Kisses Good-bye….Chocolate shortage by 2030?
With annual sales of $7.4 BN and a product portfolio consisting of renowned brands such as Hershey’s, Reese’s and Kisses, The Hershey Company (Hershey) is one of the largest chocolate producers globally.[1] Given that West Africa currently accounts for 70% of the world’s supply of cocoa beans, cocoa products sourced from this region are the most significant raw material in Hershey’s chocolate production supply chain[2]. West Africa is particularly well-suited to cocoa production due to the high yields associated with the warm and humid climate.[3]
However, climate modelling indicates that this region is increasingly growing warmer and drier. In fact, experts predict that by 2030 parts of West Africa will be too hot and dry to adequately produce cocoa.[4] As a result, the world may face a significant decline in cocoa production due to the combined effects of climate change and farmers choosing to switch to more lucrative crops.[5] This poses a significant threat to Hershey’s supply chain, especially in light of an expected 2% annual increase in demand for chocolates globally.[6] Given that cocoa trees are productive over a 25-year period, an immediate adaptive response to climate change is necessary. With more than 2 million smallholder cocoa farmers, sustainability of cocoa production will only be achieved through a wide-spread shift to more adaptive cocoa tree varietals as well as practices resilient to the effects of climate change.
Realizing the potential to play a significant role in ensuring a shift towards a sustainable supply chain, Hershey has started to implement short-term and long-term solutions to address this problem. Hershey has developed both internal and industry-wide initiatives aimed at increasing cocoa sustainability. Internally, Hershey has developed a 21st Century Cocoa Sustainability Strategy with the goal of sourcing 100% certified and sustainable cocoa by 2020. This strategy focuses on modernizing cocoa farming through the following two initiatives:[7]
- Distributing one million higher yielding, drought- and disease-resistant trees to cocoa farmers in West Africa by 2017
- Providing farmers with a three-year training program that can lead to UTZ certification as producers of sustainable cocoa
Across the industry, Hershey has combined forces with 8 leading chocolate companies to form CocoaAction, which has an aim to double the yields of 300,000 farmers through improved planting materials, fertilizer, and improved agricultural practices by 2020.[8] Since its inception in 2016, this initiative has already successfully supplied 147,000 farmers with interventions to improve their productivity.[9]
While Hershey has made significant progress towards ensuring sustainability of cocoa, current internal and industry-wide efforts fell short in terms of reach and innovation. With current efforts estimated to reach less than 10% of cocoa farmers by 2020, Hershey needs to implement a strategy with a wider reach in order to effectively combat the effects of climate change by 2030. Firstly, while the public sector and non-profits have invested in R&D of resilient cocoa trees, there still exists gaps in the market for cocoa trees and farming techniques adapted to changing climatic conditions. As a result, Hershey should spearhead a research partnership with other chocolate producers and local governments that ensures sufficient resources are dedicated towards the development of inputs highly adapted to changing climatic conditions. Secondly Hershey also has a role to play in ensuring wide spread dissemination of these innovations and best practices. To enable this, Hershey can work with private and public-sector partners to address both credit constraints and information asymmetries that have historically prevented smallholder farmers from reaping the full benefits of innovations in agriculture.[10] By partnering with mobile phone operators and local organizations, Hershey could leverage high cell-phone penetration to cost-effectively deliver precision agriculture (e.g. through providing agronomic and weather information) as well as access to financial services (e.g. credit and insurance). By equipping smallholder farmers with access to both the information and funding necessary to use these new innovations, Hershey can ensure increased productivity of existing farmers as well as attracting new farmers to cocoa production; averting a potentially devastating chocolate shortage by 2030!
In order for the strategy outlined above to be effective, Hershey will need to collaborate across both the private and public sectors. How can Hershey effectively align incentives and diminish competing priorities across these actors? Going forward, it will also be important for Hershey to consider how to effectively diversify its supply chain to minimize supply risks. What are some approaches that Hershey could use to accomplish this?
