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Summary of Webcast

Salon Series - Part I: “A Path to Conflict-Free Chocolate?”
April 26, 2013

Our first salon-series live webcast featured two boutique chocolate manufacturers and an NGO certifier - Tim McCollum from Madecasse Chocolate, Joe Whinney of Theo Chocolate, and Mike Godfrey from Rainforest Alliance, all shared their knowledge, history, and experience working in the cocoa industry.

Over the course of an hour, we had the privilege of discussing various themes including:

  • conflict within the industry or as a result of the industry. Our guests agreed that focusing on the negative part of the issue - conflict - was not as helpful as focusing on the positive side - promoting peace.
  • poverty and limited economic opportunity,
  • impacts that the cocoa industry has on society, local farmers, the environment, and local institutions
  • the economics of cocoa farming and manufacturing
  • certification as a possible solution to addressing these challenges.

What came from our conversation and that could be a basis for future discussions are the following ideas:

  • creating value upstream (by farmers) means creating more value downstream  (better products for consumers) -- no doubt we can redistribute value intra-supply chain - but value creation and capture is more sustainable -- financially.
  • compressing and enhancing the relationship (and the awareness thereof) between farmers and consumers can facilitate creating this value upstream.
  • greater transparency in these relationships can facilitate creating value upstream.
  • entrepreneurs or pioneers taking on ‘development risk’ who claim a premium until larger firms move in; getting development agencies or impact investors to recognize this could promote greater local economic development

Our next conversation will be looking at the same themes but with different stakeholders, those ‘closer to the ground’ working with farmer groups or co-operatives themselves.

 

Detailed Notes from Webcast
Moderator: Dr. John Forrer (JF)

JF: With the path that conflict-free minerals has taken recently, is the idea of conflict-free chocolate a good way to frame the discussion? What are your thoughts on the issue?

  • Tim: focus on the positive instead of the absence of the negative; although it can be a good way to do it if the goal is awareness, but other than that, focus should be on something more positive.
  • Joe: in Eastern Congo where Theo sources, there is a lot of conflict however, cocoa is a ‘rebel proof’ commodity; when rebels come through a territory they usually leave the cocoa farms alone. So cocoa is a positive crop in a conflict prone region. Real issue is poverty. Cocoa could play a role in peace and prosperity.
  • Mike: agree w/Tim and Joe. Not appropriate for an agriculture crop.

JF: Slavery, forced labor - is it prevalent? Necessary for economics of cocoa?

  • Mike: labor in Ag as input is necessary, but to state it is slavery or forced labor is an injustice to society. Poverty is the driver for youth to get involved in production; families allow their youth to migrate into other families; societal problem, but needs more holistic approach to advocate against child labor that is harmful.
  • Joe: shocked about poverty on the farms; forced labor not widespread; but poverty is. Economics are broken. This is a consumer concern. Cost of production of chocolate bar is typically externalized; so value is actually higher. But consumer must know and be aware of this.
  • Tim: yes, an economic issue. In Madagascar, deal w/small farm holders, no large industrial processors. There is child labor, but similar to ‘chores’ in the US. Discrepancy between those who live in Africa and how those in the West live are far apart; but if folks can understand this, then can make better decision of how to consume and pay premium.
  • Tim: his and Joe’s firm is much smaller relative to industry

JF: As small company, how do you source cocoa?

  • Tim: more difficult to do what we do as a large company (if they grow that large), working w/cooperative to ferment, dry, and value add, is easier because a small company can interact with all farmers that it buys from; technicians in the field. If large, not possible to do it this way. People - 120 farmers/technicians, 30 in factory, 5th year in business
  • Joe: chocolate maker, bean to bar, building model designed to scale; not hard to be larger with cooperatives. Business built to provide product to customers and provide value to shareholders; generally. If farmer is paid well, then landscape and ecology better; if customers demand that, then they can solve the challenges. Then large business would deliver to solve these challenges; its consumer driven.

JF: What are economic consequences of cocoa farming?

  • Mike: what is a living wage that farmer can use to have reasonable lifestyle, a lot of controversy on this issue; a minimum wage may not be a living wage; industry involved in this discussion on how to move the needle on wages for producer; the smaller firms are closer to farmers/producers and can better offer living wage vs. large firm; in West Africa context - what to grow? Pineapple? Rubber? Palm?
  • Tim: why a small company can focus on producer is on how the firm begins.
  • Tim: did not begin business to make money, unlike large firm who makes money for shareholder then implements CSR platform; small firms might start w/two or three bottom lines

JF: Some say there is a tradeoff between CSR to do and reality of marketplace.Does a living wage increase cost to consumer and is consumer willing to pay that? Consumers sometimes don’t even know why its expensive.

