppliers with whom the firm has close, trusting and long-term relationships. Moreover, the relevant measure should be total cost, not price. Considering that most companies see themselves as being in transition to sustainable cocoa sourcing, the emerging corporate responses can be viewed as the implementation of the new corporate sourcing strategies that are required due to the higher supply risk of cocoa.

In contrast to conventional cocoa sourcing, companies also engage in multi-tier supply chain management. All six companies in the research sample apply multi-tier supply chain practices as outlined by Tachizawa & Wong (2014). All six companies follow the “work with third parties” approach by delegating responsibility to certification organisations and civil society organisations. Furthermore, the implementation of the corporate sustainability programmes has

49 Cocoa Sourcing Manuela Wettstein generally been outsourced to suppliers or third parties. By being part of CocoaAction, the larger companies, Barry Callebaut, Mondelēz and Nestlé, also embarked towards industry self- regulation. Lindt & Sprüngli, Mondelēz and Nestlé seem to complement the “work with third parties” approach with the “indirect” approach because they partner with their tier-1 suppliers to improve sustainability in cocoa production. Chocolat Frey and Chocolats Halba seem to follow the “direct” approach since both have established direct contacts with their sub- suppliers. Altogether it can be stated that the emerging corporate responses have introduced multi-tier supply chain management to the cocoa procurement market.

6.2 INFLUENCE ON SUSTAINABILITY CHALLENGES IN COCOA PRODUCTION After having examined the influence of the emerging corporate responses on global cocoa sourcing, the influence on the sustainability challenges in cocoa production is assessed hereafter. Assessing the influence on the sustainability challenges comprises the question if the corporate responses are actually going to solve these challenges. Therefore, the effective impact of the corporate sustainability programmes is evaluated in the following.

A common tool to evaluate programmes is a logic model (Stiftung Zewo, 2015). In particular in national and international policy and programme analyses, logic models are employed to evaluate the effectiveness of taken measures. Basically, a logic model is a systematic way to outline the causal relationship between the resources invested in a program, the conducted activities and the changes or results the programme is expected to achieve (W.K. Kellogg Foundation, 1998, p. 2). The commonly used basic logic model reduces complexity and provides useful guidance for evaluation. Therefore, this model is employed to examine the effect of the emerging corporate responses on the sustainability challenges in cocoa production. The basic logic model is illustrated in Figure 8. In particular, the differentiation between output, outcome and impact is considered to be beneficial for answering the question if the corporate sustainability programmes are actually going to solve the sustainability challenges in cocoa production.

Figure 8: Basic Logic Model

Input Activities Output Outcome Impact

Source: W.K. Kellogg Foundation (1998, p. 3)

Input refers to the resources available to the programme and includes human, financial, organisational and community resources. Activities represent processes, tools, events, technology and taken actions (W.K. Kellogg Foundation, 1998, p. 2). Outputs are direct goods or services delivered by the program. Outputs are quantifiable and may include, for example,

50 Cocoa Sourcing Manuela Wettstein number of participants, financial donations, provided facilities or executed trainings. Measuring outputs corresponds to performance measurement (Stiftung Zewo, 2015). Outcomes are the specific short- or medium-term changes in behaviour, knowledge, skills or status of the programme’s target audience. While short-term refers to a time span of one to three years, mid- term refers to four to six years (W.K. Kellogg Foundation, 1998, p. 2). Impact is the intended or unintended, primary or secondary, positive or negative, long-term effect induced by the programme. Long-term refers to a time span of seven to ten years. Measuring both, outcome and impact, is termed impact measurement (Stiftung Zewo, 2015). In the following this logic model is employed to systematically evaluate the effect of the corporate sustainability programmes.

Input Chapter 5 already provides detailed information regarding the input part of the basic logic model. In summary, the sustainability programmes differ with regards to the relative financial inputs as sketched out in Table 1 in Chapter 5. Moreover, the programmes are varyingly strong endowed with human resources. All six companies employ a dedicated sustainability team that manages the programme within and outside the company.

