2nd Edition

Sweetness follows
A rough guide towards a sustainable cocoa sector

Content

Abbreviations

1. Introduction
2. The cocoa sector
3. Pillars of sustainability
4. Sustainability initiatives
5. Comparison with other commodities
6. Market dynamics
7. Conclusion
8. Recommendations
Sources

4C

Common Code for the Coﬀee Community

ADM

Archer Daniels Midland

BACP

Biodiversity and Agricultural Commodities Program

BMP

Better Management Practices

CMAA

Cocoa Merchant Association of America

CAOBISCO Association of the Chocolate, Biscuit and Confectionary
Industries of the EU
CATIE

Tropical Agricultural Research and Higher Education Center

CIFOR

Center for International Forestry Research

COPAL

Cocoa Producers Alliance

CRES

Compensation and Reward for Environmental Services

CSR

Corporate Social Responsibility

ECA

European Cocoa Association

EU

European Union

FCC

Federation of Cocoa Commerce

FDA

Food and Drug Administration

FSC

Forest Stewardship Council

ICA

International Confectionary Association

ICA

International Cocoa Agreement

ICCO

International Cocoa Organization

ICI

International Cocoa Initiative

ICRAF

International Centre for Research in Agroforestry

ICVB

International Cocoa Verification Board

IFC

International Finance Corporation

IISD

International Institute for Sustainable Development

ILO

International Labor Organization

ILRF

International Labor Rights Forum

LIFFE

London International Financial Futures Exchange

NCA

National Confectioners AssociationNGO

Non Governmental Organization

NY CSCENew York Coﬀee, Sugar and Cocoa Exchange

RSCE

Roundtable for a Sustainable Cocoa Economy

RSPO

Roundtable for Sustainable Palm Oil

TCC

Tropical Commodity Coalition

UNCTAD

United Nations Conference on Trade and Development

VISC

Voluntary Initiatives for Sustainable Commodities

WCF

World Cocoa Foundation

WTO

World Trade Organization

WWF

World Wildlife Fund

1. Introduction
Cocoa plays a crucial role in the livelihoods of millions ofrural households across the developing world, and this tropical commodity has the potential to lift many out of poverty.
Dealing with rural poverty is closely linked to introducing
fairness, justice and sustainability into the cocoa sector. This
challenge requires a closer look at the cocoa value chain andthe stakeholders involved.

cocoa industry into a sustainable economic sector presents
an extraordinary challenge to all the stakeholders involved.
Cooperation between producers, NGOs, governments, traders, processors and manufacturers is necessary in order todevelop these initiatives to their full potential and thus improve the working and living conditions at the beginning of
the cocoa chain.

The cocoa supply chain is a long one: it passes through acomplex trading network comprising a large number of intermediaries; like collectors, traders, exporters, processors andmanufacturers, before it reaches the consumer, who increasingly expects assurance of responsible social and environmental production from their chocolate brands.

This report presents an overview of the world cocoa market
and its main stakeholders. It first details the sustainability
challenges facing the cocoa sector, then provides an overview
of initiatives to manage sustainability in the cocoa chain.
It also presents lessons from other commodity chains, likecoﬀee and timber. Recent developments and trends show
leverage points for ways to achieve more sustainable cocoa
production and trade. Without promoting one initiative or
another, various critical issues are addressed in the conclusion and recommendations.

Given the wide array of challenges to sustainability in the sector, it is not surprising that a range of initiatives, programmes
and systems have been developed to deal with specificpieces of the sustainability puzzle. The transformation of the

2. The cocoa sector
are Indonesia, Nigeria, Cameroon, Brazil, Ecuador, Ghana andIvory Coast, with the last two accounting for almost 60% of
global production. In 2006, the world’s total production of
cocoa beans was 3.6 million tonnes.

The cocoa tree evolved in the tropical rain forests of the Amazon basin. Evidence of the usage of cocoa beans dates back as
far as 1000 BC, when wild forms of the cocoa tree were cultivated by Meso-American Indians in small, diversified gardens
in what are now Belize, Guatemala, Honduras and Yucatán.
Nowadays, cocoa is an internationally traded commodity andthe key ingredient of chocolate.

The cocoa chain is a labor-intensive chain. The International
Cocoa Organization (ICCO) estimates that 90% of global cocoa production is produced by some 3 million smallholders.
Total worldwide employment in primary cocoa production
is estimated at 14 million workers. It is thought that in West
Africa there are 1.2 to 1.5 million cocoa farms, with an average
size of 3-5 hectares, employing 10.5 million people. The cocoa
bean is grown and processed on these farms using laborintensive methods, and its sale is often the main source of

There are two main varieties of cocoa tree: the Criollo variety – which produces fine or flavour quality cocoa – and theForastero variety, which produces bulk cocoa. Criollo cocoas
are grown mostly in Latin America. Their share of world production, however, is very small. Forastero cocoas are mainly
grown in Africa and Asia. The main cocoa producing countries
3Figure 1 The cocoa chain

Farms
Cocoa beans
Traders
Cocoa grinders
Cocoa hulls

Cocoa liquor

Cocoa butter

Cocoa powder

Feed industry

Confectionery industry

Cosmetics

Food industry

Poultry feed

Chocolate, confectionery

Cream, soap

Drinks, ice cream, biscuits, etc.