  • Tim: what we pay farmer - fair trade price + premium, since caliber of cocoa trades on a different market; wages for farmers gives a living wage for Madagascar standards; comparing to average person, cocoa farmer is relatively well off; price point @ market ... chocolate bar for $8 won’t go; but better than a $3 bar; Madecasse is in the middle. Consumer looks for good product; something that tastes better/different - then not a problem for consumer.
  • Tim: consumer will not pay more for a product just because, but will pay more for a better product, which coincidently will provide the farmer with a higher wage and bring some economic activity to the country where the manufacturing is taking place.

JF: Is the model of creating value in marketplace possible to scale for upstream (farmers)?

  • Joe: yes possible, manufacturers on the ground close to farmers. CSR doesn’t change culture of business. Having a purpose beyond profit a good thing. Is it altruism? Pricing is online, based on quality. Farmer knows what they will get; consumer knows; Theo publishes this on website! Specifications with greater prices is possible since it is a business transaction; faith in the industry!
  • Mike: driver is future supply of cocoa; addressing issue of productivity, quality; education, health; that allows producers to grow quality product. CSR yes, but a business calculation.
  • Joe: model Theo uses: where provide training/technical support for product they need, sometimes through NGO training (this is an example of corporations and NGO’s working together), additional development support for information on family planning, improved healthcare, etc. is just part of the business for Theo...this model is working for Theo and its part of the business
  • Joe: living standards/cost of living differences is another issue since the price is a global one, but a farmer in Ecuador will get the same price as a farmer in TZ - yet living standards much lower in TZ, so the farmer gains more.

JF: Why not process cocoa in country of production?

  • John: buy and take out of country, benefit not as great for the country cocoa is grown in.
  • Mike: a lot of processing and added value in origin countries; chocolate developed mostly in Europe, family business w/particular recipes and beans - very proud of their chocolate ... to take pre-processed product is difficult in that market; historically exported and processed in other places. But is changing; see government policy in Egypt to process. Changing in favor of local value added.

JF: Does this make firms less competitive on where they source?

  • Mike: yes. Indonesia, changed mix of who was buying and exporting raw beans; business concern; on the other side, gov. sees firms building processing facility and good for countries.

JF: Can firms afford to be flexible and change over time or is it a long term commitment?

  • Mike: definitely long term. Backing up facilities is Ag watershed, geography eating supply; more sustainable ways getting investment.
  • Joe: processing at origin in West Africa. Technological sharing/development, builds stronger middle class; impact interested in is the effect on thousands of farmers.
  • Tim: all production in Madagascar. But that’s what we wanted to do from the beginning. Why started business? Looking at back of chocolate bar ... amount of cocoa is a small cost of total bar ... but that affected how we looked at the farmers. No one was doing this thing of making a high end good chocolate bar in Africa. Not just cocoa, not just processing, ingredients, packaging, etc. has a larger economic impact locally! But difficult w/limited road infrastructure, etc. risk taken by entrepreneurs

JF: Why so difficult for large firm to take risk and pay a living wage?

  • Joe: define a living wage difficult; we charge much more for a chocolate bar, so can ship more money back into the farm; some big manufacturers do pay big price for cocoa.
  • Growing commodities can be a poor living, some consumers want the farmers to make more money but where is it coming from - not from me but the other guy - specialty chocolate could be the answer.
  • Use commodity to make product that is a higher value to consumer and pays the farmer more money.
  • Big firms don’t want to pay farmers less, they want to make money. Commodity markets / future trading impacted by speculation - not supply and demand. Once step out of marketplace and have direct relationships; then can create change, can happen if step out of this framework

JF: On horizon, products changing, e.g. coffee and Starbucks. Do you see chocolate moving into same realm - of presenting to people that they haven’t thought of?

  • Joe: higher quality food experience, society/culture moving towards good food, health benefits of cocoa came out, then cocoa demand increased. In the next few years new products related to health benefits
  • Tim: agree. Coffee is nice parallel to cocoa; 1980’s understanding of coffee was limited; but now we have Starbuck for $5 a cup, a crazy idea! But people weren’t talking about Fair Trade, origins, etc. Consumer more educated; a broader food industry understanding and movement to deconstruct the 40s and 50s move to large mass scale production farms. It takes time. Cocoa a little behind, maybe 1995 in coffee years; but that’s changing.