Activities As outlined in Chapter 6, the emerging corporate responses of all six companies represent similar approaches towards sustainable cocoa sourcing. Regarding programme implementation, the activities are largely outsourced to third parties. Overall, seven main fields of activities could be identified: First, the companies focus on farmer trainings, in particular with regard to GAP. Second, the companies pay price premiums to farmers or farmer organisations. Third, the companies promote mixed crop cultivation on cocoa farms, for example by planting timber trees or banana plants. Fourth, farming inputs such as seedlings, fertilizers and pesticides are provided. Fifth, companies support the development of infrastructure or the provision of related services. Examples include building schools, drilling waterholes and improving medical care. Sixth, companies support child labour sensitisation projects, for example through dedicated modules during the farmer field schools. Seventh, women empowerment is a key topic. Particular activities include, for example, women farmer trainings, increasing women’s participation in decision-making processes or providing women with additional earning opportunities.

Output All six companies have defined KPIs in order to measure progress in sustainable cocoa sourcing. Thus, quantifying output of the sustainability programmes is attempted. The six companies differ with regards to communicating the programmes’ outputs. Barry Callebaut reports on around 14 output measures. For example, how many farmers have been trained or how many classrooms have been built. However, the figures are scattered across the cocoa sustainability report and thus a clear overview is not provided. Besides, the figures are not easily

51 Cocoa Sourcing Manuela Wettstein comparable to previous years so that observing development over time is difficult. Besides, there are different numbers for how many farmers have been trained. Chocolat Frey currently does not publish a report. Therefore, no statement about the output of the activities is possible. Regarding cocoa sourcing, Chocolat Halba reports on two selected output measures, namely how many timber trees have been planted and how many percent of suppliers have signed the suppliers’ code of conduct. Lindt & Sprüngli provides around seven output measures in table format. Although the figures represent total output over the years, figures from earlier reports are not transferred and new figures are introduced. Mondelēz does not provide any information about output measures yet, despite publishing a high level sustainability report. Nestlé’s CSV report provides information on seven output measures regarding sustainable cocoa sourcing. Among others, Nestlé reports on the number of plantlets distributed, farmers trained and the roll-out of the child labour monitoring system. Easy-to-read charts are provided and the information is comparable to earlier years. Unfortunately, charts are not provided for all measures. Overall it has to be stated, that currently obtainable information about output measures of the sustainability programmes is sparse. The communicated figures are also difficult to assess because often context is missing. For example, regarding the number of farmers trained, it would be helpful to know the relative numbers. In other words, how many farmers more need to be trained in order to reach 100%? In regard to how many schools are built, it would be essential to also include how many teachers are employed or how distant the schools are compared to the average distance in the respective country. Furthermore, a comprehensive comparison of the obtained information is not feasible because not all companies communicate on the same output measures. Consequently, the data basis for evaluating the output of the emerging corporate responses is incomplete. As a result, a conclusive statement about the output of the emerging corporate responses is not possible.

Outcome and Impact Measuring outcome and impact is a salient topic in the cocoa industry. Therefore, companies began to invest considerably in impact measurement (A. Gubser, personal communication, April 8, 2015). Both, the conducted expert interviews and the secondary research, showed that typical methods to measure outcome are interviews and observations. Some companies initiated a benchmark approach, where farmer groups that are part of a sustainability programme are compared with farmer groups that are not part of a programme. Fundamentally, cocoa yield enhancement is the main short- to medium-term objective of the emerging corporate responses. Thus, companies are interested to know if higher yields can be attributed to their programmes. Although measuring yield itself is not difficult on an aggregated level, attributing yield increase to a particular farm is more complex. Interviewing farmers and asking how much they produce does not work. Either the farmers simply do not know or do not want to provide information (D. High, personal communication, February 13, 2015). Moreover, there is reasoned suspicion that weighting scale adjustments and under recording of bean weight are common practices of local cocoa traders or cocoa buying stations (Baah et al., 2012, pp. 45-46). In addition, in order

