cocoa forest

SUSTAINABILITY AND DEFORESTATION IN THE COCOA INDUSTRY

Last Updated on November 15, 2021 by Nick Baskett

Preface

This article set out to capture the essence of the major problems around deforestation in the industry. In hindsight, that may have been naively ambitious. Much of it represents my own learning journey, no doubt with some way further to go.

There is a lot of data to trawl through, notwithstanding data from private companies or government that wasn’t available, and not all of it can easily be compared. Sometimes the conclusions are contradictory, inconclusive or speculative.

If you read through this whole article, good for you, but it’s not required. Some sections, like the definitions, are mainly available for reference. Not everyone will agree with everything, I’m sure. In one respect, however, that is the point. The landscape should not be so foggy, yet it is, in part because it is complex, but I suspect it also suits some parties.

With time constraints, I limited most of my research into Ghana and Côte d’Ivoire which produce most of the worlds Cocoa, and for who have been particularly impacted by deforestation. Worryingly, some countries like Cameroon, under a national directive to double their cocoa production may be starting to follow a similar path of destruction.

Bottom Line Up Front (BLUF)

Between 2019 and 2020 Côte d’Ivoire lost another 2% of their primary (old) forest, leaving the country with just 9% of their land mass being primary forest, down from 15% in 1986. 21% of these losses happened in protected areas, and 76% happened in rural areas. The loss of forest coincides with where we see Cocoa being grown according to vivid economics.

In the map above, we see the stunning loss of forest cover to cocoa over a 3 year period in the region of Bloléquin in Côte d’Ivoire using satellite data with 10m resolution.

Global losses are even starker. The World Bank measured the losses between 1990 to 2016, during which time, the planet lost 502,000 square miles (1.3 million square kilometres) of forests. 

Such a large number is hard to comprehend. It is the same as 14,216,973 football fields or four times the size of the United Kingdom!

  1. Earlier attempts at industry self regulation have failed
  2. Governments from the major producing nations are ineffective, probably due to a short-term outlook, corruption and political infighting.
  3. Major consuming countries are passing stricter laws to stop imported products from deforestation, but those laws won’t apply to themselves.
  4. Chocolate companies have raised their game over the last several years, but mostly around their direct supply chain, leaving the indirect supply chain to be opaque
  5. Linking executive pay to ESG results could start to shift the direction of board room decisions.
  6. Technology, including IoT, high-resolution satellite imagery, and AI are a key to progress
Key Initiatives
NameComment
1Cocoa Forest Initiative (CFI)Major initiative launched in 2017 between governments, chocolate companies and NGO’s
2EU, US, UK (plus procurement legislation from NY)Laws to restrict importation of goods resulting from deforestation
3REDD / REDD+Launched in 2005, Programmes to reduced emissions as result of deforestation
4FLEGT
4Certification StandardsFairtrade, Rainforest Alliance
5Accountability FrameworkIncredible open resource launched in 2019 to provide a tool to develop transparent supply chains
6The chocolate companies’ own sustainability & deforestation strategyCocoa Life, Cocoa Horizons, Forever Chocolate, Cocoa for Generations, Cocoa Compass

Introduction

A major cause of deforestation globally is agriculture, and Cocoa is one of the commodities cited as a main contributor. Forest degradation from Cocoa is the biggest cause of forest loss in countries such as Côte d’Ivoire, with others like Cameroon looking like they might follow the same path.

If you’re uncertain what the differences are between deforestation and forest degradation, or any other number of similar terms used, you’re not alone. The differences between the multiple definitions of deforestation are the cause of much misinformation. 

According to a Reuters report, Côte d’Ivoire lost 47,000 hectares (116,000 acres) of forest in its cocoa-growing regions in 2020, despite industry pledges to halt deforestation.

That tipped it past 85% of its forest cover being lost, since tracking the issue started in 1960. The cause, according to Côte d’Ivoire’s government, is Cocoa farming.

Since 1990, around 129m hectares of forest – an area roughly the size of South Africa – have been chopped down by humans. Deforestation, along with other types of land use change, accounts for close to 11% of annual global CO2 emissions. From 1861-2000, deforestation accounted for 30% of CO2 emissions, according to the research.

Tropical tree cover alone can provide 23 percent of the climate mitigation needed over the next decade to meet goals set in the Paris Agreement in 2015, according to one estimate.

  • Forests cover 30% of global land area
  • 70% of terrestrial animals and plants live in forests
  • Currently the world’s forests store 283 billion tons of carbon in their biomass

Forests cover 31 per cent of the planet’s land. Approximately half of the forest area is relatively intact, while more than one third consists of primary forest, the oldest kind, which has not been disturbed by human activity.

New environmental legislation is being adopted by Western governments restricting a list of products, including cocoa, that cannot evidence a deforestation-free supply chain. An EU study covering over a million citizens revealed an unambiguous desire for removing products from sale that do not meet expected standards.

The subject matter details are complex, and many parties, NGO’s, agencies, private industry and Government will need to come together in a coordinated response. 