JF: If we can imagine different uses for chocolate, this higher price higher value, then how does the value get back to the farmer? Is there a mechanism in place that can do this? Or what’s the future of this?

  • Joe: split role certification, firms (public) already have this tool, some are doing social audits that are well thought out; transparency ... everyone should demand what firms are doing and what is paid for cocoa; and firms should tell folks what they do and how they do it and let consumers choose ... plug into reporting models and the info is out there.

JF: Certification a solution? Set stage for looking at certification ... that can address some of the problems we’ve talked about before.

  • Mike: RA worked w/NGO’s (Sustainable Agriculture Network) developed a set of standards of what is sustainable Ag; a checklist / tool to validate system of production, see what folks are doing to check that production aligns w/social, environmental, economic issues (child labor, wages, access to public services, productivity, etc.); when checklist/system more ‘complete’ and validates these issues - more longer term value (understood and measured). Lots of checks and balances; one tool to move the needle on agriculture.

JF: Why don’t we have everything certified, wages set, standards set, etc. Would this be a solution/work - would it put pressure on large companies to do this?

  • Joe: reflected back the question; would this questioner pay 2 to 3 times the price? Push question back

JF: We don’t see consumers ... Who’s willing to pay the additional price?

  • Mike: trend towards better quality and good experience, inherent in all of this is ‘where does it come from?’ Traceability - can you measure/trace/track the chocolate back to farm? Difficult when dealing with commodity agriculture. It’s growing because people want to know where the food is coming from.
  • Concept of “Value, Creation, and capital” - Chocolate is worth more money because I know where it is coming from and I know it is a superior product because of that.

JF: Is there a percentage for this?

  • Mike: locally for certified 10-12%, maybe a fraction of that can make the claim that they know what happens from the beginning to end

JF: What is the future of traceability?

  • Joe: there will be this in the future; the greater challenge is 'capacity at the origin'; do farmer groups have the capacity to better perform. If you match development funds with private funds can build consumer awareness/capacity and build a middle-class; people are thirsty for work and knowledge; will be successful as a large industry. It would be great to all be doing ‘good’ in 5 years and compete just on quality. No differentiation on 'do-gooder' and not.

JF: Sounds promising, but wages are linked to price in marketplace, but not everyone is willing to pay. If everyone is willing to pay a couple more bucks, then we could solve these challenges. But now it appears they are not. So what can we do to close gap, get production closer what we like to see and that is competitive.

  • Joe: How do you know that the consumer is not willing to pay? 50k people come through on tours in Seattle. When people understand the issues, they ask tough questions and become engaged.  Consumers who are enlightened begin to make the right choice. Organic product sales didn’t fall / drop; exercising values through product; through awareness consumers make their choice; once a consumer identifies a product that aligns with their values, they don’t leave Is potential for price elasticity of chocolate - because the chocolate is more competitive.

JF: Fair question to ask, how do we know that the consumer will not pay? We don’t. We know the way we do it and market it and present to consumers; we know there are many ways that consumers will pay more.

JF: Peace. Issues around chocolate might be addressed through respect of human rights, development, etc. What about cocoa farming and increase in demand for chocolate. China a potential market since the population in China has recently “discovered” chocolate. We will have to produce a lot more chocolate. How will that expanded production will link with our efforts to promote peace. What are ways that we can make what we are doing lead to peace.

  • Tim: if order for peace and prosperity, need to have economic development. The key to promoting peace has to relate to economic development/opportunity. Why isn’t chocolate produced at the. Must be about economic opportunity. Global chocolate market is about $105 billion market, whereas local cocoa market is $5 billion, and 65%-70% of cocoa is from Africa. If Africa were to begin producing chocolate, you could hypothetically create $100 billion of wealth in Africa. Long term vision. More economic opportunities need so consumer can buy products.

JF: Conflict associated with areas producing cocoa. What can we do, paying higher wages, or certification (but from a small portion), what can cocoa farms do to anticipate conflict challenges the changes with farms expanding.

  • Joe: what are the lessons with cocoa farms and conflict. Moves to bring cocoa to other countries, so lessons learned must be applied to new regions for growing. Techniques from certification.
  • Mike: Cocoa agriculture is a strong contributing factor to peace and prosperity. Case of Cote d’Ivoire, cocoa production dominated exports, biggest source of revenue, argued that the State intervened in ways that led to corruption and poor governance, thankfully that regime changed; now policies there to foster production in Ag, coffee and cocoa; now seeing the error in past ways and building value. Now cocoa and conflict is helping to transform the country moving forward having learned.