52 Cocoa Sourcing Manuela Wettstein to causally relate yield increase to the sustainability programmes and their respective measures, extensive research approaches are required. Consequently, companies started to map cocoa farms by using GPS. This way, yields can be estimated and developments over time can be observed. However, such approaches are labour-intensive because researches have to walk along the respective farm fields (A. Gubser, personal communication, April 8, 2015). It has to be concluded that despite these efforts, the data basis is not yet well advanced. Several interviewed experts indicated that measuring outcome or impact is extremely difficult. In principle, neither the companies nor the industry stakeholders currently know if there is progress towards more sustainable cocoa sourcing (A. Hüsser, personal communication, January 29, 2015). Accordingly, none of the companies reports about outcomes and impacts. As a consequence, no statement about the effect of the corporate sustainability programmes can be made. Hence, it has to be stated that it is currently unknown if the emerging corporate responses are actually going to solve the sustainability challenges in cocoa production.

Since the actual influence of the corporate sustainability programmes remains unknown for the time being, analysing the potential influence may provide insights into how sustainable the emerging corporate responses are. Therefore, the business sustainability typology, introduced in Chapter 3.4, is employed. Accordingly, it is analysed if the companies follow a refined shareholder value approach, manage the triple bottom line or are truly sustainable businesses. Apparently, none of the six companies conducts business-as-usual. Also, none of the six companies reversed the organisational perspective to outside-in, using sustainability challenges as the starting point to identify possible contributions by the business. As a consequence, the six companies are either type Business Sustainability 1.0 or 2.0. What differentiates companies of type 2.0 from type 1.0 is the management of the TBL instead of following a refined shareholder value approach. Therefore, creating social and environmental value needs to be the result of deliberately defined goals and programmes. Moreover, firms of type 2.0 produce and report on measurable results. As just outlined, measuring and reporting on output, outcome and impact is an issue for all companies. Thus, regarding this aspect, none of the companies fulfils the criteria for Business Sustainability type 2.0. With regards to defined goals and programmes, it can be stated that all corporate sustainability programmes aim at creating economic and social values for the cocoa farmers. Creating environmental values is generally not in focus of the sustainability programmes. All six companies have set up dedicated organizational and management structures and have defined KPIs. However, due to the limited obtained information in this respect, it is difficult to assess if incentives and accountability mechanisms have been established to ensure that social and environmental values are created. In principle, creating shareholder value largely remains a primary business objective for the larger MNCs. By definition, Chocolat Frey and Chocolats Halba do not aim at creating shareholder value. Both are embedded in cooperative structures where social and environmental aspects are essential values. Thus, it can be said that in this regard both meet the criteria for Business Sustainability type 2.0. Altogether, it can be concluded that none of the companies meets all

53 Cocoa Sourcing Manuela Wettstein the criteria of Business Sustainability type 2.0. None of the companies is considered to be Business Sustainability type 2.0 due to the fact that none is currently able to measure and report on the outcome and impact. However, the smaller companies are considered to be closer to Business Sustainability type 2.0 than the larger MNCs because they sources larger shares of their cocoa sustainably and creating shareholder value is not a business objectives. In principle, if the companies manage to measure outcome and impact in order to demonstrate social and environmental value creation, the shift to Business Sustainability 2.0 is straightforward. Employing the business sustainability typology has allowed for putting the emerging corporate responses of the chocolate manufacturers into context. Since all companies are categorized as Business Sustainability type 1.0, it has to be stated that the sustainability of the emerging corporate responses is not yet well advanced.

7. CONCLUSION

The chocolate industry is confronted with serious sustainability challenges in cocoa production that may put long term cocoa supply at risk. Although sustainability challenges have been a concern for the industry for some years, the challenges have become broader, more complex and increasingly urgent. On this basis, a closer look at the sustainability efforts of the chocolate companies was indicated. Consequently, it was analysed how chocolate companies started to address the sustainability challenges in cocoa production. Additionally, the influence of these emerging corporate responses on global cocoa sourcing and on the challenges in cocoa production was assessed. In a first step, the initial situation in global cocoa sourcing was outlined. Second, the sustainability challenges were described. Then, a comprehensive review of the existing corporate responses was provided. Finally, the influence of these responses on global cocoa sourcing and on the sustainability challenges in cocoa production were examined.

