A World without Chocolate? What Cargill is doing to Ensure we can get our Sweet Fix.
Cocoa production is highly concentrated in two countries and is exposed to the risks of climate change, particularly in reducing the available arable land for production. Cargill one of the largest producers of cocoa is focused on improving sustainability of the product through a comprehensive approach.
Chocolate is one of the most popular items in the world, the US market alone represented $18.8BN in sales in 2016[1]. This food, which brings joy to so many is made from a very unique and complex plant called Cocoa. Cargill one of the largest agribusinesses in the world is a major producer of Cocoa and is further expanding its focus on this area with its recent acquisition of ADM’s US business for $440M[2]. However, as Cargill moves deeper into the Cocoa business it faces the risks of a product that is highly exposed to climactic changes.
Cocoa can only be produced within 20 degrees of the equator and requires a wet and temperate climate with over 50% of the worlds Cocoa production concentrated in Ghana and Cote d’Ivoire[3]. These two countries are expected to see a major climactic shift by 2050 which would require growers to move their production into areas that are mountainous and not allowed for farming[4]. As illustrated in the below figure a signification portion of the Cocoa arable land in Ghana and Cote d’Ivoire will move from excellent to marginal or good by 2050, with 89.5% of land becoming less suitable to cocoa cultivation [5].
Figure 1 Suitable Land for Cocoa Production in Ghana and Cote d’Ivoire[6]
The CEO of Cargill is keenly aware of the issues facing his company and the agribusiness world, in a recent WSJ interview he said “climate change is here, and it’s going to change how and where food is grown. Today, the U.S. corn belt is in Iowa, Illinois, Indiana. In 50 years, it may be in Hudson Bay, Canada”[7]. Cargill is likely to face volatility in its Cocoa production in the form of more severe and more frequent draughts[8] with crises already occurring such as in 2015 when Ghana saw production of only 690k tones vs 1M expected[9]. Given the CEO’s focus and the acute risks to Cocoa, Cargill is facing these challenges head on by establishing 5 primary targets for Cocoa production sustainability by 2030. These 5 pillars center around the concept that sustainability is not only a question of technological innovation to improve yield and adapt but that it relies also on education and community engagement.
Figure 2- Cargill Cocoa Sustainability Goals[10]
Cargill’s programs to increase Cocoa sustainability have already shown to be successful. Their coaching program which pairs farmers together to share learnings around best farming practices resulted in 49% increase in yields[11]. Cargill is also leveraging technology to assess the environmental impact of the farming of Cocoa. Primarily leveraging GPS technology, Cargill “conducted a risk assessment of 2.3 million hectares of forest to evaluate habitat type and tree cover loss, as part of its global efforts to eliminate deforestation across agricultural supply chains by 2030”[12]. The introduction of this GPS technology is also being leveraged to track farmers produce to understand production levels and ensure product is sourced from farms that meet their standards.
One of the unique aspects of Cargill’s Cocoa sustainability program is that it is comprehensive in nature. It aims to educate farmers, connect them to the community and create stability in the market. As an example, in 2013, Cargill along with the IFC introduced a mobile payment program for farmers to receive the payments for their cocoa crop via their mobile phones[13]. This helps to speed up payments and engage farmers in mobile banking. Although this may not seem relevant to supporting the supply chain, Cargill firmly believes that meeting “the direct needs of people in in cocoa communities in a transparent, credible and, measurable way”[14] will enable them to achieve their sustainability goals. There is no crop, there are no improvements in production without the farmers themselves.
Overall Cargill’s strategy to combat the risks they face in cocoa production are comprehensive and are tied to specific goals for the coming years, however the biggest drawback is their lack of transparency. As a private company Cargill does not disclose extensive details about their cocoa business, how it is directly being affected by climate change or many tangible metrics on their sustainability program. To drive forward they should increase awareness around the issue through greater transparency to support overall efforts in sustainable cocoa production.