To some extent, this is starting to happen, but not everyone is on board, and there are also some worrying developments.

CFI – Despite Broken Promises, Is it Still the Best Bet?

Efforts to curb, halt or even reverse deforestation related to agriculture and specifically cocoa have been ongoing for years.

A lot of hope was put in the Cocoa Forest Initiative (CFI), under which countries and chocolate companies made a Collective Statement of Intent in 2017

Countries and some big chocolate companies signed up, and the approach looked sensible. Countries, along with 35 companies needed to work together to end deforestation. Indeed they stated: “working together, pre-competitively, to end deforestation and forest degradation in the cocoa supply chain, with an initial focus on Ghana and Côte d’Ivoire”.

Five years later, and the programme has made progress in some areas, but failed to meet their own objectives, in part due to the unwillingness or inability of the governments that chair the initiative to push through reforms, or even enforce existing deforestation laws. Mighty Earth released a damming report, and helpfully tabulates concisely, the commitments made by both Côte d’Ivoire and Ghana.(Problems-and-solutions-concerning-the…)

In 2021, Cameroon joins the initiative, at a time when it is pushing to double their cocoa production earlier than they can realistically improve their poor yields per hectare, and which is likely to result in increased deforestation.

This fact is not lost upon the CFI, who say in their action plan

“From 2001 to 2019, Cameroon lost 1.32 million ha of tree cover, equivalent to a 4.2% decrease in tree cover since 2000, and 519Mt of CO₂ emissions4 . This rate is expected to increase significantly over the coming years due to urbanization and commodity-driven deforestation. The major driver of deforestation is agriculture, particularly the expansion of commercial crops, and especially cocoa”

However, the CFI is correct to bring them into the programme in order to attempt to affect the outcome. But they should have their eyes open to the broken promises of other countries and not allow them the propaganda of claiming an environmental agenda when their actions (or inaction) contradicts it.

Following several discussions with people on the ground in both Ghana and Côte d’Ivoire, a recurring explanation of missed targets from the governments was; short-sighted officials, corruption, appointments to key positions made through political contacts instead of competency, and overall apathy.

Côte d’Ivoire is a chair of the initiative, and as Mighty Earth notes in a Reuters article:

“They made commitments … but none have been honored regarding both the monitoring and the investments made in the forest protection sector,” said Mighty Earth’s West Africa representative, Amourlaye Toure.

Too many broken promises will risk the CFI becoming a lame duck, which would be a shame, because it is the main forum bringing together governments, private industry and NGO’s. The opportunity shouldn’t be squandered.

Perhaps it’s time to do a bit of introspection and determine what needs to change for them to become more effective and fulfill a lead role in meeting the challenges of a changing compliance landscape, as well as an evaporating tolerance from consumers toward unsustainable practices.

Definitions, Definitions*, (Definitions?)

Before continuing, we need to discuss the problem of definitions. It’s at the heart of a lot of the problems I’ve had personally in my journey to get at the facts.

Undefined definitions are a favourite of the chocolate industry. The subject matter is complex. Forest types vary considerably, as do the threats, and moreover, there are significant financial stakes. It is not always in a company’s best interest to clearly define some of these terms.

The sustainability arena needs to move from a marketing-led initiative for companies, to become compliance-led. As long as the subject matter is a domain for generating good PR, companies will continue to reduce the message to simple, but misleading statements.

The enemy of accountability is ambiguity

Vagueness can be derived from a lack of attention to detail, or it can be architected with an intention to deceive. Greenwashing is often an example of ambiguous statements. Does the public know the difference between ‘Zero Deforestation’ and ‘Net Zero Deforestation’?

This misdirection is used by companies and governments to make it sound like they’re doing more than they are. There is a reason why, for example, New York State has re-written their laws on the procurement of goods derived from deforestation.

The Accountability Framework, a set of guidelines created to make it easier for companies to create meaningful public and B2B reports, makes this one of their three Core Principles.

The Accountability Framework, Principle Number 3 – Specification of Commitments

Company commitments reference and apply common terminology and definitions. Commitments can be understood and monitored only if key concepts are clearly defined. Use of common terminology avoids duplicative efforts to define terms and helps establish comparable performance indicators and data for monitoring and verification.

  1. Commitments reference and utilise the common definitions of the Accountability Framework and, where applicable, contextualized definitions that are aligned with the Framework.
  2. These common definitions are applied in all relevant aspects of business and supply chain management, such as supplier contracts and oversight, procurement, monitoring, and reporting.

Preventing Deforestation Starts With Knowing Where The Cocoa Comes From

We take a brief look at what three chocolate companies are doing to help them improve visibility of their supply chain.

Ferrero

Ferrero In their 2020 sustainability report state:

“..almost 100% of our cocoa beans are physically traceable from farmer group level to plants. Also called “segregated”, we know where our cocoa beans come from and we can guarantee that this cocoa ends up in the products we bring to market.” 

A regular consumer reading that statement would likely conclude that chocolate from Ferrero would be free from environmental nasties, but tracing back to the farmer group is no guarantee of this since a lot of shenanigans can go on at the collective where cocoa beans from unregistered sources can be mixed with those of registered producers.