Supermarkets and other shops
Consumers

Traditionally, most cocoa beans are processed in the UnitedStates, the Netherlands, Germany and Ivory Coast: eachcountry processes over 350,000 tonnes per year. As withother commodities, one of the key features of the cocoa
chain is the growing dominance of multinationals in trading,
processing and manufacturing activities. Although there area large number of companies involved, a small number ofwell-known multinationals dominate the market: between
them Archer Daniels Midland (ADM), Barry Callebaut, Blommer, Cargill, and Petra Foods account for more than half ofthe total trade and grinding activities. Hershey, Ferrero, Kraft,
Mars and Nestlé are the main producers of chocolate confectionery.

family income. Larger scale cocoa plantations exist mainly in
Brazil and Indonesia.
Cocoa is generally exported in the form of dry beans. The
farmers’ production is purchased by dealers and exported byregistered exporters or government marketing boards. Sales
are eﬀected through physical contracts or futures markets,
principally in London (LIFFE) and New York (NY CSCE). The
market distinguishes between bulk cocoa and fine flavour
cocoa. The latter have a preferred flavour or other characteristics, and often receive a price premium.
The process of producing cocoa liquor, butter and powder isknown as grinding. A part of the cocoa liquor is sold to chocolate manufacturers; the rest is pressed to extract cocoa butter and cocoa powder. To produce chocolate, cocoa liquor ismixed with cocoa butter, sugar, milk and emulsifying agents.
Cocoa butter is also used in such cosmetic products as moisturizing creams and soaps. Cocoa powder is used on a large
scale by other food industries for the production of drinks,
desserts, ice creams, spreads, sauces, cakes and biscuits. The
by-products of the cocoa beans – the husks and shells – areused as organic mulch, soil conditioner and poultry feed.

Global consumption of chocolate and other cocoa products
is dominated by Europe (49%) and North America (22%). In
2006, the average consumption of chocolate confectionery
was 3.2 kilos per head. 1 It is expected that the total demandfor cocoa will increase in, for example, Russia, Japan, Brazil
and China. The retail sector is the main distribution channel
for chocolate products. A consumer can choose from a bewildering variety of diﬀerent brands and supermarket private
label chocolate products.

4

Figure 2 Cocoa stakeholder organizations

Producing andConsuming
Countries

International Cocoa
Organization (ICCO)

An intergovernmental organization set up in 1973 to implement the international cocoa agreement. At present, 42 countries representing 80% of the worldwide production and 70% of the worldwide consumption are signatories to thisagreement. The first mention of a sustainable cocoa economy can be found in
the International Cocoa Agreement 2001.

ProducingCountries

The Cocoa Producers
Alliance (COPAL)

An intergovernmental organization that unites the cocoa producing countries.
Its members are: Ghana, Nigeria, Brazil, Ivory Coast, Cameroon, Dominican Republic, Gabon, Malaysia, Sao Tomé, Principe and Togo. COPAL focuses on sufficient supply at good prices, technical information, improvement of the mutualsocio-economic relations and the promotion of cocoa consumption.

Traders

1. London International
Financial Futures
Exchange (LIFFE)
2. Options Exchange New
York Coffee, Sugar and Cocoa Exchange (NY CSCE)

Commodity exchanges. The cocoa contracts are meant to eliminate the pricerisk (hedgers) and are bought and sold for purposes of speculation (speculators). The negotiated price of cocoa is affected by supply and demand and by
the exchange rates (LIFFE in pounds sterling, CSCE in US dollars). It is said that
only 1.5-2% of the total number of contracts bought and sold on the LIFFE result in a physical delivery of cocoa.

1. The Federation of Cocoa
Commerce (FCC)
2. Cocoa Merchants Association of America (CMAA)The FCC provides the international contract and arbitration service for thecocoa supply chain. Its members include the cocoa origins, trade, processors,
chocolate manufacturers together with logistics providers, banks and insurance. In the USA, the CMAA is the agency to contact for the international trade.

European Cocoa Association(ECA)

A relatively new trade organization representing the European cocoa sector. Its
members are engaged in the trade of cocoa beans, the storage and distributionof cocoa beans and their processing into paste, powder and butter, and the
production of chocolate.

National Confectioners
Association (NCA)

The NCA is the national trade association representing the chocolate and confectionary industry in the USA.

International Confectionery
Association (ICA)

A worldwide forum in which, through their associations, almost 3,000 companies in over 30 countries are represented. The members include the CMA (Confectionery Manufacturers of Australia), the ABICAB (Brazilian Chocolate, Cocoa& Confectionery Manufacturers Association), CAOBISCO and NCA.

Association of the
Chocolate, Biscuit andConfectionery Industries of
the EU (CAOBISCO)CAOBISCO represents European manufacturers of chocolate, biscuits and confectionery and its members use 50% of all the cocoa beans that are produced.

World Cocoa Foundation(WCF)

In 2000 the WCF was set up to support farmers in the cultivation of cocoa. The
WCF is a partnership of nearly 70 members representing branded companies,
processors, traders, retailers and port authorities from Europe, the Americas
and Asia.

Processors andmanufacturers

Value chain

5

Figure 3 Main cocoa producing and processing countries, and the main processing and manufacturing
companies

Cocoa Chain
Cultivation

Mainstream Chain
Country
Ivory Coast
Ghana
Indonesia
Nigeria
Cameroon
BrazilGrinding / processing

Country
Netherlands
USA
Ivory Coast
Germany
MalaysiaBrazilCompany
Cargill
ADM
Barry Callebaut
Petra Foods
Blommer

Confectionary

Volume%x 1,000 tonnes in 2006/07 2 Share in 2006/07
1,229
36
615
18
520
15
190
6
168
5
126
4
Volume%x 1,000 tonnes in 2006/07 3 Share in 2006/07
480
13
418
11
360
10
357
10
302
8
224
6
Volume%x 1,000 tonnes in 2006/07 4 Share in 2006/07
520
14
500
14
440
12
250
7
190
5

Company

Ferrero SpACountry
United States
Germany
FranceUnited Kingdom
Russian FederationJapan

Total: 3,637,000 t

Total: 3,600,000 t%
Share chocolate market
2006 515
13
8
8
7

Mars Inc
Nestlé SA
Hershey Foods
Kraft Foods
Cadbury Schweppes
Consumption

Total 3,370,000 t

7Volume%x 1,000 tonnes in 2006/07 6 Share in 2006/07
795
22
315
9
260
7
220
6
195
6
167
5
6

Total: 3,550,000 t

Trade flows of Cocoa beans and butter

Trade flows

3. Pillars of sustainability
The concept of sustainable development in this realm includes such aspects as ‘economic viability for farmers’, ‘environmental conservation’ and ‘social responsibility’. Translating these broad concepts into daily practice is strongly linked
to the belief system of a stakeholder. Sustainability is interpreted in diﬀerent ways at diﬀerent levels of the cocoa chain:for a farmer, a guaranteed income is important; for a country,
the volume and export revenues are significant; and for many
consumers, a responsible production process is a major issue. In the cocoa sector the debate centres on specific topics
within the social, environmental and economic pillar, which
are described in the following text boxes.

