A new study by Professor Sean Kennedy of the University of Illinois Urbana-Champaign argues that the existing strategies used by chocolate companies that are designed to improve farmer livelihoods could be having the opposite effect.
This important study perhaps takes a while to warm to the point, but it presents a solid foundation to support the author’s argument that the chocolate companies have designed their production and supply chain model in a way that is best for the business but may unintentionally be harming the farmer.
The paper uses cocoa production in Indonesia and the working relationship of Mars to illustrate the point. I don’t believe the intention is to identify Mars as the sole culprit but rather to be representative of the industry approach.
You might think that a business strategy that helps increase a farmer’s yield, improves traceability and is good for the environment will also benefit the farmer. However, in his paper, professor Kennedy argues that this may not, in fact, be the case.
Business’ natural inclination is to streamline, organize and squeeze profits through optimizing processes. So, it’s not surprising that Mars organized their efforts in Indonesia into a rational structure, consolidating the work of several companies into one after productivity declined in the 2000s.
“At the heart of this approach are two strategies—standardization and the creation of financial dependencies—which together work to fix labor and capital in space in the face of challenges heightened by climatic disruption.”
During this process, however, Mars did something else, and it was probably a conscious decision. To reduce their risk exposure to the uncertainty of production, they decoupled them from the upstream activities, leaving the farmer with the risk, without offering them any compensating upside.
Mars then, driven by the market’s demand for climate-conscious chocolate, created a series of initiatives designed to be environmentally friendly, but which again has potential for negative consequences for the farmers. The report states:
Climate-smart cocoa, for example, aims to transform and reorient farming systems to decrease greenhouse gas emissions, boost adaptive capacity, and improve productivity while supporting incomes (Nasser et al. 2020).
As with earlier cocoa intensification initiatives, however, supporting commodity production rather than livelihoods might reinforce uneven power relations between smallholders and chocolate manufacturers, rather than creating the types of diversified and increasingly mobile livelihood opportunities increasingly necessary under climate change (Salamanca and Rigg 2017).”
What is meant by an uneven power relationship? We believe Kennedy is making the point that when you have a business partnership in which one partner has most of the power and the other has very little, the outcomes tend to be better for the first, and not as good for the weaker party.
In practice, for farmers, this means companies like Mars can dictate the terms, and in some ways, whether by accident or by design, trap the weaker parties into an inflexible position whereby they must continue even if it’s not in their best interests.
For example, a farmer working with Mars, may need to participate in their schemes designed to improve production with Good Agricultural Practices (GAP). They might need to invest thousands of dollars in upgraded equipment and fertilisers. That money can be lent to them at low rates and repaid out of the additional profits they are expected to make.
While that sounds OK, what happens if the market price for cocoa falls? The farmer absorbs that risk while their commitments to repay the debt remain.
Using good agricultural practices on the farmers existing land may be a positive step for the environment, by reducing the need to clear new areas and contribute to deforestation. However, commitments to fixed capital locations may not be good for the farmer if rainfall patterns and temperatures change in that location.
I reviewed Mars’ own research materials. They conducted their own study in 2018 via their ‘Farmer Income Lab’ website. I’ve copied the table below, which summarises a key part of their findings.
|INTERVENTION TYPE||DEFINITION & THEORY OF CHANGE|
|Agricultural finance includes a broad range of financial services—e.g., loans, savings accounts,|
|Access to Finance||leasing arrangements, and insurance—that can be utilized for activities across the agricultural value|
|finance’ refers to loans and savings products available for smallholder farmers.|
|Agro-corridors bring together value chain actors (including producers, processers, suppliers, and|
|financiers) in the same geographical area so that they can leverage economies of scale to facilitate|
|Agro-Corridors||cheaper and more effective access to inputs, services, and markets. Locations of agro-corridors are|
|often selected to take advantage of an existing backbone of transport or other physical|
|infrastructure and lower the investment required to make them accessible to market participants.|
|Certification is a process in which a third party monitors and validates the compliance of farmers|
|with a set of voluntary standards. Buyers and suppliers then recognize “certified” farmers as a|
|Certification||preferred source of higher quality and/or compliant raw material that meets an agreed-upon|
|specification to receive premium payment. Farmers who participate may also receive technical|
|training and other support to help them meet the certification standards.|
|Climate change adaptation interventions help farmers adapt and build resilience to the negative|
|Climate Change||effects of climate change on productivity—and, where possible, to sustainably increase productivity|
|agricultural practices and inputs (e.g., climate-resilient seeds).|
|Crop insurance is a financial tool used to protect farmers against loss of crops due to natural|
|disasters (e.g., drought, floods, blight) and pests. Farmers pay a regular fee (insurance premium)|
|Crop Insurance||and can claim compensation in the event of a covered disaster or incident. This reduces risk and|
|enables farmers to make investments in their farms without worrying that they may lose the entire|
|value of that investment.|
|Farmer field schools are a form of agricultural extension that provide smallholder farmers with|
|Farmer Field Schools||advanced inputs and hands-on agronomic and technical training aimed at increasing the|
|productivity of their farms, the quality of their produce, and, ultimately, their incomes.|
|Input subsidies are cash transfers to farmers – most commonly provided by governments – to|
|Input Subsidies||enable them to purchase high-quality inputs and technologies that are unaffordable at market|
|prices—but that could improve the productivity of their farms and the quality of their produce.|
|Land tenure security programs can take many forms but all support farmers in acquiring or|
|Land Tenure Security||maintaining land through land rights education, legal assistance, and/or land redistribution or titling|
|(that is, private individuals or families receiving formal land rights).|
The report states:
What are the most effective actions that lead buyers can take to enable smallholder farmers in global supply chains to meaningfully increase their incomes?Farmer Income Lab (what works to increase smallholder farmers income 2018)
The finding related to Pricing Arrangements was particularly interesting, which I admit was the first solution I thought of. Yet, it was at the bottom of the table for effectiveness.
The report gives an opinion on why the Chocolate companies have created their own sustainability (responsibly sourced) programmes. We were delighted to read this, which supports the same assertions that we have made at Bartalks. They say:
In 2010, Mars committed to sourcing 100 per cent of its beans from third-party certified suppliers by 2020. As with the SUCCESS program, the commitment to third-party certification enabled Mars to exert arm’s-length influence over smallholder production practices without assuming the risks of complete vertical integration.
Third-party certification positioned Mars to respond to growing consumer demands for certified cocoa, yet prohibitions on the use of chemical pesticides and fertilizers put the commitment at odds with the company’s productivity objectives.
In 2018, Mars shifted its reliance on third-party certification to 100 percent “responsibly sourced” and traceable cocoa by 2025 (Mars Wrigley 2020). Whereas production standards under the previous commitment were defined by third parties, “responsibly sourced” was defined internally, allowing Mars to promote and monitor intensive production practices that would otherwise contravene most third-party certification program requirements (Hafid 2017).
I am suspicious of chocolate companies’ sustainability programmes, as it allows them to claim 100% sustainable sourcing while shadow-controlling the organization responsible for policing them.
I’m not sure if the paper produces more questions than answers, but understanding the problem is key to finding a solution.