Hopefully, this will start to change as technology like electronic scales, biometric ID’s, and government databases join the dots.

Until then, the chocolate companies, which some have noted, have made more progress over the last 5 years than all the years previously, are still using ambiguity to present a misleading picture of their green credentials.

Olam

In 2020 Olam claimed that 100% of their direct supply chain was traceable back to the farm or farming community. To their credit, they list their direct supply chain, so I reviewed the lists of three countries, Côte d’Ivoire, Brazil, and Ghana. 

But what about the significant amount of cocoa they purchase through undisclosed channels? There’s no mention of that, and disappointedly they don’t refer to this in their roadmap either.

Olam Direct Supplier List (Sustainability in cocoa )
CountryTotal no. of suppliersNo. of FarmsNo. Cooperatives/ Groups
Côte d’Ivoire2010201
Brazil330
Ghana14014

In West Africa, where the majority of production occurs, it seems that none of the cocoa is traced back to the producing farm.

Barry Callebaut

Barry Callebaut, meanwhile through the Cocoa Horizons organisation, offers their customers a choice between cocoa sourced through Mass Balance or Segregation. 

Mass Balance is cheaper because it mixes the directly sourced cocoa with beans from third parties, where the segregated option keeps the beans from their direct supply chain separate from unknown third parties.

In the video below they explain for Mass Balance purchases:

This allows you to claim “100% sustainably sourced cocoa” or “Investing in sustainable cocoa farming”.

This may be an industry-agreed term, but it’s misleading the consumer. Because there is no legal definition of ‘Sustainability’, nobody can say how much of that cocoa has been sourced without deforestation or other nasties.

In 2017, Mighty Earth did an investigation and among other things documented the practice of cocoa being traded in protected forest areas:

“Our investigators found large villages of cocoa growers, in some cases consisting of tens of thousands of inhabitants, inside protected areas like national parks. We documented traders openly purchasing cocoa beans grown illegally inside these areas, which would then go on to be sold to most of the world’s largest chocolate companies. Despite many chocolate companies’ public sustainability initiatives, these practices have continued without any real change.”

Spend a bit more for segregated flow. “Our chocolate is made with 100% traceable cocoa mass” or “The heart of our chocolate is 100% traceable back to farming communities”. 

Cocoa Horizons sustainable options

Or, as my son helpfully suggested – perhaps when they use the term ‘Sustainability’, they are referring to their bank account?

New York’s State Procurement Law

Bill S5921, The New York Deforestation-Free Procurement Act seeks to redress ambiguities in earlier legislation that allowed loopholes to be exploited. Introduced probably as a result of lobbying from the big logging and paper companies.

Senator Liz Krueger’s office published a letter from Canada’s Consulate General which shows how Canada feels on the subject. 

Canada sells $1.5bn of forest products, to New York each year representing 45% of the States total such imports. It’s not hard to see the veiled threat, but if that wasn’t clear enough, the letter goes on to mention WTO rules.

In California a similar Bill, Assembly Bill AB 416, The California Deforestation-Free Procurement Act was passed with a majority of 30-8 in the Senate, only to be cut down by Governor Gavin Newsom, who vetoed it.

What is a ‘Forest’?

Global Forest Watch cites over 800 forest definitions . Fortunately, during my research, many are similar to or based on, the one from the Food and Agriculture Organization of the UN (FAO). But I found some of the definitions on Mongabay useful, and I summarized a few of the useful definitions in the table below.

Primary ForestEarth’s biggest and oldest ‘intact’ and ‘ancient’ forests.Summarised from an in-depth explanation on Global Forest Watch. Read more here
Secondary ForestForests that have been cleared and allowed to regenerate
Equatorial Evergreen RainforestConsidered the ‘real rainforest’ they get more than 200cm rainfall pa. and weather conditions are stable year-round.Summarised from an article by Mongabay. Read more here
Equatorial Moist ForestFurther from the equator, these forests get around 127cm rainfall pa. Wet and dry seasons.Summarised from an article by Mongabay. Read more here
Plantation (mono-culture) forestsThe traditional forest plantation concept tends to be applied to single species, uniform planting densities and even age classesExcerpt from FAO.org

Defining Deforestation – The FAO (Tejaswi )

Feel free to skip this section, unless you’re fascinated by how the industry has tied itself into knots over a byzantine collection of terms. I won’t be offended, and return to it if you need to look up a word.

Some attempts for defining key terms have been made. One of the most commonly used is from

The Food and Agriculture Organization of the United Nations (FAO). They have documented a broad and a narrow definition:

The Broad Definition

Deforestation defined broadly can include not only conversion to non-forest but also degradation that reduces forest quality – the density and structure of the trees, the ecological services supplied, the biomass of plants and animals, the species diversity and the genetic diversity. 

The Narrow Definition

The removal of forest cover to an extent that allows for alternative land use

In our article on the new laws being introduced around the US, Europe and UK, we see additional variations.

