Is there an unwelcome surprise in your Easter egg?

How to manage your responsible sourcing goals

Easter eggs may seem like the fun side of an important religious festival, but is there more to feel guilty about than rampant snacking? But under the gaudy wrapping Easter eggs are highly visible markers for a host of environmental and social risks facing the cocoa industry and supply chains at large.

Easter is a critical time for the global confectionary industry. The Easter period sees the largest annual launch of new chocolate products by manufacturers, with significant recent growth in emerging markets. However, retailers’ annual marketing campaigns are increasingly bookended by NGO reminders of the major ethical issues which continue to challenge the cocoa industry, most notably the use of child labour.

The trade in cocoa is worth around US$7 billion annually, although three-quarters of production is concentrated in just four countries: Côte d’Ivoire (32%), Ghana (18%), Indonesia (17%) and Nigeria (8%). Across these value chains, child labour and forced labour are rife and symptomatic of widespread poverty. Potential association with such practices means that public-facing companies and their investors continue to face substantial reputational risks that have led to high profile protests and consumer boycotts in the recent past.

The US and UK governments have taken high-profile steps over the past year to clamp down on modern slavery and forced labour, such as the UK Modern Slavery Act and the US closure of a loophole to ban imports of products made by forced labour. This comes alongside ongoing measures by food companies, civil society and responsible investors to tackle these and other problematic issues. Within this context it is worth looking at what our datasets can tell us about key social and environmental risks in cocoa production.

Weak enforcement key in labour rights story

Last month we released its annual Labour Rights and Protections Risk Indices. The data shows that the major cocoa producing countries face substantial human rights and development challenges. However, the story behind the numbers gives a more complete picture of significant shortcomings in both legal frameworks and implementation mechanisms.

According to the US Department of State, cocoa is produced with child labour in the three major West Africa countries, and with forced labour in Cote d’Ivoire and Nigeria. One estimate from Tulane University suggests two million children aged five to 17 are engaged in hazardous work in the cocoa sector in Côte d’Ivoire and Ghana alone.

Yet despite these appalling statistics, all four major cocoa producing countries could accurately claim that they have ratified the relevant International Labour Organisation (ILO) Conventions and have the legal framework in place to tackle the issue. However, Cote d’Ivoire has set a minimum working age that falls below ILO recommendations. Importantly, none of these countries have established legal penalties that sufficiently deter violations of child labour regulations. Not that offenders have much to worry about: the ILO recommends one labour inspector per 40,000 workers in less developed countries; however, in total the three West African countries have just 1,008 labour inspectors to oversee over 75.5 million workers, meaning just one inspector per 75,096 workers.

Growing environmental threats to cocoa supply chains

Environmental hazards present a different set of problems, including short and long-term supply chain disruptions. Natural hazards, pests and diseases have long plagued cocoa growing. In February 2016, the International Cocoa Organization forecast a world output deficit of 113,000 tonnes, in part due to the wide ranging impacts of El Nino on production in West Africa, South America and Asia. And in the 1990s, a severe outbreak of fungal disease Witches’ Broom reduced Brazil’s national cocoa production by 80%.

However, the effects of climate change are likely to result in more severe supply disruptions to the cocoa industry over the longer term. A study by the International Center for Tropical Agriculture found rising temperatures would render large swathes of land in Ghana and Cote d’Ivoire almost entirely unsuitable for cocoa production, devastating a nationally important industry. Shifts in weather patterns consistent with climate change have also been negatively affecting smallholder cocoa farmers in Indonesia, making it less likely that farmers will continue to grow cocoa.

Outlook for the global cocoa industry

The prospect of chocolate becoming a purely luxury good is worryingly close unless drastic action is taken. Our growing craving for chocolate consumption, particularly in emerging economies, is set to push global demand for cocoa higher and higher. By 2020, demand is expected to outstrip supply by 1 million tonnes – or about 20% of current global production.

More positively, none of the challenges mentioned above are new to the industry and key actors have taken impressive steps to address them. Even back in 2012, around 22% of global cocoa production was certified to the major sustainability standards, while the sequencing of the cacao tree genome could prove a killer app in developing more robust stock.

However, the sheer range of challenges facing the industry may be the biggest hurdle. On top of child labour and climate change, a vast array of social, economic, political and environmental issues need to be addressed. Add in potentially volatile supply and demand dynamics, as well as increased legal scrutiny facing suppliers, and the need for greater transparency and collaboration could not be clearer.

Dr James Allan

Director, Head of EMEA & APAC Consulting