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[1] The Hershey Company (2017). 2016 10-K Form. Accessed November, 14 2017 at https://www.sec.gov/Archives/edgar/data/47111/000004711117000005/a2016_formx10-kq4.htm
[2] Ibid
[3] “Hershey, Lindt, Mars, Nestlé Join New Program to Help Cocoa Farmers Adapt to Climate Change.” Accessed November, 11 2017 at http://www.sustainablebrands.com/news_and_views/collaboration/hannah_furlong/hershey_lindt_mars_nestle_join_new_program_help_cocoa_fa
[4] “New program to help cocoa farmers adapt to threat of climate change.” Accessed November, 11 2017 at https://www.confectionerynews.com/Article/2016/06/02/Chocolate-firms-to-help-tackle-impact-of-climate-change-on-cocoa-farms
[5] Barnato, K and Graham, L. “Future of the chocolate industry looks sticky”. CNBC News. Accessed November, 14 2017 at https://www.cnbc.com/2016/03/24/future-of-the-chocolate-industry-looks-sticky.html
[6] “Asian chocolate demand set to outstrip global growth”. Financial Times. Accessed November 14, 2017. https://www.ft.com/content/3cb2e488-a8f8-11e7-ab55-27219df83c97
[7] “Hershey is Committed to Our Cocoa Communities”. Accessed November, 14 2017 at https://www.thehersheycompany.com/en_ca/responsibility/good-business/creating-goodness/cocoa-sustainability.html
[8] CocoaAction. Annual report 2016. Accessed November, 14 2017 at http://www.worldcocoafoundation.org/wp-content/uploads/2016-CocoaActionReport-English_WEB_10-30.pdf
[9] Ibid
[10] Asuming-Brempon S et al, 2016. “Technological and Institutional Innovations for Marginalized Smallholders in Agricultural Development” (pp 369-396).
Cocoawhat?,
I agree that Hershey is in a pivotal place in terms of threat to their future cocoa supply based on climate change concerns. Your suggestions outline in this article make some great points on how Hershey can collaborate with current farmers to increase yields with the current state of cocoa production. However, like you mentioned, it doesn’t seem like this tactic will be effective enough to close the gap in terms of future cocoa supply. Rather than focus on gaining more collaborators to further improve their current processes, my suggestion would be for Hershey to utilize the climate modeling you mentioned to consider looking globally for locations that may be suitable for cocoa growth in the next ten to twenty years. There may be additional locations that, based on shifting weather patterns, will become hot and humid similar to current West African climates. I suggest Hershey locate these areas and form strategic partnerships will farmers to start growing cocoa in these regions, while sharing the yield improvement learnings from West Africa. I believe this strategy will lead to long term security of cocoa supply.
Cocoawhat?, thanks for the post! I was surprised when you mentioned that part of West Africa would become inadequate to produce cocoa by 2030 – climate change is having such immediate and serious impact on our day-to-day life! I am glad to see Hershey taking initiatives on the sustainability effort. I really like their strategy to work with local farmers to provide training and higher-yielding trees to ensure supply in the near future. Forming CocoaAction with other leading chocolate manufacturers is another smart move to increase industry awareness and reinforce collective effort across supply chain.
This may be completely out of the box – I am thinking if it is possible for Hershey to also explore ingredients other than cocoa that can be made into chocolate or chocolate alternatives to manage the risk of supply chain disruptions. After some brief research, I believe Carob can be a potential candidate to replace cocoa. According to Healthline, Carob can be used as an alternative to cocoa and in fact, is superior in nutrition and health benefits. The carob is a long-lived plant native to Mediterranean and is more resistant to dry weather. While Hershey is focusing on its effort to sustain cocoa production, I think they should also have a contingency plan to diversify the ingredients of its products and rely less on cocoa production. I would recommend Hershey to invest in the research and development of new products, for example, a healthy chocolate made from Carob, which not only reduce the risk of diminishing cocoa supply but also appeal to the trend of healthy eating.
Great post, and definitely alarming to chocolate lovers globally. I like what you’ve outlined as potential opportunities for Hershey to invest in R&D gaps on how to combat the effects of climate change. A few others I had on my mind:
1) Are there other areas in the world outside of West Africa that would also be particularly suitable for growing cocoa beans? It sounds like much of the risk is predicated on our reliance of this area; if there are other areas that we could start to cultivate, it could diversify our exposure to cocoa bean declines with climate change. Particularly if we need hot / humid areas, there could even be some places with warm / humid areas that will grow to be hot with climate change as potential location options
2) I think what TOM1 said above was interesting with respect to finding substitutes for cocoa (like carob); carob already is used in many chocolates and is touted as a more nutritional form of chocolate. I’d be surprised if we could have a broader substitution as people are accustomed to “conventional” chocolate and I think would be wary of this change. However, I do wonder whether there’s a way of making genetically modified cocoa beans that would either a) be more resistant to climate change or b) increase increasing yields.
Thanks for the insight. It is surprising to realize how impactuf a shortage of cocoa could be for companies like Hershey’s and how they need to plan ahead in order to prevent a complete shortage or extremely high prices for the raw materials. I liked the ideas that Hershey’s is already implementing, like the distribution of better trees and trainig the farmers. I see how this can help Hershey’s directly but also improve the queality of the product in general.