Because there is no formal definition that a company is bound to, they are free to make their own interpretation, which they may or may not be transparent in describing.

In the US the definitions in law were hammered out under intense lobbying from the big paper companies in the US and Canada, who didn’t want to see the ‘types of forests’ they were cutting down being caught in the legal net.

The new deforestation law in the US which we cover here was redrafted to specifically exclude Boreal forests through the applied definition of deforestation referring to ‘arboreal forests, (i.e. not Boreal). The trees that cover the US and Canada of course, are the Boreal type, and thus excluded in the law.

The definition was widely applied as they say below.

Based on the consensus recommendation of the Intergovernmental Panel on Forests (IPF) in 1997, this same definition was used for all countries in FRA 2000. In FRA 1980 and FRA 1990, the 10 per cent threshold was used for developing countries, but for the industrialized countries a threshold of 20 per cent was used.

Most organizations refer to the definition used by the FAO, but did you know that the United Nations Environmental  Programme recognises over 800 definitions of forests! Not only does this make it impossibly confusing for anyone to understand, but it provides scope for companies to conveniently pick the term that suits them best.

“..deforestation is the conversion of forest to another land use or the long-term reduction of tree canopy cover below the 10% threshold…“

Some observe that this definition could be made even more specific. For example, in determining what is a forest, and what type. Lawmakers differentiate between types of forest as industry lobbies to exclude the ones they are actively exploiting (see article on global deforestation laws). There are at least 5 main types of forest ,  each of which contributes to our Earth’s natural balance in irreplaceable ways that we examine later in the article.

A lot hinges on getting the definition right, for example, a definition provided by the University of Maryland refers to ‘Tree Cover’, but if this definition is applied to identifying the cause of deforestation, you may include an agricultural area used for crops such as cocoa.

Deforestation Common Terms

These definitions are taken from a paper at forest-trends.org which was a wonderful resource. (Forest-Trends_Supply-Change_Trends-in…)

Zero Deforestation

A company commits to “zero deforestation,” “no-deforestation,” “deforestation-free” or similar language that implies “no deforestation anywhere,” whether the company has defined the term or not.

Zero Gross Deforestation

Forest loss is offset by forest restoration and afforestation on degraded land. This can be achieved through direct restoration or the purchase of forest carbon offsets, biodiversity offsets, or other environmental currencies.

Zero Net Deforestation 

No loss of forest area over time caused by conversion to non-forest.

Types of Deforestation

If you type the heading into Google, you may get a variety of answers suggesting that there are 2 types, 3 types, 4 types or even 10 types of deforestation!

Part of the reason for this is that people conflate results with causes. According to the FAO, there are three negative outcomes to avoid in preserving a forest.

Three Kinds of Deforestation

For simplicity, we’ll use three definitions that are frequently used, they are;

DeforestationThe conversion of forest to another land use or the long-term reduction of tree canopy cover below the 10% threshold. 
DegradationFor the purpose of having a harmonized set of forest and forest change definitions, that also is measurable with conventional techniques, forest degradation is assumed to be indicated by the reduction of canopy cover and/or stocking of the forest through logging, fire, wind felling or other events, provided that the canopy cover stays above 10%.
FragmentationAny process those results in the conversion of formerly continuous forest into patches of forest separated by non-forested lands. The definitions of fragmentation are as diverse as the subject itself.

Deforestation Challenges

Agriculture is the number one cause of deforestation, but much of the destruction associated with cocoa farming could be avoided with better agricultural practices.

For this reason that most non-profit organizations and chocolate companies include Good Agricultural Practices GAP education and training as a part of their sustainability initiatives.

One significant challenge is how to reach the diaspora of small farmers and migrants from neighbouring countries, operating independently, who have no ability to invest in better equipment, fertilizer or education.

The impressive claims made by chocolate companies that commit to zero deforestation in their supply chain are typically referring to their ‘direct supply chain’, which perhaps accounts for 70% of the cocoa they purchase. That’s still a lot of Cocoa that mysteriously appears on the market without any specified origin.

Cocoa certification schemes focus on producer sustainability, and may not adequately factor in domestic legislation compliance. I’m not sure that’s so bad. A sustainability standard should have the same meaning independent of the country they’re operating in. Some countries may have weak environmental laws, and there’s evidence, in Ghana for example, where deforestation laws that do exist, are not enforced. In a paper examining CFI’s lack of progress, Might Earth notes:

“Interviews of communities in Ghanaian forest reserves show a lack of awareness CFI zero-deforestation commitments taken by their government.”(Problems-and-solutions-concerning-the…)

Rainforest Alliance 2020 Rules for Certification Bodies gives the following guidance:

“Compliance with applicable laws Rainforest Alliance strives for its CBs to be exemplary figures for improving social, economic, and environmental conditions in their areas of operation. In this regard, CBs shall obey national laws, regulations, and sector agreements or collective bargaining agreements. In the event that a national law, regulation, sector agreement or collective bargaining agreement is stricter than the requirements of the Rainforest Alliance Certification Program (Sustainable Agriculture Standard and Assurance documents) or vice versa, the strictest rule always prevails. For more information, refer to the Sustainable Agriculture Standard.”