The importance of commodity sectors as vehicles for poverty
reduction and sustainable development is evident: these sectors have not only a positive economic impact on but also aclosely related social and environmental significance for theoverall development of communities. Cocoa is an importantcommodity in terms of value traded globally, and plays acrucial role in the livelihoods of millions of rural households
across the developing world. In addition to the 3 million
small-scale cocoa farmers who depend on cocoa as their primary source of income, cocoa exports contribute significantly
to foreign exchange earnings and government revenue.

7

The social pillar:
focus on child labor and forced labor

dresses that: “the ‘certification concept’ put forth by the cocoa
industry in relation to cocoa production is neither a process certification nor a product certification, and oﬀers no assurance toconsumers that the corporations profiting from chocolate sales in
the US have taken steps to eliminate child labor within their supply chains. The certification program as proposed by the cocoa
industry appears to be an attempt to broaden the commonly understood definition of a certification system, a fact recognized by
the industry itself as it seeks to develop an entirely new conceptof certification without the benefit of a genuine multi-stakeholder
process with clear rules of decision-making that will ensure an
outcome acceptable to all stakeholders”. 9

In 2000, worldwide media attention was paid to children
being traﬃcked and forced to work on cocoa farms in West
Africa. As a result of public outrage, politicians, government
oﬃcials, social activists and representatives of the cocoa industry signed the Harkin-Engel Protocol, also known as the
Cocoa Protocol. The protocol proposed guidelines for producing cocoa in adherence with ILO Convention 182. The protocol
included a six-step action plan for cocoa manufacturers tocomplete by July 2005. One of these steps was to establish
the International Cocoa Initiative (ICI), a joint foundation‘to oversee and sustain eﬀorts to eliminate the worst formsof child labor in the growing and processing of cocoa beans
and their derivative products’. The initial deadline, July 2005,
was not met and with little fanfare extended to July 2008.
The renegotiated parameters resulted in a new commitment,
including the following aspects:- a sector-wide independently verified certification processacross each country’s cocoa-growing sector by the end of2010.
- governments of Ghana and Ivory Coast target and coordinate remediation eﬀorts, based on the results from the certification data reports.
- ICI expands its activities to additional communities in Ghana
and Ivory Coast; further strengthens government capacity
at the national level, and educates key stakeholders in thecocoa supply chain on safe, responsible labor practices.

The environmental pillar:
focus on deforestation and soil degradation
Small-scale farmers grow cocoa trees in hot, rainy environments, mostly in areas near the equator. Because cocoa isa delicate, sensitive crop, cocoa seedlings are often sheltered by other trees, such as banana plants, plantain plants,
coconut palms or hardwood trees. Several environmental
problems are related to the production of cocoa, namely deforestation, loss of biodiversity, soil erosion and the use ofagrochemicals.
- Deforestation and conversion of primary forest habitat:
estimates indicate that cocoa production is probably responsible for the loss of 8 million hectares of tropical forest. A lotof cocoa farming is done on land already logged for otherpurposes or for logging in itself.

The development of a system of public certification is a key partof the Harkin-Engel Protocol. By the July 1 deadline, both Harkin and Engel confirm the progress made in recent years by ICI
and the governments of Ghana and Ivory Coast. At the sametime they stress the fact a lot remains to be done to make real
progress in eliminating the worst forms of child labor and forced
adult labor in the cocoa industry. 7 A first independent progress
report of the Harkin-Engel Protocol openly questions the basicsof the proposed ‘certification concept’ as put forward by thecocoa industry. 8 The US based NGO International Labor Rights
Forum (ILRF) has monitored the Cocoa Protocol closely over theyears and in a letter to Senator Harkin, June 2008, clearly ad-- Soil erosion: erosion in cocoa agroforestry plots is likely tobe higher than in natural forests because the leaves do notdecompose quickly and they suppress other vegetation.
Due to intensive cocoa production soils loose fertility, which
explains why cocoa plantations move to fertile ground andare replaced by conventional agriculture.
- Loss of biodiversity and input of agrochemicals: cocoa
should be intercropped with other tree crops to maximize
biodiversity conservation. The high yielding cocoa variety
8their markets, countries such as Nigeria, Cameroon and Ivory
Coast fully privatized their internal and external marketing
structures. The Ghana Cocoa Board (Cocobod) still sets theprice of the cocoa paid to the farmers and controls 70% of
cocoa trade. In most other cocoa producing countries a freemarket system has always prevailed.

called CCN-51 is grown in monoculture and density of 1600
trees per hectare, it needs a high input of agrochemicals.
If done properly cocoa farming has the potential to contribute
positively to the environment, it is a fact that low productivity
and poor support services to farmers can encourage the opposite
eﬀect. Compensation and rewards for ecosystem services (CRES)
is a relatively new approach for achieving resource conservation
and restoration. The World Bank’s BioCarbon fund is one of thelargest biodiversity CRES programs. This program aims to sequester carbon while promoting biodiversity conservation and poverty
alleviation co-benefits. In cocoa there are a few examples that
try to integrate CRES concepts. Conservation International and
CIFOR are exploring how sustainable cocoa production can support biodiversity corridor management goals in West Africa (e.g.
Kakum National Park Ghana). WWF’s Macroeconomics ProgramOﬃce has been developing Agro-forestry/Carbon approaches inAfrica with ICRAF and other partners. In addition CATIE (Costa
Rica) has ongoing projects on biodiversity conservation andcarbon sequestration in small indigenous farms in Costa Rica
and Panama. In May 2008, the International Finance Corporation (IFC; part of the World Bank) launched a programme called
the Biodiversity and Agricultural Commodities Program (BACP).
BACP will support private-sector-led initiatives to mainstream
the adoption of Better Management Practices (BMP) in the fourtarget commodity markets of palm oil, soybean, sugarcane, andcocoa. 10