Based on the conducted expert interviews and the secondary research, three key sustainability challenges in cocoa production could be identified: the farmers’ low income, the lack of basic infrastructure and the poor school and vocational education of the farmers. Besides, also the impact of climate change on cocoa production is a central concern. The comprehensive review of the emerging corporate responses of the six Switzerland-based companies in the research sampled showed that the individual responses represent similar approaches towards sustainable cocoa sourcing. Basically, all six companies consider themselves as being in transition to sustainable cocoa souring. Except for Lindt & Sprüngli, all companies source certified cocoa besides having developed own corporate sustainability programmes. The key topics of the sustainability programmes are increasing yields, training farmers, improving farmer livelihoods and investing in community development and infrastructure. The low farmers’ income, which is commonly considered the principal key challenge, is mainly addressed by paying price premiums and focusing on yield enhancements. In this respect, it has to be pointed out that yield enhancements also entail risks. Certainly, increasing productivity is individually rational in

54 Cocoa Sourcing Manuela Wettstein order to improve the farmers’ incomes. It is also rational from a demand side perspective. Increased yields not only result in higher aggregated output, which in turn reduces the supply risk, it also leads to more favourable buying prices. If supply is plenty, risk premiums that are priced-in decline. If surpluses result, the price for cocoa decreases. However, from a supply side perspective, such price developments may have adverse effects. If the higher revenue from the quantity increase is offset by the loss of revenue from the price decrease, total income of the farmers stagnates. If the loss from lower prices is larger than the gain of higher yields, total income of the farmer declines. In particular, if global demand for chocolate does not grow as forecasted, yield enhancement eventually might have a detrimental effect on the farmers’ income. In essence, unreflectingly focusing on increasing yields threatens the success of the sustainability programmes and thus also the return on the companies’ investments. Certainly, such adverse effects would be cushioned for farmers that are part of a certification standard or a corporate sustainability programme because they receive premiums for their cocoa. However, this is only possible if the premiums are forwarded to the farmers. As outlined, there are reasoned suspicions that weighting scale adjustments, bean weight under-recording and non- payment of bonuses to farmers are common practices of local trade agents. Since the local trade agents keep the difference between what they pay to farmers and what they receive in advance as a salary, incentives are high to maximise personal profit by exploiting the position of power opposite farmers. In this respect, the formation of cooperatives and farmer organisations could produce relief. However, as demonstrated, financial transparency regarding the usage of premiums within cooperatives can be a challenge. Thus, it is recommended that ensuring proper payment of the farmers receives more attention in the corporate sustainability programmes. In this regards, closer inspections of weighting scales and bean weight record keeping, especially in buying stations owned by international cocoa traders and processors or their subsidiaries, is indicated.

While the assessment of the influence of the emerging corporate responses on global cocoa sourcing showed that the influence on the supply chain is not clearly identifiable, three major effects on the cocoa procurement market could be revealed. First, the market for certified cocoa experienced a considerable boom because chocolate manufacturers gradually source more certified cocoa. Second, supply chain transparency and cocoa traceability are prominent aspects in sustainable cocoa sourcing while both are virtually absent in conventional cocoa sourcing. Third, the cocoa sourcing strategies have changed. In sustainable cocoa sourcing, companies increasingly purchase from fewer suppliers, shorten their supply chains and also conclude more long-term contracts with suppliers. Basically, the emerging corporate responses can be viewed as the implementation of the new corporate sourcing strategies that are required due to the higher supply risk of cocoa. Furthermore, in contrast to conventional cocoa sourcing, companies also engage in multi-tier supply chain management. The evaluation of the influence on the sustainability challenges in cocoa production principally revealed that the data basis is incomplete. Therefore, no conclusive statement about the effect of the corporate sustainability

55 Cocoa Sourcing Manuela Wettstein programmes can be made. Hence, it is currently unknown if the emerging corporate responses are actually going to solve the sustainability challenges in cocoa production. In summary, it can be said that during recent years, the awareness for the sustainability challenges in cocoa production increased considerably and that investments in more sustainable cocoa sourcing are made. Clearly, the emerging corporate responses have an influence on global cocoa sourcing. Unfortunately, the influence on the sustainability challenges is not yet measurable.