However, there is a great deal of “illegal” cocoa produced in rural areas because the national laws relating to labour or land use are either not understood or enforced, and purchasing certified cocoa does not guarantee that the cocoa has been legally produced.

Land Tenure Law

Unwinding the complexities of land tenure in countries like Ghana and Côte d’Ivoire takes time, but it is directly linked to some of the problems related to deforestation and global warming.

Land ownership is one of those things that are invisible to many of us because we assume certain fundamental processes to be in place. When I was in North Macedonia, I had cause to negotiate with some villagers over buying some land to develop an access road. I discovered that the national cadastre was incomplete, inaccurate and out of date.

Land ownership was decided among the local villagers, disputed by various interested parties, and further disputed by the local Mayor. Legally acquiring land became a process that could easily take a year, during which time, a caravan would mysteriously appear – the resident perhaps from an entirely different area, but sensing a payout, would claim the land as theirs. Sometimes the disputes between different parties over who could sell the land would descend into violence, and become so embittered that buying the land from any party would result in retaliation from the other ‘injured’ side.

In West Africa, customary rights – ownership determined by the Chiefs, traditionally determine the rights over land. This does not necessarily mean ownership, and this is one of the problems, because a cocoa farmer may have the right to grow cocoa on the existing trees, but if the trees are old with low yield, he may not be able to plant new stock. As yields drop, further acreage needs to be farmed, perhaps resulting in land repurposing or forest degradation.

Côte d’Ivoire has made some progress in defining by law tenure of land and trees, but Ghana is woefully unclear in their legislation, leading to insecurity, and a lack of necessary action in the management of cocoa farms.

Last year, a study conducted by Festus A. Asaaga, Mark A. Hirons, and Yadvinder Malhi looked into the impact tenure has on investment by Cocoa farmers in Ghana. The study used  380 surveys on 796 plots to assess how tenure affects investment decisions. The study identifies three types of tenure.

  1. legal security
  2. contextual/defacto security, and
  3. perceived tenure security 

Strangely, the study showed the farmers were less inclined to invest in land were there was formal documentation, than they would on land were they had informal rights.  

This might be explained by the different kinds of ownership rights. For example, the length of the lease or the ability to pass the ownership to their children.

The problem with legal security is that it is expensive and time-consuming, so farmers don’t like it. According to research from Climate Focus, however, Ghanian farmers with land documents are 21.9% more productive and earn 15.5% more income. An article by Marta Massera at the World Cocoa Foundation elucidates the subject.

Work undertaken by Merida focused on mapping 1,880 smallholder farmers in Ghana, mapping 7.961 ha. The process allowed them to create documentation on behalf of the farmers which were signed by local Chiefs and approved by the Ghana High Court.

In a presentation given on a webinar with Mighty Earth by James Acworth, a Land-use and forestry expert in Cameroon, he explained that old Cocoa trees store vast amounts of carbon, which needs to be taken into account if replacing them with younger, better yielding trees is being considered.

Maximising Cocoa yields can come at the expense of the forest, by removing substantial amounts of the canopy. But there is an optimal delta or ‘sweet spot’ of achieving high yields without heavily degrading the forest. The study showed it to be around 70 tonnes per hectare of carbon stock, and still achieving in excess of 1,000kg per hectare.

Source: Sai & Jagoret (2017). Presentation from Cocoa Accountability 2.0 Launch

Corporate Interests are Not Aligned

The industry frequently looks to the Chocolate companies, who earn billions of dollars in revenue each year, to do more. But the actions of their executives can all be reduced to decisions they make out of self-interest. It’s time to factor this into the equation if we want them to make more decisions that are aligned with sustainability goals. 

If we want companies to invest more, and do better on sustainability issues, then we need to align interests. To expect otherwise would be naive. No doubt there are good people at every one of these businesses, but the Executives at the top set the policy. Getting them on board is going to mean taking a new approach, and I think that should by aligning pay to short and long term sustainability goals.

How Executives Get Paid

A top executive can earn millions of dollars per year as part of their overall package. The package made up of cash, pension, stock and benefits has a fixed and variable component. The package is set by a remuneration committee that is supposed to be independent and follow industry standards. Shareholders can vote on executive pay, and sometimes a CEO is defeated by shareholders if they get too greedy in what is known as ‘say on pay’.

“By 2022 environmental, social and governance (ESG) goals are expected to be part of many more CEO pay schemes, especially as the credo grows of maximising value not just for shareholders, but for stakeholders.”

Performance has always been an important part of executive pay, but now performance is starting to have a meaning beyond financial, to double materiality, i.e. the impact on society, communities and the environment.

Pay Structure Breakdown

Many are surprised that the fixed base salary is usually a smaller proportion of the overall pay, and that most is made up with bonuses. A typical Execs package, excluding benefits like healthcare, might comprise:

  1. Base Salary
  2. Short term performance bonus
  3. Long Term Incentive Plan (LTIP)

Here’s Barry Callebaut’s structure taken from their 2020 Annual Report

The base salary might only comprise 20-33% of the overall package value. Most of the rewards will come from annual bonuses and the LTIP.