The farmers’ gate price is dictated by the exchange market,
even though only 1.5 - 2% of the total number of contractsbought and sold on the exchanges result in the physical delivery of cocoa. A rough estimate for the net income by farmwould be US$ 2,000 to US$ 3,000 per year. For a family of six
or seven, that amounts to some US$ 300 to 500 per capita.
Through growing their own food and earning income fromother sources, the family can achieve an income that reaches
or comes above the poverty threshold of US$ 2 per capita perday, as established in the Millennium goals of the United Nations. However, for farmers with less land to cultivate, lower
yields, or in a situation where cocoa prices are (temporarily)
lower and/or where taxes are higher, the income falls below
the poverty threshold. 11
Like other commodities, cocoa has the potential to lift many outof poverty. Realizing more margin through added value, redistribution of margins across the supply chain or creating new formsof ownership are ways for a farmer to realize more income. The
question whether the cocoa farmer is achieving a viable income is
hard to answer and is diﬀerent for every ‘supply chain’ and country of origin . An example of new market approaches that creates
more ownership for the farmers involved is the Divine Chocolate
formula. The largest shareholder of Divine Chocolate Ltd is Kuapa
Kokoo (meaning ‘good cocoa growers’), the Ghanaian farmers’
cooperative from which it buys all its cocoa. Kuapa Kokoo holds
45% of the ordinary shares in Divine Chocolate. Divine turns over
US $ 17,7 million and 45,000 people in 1,200 villages get a shareof the profits and make a collective decision how to spend it.
Mr Ohemeng Tinyase, Managing Director of Kuapa Kokoo said,‘For us, farmer ownership always made Divine Chocolate special.
For the first time our members benefit as owners of a wonderful chocolate brand, and not only as suppliers of excellent, fairly
traded cocoa.’ In June 2008, Divine received the UK Observer’s
Ethical Business award for its empowering trade model. 12

The economic pillar:
imbalance in revenue and power
In the original and simplified sense, commodities were thingsof value and of uniform quality that were produced in large
quantities by many diﬀerent producers. A characteristic ofcommodities is that their prices are determined as a functionof their market as a whole. As a result, the price a farmer
receives is not within his or her control. In general the farmers sell their cocoa beans to local traders, who sell to exporters. Until recently, centralized marketing systems prevailed
in almost all major cocoa producing countries in West andCentral Africa. In the nineties, under pressure to liberalise94. Sustainability initiatives
issue of ethical cocoa supply, and if a day comes when
nobody has faith in how companies treat the suppliers, itwill not only be the farmers who lose out.” Charlotte Eyre,
editor of Confectionerynews.com and Bakeryandsnacks.com 14“As an industry, we see this eﬀort as a long-term commitment, one that reflects a shared responsibility for thecocoa farmers and their families at the start of our supply chain. It is not a commitment that expires with any
one date but rather is an essential, ongoing part of how
we conduct business. While we focus on near-term milestones, they are in fact part of a longer, sustained eﬀort
that reflects our corporate citizenship in this and otherareas.” David Zimmer, Secretary General of CAOBISCO. 13

Codes of conduct and the certification of cocoa have proliferated in recent years in response to the growing consumer
concern about food production methods and the impact ofthese methods on the poor and the environment. Certification is the procedure by which a certification body gives written assurance that the quality of the cocoa and the production process have been assessed and that both conform tospecified requirements. Codes of conduct require suppliers tomeet standards on food safety, working conditions and environmentally friendly production. This market-based approachto the sustainable development of the cocoa sector has givenrise to a number of opportunities for producers, for example
training, access to new markets, and enhanced eﬃciency andrevenues. The adoption and implementation of these codes
could directly improve and protect the economic, social andenvironmental conditions of a cocoa grower. However, full access by those who are the most in need is restricted by various obstacles, for example limited demand, and investment
and audit costs.

The transformation of the cocoa industry into a sustainableeconomic sector presents an extraordinary challenge to all
the stakeholders involved. Cocoa stakeholders have developed various initiatives, programmes and systems to deal
with specific pieces of the sustainability puzzle (see Figure 4).
Cooperation between producers, NGOs, governments, traders, processors and manufacturers is necessary in order todevelop these initiatives to their full potential and thus improve the social, environmental and economic situation at the
beginning of the cocoa chain.
International multi-stakeholder initiatives – such as the International Cocoa Initiative, the World Cocoa Foundation and theRoundtable for a Sustainable Cocoa Economy – face significant challenges to sustainable development at the production
end of the supply chain. With these forums for debate andcooperation amongst policy makers, private-sector players
and other stakeholders, there is the chance to design andimplement an equitable and participatory cocoa trading system. By supporting NGO and farmer organization initiatives,
it is possible to turn their stated commitment to sustainability
into action. Figure 5 gives an overview of the focus and commitment of the various stakeholders.

For the cocoa sector, there are four global initiatives, namely
Fairtrade, Organic, Rainforest Alliance and Utz Certified.
Their characteristics are briefly presented in figure 6. Productquality and traceability have attracted the interest of major
companies. The examples of note include the announcementof Dutch chocolate brand Verkade (United Biscuits) to shift
towards 100% Fairtrade (Max Havelaar certified) cocoa andsugar sourcing by January 2009 (1.500 tonnes of Fairtradecocoa a year). 15 Ahold, Cargill, Heinz Benelux, Mars, Nestléand Ecom are participating in the development of a Utz Certified cocoa standard. 16 Kraft Foods entered in a partnershipwith Rainforest Alliance. Also notable is Starbucks’ new company cocoa standard, an overall sustainability standard with astrong labor standards component. 17

Certified Cocoa“In short, rather than confusing the issue further in future, industry players must therefore work with eachother, as well as the farmers, to not only come up witha more consistent standard of how cocoa suppliers aretreated, but also a fair way of indicating the supply chain
to consumers. It would be desperately sad if the Westernconsumer started to take a jaded and cynical view of the10

Figure 4 International multi-stakeholder initiatives

Initiative

Mission

Stakeholders & funding

Sustainability statement

International
Cocoa Initiative (ICI) www.
cocoainitiative.
org

Established in 2002 ‘to overseeand sustain efforts to eliminate
the worst forms of child labor andforced labor in the growing andprocessing of cocoa beans andtheir derivative products’

Governments, industry, cocoa
producers, labor organizations andNGOs“Today, let us each remember thatchildren everywhere deserve achildhood, an education and an
opportunity to escape the cycle ofpoverty.” Peter McAllister, ICI Executive Director

World Cocoa
Foundation(WCF)
www.worldcocoa-foundation.
org

Started in 2000 as an industrydriven initiative to promote a sustainable cocoa economy througheconomic and social development
and environmental conservation incocoa growing communities

A partnership of nearly 70 chocolate company members,
government, international
agencies, trade associations andNGOsFunded by its industry members

The WCF supports programmes tomake cocoa farming a sustainable,
successful way of life for farming
families. WCF-supported programmes drive sustainable cocoa
farming.

