mondelez and olam cocoa sustainability


Did They Over-Deliver?

Paraphrasing a section of the abstract from Dr Michael Odije’s research paper titled “Sustainability winners and losers in business-biased cocoa sustainability programmes in West Africa” to set the tone of this article.

In 2014, ten of the world’s largest chocolate multinationals combined, with more than $500 million in funding, to introduce a cocoa sustainability scheme called CocoaAction. In principle, CocoaAction and similar sustainability schemes sponsored by western multinational chocolate companies are interventions to empower cocoa planters and planting communities in West African countries.

But in practice, as this article will show, these schemes respond to diminishing returns in cocoa-producing communities, the prospect of diversification, and the resulting projection of a shortage in raw material. There are signs that diversification away from cocoa will benefit cocoa planters and their communities. Therefore, cocoa sustainability schemes are designed to help multinational chocolate companies at the expense of diversification in West African countries.

In April 2021, we heard the news that Mondelez and Olam have teamed up to establish a 2,000 hectare of “sustainable” Cocoa farm plantations in Indonesia. To many people in the cocoa sector, the mere adjective “Sustainable” pre-fixed to this development makes it lose any scrutiny about the actual intended and unintended consequences of this project.

To not foretell what the intentions of Mondelez and Olam are with their sudden vertical integration into establishing cocoa plantations, this article will highlight the counter productiveness of this movement toward the “Sustainability” objective they intend to achieve. I will also highlight my opinion on the reason for this move by Mondelez and Olam. I will further add the consequence of this development on the cocoa-producing economies and the livelihoods of smallholder cocoa farmers.

Finally, round-up by advising Ghana Cocoa Board and Ivory Coast on how this OLAM/Mondelez initiative plus China’s entry, Nigeria’s renewed energy to produce more cocoa, all steps to render the LID inactive. Whereas I may not have answers to everything, I will make a few suggestions which I hope could provide smallholder farmers with some reason for optimism.

Olam and Mondelez’s Investment in cocoa plantations in Indonesia

Mondelez, in their Press release, highlighted their excitement to be partnering in establishing the world’s single largest “sustainable” commercial cocoa farm in Indonesia. This 2000-hectare “cocoa farm, according to Mondelez, is to “test a scalable approach for the future of “Commercial” cocoa farming”. They added that this Nucleus farm would be used to test the ability of their advanced climate-smart (including irrigation systems) and plant science technologies to optimally use the land for the maximum output in cocoa production.

Mondelez informed of their future ambition to replicate this model across the region and highlighted how “demand” for cocoa is growing in Asia and has the potential for increased demand for cocoa production. They further added that this project has been developed out of their years of experience with “the company’s signature sustainable sourcing program, Cocoa Life, and OFI’s ambition for sustainable cocoa, Cocoa Compass, to test a scalable approach for the future of commercial cocoa farming.”

First, Olam and Mondelez’s decision to move into commercial cocoa production isn’t very strange to me. As a profit-focused organisation, you would want to do whatever you can to own and control the entire supply chain you operate. Over 70% and 90% of the world’s and Ghana’s cocoa is cultivated by Smallholder cocoa farmers. In Ghana, Cocoa production has been left to smallholder farmers other than commercial farmers to help alleviate poverty.

Mondelez and Olam’s entry into commercial cocoa production is intended to take the last power from cocoa farmers and cocoa-producing countries

Smallholder cocoa farmers’ size already acts as a check on the world market price. i.e., if smallholder farmers produce less than commercial farmers, controlling supply will lead to world market price stability. The effect of commercial farming in the cocoa sector is a direct intervention to drive down cocoa prices. As alluded to in their press release, their “Sustainable single largest farm” is intended to maximise production, increase supply, and drive down cocoa prices drastically.

Mondelez and Olam’s entry into commercial cocoa production is intended to take the last power from cocoa farmers and cocoa-producing countries, render cocoa farmers extremely worse, and make smallholder cocoa farming an unsustainable business.