Looking again at Barry Callebaut’s report(Annual Report 2019/20), the target weight as a % of total remuneration is between 25-40% for both base salary and variable annual bonus, but they have the potential to double that under the maximum rule to 200% of annual base salary. The LTIP comprises share options. 

In practice, Barry Callebaut has been more generous with share options than short term bonuses, encouraging executives to make decisions that are beneficial in the longer term.

But how will these new ESG considerations affect executive pay, and will this have an impact on how decisions are made?

I’ve talked to a few people in the industry, and they are not optimistic this regulation will result in much change, which was disappointing. They believe that the current ESG ratings systems rely too much on self-certification and won’t be meaningful as a result.

It’s true that while the ESG rating agencies like Sustainalytics have a methodology, they probably need time to mature and better understand external factors, including signals from NGO’s and social media (something they say they have started to do).

The sustainable Rating agency, Sustainalytics, had the company come in at number 2 out of 580. If anyone should have a working methodology to trace cocoa back to the farm, then it should be Barry Callebaut.

Since we used Barry Callebaut for the examples so far, we’ll continue and show their rating under the ESG risk rating agency, Sustainalytics. 

As you can see, they come out very well, and list number 2 out of 580 companies in the Food Products group!

The executives at the company might be excited to see ESG components forming part of their bonus structure. That would be the sort of incentive that might start to factor into the decision making process at other chocolate companies. I suspect that it won’t make an overnight difference, however.

Traders and Pisteurs

In Côte d’Ivoire, a typical farmer cannot get their cocoa pods to the cooperative, as they do not have a vehicle to carry them. Instead, they rely on either a trader (délégé) from a chocolate company, to purchase their cocoa or a freelance buyer called a Pisteur.

The Pisteurs present a solution to the farmers logistic dilemma, but they pose problems as well. They are notorious for hard bargaining, eroding cocoa farmers’ meagre profits even further. In Liberia, as we reported before, the freelancers not only take advantage of the cocoa farmers’ need for cash but operate outside of the system.

The cocoa they collect is not traceable or registered anywhere, yet it will find its way into the cocoa supply chain, even to the big companies, who admit they might buy 40% of their cocoa through third parties like these. That’s a lot of cocoa, and much of it will have been grown illegally, perhaps on protected forest land.

The Pisteurs themselves have complained their job can be dangerous, and cite fears of ‘disappearing’ if they report illegal practices, although they fear the police and army even more, who regularly stop them at roadblocks to demand bribes.

It’s hard to see how the industry will meet their environmental objectives unless the governments fulfil the promises they made with the CFI in 2017(Cocoa & Forests Initiative – IDH – th…), and deal with problems like ensuring all cocoa collection is done by licensed representatives, who are equipped with the technology to enable traceability and data collection. 

In Ghana, the regulator, COCOBOD is one step ahead with their Cocoa Management System, which ties together farmer registration, electronic scales and financial payments. CCC, the regulator at Côte d’Ivoire is supposed to be starting trials of a similar system this year (2021).

The UN-REDD Programme called REDD+(UN-REDD Programme ) lists, in 2016, the underlying drivers of deforestation in Côte d’Ivoire as the following:

  • Lack of awareness and technical capacities to shift practices
  • Perverse incentive system
  • Lack of law enforcement to avoid encroachment
  • Tenure insecurity
  • Vulnerability of farmers (yields, dependence on fertilizers and pesticides…)
  • International demand and market price

The organisation explains that  “their objective is for ‘Zero Deforestation Agriculture’: how to produce the same quantity without destroying our forest”.

“Also, farmers will need to feed a projected population of 9.1 billion in 2050. For this reason, countries will increasingly have to grapple with competing land-uses and to explore measures to achieve climate change mitigation goals without compromising food security.”FAO

Challenging DeForestation Laws Using  the WTO

I’ve heard from two different sources that countries who don’t like the new rules being tabled by the US and the EU, will try to use World Trade Organization rules to fight them in court. Some lawmakers seem to be preempting this threat by describing how their laws are compatible with WTO rules, but it seems very possible that some action will be taken.

If a WTO member believes a fellow member has broken trade rules, there is a multilateral mechanism in place to settle the dispute, and countries are required to follow this procedure and abide by the findings.

Countries can also collaborate to bring a case against the member state. However, the WTO puts a heavy emphasis on settling disputes out of court, so if the threatened action is deemed to have merit, then negotiations are a more likely outcome. 

Satellites. Uses and Limitations

Global Forest Watch, uses a 30m definition of satellites. Whereas Vivid goes to a finer 10m definition. A private company, Satelligence can go to 7m by combining Satellite images from the Copernicus, Landsat & MODIS (USGS) satellite programmes into environmental risk and performance indicators, which allows them to identify degradation of forest cover with a higher level of confidence.

Satellite imagery definition is important because the lower resolution makes it difficult to confidently identify forest trees from other types of bush or agriculture.