Funded by industry and private
foundations
International
Cocoa Organization (ICCO)
www.icco.org

Article 1 of the International Cocoa
Agreement (ICA), 2001 stipulates
that members shall promote asustainable cocoa economy

An international organization,
composed of both cocoa producing
and cocoa consuming countries.
The private sector is represented
through the Consultative Board on
the World Cocoa Economy

ICCO members should be working
collectively towards a world cocoa
economy that is “economically
viable, ecologically sound andsocially acceptable.”Roundtable fora Sustainable
Cocoa Economy(RSCE)
www.roundtablecocoa.org

Launched in 2007 by the International Cocoa Organization (ICCO),
the mission of the Roundtable isto establish a participatory andtransparent process towards economic, environmental and social
sustainability in the global cocoa
economyThe 1st Roundtable in 2007
brought together more than 200
stakeholders representing governments, industry, farmer organizations, labor unions and NGOs.
A second meeting is planned in2009“… to build a consensus on defining a concept or model of criteria,
indicators and ways to achieve asustainable world cocoa economy
through a participatory and comprehensive approach.”

RSCE has received funding fromgovernments of cocoa producing
and consuming countries
International
Cocoa
Verification
Board
www.cocoaverification.net

In the Harkin-Engel Cocoa Protocolof 2001, the cocoa and chocolate
industry made a commitment toestablish a system to certify thatcocoa beans and their products arebeing produced under fair labor
conditions – particularly without
using child labor or forced labor

Independent of industry andgovernments
Funded by the industry

11“Verification is an essential step inassessing labor conditions in cocoa-growing communities in West
Africa. The ICVB holds the strong
conviction that accurate data will
help guide strategic planning andprogramming to effectively address
potential areas of concern, including child and forced adult labor.”

Figure 5 Overview of the focus and commitment of the various stakeholders

Stakeholders
Farmers1

Companies/Industry

E.g.: West
Africa Farmer
Field Schools,
Sustainable Tree
Programme,
Upcocoa Project,etc.

* Sustainability
adapted fromthe CSR-Frameof Reference forcorporate social
responsibility
developed by the
CSR Platform.
www. mvoplatform.nl
Stakeholders involved
Stakeholders not involved

12

Governments

NGOs

Trade Unions

Initiatives

Sustainability Indicators *SocialEnvironmental

Economic

Corporate
GovernanceOperational aspects

Roundtable fora Sustainable
Cocoa Economy(RSCE)

World Cocoa
Foundation(WCF)

International
Cocoa Initiative(ICI)

Production
Standards

Capacitybuilding
programmes 1

Indicators developed
Indicators not developed13

Figure 6 Cocoa production standards

Fairtradewww.flo.org

Organic
www.ifoam.org

Rainforest Alliancewww.rainforest-alliance.
org

Utz Certified
www.utzcertified.org(in development
for cocoa)

Major producing countries

Ghana, Ivory Coast,
Dominican Republic

Madagascar, Tanzania,
Brazil, Dominican Republic, Mexico, Peru

Ecuador, Ivory Coast,
Ghana

Ivory Coast

Producedvolume 2008
expected

10.000 t

20.000 t

12.000 t

8.000 tVolume 2009
expected

13.000 t

26.000 t

25.000 t

36.000 t

TrendsGrowing demand, in thelast years over 40%

Growing demand side,
over 32% in the period
2006 – 2010. Growth of
production over 20%

Growing market demandCommitted confectionary
companies are involved:
Ahold, Mars, Nestlé,
Heinz

Requirements
for farmers

Smallholders organized indemocratically run organizations, ban on most
toxic pesticides, integrated crop management

Use of non-synthetic
nutrients and plant protection methods, soil
conservation

Sustainable farm management, integrated pest
management, worker
welfare, community
relations, biodiversity
conservation throughmaintenance of shadecover or protection andrestoration of native forest reserves

Good agricultural practices, decent social conditions, environmental
stewardship, food safety,
traceability and transparent group management

Label use

100% Fairtrade cocoa

95% organic cocoa

Two types of label:
1. 100% Rainforest Alliance cocoa
2. Minimum 30%-90%
Rainforest Alliancecocoa with a seal indicating the percentage
of certified cocoa

In coffee: 90% minimum
Utz Certified
In cocoa: To be determinedPrice
premium

Minimum price and fixed
premium

Minimum
price and fixed premium

Negotiable premium

Negotiable premium

145. Comparison with other commodities
The sustainability of a commodity chain has many dimensions. The balance of benefits and negative impacts is
diﬀerent for every commodity chain, and each commodity
chain has its own geographical and social distribution.
Therefore, the issues addressed by sustainability initiatives
and the best approach to these issues also diﬀer between
commodity chains. Various characteristics of commodity
chains play a role, for instance, product, production process,production chain, and the political and regulatory environment.

characteristics can help to transform the cocoa industry intoa more sustainable sector. Several examples are presented infigure 7.
Cocoa is often compared to coﬀee, as the two ‘hot drinks’share several characteristics, starting with the production bysmall-scale farmers. The main sustainability issues are comparable, as is the market structure, with some dominant players
active in both commodity sectors. But compared to coﬀee,
cocoa is processed further and into a larger variety of products (which also contain other ingredients). Nevertheless,cocoa is recognizable to end consumers in most products,
and therefore diﬃcult to substitute. Combining sustainability
eﬀorts with the sugar sector, which is used in many products
in combination with cocoa, is also worth considering.