Remaining Questions:
1- Given that over 50% of Cocoa production occurs in just two countries, what opportunities can Cargill explore to diversify away this concentrated risk and explore other sustainable growth methods in new countries or regions? Are there areas that were once not suitable for Cocoa but with the changing climate now are?
2- One of the primary recommendations made by different scientists is that farmers should diversify their crops to limit their downside[15]. How will this diversification affect the ability of Cargill to grow its Cocoa business?
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[1] Oliver Nieburg, “Chocolates Plight Does not Look Set to Improve in the US, says Euromonitor”, January 23 2017, Confectionary News, https://www.confectionerynews.com/Article/2017/01/23/US-chocolate-volumes-sales-set-to-decline
[2] Reuters Staff, “UPDATE 3-Cargill buying ADM’s chocolate unit in North American expansion” , September 2 2014, http://www.reuters.com/article/archer-daniels-ma-cargill/update-3-cargill-buying-adms-chocolate-unit-in-north-american-expansion-idUSL1N0R30UJ20140902
[3] Michon Scott, “Climate & Chocolate”, February 10 2016, NOAA, https://www.climate.gov/news-features/climate-and/climate-chocolate
[4] Michon Scott, “Climate & Chocolate”, February 10 2016, NOAA, https://www.climate.gov/news-features/climate-and/climate-chocolate
[5] Michon Scott, “Climate & Chocolate”, February 10 2016, NOAA, https://www.climate.gov/news-features/climate-and/climate-chocolate
[6] Michon Scott, “Climate & Chocolate”, February 10 2016, NOAA, https://www.climate.gov/news-features/climate-and/climate-chocolate
[7] Jacob Bunge, “Cargill’s Food Empire Adapts to a Changing Word”, October 16 2016, The Wall Street Journal, https://www.wsj.com/articles/cargills-food-empire-adapts-to-a-changing-world-1476670081
[8] P. Läderach, A. Martinez-Valle, G. Schroth, N. Castro, “Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, Ghana and Côte d’Ivoire”, Climactic Change, August 2013, Volume 119, Issue 3–4, pp 841–854, https://link.springer.com/article/10.1007%2Fs10584-013-0774-8
[9] Nicholas Bariyo and Julie Wernau, “Ghana Faces Huge Shortfall in Cocoa Crop”, June 19 2015, The Wall Street Journal, https://www.wsj.com/articles/ghana-faces-massive-shortfall-in-cocoa-crop-1434719593
[10] -“Cargill Sustainability Report”, Cargill.com, October 3 2017, https://www.cargill.com/2017/cargill-sets-clear-course-for-cocoa-sustainability
[11] -“Cargill Sustainability Report”, Cargill.com, October 3 2017, https://www.cargill.com/2017/cargill-sets-clear-course-for-cocoa-sustainability
[12] -“Cargill Sustainability Report”, Cargill.com, October 3 2017, https://www.cargill.com/2017/cargill-sets-clear-course-for-cocoa-sustainability
[13] Susie Lonie, Meritxell Martinez, Rita Oulai, Christopher Tullis, “Opportunities for Digital Financial Services in the Cocoa Value Chain CÔTE D’IVOIRE”, International Finance Corporation, 2016, Page 20 https://www.ifc.org/wps/wcm/connect/2d3ae2fc-ae9a-45e1-bb9a-f039927a2f89/IFC+Cote+d%27Ivoire+Digitizing+Cocoa+Value+Chain+report+ENGLISH.pdf?MOD=AJPERES
[14] -“Cargill Sustainability Report”, Cargill.com, October 3 2017, https://www.cargill.com/2017/cargill-sets-clear-course-for-cocoa-sustainability
[15]P. Läderach, A. Martinez-Valle, G. Schroth, N. Castro, “Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, Ghana and Côte d’Ivoire”, Climactic Change, August 2013, Volume 119, Issue 3–4, pp 841–854, https://link.springer.com/article/10.1007%2Fs10584-013-0774-8
Thank you for your insightful analysis of the impact of climate change on the cocoa business.
