Journal of Business Management & Change Summer 2020
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JBMC Journal of Business Management & Change Summer 2020 A Publication of the WBM Conference Series Edited by Emin Ozkan, Ph.D JBMC The Journal of Business Management and Change is a publication of the WBM Conference series focusing on leading- edge research on the Business and Management Disciplines http://www.wbmconference.net Journal of Business Management & Change Summer 2020 Library of Congress ISSN: 1967-6839 Cover Photo: San Francisco in Abstract J B M C I N D E X / S P R I N G 2 0 2 0 Papers Pages Cocoa’s Bittersweet Supply Chain 3 - 15 Lisa M Spencer, Ph.D. Financial Performance of Socially Responsible Companies 16 – 29 Tzu-Man Huang, Ph.D; David Zhu, Ph.D; & Sijing Zong, Ph.D Determining if there is a Relationship between How Much Time a Faculty 30 – 40 Member Spends Assessing Student Assignments and Final Grades at a Rural University: A One Year Analysis Gary F. Keller, Ph.D & Allen Klingenberg, Ph.D Cybersecurity, Ethics, best Practices, & Risk Management in Small Businesses 41 – 63 and New Ventures: A Research Review, Organization & Management Sumeet Jhamb, Ph.D & Agnes Tobey Cocoa’s Bittersweet Supply Chain Lisa M. Spencer Craig School of Business California State University, Fresno Abstract Despite well-intentioned programs and sizeable investments by major players in the global chocolate industry, the West African cocoa supply chain is still plagued by child labor, deforestation, poorly executed certification programs, and difficulties tracing cocoa beans back to the farms from which they came. A variety of solutions are touted to offer hope in addressing these endemic problems. Digital payment systems are among the most promising, providing benefits to farmers and increasing traceability within the supply chain. Keywords: Cocoa, West Africa, chocolate industry, supply chain management, sustainability, child labor, ethics, digital transactions, traceability INTRODUCTION Once asked how important cocoa is to those living in Ivory Coast, government representative N’Zi Kanga Remi replied, “It doesn’t make sense to ask an Ivorian what cocoa means to him! It means everything! It’s his first source of income! My education was funded by cocoa! Our houses are built with cocoa! The foundations of our roads, our schools, our hospitals is cocoa! Our government runs on cocoa! All our policy focuses on sustaining cocoa!” (Whoriskey & Siegel, 2019) Two decades ago leaders in the chocolate industry, representing companies like Nestle, Mars, and Hershey, vowed to improve their cocoa supply chains in West Africa, where most of the world’s cocoa originates. At the top of the list was the lofty but admirable goal of eliminating child labor so the roughly two million children working on cocoa farms could instead be in school. Other more recent objectives included halting deforestation, teaching farmers better growing practices, and improving life in cocoa communities. Despite great effort, much of the chocolate eaten by consumers in the developed world still starts in the hands of child laborers. Large expenditures by chocolate companies did not rid supply chains of underage workers, and evidence suggests that in some areas the problem has grown even worse. Chocolate companies still struggle to trace their supply chains back to the individual farms that produced the beans they purchase. Without traceability, it is hard to know if child labor was used or not. Even when the beans are traceable, certifying that beans are free from child labor is problematic for other reasons. Extreme poverty in cocoa producing nations generates endemic challenges that are not easily overcome. (Whoriskey & Siegel, 2019) The crux of the problem is that too many West Africans depend on cocoa for their livelihood, and too few global consumers are willing to pay more for their chocolate. COCOA INDUSTRY OVERVIEW The global chocolate industry generates sales of over $107 billion a year with strong growth forecast for the next five years. Major players include Nestle, Mars, Hershey, Mondelez, and Godiva, as well as numerous niche companies. All of these chocolate companies rely on a steady supply of cocoa grown mainly in developing countries. (Odijie, 2019) About sixty percent of the world’s cocoa comes from West Africa, home to about two million cocoa farms, with most grown in Ivory Coast and Ghana. Ivory Coast holds the biggest share at 30 percent, and cocoa is its number one export. Cocoa is Ghana’s third largest export, following gold and crude oil. Significant amounts of cocoa also come from Ecuador, Cameroon, Nigeria, Indonesia, Brazil, Mexico, and Peru. (Wexler, 2019) Worldwide, about 4.85 million tons of cocoa was processed for the 2018-2019 growing season which ended in September, making it the largest