A successful sustainability initiative for a specific commodity
must deal with the commodity’s specific characteristics: there
is no universal solution. The way in which specific sustainability initiatives in other commodity chains deal with these

Figure 7 Commodity characteristics
Commodity

IssuesCharacteristics

Obstacles

SolutionsCoﬀee

Social and economic
benefits for small-scale
producers and workers
Pesticide usage

Many small-scale farmers and plantations
Very volatile priceFive multinationals buy
50% of green coffee
production
Consumers recognize
coffee as end productOverproduction

Establish parallel markets for
Fairtrade and organic coffee
Certification initiatives (e.g. Rainforest
Alliance and Utz Certified) addressing
the mainstream market
Multi-stakeholder sustainable baseline
standards: Common Code for the Coffee
Community (4C)

Palm oilLand rights of local
communities
Biodiversity loss
Environmental impacts

New demand for use as
biofuelConsumers do not recognize palm oil as aningredientRoundtable for Sustainable Palm Oil(RSPO) in the process of establishingproduction standards and certification
systemTimberLand rights of local
communities
Biodiversity loss
Environmental impacts

Consumers recognize
timber in processed
products

Lack of dominant players
in the timber market

The Forest Stewardship Council (FSC) isa multi-stakeholder initiative that hasestablished production standards and acertification system: FSC parallel market
with high price premium

Sugar

Social and economic
benefits for small-scale
producers and workers
Biodiversity loss
Environmental impacts

New demand for use as
biofuelHeavy government
regulation
Market is not concentrated and is divided along
national interests

Better Sugarcane Initiative15

6. Complementary trends
The consumer demand in Europe and the United States showsa change towards increasing demand for specialty chocolate
products, with high cocoa content or sugar free or natural
sugar, and specific countries of origin. In recent years, newpremium chocolate products like Green and Blacks (darkorganic chocolate of Cadbury), Origin Chocolates (Valhrona)and Divine Chocolate have been marketed successfully. Consumer demand of chocolate is directly related to the economic development of a country. As such it is obvious that cocoa
markets, with their own consumer preferences, will emerge
in Brazil, Russia, India, Japan and China.
The responses of cocoa growing countries to these supply
dynamics and the increasing demand for cocoa are of theutmost importance to farmers. Especially the governmentsof Indonesia and Ghana regard cocoa as a high opportunity
crop and are investing heavily in future production. Also theprocess of adding more value to cocoa growing, besides the
traditional exporting of cocoa beans, is taking place. In recent
years, the grinding capacity in such origin countries as Ivory
Coast and Indonesia, has grown considerably.

The outsourcing of cocoa trade and processing by the chocolate industry, and the integration of processing and marketing
activities by cocoa processors are ongoing.
In the European Union, Directive 2000/36/EC was implemented in 2003 18. The aim of this directive is to allow theuse of up to 5% of a limited number of exotic vegetable fatsin the production of chocolate. These fats are illipe, palm oil,shea, sal, mango kernel and kokum gurgi. The impact of thislegislation on the global cocoa market is still limited, as only
15 manufacturers have incorporated cocoa butter substitutes
in their recipes. However, as cocoa prices rise and manufacturers adapt their recipes, a future shift to vegetable fats canbe expected.

Cocoa supply is insecure due to the ageing of cocoa trees, thedominant position of Ivory Coast, and the potential devastating eﬀect of such pests as witches’ broom and the cocoa pod
borer. As a result, processors are focusing on sourcing new locations and developing pest-resistant trees, new insecticides
and safe pest control, including bio control. Furthermore,industry’s increasing demands for eﬃciency and traceability
are resulting in activities being shifted across the cocoa chain.

Although substituting other vegetable fats for cocoa is athreat to cocoa producing countries and farmers, it might
create opportunities for mixed agro-forestry systems andincome diversification.
In the United States, the Food and Drug Administration(FDA) has let it to be known that there will be no review of
US chocolate standards unless ”.. they receive clear direction
from the US industry as a whole on proposed changes” 19. At
the moment the US cocoa and chocolate industry supports
the current standards.

16

7. Conclusion
able cocoa sector is lacking. ICI focuses on child labor prevention in Ghana and Ivory Coast. WCF concentrates on improving the cocoa production and marketing practices in West
Africa, Southeast Asia and Latin America. WCF also works
on disease and pest pressures in public-private partnerships
with research institutes. In order to really foster changes at
the ground level and to develop ‘holistic’ solutions it is clearthat a high level of cooperative action between stakeholders
themselves and at the public policy level will be necessary.
The first RSCE meeting in Ghana, October 2007, reconfirmed
the necessity to develop a broad based multi-stakeholder
platform in which principles for a sustainable cocoa economy
can be formulated together. The RSCE multi-stakeholder
initiative will have to prove itself by formulating what is minimally needed as a starting point to ensure an international
level-playing field for sustainable cocoa.

The growth in recognition of the importance of sustainability in cocoa production amongst producers, governments,
companies, NGOs and consumers has put the cocoa sector
at a crossroads. No single stakeholder group will make thecocoa value chain significantly better. The cocoa market involves many players, and if the goal is to alleviate poverty
by making the production and trade of cocoa more sustainable, many diﬀerent stakeholders will need to be involved.
Based on our overview of the diﬀerent initiatives, programs
and systems dealing with specific pieces of the sustainability
puzzle, it became clear none of them links the three pillars ofsustainable development in-depth. To address rural poverty
and environmental degradation the main point of departure
should be the whole cocoa farming system. Instead, themulti-stakeholder discussions are centred around child labor,
environmental conservation or agricultural production practices. With a view to promoting greater sustainability in thecocoa production and raise standards across the cocoa sector
as a whole the following observations can be made.

Product quality and traceability have attracted the interest oflarge companies and the retail sector. The well-known Dutch
chocolate brand Verkade (United Biscuits) announced to shift
towards 100% Fairtrade (Max Havelaar certified) cocoa andsugar sourcing by January 2009. Ahold, Cargill, Heinz Benelux, Mars, Nestlé and Ecom are participating in the development of a specific Utz Certified cocoa standard. Cocoa production standards and certification become more widespread,companies are searching for ways to distinguish themselvesfrom the competition and to guarantee the sustainability andtraceability of their cocoa and chocolate products. The market
share of certified cocoa is growing and oﬀers new opportunities for the chocolate manufactures to credibly market sustainably produced cocoa.