Again, what is Olam and Mondelez’s definition of sustainability? Continuous cocoa production regardless of its impact on smallholder cocoa farmers? Leveraging its financial and political power to outcompete smallholder cocoa farmers and pretend that it is sustainable? How is this sustainable when Mondelez has joined “The Voice Network” to challenge the Ghana government on deforestation yet has gone to Indonesia to implement the thing (cutting down trees to grow Cocoa) they spoke against in Indonesia?

Now let’s move to my step-by-step reason why this project negatively impacts Smallholder Cocoa farmers and cocoa-producing countries.

Are small-scale cocoa farmers and their farms being used by Mondelez as research materials against their economic and social sustainability?

Within the press release from Mondelez was their admission on how their “Single Largest sustainable commercial cocoa farm project” was facilitated by the experience they have gained through their signature sustainable sourcing programme called “Cocoa Life”. The Cocoa Life Programme was implemented in Ghana in 2008, making Ghana the first casualty of being used as a research o for launching “the world’s first single Largest sustainable Commercial cocoa farming”.

You would want to believe that whatever they learned from these farmers during their operations will lead Cocoa Life in developing this new “technology” and give it back to the smallholder cocoa farmers. Instead, Mondelez took the knowledge gained, developed the technology, and implemented it in Indonesia. Their Decision to implement this programme in Indonesia and not Ghana can be attributed to several factors. Some of which include: the fact that Ghana doesn’t incentivise commercial cocoa farming and hence doesn’t provide any of the current support they give to smallholder Cocoa farmers to commercial farmers (Well, that is what Cocobod Claims).

Secondly, Ghana’s cocoa sector is heavily regulated, and Ghana’s Cocoa Marketing company, per policy, is the sole buyer of all the cocoa cultivated in Ghana. So Mondelez wouldn’t want to suffer under a policy that takes off the power of control over cocoa beans they have produced. Third, Mondelez has signed on to “The Voice Network”, an organisation that claims to be the voice of the “voiceless cocoa processing, trading, NGOs, chocolate firms etc.” who are so keen on ensuring that cocoa-producing countries work towards curbing deforestation”. Imagine when Mondelez, Mars, Barry Callebaut, Fairtrade, Rainforest Alliance, Ferrero, etc, tells you they are voiceless” within the current Cocoa-chocolate value chain.

Yet Mondelez turned around and started new sets of cocoa plantations in Indonesia, a country that, compared to Ghana, has lower afforestation records according to graph 1. From Graph one, Indonesia has been recording continuous deforestation compared to Ghana since 1990. Of course, Indonesia has a forest cover of more than ten times Ghana’s, as shown in Graph 2; hence until Mondelez depletes it to the levels where they can now come back and pretend to be concerned about deforestation, they will keep exploiting.

Graph 1. Source: Kwame Asamoah Kwarteng 2022 (Raw Data from The World Bank)

So, if Deforestation is an environmental sustainability concern, as claimed by Mondelez through “The Voice Network”, and there is a consensus that the impact of deforestation is more global than local, then isn’t it hypocritical and counterproductive for Mondelez to join “The Voice Network” and yet cut trees in Indonesia? What due diligence does “The Voice Network” perform and keep performing on those who sign their agenda to virtue signal as sustainability champions? In contrast, do they practice the exact opposite of what they intend to achieve?

Potential Land Grabbing from Local farmers?

No one is asking whom Mondelez and Olam are buying the lands from and intend to buy for the massive rollout of their “Single largest sustainable commercial farms in Indonesia” after the “success” of the current pilot? Were they purchased from local farmers? Whiles, we do not have an answer to this, Jakarta’s Rights + resources initiative has already indicated how legal land grabs from local farmers by foreign companies are on the rise. The reason is that these foreign companies feel they can be more efficient than the smallholder farmers in increasing production to meet the growing demands for certain agricultural products in the west. In Indonesia, likewise in Ghana, Agriculture is very unprofitable and unattractive, and employment within the agricultural sector has decreased from 65% of national employment in 1976 to 28.64% in 2019 (Fig 1).