JF: How do you reflect to consumers the social good/benefit that you are doing in the countries where sourcing cocoa. Do you have some practical examples? What are some things we can do to communicate the social good?

  • Joe: bringing the farmers stories closer to consumers.West and Central Africa - most cocoa farmers haven’t even tried chocolate! In DRC, farmer asked what is done with cocoa, make shoe polish? Joe says, no we make chocolate; here try some. Farmers respond with dignity and pride to better take care of cocoa drying from the ground and lift it up on stands!
  • Mike: shrink the distance, bridge the gap between producer and consumer. Niche cocoa, special profiles, geography - communicate the story of what’s happening in the production zone; put the story closer to the consumer. Stories at the point of sale. Connect at the human level. A lot more that needs to be done with consumer education, and disconnection to bridge that gap.

JF: If go into Whole Foods, it’s there with stories of small farms, etc. What about role of social media; is there a generation gap here; where consumers can learn about these stories? Are younger people caring about buying these products?

  • Tim: yes. With information comes more responsibility. Consumers want to know about the product, where it comes from, etc. And they now have access to that info. Social media can play a role; and consumers are willing to pay a little more if they have that information.
  • Joe: study where graduates were looking for more meaning in their careers; the idea that you can have meaning and make money, is the cutting edge. Media decentralized, ways to get info; internet is more democratic. Don’t have to go to the three news channels to get your information.
  • Mike: like to turn this around. There is a social media gap between the developed world and the developing world. There is a technological gap in the developing world. Explosion of info technology being put into hands of farmers. Even in Eastern DRC, you have farmers that have cell phones, who can get a text message from Ag/crop extension service saying “its time to clean orchards and compost old pods.” Producers are getting savvy in using social media too. You are going to start to see them connect directly with the consumer. THAT’s where you will get a lot of action; watch is POP!
  • Joe: that’s true, I like it. From my first travel to Africa 20 years ago, Africa lept over the whole land line change; cell phone is ubiquitous; service in DRC better than in Seattle. Closing digital divide is exciting.
  • Mike: there are programs that are doing just this. There are org’s that specialize in doing this in country, very creative stuff.

JF: Seems like so many of the pieces in place, but not all of them have been pulled together to scale. Right, think of certification which is relatively small, or a small company/niche company doing good selling; what is it that could move the industry (practices, policies, etc.) in this direction. Value creation and capture - if we paid people more or had the cocoa farming with larger ESG impact reflecting value in marketplace, then it might work out. Now not a large portion of the industry works that way. What are some practical things that we are doing that could move the whole industry that way. Public policy? NGO’s doing something? How to accelerate?

  • Joe: most development projects push a string; if have a market (domestic, national, origin country), pull on a string, investment floods in/follows automatically. Stronger opportunities for businesses and markets to engage with development efforts world to help pull that string faster and stronger. AND totally radical thing, USAID and all development institutions take HALF their budget and put into consumer education in countries where they operate. The way we operate as consumers of things and services, with more information that helps us. The negative campaigns are important to spark the conversation; but not inspiring. Rather than spank, let’s high five people.

JF: First idea of linking to development. Is there an example?

  • Joe: in DRC no cocoa sector. 600 lbs in the entire country. Cocoa planted was higher planted. Cocoa likes it low and wet. Here is a specification, here is what we want to buy. Now have a group of NGO’s supporting farmers, and scalable. 10,000 lbs available with this model. Would love to have others follow.

JF: Demand side driven model; if demonstrate commitment to buy that there are resources then can nurture and build it, but might be useful for someone to step in first.

  • Joe: right, someone has to take the risk. A lot of chocolate companies might not do that. But there are people who are part of these companies and know how to do this who can take risks. And then go in partnerships with local exporters and co-ops; help bring them up. So price we pay is so much higher to support that price; but now an incentive for people to participate. If I work harder, there is opportunity.
  • Tim: exciting. What you have in Africa is different. Common principle in US: if I work a little harder, I will make a money. In Africa, that proposition doesn’t exist. Cocoa industry helps expose people that this proposition exists. But an economic problem that exists behind this challenge.

JF: Small companies, entrepreneurs are the first to take that development risk, and then if they knew that others were there NGO’s or gov to back fill to build infrastructure to support, then small company would benefit, but large company would come in and expand/replace.