Since small farmers often lack organization and political representation both within their own countries and on the international stage, their concerns are frequently not reflected in
the existing multi-stakeholder processes. Also the workers, alarge group of the agricultural workforce, are often unorganized and overlooked. The main multi-stakeholder initiatives
in the cocoa sector are dominated by companies, governments and NGOs. At the RSCE governments (producing andconsumer countries), industry and civil society are included.
The stakeholder composition of ICI is integrating NGOs,
companies, trade unions and institutional organisations. The
WCF combines 70% of company members, bringing together
the public sector and NGO partners in bi-annual partnership
meetings. All of their on-the-ground programs are operated
through public-private partnerships. The over-all representation and influence of cocoa farmers and workers in the initiatives is low, as a result their priorities and aspirations are
rarely articulated in the on-the-ground programs.

There are still many challenges. Therefore stakeholder representation and cooperation at all levels between producers,
governments, NGOs, traders, grinders and the confectionary
industry is necessary in order to develop the diﬀerent initiatives to their full potential and link the social, environmental
and economic pillars of sustainable development in the cocoa
sector.

Although each of the current initiatives and programmes offers some level of economic, social or environmental benefit
to producers, an integral approach towards a more sustain17

8. Recommendations

sustainable cocoa sector linked to the national levels. At thenational level, multi-stakeholder cocoa platforms can design
specific action plans to develop and implement sustainable
practices eﬃciently throughout the cocoa chain in their country. In order to make the discussion on a sustainable cocoa
economy transparent and clear, all stakeholder groups in thecocoa sector are encouraged to develop a ‘shared vision’ on asustainable cocoa economy.

This revised rough guide has revealed the complexity inlinking the three pillars of sustainable development in thecocoa chain. There is an urgent need to address the social,environmental and economic problems simultaneously
and raise the standards to ensure quality cocoa now andin the future. The recommendations summarized below
can be taken into consideration when developing specificstrategies towards a more sustainable cocoa chain.

Improve production standards and cost sharing:
Production standards and certification become more widespread in the cocoa sector. Meeting these new standards involves costs for producers of doing business. Farmers are notinterested in the extra cost imposed on them without gaininga share of the value. Specific bottlenecks in access for small
producers should be taken away, for example by developinga system of cost sharing between companies, governments,
and international development organisations.

Realise the key issue of the sustainability debate:
From the 90s up till now fair-trade principles and sustainability issues have moved from the niche market to themainstream cocoa market. The continued media attention
on child and forced labor and of the Harkin-Engel protocolhas continuously put pressure on the cocoa industry to takeits responsibility. WCF, ICI, RSCE and the global production
standards all developed mechanisms to deal with specificissues of sustainability. Institutionalizing the results of theseprocesses in the cocoa value chain and assigning responsibilities to the various stakeholders is currently taking place. A
key issue that remained untouched upon in the current multistakeholder initiatives is the crucial role the cocoa price playsin the income of the farmer in realizing a fair or sustainablecocoa economy.

Measure the impact of (CSR) activities: Change is unlikely to happen unless the drivers in the chain recognise andaccept their responsibility to contribute to the improvementof working and living conditions at the beginning of the cocoa
chain. The confectionary industry, traders and other companies should make corporate social responsibility measurable
and report transparently about the impact of their activities.

Use sustainability as a motor for innovation: The opportunity to link cocoa growing to new financial mechanism
and climate change is an opportunity for the whole sector.
By linking programs to sequestering carbon and biodiversity
conservation as well as poverty alleviation an integral approach of sustainability can be realised. The larger part of thevalue chain and producing countries (Congo, Nigeria) receive
limited attention. Projects in practice (Ghana, Ivory Coast)
should be expanded to other cocoa producing countries togain more understanding of the potential benefits and threatsof this approach.

Stimulate farmer representation: Although around3 million small-scale farmers are active in the cocoa supply chain, representation at (inter-)national level is virtually
non-existent. Producer governments together with industry
and NGOs have to create an enabling environment for smallproducer associations and cooperatives to join and provide
input in the sustainable cocoa debate. Also the workers, alarge group of the agricultural workforce, are often unorganized and overlooked in the current initiatives.

Integration in world trade debate: To ensure the pro-Develop a shared vision on a sustainable cocoa
economy in the RSCE: The RSCE is a multi-stakeholder

duction of high quality cocoa now and in the future and bringmany small-scale farmers out of poverty, the sustainable cocoa
chain debate has to be incorporated in the broader world tradedebate e.g. WTO (Trade and Environment Committee, Core ILO
standards), UNCTAD, IISD (VISC), EU (Action plan for commodities) and U.S. Commodity Futures Trading Commission.

platform in which a shared vision on a sustainable cocoa economy can be formulated. In an eﬀort to build shared understanding and approaches to sustainability in the cocoa chain at
a global level, key stakeholders can support government andindustry to develop a public/private shared vision towards a
18