Regarding your second question – any diversification on the part of existing farmers will lead to lower cocoa output, assuming all other factors remain the same. This causes Cargill to enter into a bit of a principal-agent problem: the company has an incentive to encourage farmers not to diversify to increase its already-threatened cocoa supply, but farmers themselves are better off diversifying to ensure a sustainable livelihood in poor cocoa years.
Assuming the organization is serious about its sustainability commitments as outlined in your essay (a very serious question in its own right, given the lack of transparency), it is best served to encourage farmers to grow cocoa in other locations or further improve yields on existing farms.
Thanks a lot for your essay!
Trying to answer on your “new regions” question I have found some statistics on Cocoa beans production (http://www.fao.org/faostat/en/#data/QC) and prepared the table of key regions (https://docs.google.com/spreadsheets/d/1XUfXFSxrSQ5qdmhBDix5TWBv-SOnmzMW7gJKllyIpuw/edit?usp=sharing).
6 countries covers 80%, 9 countries cover 90% of production. Even Ghana (#1) and Cote d’Ivoire (#3) have positive trend I completely agree that climatic threats you have highlighted in your work are extremely dangerous. We can see negative trend for Indonesia (#2) which has huge issues on deforestation and Nigeria (#6) which is pretty close to our region. The same time Cameroon which is closer to 0 degrees is much more stable and Peru (#8) is even positive.
My proposal here might be geographically diversified Cargill impact (this 5 pillars approach) to stop further decline for some of top-9 countries as well as start business at Latin America (e.g. Peru, Colombia) which are not so big but closer to USA.
Additional source of cocoa beans might be greenhouses which become more and more digital during last decade. While Cargill builds cooperation and systemises best practices they can as well do these experiments for new agriculture technologies – they still have 10-20 years in front.
For new crops – there are some trees/beans which are already used as alternatives to chocolate raw material. Cupuaçu (https://en.wikipedia.org/wiki/Cupuaçu) is one of them. Taking into account similarity of regions cultivation of Cupuaçu might be one more branch for Cargill in Latin America.
Very interesting essay and it portraits a problem that is an example of many others caused by climate change. Our world will not remain the same, and it is amazing and frightening to think how close we are from a world with no chocolate, or where chocolate will be super expensive and will not be available for all. Answering to the second question posed by the essay, I think we could imagine a world where planting cocoa will become a type of very risky investment, with possibly high returns, given the mismatch of supply and demand. Another reasonable prediction, is that the land that will still be suitable for cocoa planting in 20150 will greatly appreciate in the coming years, and this, coupled with higher prices, will give local farmers the chance to modernize and possibly verticalize their structure and start to export chocolate as a finished good. This would allow them to capture more value from the limited world supply of cocoa. In any way, the ability of Cargill to continuing supplying cocoa, will be greatly affected and I believe Cargill should immediately start to invest in the land property that will remain suitable for cocoa planters in 2050.
A very interesting article on how chocolate production is being affected by climate change and very informative as well about the specific conditions that cocoa plant needs to grow in. It would be great to know further about how much of the production for Cargill is going to be affected by this and the cost implications for that. Does 89.5% of land becoming “less suitable” affect the productivity greatly?
It is also very interesting that Cargill is taking a 10-30 year view on developing goals for sustainability. It seems a little slow to act given how imminent the impact on their operations could be and I would be interested to know your thoughts on the same. In addition, 4 out of the 5 sustainability goals have no quantitative criteria to measure them.
Lastly, I agree with Henrique’s observations on how cocoa plantations can become a long-term business for investment which is high-risk and high-return with the suitable land gaining value significantly. I would also be interested to know what alternatives that type of land would present in addition to being suitable to cocoa and how that will also impact the supply of cocoa in the future.