Fig 1: Indonesia’s Employment in Agriculture, Services, and Industry (% of total employment)

Fig 1: Indonesia’s Employment in Agriculture, Services, and Industry (% of total employment). Source: The Jakarta Post

The Jakarta Post’s article titled “Land without Farmers”  reported that just between 2003 and 2013, Indonesia lost over 5.1 million farmers. So, with this rather sorry development, foreign firms instead see it as an opportunity for them to leverage their financial capacity and the potential to step into crop production to own the end-to-end activities within their value chain, hence resorting to legal land grabbing from local landowners.

Almost all smallholder farmers and rural folks’ only appreciable and valuable asset is their land. This is the only asset they can transfer to their generations as a source of sustaining their livelihoods. It’s with this property that they can secure loans. Exploiting their poverty status to buy their lands is a total injustice to their current and future generation. With the rise of technology and the profit-making motive of corporations, the promise of keeping these farmers as employees on such farms is not assured. The farmers cannot transfer their employee status to their children. There is an existing link between land grabbing and poverty. With this, it’s clear that Mondelez and Olam’s move into commercial farming in Indonesia and the possible land grab through the expansive objective for their project makes them heavily complicit in the endemic poverty we would see because of this.

A Possible nepotism/corruption?

Mondelez is a chocolate manufacturer, whereas Olam is global cocoa sourcing and cocoa processing firm. With Mondelez’s focus on chocolate manufacturing, it will only make sense to purchase their Cocoa beans (for the bean to bar chocolate) or purchase their semi-processed cocoa products for chocolate manufacturing, all from Olam. Whereas I do not know how much trade exists between both parties, one can establish that both are not competitors.

Still, potential business partnerships as their operations augment each other without overlap. Currently, Olam source its Cocoa Beans directly and indirectly from over 2.56m farmers worldwide. This represents Olam’s massive control over an estimated 64% of global cocoa farmers. Secondly, Olam owns about 100 cocoa processing plants worldwide and can process their cocoa. Olam finally has 14 innovation centres close to the major cocoa consuming market. These stats highlight how their entry into cocoa production gives them total domination over the sector.

With their domination and their intention to replication their commercial farming in other regions in Indonesia and possibly around the world, they will succeed in driving down cocoa prices with increased production while prioritising the usage of their beans. Remember that suppliers become price takers when there is an oversupply of any product. The overproduction that their initiative will cause wouldn’t remain in Indonesia as one may perceive but rather in the world, as oversupply supply will cause the world market price to fall.

This will help even their competitors gain cost advantages, hence uniting in their effort both oppress and destroy smallholder cocoa farmers worldwide into extinction. Olam will weaponise the oversupply caused by their initiative to keep smallholders’ cocoa farmers’ cocoa beans unsold, leading to the escalation of the already worsened poverty situation in the cocoa-producing areas.

Olam already has over 100 cocoa processing factories worldwide, which is a significant number of value addition operations under the control of OLAM, hence making their commercial cocoa production objective a threat to smallholder cocoa farmers everywhere in the world.

So, if Olam is now entering into cocoa production, whose cocoa beans will be given the first right of refusal by OLAM’s cocoa sourcing representatives in OLAM’s 100 cocoa processing factories? Since this initiative is a joint effort by OLAM and Mondelez, whom do you think Mondelez will give the first right of refusal to when sourcing cocoa beans or semi-processed cocoa products from trading companies and cocoa processing companies? Your guess is as good as mine. What is fair and sustainable about this?

In the following publication, we will explore additional factors that may have influenced this bold step by Mondelez and Olam and offer my concluding thoughts and recommendations to producing countries and the ordinary smallholder cocoa farmer.

In the following publication (Part 2), we will explore additional factors that may have influenced this bold step by Mondelez and Olam.

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