The research at hand provided a broad overview of the lay of land of the chocolate industry and identified current developments in global cocoa sourcing. Besides these practical contributions, insights into a relatively unexplored field of research have been generated: since the topic is current and also industry-specific, there is little academic research available yet. By covering the upstream supply chain as well as employing recently developed theory, the paper also adds to academic research in global supply chain management. Moreover, the recently developed business sustainability typology has been successfully applied to analyse the sustainability approaches taken by firms in a particular industry. Intentionally, the research at hand did not provide an evaluation or ranking of the emerging corporate responses. Overall, further research with regard to measuring the effect of the corporate sustainability programmes would be essential. Therefore, extensive primary data collection is necessary due to the currently insufficient availability of data. Moreover, a far-reaching time-horizon is required in order to evaluate the medium- to long-term impact of the programmes. Besides, in order to establish a causal relationship between the measures of the sustainability programmes and observable changes in cocoa production, an extensive research approach is necessary. In this regard, Mondelēz’s partnership with Harvard University is promising.

While today the predominant part of cocoa beans is still sourced conventionally, future prospects are promising. Generally, investments in more sustainable cocoa sourcing are made and chocolate manufacturers state to aim at buying all of their cocoa sustainably in the future. However, currently there is no common understanding in the chocolate industry of what sustainable cocoa is. Although stakeholders within CocoaAction committed to work together towards a truly sustainable cocoa industry, so far no definition of what a truly sustainable industry means has been published. A common definition or a global standard for sustainably produced chocolate would be beneficial for aligning stakeholders, refining strategies and adjusting implementation efforts. Certainly, a global standard would also establish a benchmark and thus might improve reporting and possibly also measurement. In order to arrive at a sustainable industry, not only the chocolate manufacturers have to accept responsibility, but also consumers, governments and local cocoa traders. All interviewed experts agree, that particularly consumers need to be willing to pay more for chocolate if sustainably produced cocoa should become mainstream. Sustainability comes at a price and retail prices should accurately reflect true costs. Furthermore, also governments have to accept their responsibility. In particular, governments of producing countries play a pivotal role in improving the situation

56 Cocoa Sourcing Manuela Wettstein of cocoa farmers. Commonly, it is considered the state’s responsibility to provide public goods such as education, health care and access to clean water. Therefore, governments should be transparent about the taxes received on cocoa and invest a significant part of this income in developing the rural areas where cocoa farmers live (Fountain & Hütz-Adams, 2015, p. 11). If all stakeholders accept their responsibility and consequently align their efforts, truly sustainable cocoa sourcing is within the realms of possibility.

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APPENDIX

Semi-Structured Interview Guide

Supply Chain / Procurement Market

. How do I have to imagine the cocoa supply chain of ((Company))? . In what way does ((Company)) differentiates itself from its competitors regarding co- coa sourcing? . In the sustainability report it is written that ((Company)) aims for transparency/tracea- bility. Why is achieving transparency/traceability so difficult to achieve? Why is trans- parency/traceability so challenging for ((Company))? . For which corporate objectives is transparency/traceability relevant? . How does the journey of a particular cocoa bean from the farmer onto the ship look like? . What kind of companies are involved in the local cocoa trade? Who are the major lo- cal and international cocoa traders? . In general, the cocoa procurement market is said to be dominated by a few vertically integrated companies. - How did the organisational structure of the procurement market change in re- cent years? - Who are the major local and international cocoa traders?

Sustainability Challenges

. Sustainability issues in cocoa sourcing are various and serious. What are the most cen- tral challenges to ((Company))? . How does ((Company)) define sustainability? . According to ((Company)), what are the differences between sustainable cocoa sourc- ing and conventional cocoa sourcing? . How does ((Company)) measure success in cocoa sourcing? What is ((Company))’s approach towards measuring improvements? . What measures within the company did ((Company)) implement in order to achieve corporate sustainability in cocoa sourcing (KPIs, management objectives, structural organization) . Are there impact assessments of ((Company))’s activities?