Important links and literature
SourcesFootnotes

Sources of figures/tables- Bright, C. (2004): Chocolate, in: Good Stuﬀ? A Behind the scenes Guide
to the things We Buy.
Literature- Clay, J. (2004): World Agriculture and the Environment: a CommodityBy-Commodity Guide To Impacts And Practices.
Footnotes- Coﬀee Coalition(2006): Coﬀee barometer 2006, certified coﬀee in the
Netherlands.
- Consumer
International (2005): From bean to cup: how consumers
Colofonchoice impacts upon coﬀee producers and the environment.
- CREM (2002): Sustainability analysis of cocoa and cocoa products
meant for the Dutch consumer.
- CREM and Oxfam-Novib (2006): Sustainable Drivers for Change in the
Cocoa Chains.
- Global Witness (2007): Hot chocolate: how cocoa fuelled the conflict in
Ivory Coast.
- ICCO (2007): Sustainable Cocoa Economy: a comprehensive and participatory approach.
- ILRF (2008): The cocoa protocol: success or failure?
- IPIS and Oxfam Wereldwinkels (2008): Towards a sustainable cocoa
chain: power and possibilities within the cocoa and chocolate sector.
- Laird, S.A. (1996): An Introductory Handbook to Cocoa Certification, afeasibility Study and Regional Profile of West Africa.
- Lines, T. (ed.) (2006): Agricultural commodities, trade and sustainable
development.
- Payson Center Tulane University (2007): First Annual Report: Oversightof Public and Private Initiatives to Eliminate the Worst Forms of Child
Labor in the Cocoa Sector in Cote d’Ivoire and Ghana.
- TCC (2008): Breaking the vicious circles in the cocoa sector by scaling
up training for cocoa smallholders.
- TCC (2008): Combining flavours! TCC Conference report.
- UNCTAD (2004): Commodities under Neoliberalism: the Case of Cocoa,
G-24 Discussion Paper Series.

1 Caobisco (2006). Ranking of consumption chocolate confectionary graph of Caobisco. Available at http://www.caobisco.com/page.asp?p=213 Accessed August
2008
2 ICCO, Quarterly Bulletin of Cocoa Statistics, Vol. XXXIV, No2 (Production)
3 ICCO, Quarterly Bulletin of Cocoa Statistics, Vol. XXXIV, No2 (Grinding)
4 ICCO, Assessment of the movements of global supply and demand, 2008
5 Cadbury Schweppes (2007): ‘Cadbury Schweppes Annual Report & Accounts
2007’
6 ICCO, Quarterly Bulletin of Cocoa Statistics, Vol. XXXIV, No2
7 Press release: Joint statement from U.S. Senator Tom Harkin, Representative
Eliot Engel and the Chocolate and Cocoa Industry on the Implementation of theHarkin-Engel Protocol, June 16, 2008
8 Payson Center Tulane University (2007): First Annual Report: Oversight of Publicand Private Initiatives to Eliminate the Worst Forms of Child Labor in the Cocoa
Sector in Cote d’Ivoire and Ghana. Available at http://childlabor-payson.org/
books.html Accessed August 2008
9 Available at http://www.laborrights.org/stop-child-labor/cocoa-campaign/resources/1467 Accessed August 2008
10 See: www.bacp.net
11 ICCO (2007): Cocoa prices and incomes of cocoa farmers, MC/10/4/Rev.1 27
August 2007
12 Available at http://www.guardian.co.uk/environment/2008/jun/08/ethicalliving.
lifeandhealth1 Accessed August 200813 Press release: Joint statement from U.S. Senator Tom Harkin, Representative
Eliot Engel and the Chocolate and Cocoa Industry on the Implementation of theHarkin-Engel Protocol, June 16, 2008
14 Foodnavigator (2008): The ethical cocoa confusion. Available at http://www.
foodnavigator.com/news/ng.asp?n=83149-cadbury-utz-blommer Accessed June
2008
15 Press release: Verkade stapt over op Fairtrade chocolade, July 10, 2008
16 Utz Certified (2007): Annual report 2007. Available at www.utzcertified.org
17 ILRF (2008): The cocoa protocol: Success or Failure? Available at www.laborrights.org
18 LMC (2006): The impact of directive 2000/36/EC on the Economies of thosecountries Producing Cocoa and Vegetable Fats other than Cocoa Butter. Available
at http://ec.europa.eu/agriculture/eval/reports/chocolate/fullrep_en.pdf
19 NCA (2007): Industry Supports Current Chocolate Standards of Identity. Available
at http://www.candyusa.org/Media/Hot/SOI/default.asp

Sources of figures

ColofonFig 1: Adapted from Profundo (2006): Strategic analysis of the production chains of palm oil, rice and cocoa.
Fig 2: Adapted from Novib/CREM (2006): Sustainable Drivers for
Change in the Cocoa Chains.
Fig 5: Sustainability indicators adapted from Dutch CSR Platform (2007):
CSR-Frame of Reference for Corporate Social Responsibility.
Fig 7: Adapted from Ministry of Housing, Spatial Planning & Environment (VROM) (2007): Increasing the sustainability of EU and
Dutch Commodity trade through more eﬀective policies.

TCC: Sjoerd Panhuysen, Bärbel Weiligmann
CREM: Anouk van Heeren
Oxfam Novib: Gine Zwart
Cover photo: Lineair Fotoarchief
Photos: istock, Crisja Ran GO, Tegenwind
Design and graphs: Crisja Ran GO, Amsterdam
Print: Mostert en van Onderen, Leiden
Second Edition: August 2008
We appreciate the valuable input of Caobisco, Cargill, FCC, ICCO, Mars,
RSCE and WCF that contributed to improve the figures and informationin this second edition, the final responsibility for the content and theviews expressed in this publication are solely those of the authors.

19

Raamweg 16
P.O. Box 85565
2596 HL Den Haag
The Netherlands
T +31 (0)70 - 376 55 00
www.teacoﬀeecocoa.org

Participants

Tropical Commodity Coalition
Tropical Commodity Coalition (TCC) comprises eight non-governmental organisations: Hivos, Oxfam-Novib, Solidaridad,
Oikos, Somo, Fairfood, India Committee of the Netherlands,
BothEnds and two trade unions, FNV Bondgenoten, CNV
Bedrijvenbond. It cooperates with NGOs and trade unions incoﬀee, tea and cocoa producing countries to improve thesocial, environmental and economic conditions at the beginning of the coﬀee, tea and cocoa value chains.
TCC addresses the social, environmental and economic conditions in the coﬀee, tea and cocoa chains through organisinginformed debates, in both the South and the North. The TCC
ensures coordination of the members’ activities where needed and compiles lessons learnt and promotes the interchangeof strategies to build shared understanding and approaches
to sustainability in these commodities. TCC shares its knowledge and influences policies and plans of companies, standard bodies, CSR initiatives, governments, NGOs and unions
to develop and implement sustainable practices eﬃciently
throughout the coﬀee, tea and cocoa chains. TCC creates anenabling environment for civil society stakeholders from producing countries to join and take an active part in the sustainable commodity debate.