  • Mike: always an issue of supply; in cocoa, demand issues aren’t there. If demand builds, respond in supply. Far more difficult to get small farmer to invest in increase supply without demand. Demand signals - consumers via social media or purchasing power or companies committing to certification in 2020 of sustainable cocoa supply or certification - if demand steps up then the regulatory system and producer will respond.

JF: If there were some other issues that don’t get much attention, what are those areas or topics that we need more understanding on?

  • Mike: we are asking a producer a lot when we say ‘make your production sustainable, here is a list of standards to perform'; takes a lot of investment and hand holding and to come back in three years and say we’ll buy.That's a lot to ask. It takes development and private sector; to get to 80% or 90% of certified cocoa, it will take a while.

JF: Why would a large multinational want to go certified? Why would they want to do this if - what benefits for company to make the adjustment; part of CSR, but for company that’s a lot of money. What are the arguments for firms to make this decision?

  • Mike: companies already understand this. They are investing in this to take producer up to the scale that the world is asking for.

JF: Not from CSR but from procurement shop.

  • Mike: YES
  • Joe: a lot of value if companies who make claims of doing the right thing were reading off the same script. In Fair Trade movement, its fractured; certification is complicated. Why not just report on what we are doing!  What’s the real impact; simplify the message. So consumers and investors know what companies are doing. Imagine companies competing legitimately on social/environmental activities that they provide/impact. That idea is exciting. This idea to be more expensive is being socially responsible is BIZARRE As a culture, isn’t that just backwards? If I have a choice to do something that in the short term is cheaper but harms the environment vs. doing what’s right and that helps the environment but is more expensive is bizarre. The more we take that out of our world view/lexicon and start to measure real performance on an even scale where there aren’t imbalances, THEN real change will come.

JF: Taking that transition would be risky for a company because they don’t know what the other world is like.

  • Joe: but it’s coming anyway. Either get ready and embrace; company’s and brands that are left behind if they don’t speak fully transparent.

JF: But competition among different certifications, so if sympathetic to the firm, how can we get to that place?

  • Joe: when you purchase the product with the certification seal you get that. But some consumers peel back the onion to learn more about the impact. But with better reporting, good or bad, not hiding behind the brand. Moving away from that is positive. Will take a lot of will.

JF: Should we certify at the product level? Assuming firms are putting the types of product that people want.

  • Tim: whole foods pioneered that movement. Consumers are more diligent. Broad food movement, Americans are willing to pay more for those products with info of the 'story'. Story includes producer, retailers, consumers.

JF: Follow up on other issues

  • Tim: two issues. Starts with a human story of chocolate. How to close the gap of those at the beginning and the end of the supply chain. Issues of child labor, wages, environmental issues - people actually see what is happening with humans (suppress supply chain). Would like to see people eating the chocolate closer to those producing. The second issues should be quality. Shouldn’t be able to separate the idea of quality and sustainability. If people are going to spend an extra $1, it should taste better. Farmers who harvest a higher grade cocoa can reap that benefit if they receive more value along the supply chain; as US consumer becomes more aware of difference between a $3 vs. a $5 chocolate bar, with better quality, farmers taken care of, then can better bring consumers closer to farmers.

JF: Phrase other than ‘Conflict-Free Chocolate’?

  • Tim: Prosperity Chocolate

JF: What about Responsible Chocolate?

  • Tim: framing is positive.

JF: Onus on company to sell the responsible chocolate.

JF: Final Thanks, USIP, Larry Holland, Christian Teelucksingh, Omar, Mad Momos, Dharma Farma Productions, Student Volunteers, Shashwat, Omeed, Josh, Rachel, Julie, Tristan, John B., Audience

Day After Summary from Dr. Forrer:

Three related themes that we could take away from the event (and no doubt there are others) that could be one basis for future discussions/action:

  • creating value upstream (farmers) means creating more value downstream  (better products) -- no doubt we can redistribute value intra-supply chain - but value creation and capture is more sustainable -- financially.
  • compressing and enhancing the relationship (and the awareness thereof) between farmers and consumers can facilitate that.
  • greater transparency in these relationships can facilitate that.

*All in a scalable manner

I also liked this idea of recognizing 'social entrepreneurs' who are willing to take on "development risk" -- opening up new locations and new business models -- on a smaller scale can be a vanguard for larger investors.  Such "pioneers" should be able to claim a 'premium' for that effort. It would be great to get development agencies or impact investors to recognize this factor. 

 

Webcast