Sourcing Strategy

. In what way did the cocoa sourcing strategy of ((Company)) change in recent years? . What are the central elements of the cocoa sourcing strategy of ((Company))? . There are warnings of a one million tonne supply deficit by 2020 if cocoa production is not increased. - What are the current estimates of ((Company))? - How would such a big deficit affect ((Company))? - Are adjustments in the cocoa sourcing strategy necessary due to the current deficit forecast? If yes, what kind of adjustments? 58 Cocoa Sourcing Manuela Wettstein

Changes in Supply Chain / Procurement Market

. In recent years, sustainability programmes proliferated. - Did these sustainability programmes trigger any changes in the cocoa supply chain? If yes, what kind of changes (Re-Organisation, Shortening, Cleaning)? - What does the increased cocoa-certification mean for the buying market? - Which actors in the supply chain benefit from sustainable sourcing? Which ac- tors lose? Are there new actors? - Many initiatives aim at yield-increases. How big is the risk that thereby an oversupply is generated, prices fall and the issues in cocoa sourcing worsen as a consequence? . If all cocoa were produced and sourced according to ((Company’s Sustainability Pro- gramme)). What would have changed in the cocoa supply chain? . How can sustainably produced cocoa become mainstream?

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Publication Content Analysis Scheme

Category Question Sustainability Which sustainability challenges does the company mention? Challenges Sustainability When was the sustainability programme launched? Programme What reasons for the programme launch does the company give? How much money does the company invest in the sustainability programme? Are the objectives / mission / vision of the sustainability programme stated? What kind of objectives are stated in the sustainability programme? What measures does the company take towards more sustainable cocoa sourcing? Are central elements of the cocoa sourcing strategy mentioned in the sustainability programme? What kind of cocoa sourcing strategy elements are mentioned in the sustainability programme? How does the sustainability management structure look like? How is the sustainability team integrated in the organizational structure of the company? Did the company develop Key Performance Indices (KPIs) to report on sustainability performance? What kind of KPIs did the company develop? What is the company’s approach towards measuring impact with regards to sustainable cocoa sourcing? On what KPIs does the company report on? What reporting standard is the company using for the corporate sustainability report? What are the next steps towards more sustainable cocoa sourcing?

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LIST OF INTERVIEW PARTNERS

Date of Organization Name Position Interview Barry Callebaut Angela Gubser Speciality Cocoa Bean & 08.04.2015 Product Trading Manager

Chocolat Frey Nicole Moret Fachspezialistin 26.03.2015 Nachhaltigkeit

Chocolats Halba Kathrin Brugger Projektkoordinatorin 22.01.2015 Nachhaltigkeit

Chocolats Halba Petra Heid Leiterin Nachhaltigkeit & 22.01.2015 Producer Support / Procurement Manager

Erklärung von Bern / Andrea Hüsser Fachbereich Konsum 29.01.2015 Berne Declaration 20.02.2015

Jacobs Holding AG Patric Somlo Investment Manager for 26.01.2015 Barry Callebaut

Lindt & Sprüngli / Lindt Piera Waibel Sustainability Manager / 09.02.2015 Cocoa Foundation Managing Director 16.02.2015

Mondelēz International Virginie Mahin Corporate Affairs 05.03.2015

Nestlé Darell High Cocoa Manager 13.02.2015 Nestlé Cocoa Plan

Nestlé Hilary Parsons Public Affairs / Supply 27.02.2015 Chain and CSV Reporting

UTZ Certified Anita Aerni Key Account Manager 12.02.2015 Europe

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LIST OF LITERATURE

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DECLARATION OF AUTHORSHIP

“I hereby declare - that I have written this thesis without any help from others and without the use of documents and aids other than those stated above, - that I have mentioned all the sources used and that I have cited them correctly according to established academic citation rules, - that the topic or parts of it are not already the object of any work or examination of another course unless this has been explicitly agreed on with the faculty member in advance, - that I will not pass on copies of this work to third parties or publish them without the University’s written consent if a direct connection can be established with the University of St.Gallen or its faculty members, - that I am aware that my work can be electronically checked for plagiarism and that I hereby grant the University of St.Gallen copyright in accordance with the Examination Regulations in so far as this is required for administrative action.”

Zurich, May 18, 2015

______Manuela Wettstein

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