Paola Despretz from Vivid Economics talked to me about how they built their own mapping system. She explained that each country has unique elements that need to be taken into account if you want to maximise accuracy.  For example, you need to define a baseline from ‘Year 0’ for each country, but these baselines may have been produced using different satellites with different resolutions and technical capabilities. The images may not be comparable between systems.

The process of hunting for the occurrence of deforestation using satellites can be technically challenging. Satellite images don’t give the answer, they are more a provider of clues, which must be interpreted and correlated. Analysts find these clues in changes and anomalies that indicate an event has occurred, and experience combined with knowledge of the idiosyncrasies of the satellite system inform them whether this is a deforestation event that has occurred. 

Because sometimes what you see in an image is white noise, i.e. a technical or another environmental anomaly, experience is required on the interpretation of a series of images to consider how much change must exist before you conclude that it represents deforestation. 

Typically you will need to see several images over time to determine that this wasn’t noise but represents a real event. But this is the kind of determination that changes from country to country based on their individual forest and the satellites and technology used. 

If the analyst gets it wrong, the false positive may trigger a team to be sent on-site to get visual confirmation. These can be expensive, and so the aim is to minimise the number of false positives.

This is also what A.I. based systems hope to scale as they learn from repeated identification exercises and false positives.

There are so many different factors to take into account in reaching a level of confidence in your conclusion, that every country should necessarily have their own model.

In fact, every country might want to define deforestation in a way that is aligned with their model, say with different levels of deviation from the baseline, which presents a problem when trying to create a law at the importing country, because we don’t want a different law for each producing country.

Vivid Economics land map

Source: Vivid Economics

In some ways, that is what we already do with customs law and import quotas that indeed are set on a country by country basis for a similar reason, but it’s a fiendishly complicated system that nobody has the appetite, time, or money to create for the sustainability realm.

In 2019, Vivid Economics created a land-use inventory and saw that 30% of the cocoa crops represented in the images were in protected areas. (Land & deforestation mapping – Peru &…)

Are Afforestation and Reforestation (AR/AF) Good Practice?

AR involves establishing vegetation in an area with little or no existing forest cover where carbon can be captured in new tree biomass and other carbon pools. AF involves the integration of agricultural and forestry practices in which the sequestration of additional carbon in trees and/or soils is possible (Murdiyarso and Adiningsih, 2007; Murdiyarso et al, 2010) (Appiah )

Company sustainability reports which highlight the companies achievements in ‘trees planted’ don’t go into much detail.

  • What kind of trees were lost directly or indirectly from your supply chain activities?
  • And what kind did you replant?
  • How will you ensure those trees will grow and flourish?

Forests do not grow over the course of a year. Any meaningful measurement will be over a 10-year process at least, and the programmes that include numbers of trees planted should be viewed sceptically without supporting detail.

While the trend to start such projects has been good, the trend in sustaining them is rather disappointing – increasingly, fewer projects are being sustained. As a result many of these AR projects are still far from realizing their fundamental goal of biodiversity conservation, large-scale emissions reduction and improved forest governance (Butchart et al, 2010; Angelsen et al, 2014)

Replacing an old forest with a plantation, sometimes referred to as a monoculture, will not provide the benefits lost when the original trees were cut down.

REDD / REDD+ and PES

REDD / REDD+(UN-REDD Programme )

The United Nations Framework Convention on Climate Change (UNFCCC) created REDD and REDD+ as a way to promote sustainable management systems for forests in developing countries. The relevance to Cocoa is the impact the industry has on forest loss, and loss of carbon stock.

The REDD scheme is related to emissions reduction from forest degradation or deforestation. While REDD+ adds more sustainability concerns including the carbon stocks preserved in forests. Ghana and Côte d’Ivoire belong to the REDD+ scheme, and made commitments, and, in the case of Côte d’Ivoire, secured millions in private funding from Mondelēz. Yet deforestation has actually accelerated in some years since the agreement was signed in 2017.

The programme works by providing financial incentives for reducing emissions. But to claim the financial reward, those countries must establish a national measurement, reporting and verification (MRV) system. They are then required to provide biennial reports to support claims of progress.

However, critics identify that the process relies upon each country to identify the existing deforestation within their borders, which then sets the baseline from which to improve. For the worst offenders, including Côte d’Ivoire, this sets a very low standard from which to improve.

Côte d’Ivoire made bold claims: “Côte d’Ivoire has made strong commitments since 2014 to decouple agricultural production from deforestation and restore forest cover to 20% of the territory by 2030“

The participating country is free to suggest that deforestation that doesn’t now occur above the baseline, is the result of their compliance activity. The CO2 ‘saving’ on this notional number allows the country to sell the ‘saving’ as a certified carbon credit.

Payment for Environmental Services (PES)

The concept behind PES is to compensate one party for the cost of good environmental stewardship, by another party that benefits as a result. 

In the context of deforestation, this could include landholders who leave forests on their land intact or otherwise preserve natural forest cover even when it may be in their financial interests to act otherwise. Mondelēz were the forest to do one in Côte d’Ivoire and here’s how they say it works.

