Supply Chain
Is the Chocolate Industry Ready for Europe’s Strict Due Diligence Requirements?

Could a nearly universally beloved food product show the path towards 100% sustainable, ethical and traceable supply chains? There isn’t really a choice; because if traders, buyers and farmers of cacao — the agricultural product that is turned into chocolate — want to survive and retain access to their largest market, they’ll need to be prepared to meet new, strict, mandatory requirements.

That is because companies that import and use cacao in any food and cosmetic products will be subject to the recently passed European Union (EU) regulation on deforestation-free supply chains. The groundbreaking law mandates that imports of six high-deforestation-risk commodities — including cacao — be able to confirm that they have been produced on land that has not been subject to deforestation. And that’s not all – it will likely be followed by the EU’s mandatory human rights due diligence requirements, which would add on another layer of social accountability for supply chain management.

“If you are from Europe and source cacao, companies — even members of the corporate board — will be held liable for any infraction on the law,” Jack Steijn, co-founder of the Netherlands-based cacao consultancy Equipoise, told Sustainable Brands®. “So, they will have incentive to make it pretty certain there is nothing wrong in their supply chain.”

There are several factors that make cacao unlike the other commodities on the EU’s list (palm oil, cattle, soy, coffee, timber and rubber). First is Europe’s oversized role, which accounts for an astounding 56 percent of global cacao imports. Several of the world’s largest chocolate confectionery companies — including Nestlé, Lindt and Ritter — are European; so, the EU’s new regulations will immediately impact the majority of global cacao production.

“If you can't prove that cacao didn't deforest — because you don't have the traceability and you don't know where it came from — then, technically, that cocoa will not be allowed to enter the EU,” Nicko Debenham, a cacao sustainability advisor at Sustainability Solutions, told SB. The risk of losing access to such a large market would be incentive enough, one would hope, to source sustainably.

The chocolate industry has paid increasing attention to ensuring ethical sourcing of cacao in recent years — thanks to concerns about the use of child and forced labor in the main cacao-growing regions of West Africa, driven primarily by low wages. To address these risks, many brands and organizations have been working in the field, building relationships with farmers to ensure they are receiving a fair price for their cacao and benefiting from the growing global demand for cacao-based products.

“Compared to many other commodities and other industries, I think cacao is very advanced because it's constantly under pressure from NGOs and the media; and because it's an emotive product. People love chocolate,” Debenham adds.

Non-profits including Save the Children, Earthworm and Rikolto are working to empower farmers and build stronger relationships between them and the three main global traders — Cargill, Olam and Barry Callebaut — who control the bulk of cacao. Save the Children has used funds it has received from major chocolate companies looking to address child labor risks in their supply chains to create programs that help the communities they source from have access to education and other basic needs. While this work has been successful, Kandogona Soumaïla Ouattara, an Africa-based technical advisor with Save the Children, notes that the positive benefits are localized.

“Most of the time, the funds are just limited to their supply chain,” Ouattara says. “Due to that, even though we are implementing interesting activities, it will be limited to the communities where they are working or the specific supply chain.”

These types of efforts have, Steijn estimates, led to about 20 percent of cacao being fully traceable; and he believes that the industry is on track to achieve 40 percent by the time Europe’s new requirements come into place.

“That’s not good enough; and a lot of work needs to be done, including support from the EU to Ghana and Côte d'Ivoire, to create conditions for this traceability,” Steijn asserts.

Debenham agrees, but sees potential in new, innovative approaches — including the use of satellites and remote monitoring to identify when there are discrepancies in the supply chain, such as sudden shifts in where cacao is reported as being sources, that may require intervention.

“What companies are starting to do is create these polygons — identify the hectares that each farmer has, and then give a reasonableness calculator on the volume that could come from that farm,” Debenham says.

For Ouattara, the hope is that Europe’s new laws will push companies to move away from thinking just about their individual supply chains and be willing to work more collaboratively. Because the only way to achieve full traceability and sustainability is to ensure that the entire cacao industry is ethical and sustainable.

“What we want the private sector to do more is to support public initiatives — use their private funds as an ends to improve the mechanisms and systems that are setup by the government, so that the impact will be much broader and bigger,” Ouattara says. “What we are doing is very small; and it would be good if we could do more.”

Europe’s mandatory environmental and human rights due diligence laws will require companies, traders and farmers around the world to rethink how they source these major commodities. But cacao may be the industry to watch to see the impacts of these regulations — and whether new models can help scale up mechanisms to ensure that Europe’s demand for chocolate no longer results in deforestation or child labor in West Africa, Indonesia and everywhere that cacao is grown.