Thinking about the shortage of supply, and adding to the previous proposed ideas of looking for other places in which to invest and plant trees, I believe Hershey’s should be focusing on one of your last thoughts: attracting new farmers to cocoa production. By building cooperatives of small farmers in different markets Indonesia, Brazil or Mexico for example, Hershey’s could work with local governements to locate areas with underutilized land or resources, where farmers could grow cocoa (and where they might not be aware of it). Also, at the management level they should be thinking about operational effectiveness to reduce their costs, just in case the shortage is unevitable and prices do increase to an unexpected level.
Cocoawhat, first of all, what an alarming prospect – A time without chocolate is too dreadful to even imagine! For this reason, but more importantly for the workers at Hersheys and the suppliers who rely on Hersheys to buy their products, we must develop a solution to this encroaching problem. My concern however is how can Hershey’s simultaneously solve this problem and help farmers, while maintaining their competitive advantage? If Hersheys distributes these new trees to farmers and provides them with this education program are they also ensuring that the farmers continue to only sell to Hersheys? Could competitors copy-cat this strategy and steal it from Hersheys to give to their farmers? I could imagine a scenario in which Hersheys invests a lot of money in this solution only to have these farmers and their innovative techniques poached by another chocolate company. Perhaps this would only happen at a one-off level, but it does lend support to your idea of Hershey spearheading partnerships with other companies, governments, and non-profits to help avert this disaster. I feel that Hersheys is partially responsible for solving this problem but needs the support of other stakeholders.
Such a sad post I don’t know what I would do without Reese’s cups!!
This was a great post because it reminds us how climate change really starts to affect all aspects of our lives – even the small things we would never think about, like chocolate! I am glad that the company had enough awareness and data on the situation to be able to properly prepare in advance and start the 21st Century Cocoa Sustainability Strategy now.
I wondered if Hershey might think of other actions it could take to gain cocoa supply other than just supplying West Africa with more trees. For instance, could Hershey source it’s cocoa beans from other regions of the world? It might think about buying producers in regions less affected by the climate changes to offset the reduced yield in Africa. Alternatively Hershey could start its own cocoa farms in areas that are conducive to growing the crop. A third, more drastic option, might even be to explore high tech farming alternatives to help grow cocoa outside of West Africa.
Also, a question I had was whether the new tree was genetically modified to be drought resistant. If so I might worry about the PR effects on the company, especially with today’s society’s obsession with “all natural” and “organic” foods. The company might have to weigh the decision if this is indeed the case.
This post caught my attention because personally, I’d be devastated by a chocolate shortage. My thoughts were aligned with the other comments above – namely, is there any recipe modification which Hershey could implement in order to actually reduce the amount of cocoa powder required per product? The other abstract thought I had related to actual packaging size – perhaps there is some merit to reducing the size of the products themselves. Obviously, this would have to be by degrees so that a consumer does not notice, but over the magnitude of Hershey’s annual production the impact could be sizable.
Sustainability of supply chain is a very heated topic at the Hershey Companies. It has launched tons of initiatives to ensure the supply of cocoa from farmers in Africa. For example, it launched a text-based learning system to educate the farmers how to improve the output of cocoa trees; and it conducted an initiative to empower women to join the farm work given the shortage of labor. These efforts do not only impact the supply of cocoa, but have a great social impact.
Meanwhile, although there is a 2% increase in the chocolate demand globally, it is obvious that the consumers’ snacking behavior has been changed: they become more cautious of healthy eating habits. So the Hershey Company also acquired a beef jerky company a few years ago to diversify the portfolio.
Definitely not looking forward to a chocolate shortage. While I agree with you that Hershey needs to become more aggressive with its current efforts, I think they’ll realistically also need to start investigating new production areas in parts of the world that will remain attractive for cocoa production as the climate changes. Also, has the company itself made a serious commitment to improve the sustainability of its corporate, etc., operations to limit its own contribution to climate change? Hershey as a large platform as a large company — it could also increase its effort to push for a more serious government response to climate change.
I agree that Hershey should partner across both the public and private sector to influence innovation that could help farmers to increase yield. I expect that a key partner should be agricultural experts who can employ R&D initiatives to understand the cocoa varietals, and how changes to the seeds and traits could improve resistance to the effects of climate change in the region. By elevating the issue to an industry-wide initiative, multiple companies could pool investment dollars to fund the initiatives. I also like that the company is focused on providing education and certification programs for farmers, but wonder how the chocolate companies are weighing the decision to purchase raw materials at lower cost versus allocating their sourcing budget to procure from farmers who have achieved the certifications.