Global demand for cocoa, the most important ingredient of chocolate, is rapidly increasing. Hardly surprising if one realise that as early as 1737, Linnaeus already named the cocoa tree Theobroma a.k.a. Food of God.

However, cocoa production has been linked with several key issues, threatening the future of chocolate. Some of these issues are:

• Reduced supplies due to the often harmful and unsustainable production methods
• Only 6% of the final product price of a chocolate bar flows to cocoa farmers. Therefore, salaries of workers on cacao plantations are low, making the cacao industry unattractive for potential employees
• Poverty amongst the millions of small cocoa farmers prevents them from investing in their farms to increase productivity
• Deforestation for the creation of cacao plantations
• Carbon emissions from the production of cocoa

Customers of cocoa production facilities are cocoa processing businesses, who grind cocoa beans into butter, powder and liquor that are key ingredients in the production of chocolate. The global cocoa processing industry is dominated by 4 players; Barry Callebaut, Cargill, ADM and Blommer Chocolate Company, who together control 61% of world cocoa grindings. This part of the value chain is characterized by many mergers and acquisitions by the big players to increase cost efficiency and realize greater economies of scale.

Securing the future of chocolate

The consolidation of the sector puts great pressure on cocoa farmers, who currently receive only 6% of the wholesale price of chocolate. This increases the risk of uncertain supplies, since the incentives for farmers to grow cocoa shrink.

To improve the conditions along its supply chain, Barry Callebaut has introduced its Forever Chocolate Plan to ‘make sustainable chocolate the norm’. Barry Callebaut, cocoa supplier of for instance Tony’s Chocolonely 100% slave free chocolate, was one of the first companies to realize it had to do something about the poor conditions at cocoa farms. In their Future Chocolate Plan, Barry Callebaut has spoken out the ambition to scale up their own, but also the industry efforts to raise industry standards. The plan includes four key ambitions for 2025:

• Zero child labor in the supply chain
• Prospering farmers by lifting more than 500,000 cocoa farmers out of poverty
• Thriving nature by becoming carbon and forest positive
• Create sustainable chocolate by using 100% sustainable ingredients in all products

Linking interest rates to sustainability performance

By committing themselves to these ambitions and reporting on them, Barry Callebaut not only positions themselves as a sustainable brand and ensures future availability of one of its key resources.

Since June 2017 the interest rate of Barry Callebaut’s extended credit facility is coupled to the sustainability performance of a company – the more sustainable the firm is, the more beneficial the interest rate. This type of credit is one of the first in its kind in Europe, confirming Barry Callebaut as one of the sustainability pioneers in the agro sector. Of course the performance is independently measured. Based on ratings by Sustainalytics, Barry Callebaut recently increased its sustainability performance from 67 to 72. The credit facility that links interest rates to sustainability is supported by a syndicate of 13 banks, including HSBC, Goldman Sachs and Morgan Stanley with ING as the Sustainability Coordinator of the facility. In line with the maturity development of its sustainability efforts, the tenor of the credit facility is extended by three years to 2022.

By linking sustainability performance to interest rates, Barry Callebaut not only aims to protect the future of chocolate, but has also implemented financial incentives to become 100% sustainable. With any luck this example will rapidly gain momentum amongst other industries.

Increasing your impact?

Interested in how to apply business design thinking and open innovation for creating more impact from your business? Please contact Johana Schlotter at johana@finchandbeak.com or +31 6 28 02 18 80

^{Image source: Barry Callebaut}