“These agreements offer farmers financial incentives in return for planting non-cocoa trees on their farms, for protecting and renewing forest areas. This is an approach we’ve successfully piloted in Côte d’Ivoire, and will continue to expand our efforts to other countries and change farmer behavior.”

IDH Sustainable Trade explains: “Payments for Environmental Services are becoming increasingly considered as a useful scheme to increase the uptake of agroforestry by cocoa farmers”(Payments for Environmental Services 2021)

But some, we hear, have tried to game the system. There is little point in paying a landholder for retaining a forest that they would have retained regardless.

Secondly,  compensation can only go where there is a clear owner of the land, and this tends to favour rich landowners rather than smallholder farmers and those without the approved paperwork, or who are working illegally. Ghana then, will have a hard time implementing this scheme. 

There are other problems too, such as monitoring and verification that the landholder continues to work to the agreement. 

The Chocolate Companies Supply Chains

The CFI had the right idea with their multi-stakeholder approach, albeit leaving out farmer representatives. Chocolate companies have years of experience on the ground and some have developed mature supply chain transparency models and databases that work for their direct suppliers.

If the companies worked collaboratively, and with local governments, and made some of their data publicly available, then this transparency would help in identifying gaps in compliance that could be put into a risk assessment and remediation process.

Noel Quinn, the CEO of HSBC explained during a televised interview with Bloomberg, that they were leading a consortium of 11 other banks to agree on sustainability definitions for the financial sector.

Chocolate companies should also agree on what terms like ‘sustainability’ mean in their context, and they should be defined with the sole purpose of clear and honest communication.

Sustainability Managers should use The Accountability Framework. Here’s what they say under their reporting section:

“To meet expectations for transparency and to be recognized for progress, companies need to communicate clear information about the environmental and social aspects of their supply chains. “

100% Maybe

Is it right to label your product as 100% sustainably sourced, when you don’t know the farm it came from? I don’t think so, but I asked a few friends what they thought without any background or context. Is it reasonable to expect a company selling a “100% sustainably sourced product to absolutely know where all the materials came from”. The answer unanimously ‘yes, of course’.

It’s not acceptable to source a significant per cent of your raw materials from an unknown origin, only count the part you do track, and market it as 100% sustainable.

Chocolate companies have been working on ways to trace that last mile. Cargill, Olam, Barry Callebaut, Mondelēz, and no doubt others, have invested in supply chain technology. In Côte d’Ivoire, they’ve addressed the problem of such a widely fragmented farming community, by appointing delegates (délégués) who live in the cooperative village to visit the farms. They’re given electronic PDA that are used to capture important information, including data from small IoT devices on the ground at the farm. 

By capturing data at the point of production, it is possible for the délégués to attach a tag to the cocoa from the farm and scan it into the PDA. Other data is also collected, and this provides the companies with useful data from which they can enhance their prediction models, spot potential shenanigans, and identify farmers that might benefit from further assistance and training.

Mondelēz hired Meridia to build a ‘last-mile’ solution for their Cocoa Life programme, in Ghana. Over the course of 11 months, they mapped 47,000 farms that the company can now examine through a dashboard and toolkit.

The same technology that helps to identify forest loss, can also be used to help forecast yields. By making a sustainable initiative, commercially beneficial means the company doesn’t have to think too hard about the cost-benefit.

In addition to the big companies, cooperatives are getting involved. The Farmstrong Foundation works with over 30 farming groups in Côte d’Ivoire and is also deploying their own solution along the same lines.

As deforestation laws hopefully pass, this ability to supply provenance to the last mile could be required to evidence compliance. Additionally, public companies can use this additional transparency to improve their status on mandatory ESG reporting.

The different companies creating last-mile solutions should agree on a standard data format to ensure cross-compatibility and data portability is baked into the design from the outset. Governments should be allowed access to this data, which if it was based on a common structure, could be easily imported into central government databases to further enrich their existing data. 

Military leaders know that intelligence wins wars, and modern CEO’s invest heavily in technology to ensure information flows where it is needed. European politicians hope that the new laws will shock the West African producing countries into action. They need each other, but having come this far, it’s hard to see how the EU, in particular, can back down. 

The problems are not insurmountable, especially with new technology that has already been proven in pilots. A coordinated effort is required, and it must be driven from the very top. If Côte d’Ivoire and Ghana can do that, other countries will follow.

The question is not what will happen if they don’t do it. The outcome of no action, or ineffective action is going to be disastrous for the countries economies, for the world’s environment, and for the indigenous people of those countries.

Instead, I think a better question is to ask what happens if they rigorously follow the action plans in the CFI, bring the technology together using a common data structure, and reform the laws on tenure. That’s a future worth re-imagining.

1.
Miner R. Impact of the Global Forest Industry on Atmospheric Greenhouse Gases. // Food and Agriculture Organization of the United Nations. 2010.https://www.fao.org/3/i1580e/i1580e00.htm
1.
The Economist. // The Economist. 2021.

One Response

  1. Suliman V. Kamara November 5, 2021

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