crop on record since 1960. Cocoa’s performance in commodity markets has been strong, and the 2019-2020 harvest looks promising as sufficient rain in West Africa erased worries of a dry season. (Wallace, 2019) Price per metric ton varied in recent years from $1,800 in 2017 to over $3,250 in the 2015-2016 season. At the beginning of 2020, it stood at $2,500 per metric ton. (Wexler, 2019) COCOA SUPPLY CHAIN In West Africa, about two million farmers and their families grow cocoa trees in fields and dry the beans after harvest. October marks the beginning of the main harvest season. Yellow cocoa pods are cut from the trees and split open with machetes, and the pulpy beans are removed. They are laid out on chicken wire or reed trays to dry, becoming darker as they ferment. Once dry, they are measured into jute sacks and travel to cocoa processing facilities in the United States and Europe. (Ryan, 2019) Individual farmers sell cocoa beans in 140 pound sacks to local middlemen who aggregate beans from surrounding communities. The price paid to farmers is set by the government. Middlemen then sell the beans to the government which makes them available to cocoa processors. Processors convert the beans into cocoa powder or cocoa butter for use in many food products. Chocolate companies like Hershey and Mars then buy the cocoa products for use in their candies. (Wexler, 2019) LIFE OF WEST AFRICAN COCOA FARMERS Poverty is a root problem of many of the day-to-day struggles of West African farmers, and for a variety of reasons, some are worse off now than in the 1970’s and 1980’s. Endemic issues cause stubborn problems in the supply chain that are difficult for chocolate companies to solve even when large amounts of money are spent. (Odijie, 2019) Sources such as World Bank and Fairtrade, a cocoa certification entity, report the small West African farmer’s cocoa income at $1,900 to $2,000 a year. Describing it another way, a World Bank report found that 80 percent of cocoa farmers in West Africa live on less than $3/day. (Wexler, 2019) Another report suggests that a typical farmer earns about $0.78 per day from cocoa farming, about enough to purchase one Kit Kat bar. (Adams, 2019) More income may come from other sources, such as farming other types of crops or perhaps from earning slightly more from the cocoa itself. (Ryan, 2019) While cocoa prices move up and down in world markets, daily living expenses for farmers seem to only increase, as does the cost of running their farms. Chemicals, equipment, and labor make up the biggest expenses. (Wexler, 2019) Most West African farms are small, ranging between five to 12 acres, and lack modern farm equipment and practices. Some farmers are sharecroppers, keeping about a third of the crop’s value and turning the rest over to landlords. (Ryan, 2019) In rural areas, many residents lack electricity, and some villages do not have a water pump or safe sanitation practices. (Adams, 2019) UNESCO cites the Ivorian literacy rate around 44 percent. Living in such extreme poverty makes it hard for parents to pay school fees for their children. Instead it often requires the work of the whole family to grow the cocoa. (Whoriskey & Siegle, 2019) PROBLEMS AND SUSTAINABILITY ISSUES There are two main issues that sustainability programs initiated by chocolate companies, West African governments, and private organizations are working to address: deforestation and the use of child labor. In addition, programs often seek to help farmers learn better farming techniques and to raise the quality of life in cocoa communities. Deforestation Tropical forestland is required to grow cocoa, but farmers are no longer allowed to expand into new areas. In the past, new farmland was carved out of the forests using a slash and burn approach. When existing farmland grew infertile, new forested areas were cut down, burned, and planted with cocoa. New farmland was richer and less troubled by disease or pests; thus, it yielded more cocoa at a lower cost. Whereas there were nearly 40 million acres of forest in Ivory Coast in 1960, by 2005 there were fewer than five million. (Odijie, 2019) One problem is that in Ivory Coast, for instance, as much as 500,000 tons of cocoa, equating to 18.5% of the country’s total production, is farmed illegally in protected forest areas. (George, 2020) For farmers who opt to produce legally, by contrast, no new land is available, so they have to rework their existing plots of land. Rework requires more labor, fertilizers, and pesticides, and if therefore much more expensive than moving to new areas. In fact, it costs about twice as much now to replant as in the past, and the process can take up to three times as long. Unfortunately, farmers cannot pass their increased costs along to the middlemen who buy their beans, since the beans are sold at a fixed price.