Oil is the crucial driver of higher food prices: Economist
Easter 2022 arrives this week with its usual egg-hunting and chocolate-bunny traditions, but also with some bitter new realities.
A fresh outbreak of avian flu in the U.S. has wiped out tens of millions of hens in recent weeks, causing a shortfall in the eggs typically sold for dying and decorating — and reminding us once again about the vulnerability of our food supply. And while there’s no shortage of chocolate confections on store shelves, consumers will be paying more, and these higher prices are a harbinger of growing environmental and social burdens imperiling the industry.
Let’s not sugarcoat this: Major candy makers such as Hershey Co., Mars Inc. and Nestlé SA need to overhaul their production practices if they want to continue feeding the world’s chocolate habit. One good example for these legacy brands to follow is the Dutch startup Tony’s Chocolonely, one of the fastest-growing chocolate brands in the U.S. and Europe. This small chocolatier — with US$110 million in 2021 revenue compared with Hershey’s US$8.9 billion — is pioneering ethical business practices and climate-smart farming methods that could save an increasingly unsustainable industry.
At the heart of the challenge is production of chocolate’s key ingredient, cacao. Nearly 70 per cent of the world’s cacao beans are grown in West Africa — mostly in Ghana and Côte d'Ivoire — where increasingly hot and dry conditions are hurting farm yields and pushing up costs. Severe deforestation is on the rise as farmers seek more arable land.
Demand for cacao, meanwhile, is surging: A recent National Confectioners Association report shows consumers devoured nearly US$37 billion in candy worldwide last year — a more than 10 per cent increase since 2020 thanks to social media campaigns and stress-eating during the pandemic. The biggest part of the candy surge was chocolate, with US$22 billion in 2021 sales.
Hershey is one legacy chocolate brand that has seen strong recent sales while feeling the pinch in its supply chain: Having raised prices last year, the company recently announced more increases across all its products due in part to soaring ingredient costs.
Yet Tony’s Chocolonely chief officer Henk Jan Beltman hasn't raised his chocolate bar prices since 2019 and says he has no plans to do so anytime soon. Here’s why: The company has pioneered strong relationships and long-term contracts with its farmers. The contracts offer living wages that reduce a rampant trend in illegal child labor, as well as offer assistance to farmers as they adapt to new environmental pressures and avoid the devastating impacts of deforestation.
According to a recent University of Chicago report, more than 1.5 million children are currently working illegally to produce cacao in western Africa, in part because of the low “farmgate” prices for the beans — the market price set by the countries of origin, which is kept to a minimum under pressure from industry. Beltman tells me that because cacao farmers aren't allowed to set prices for their beans, it creates a “poverty trap” and has led to a form of modern slavery. Major chocolate brands have acknowledged the crisis of child labor, yet have not done enough to solve it.
Exacerbating this poverty trap is the stripping of ecosystems. The Côte d'Ivoire has lost more than 80 per cent of its forestlands over the past 50 years as trees have been razed for new cacao farmland. Forests are essential to soil health and ground moisture, and tree canopies help farmers manage rising temperatures.
A Harvard University study found that by 2050, vast areas of Ghana and Cote d'Ivoire will become unsuitable for agriculture as the area slowly turns into a desert climate. That could cut the global cacao production by nearly a third. Already, says Beltman, some of the cacao farmers he sources from in the region have abandoned the northern farmlands of Ghana and Côte d'Ivoire and moved southward into the cooler regions where rainfall is better.
Tony’s Chocolonely has devised five sourcing principles that guide its business relationships with cacao suppliers in West Africa within an aim toward building climate resilience. Most notable among them: The company uses supply-chain mapping software to track all the beans it purchases back to the farms of origin — a practice that enables the company to ensure quality, monitor growing practices and soil health and rid its supply chain of slave labor. The company also supports farmer co-ops and helps train farmers in agroforestry practices and reforestation programs that integrate cacao farms with resilient, tree-rich ecosystems.
Crucially, the company also commits to long-term contracts with its farmers, locking in prices that are 25 per cent-40 per cent above the farmgate price over a minimum of five years so that farmers can invest in sustainable farming practices and guarantee returns over time. These contracts have benefited the company’s bottom line: Tony’s Chocolonely products are priced marginally higher than Hershey’s, at US$0.81 per ounce compared with US$0.71 per ounce. Yet Tony’s has increased its sales between 20 per cent and 22 per cent each year from 2019 to 2022, while avoiding the volatility of market prices in recent years that caused large brands to announce successive price hikes.
Tony’s Chocolonely’s sourcing principles have been so successful that a number of other emerging chocolate brands, including Germany’s Jokolade and Delicata in the Netherlands, have adopted them. The world’s major chocolate brands should recognize this positive trend among young industry pioneers and follow suit. Every large purveyor of chocolate should be signing on to three principles in particular: traceability, agroforestry training and long-term farmer contracts that offer fair living wages. Without these measures, the industry can’t survive, let alone grow, in a hotter, dryer future.
Beltman told me he’s driven by a keen awareness that “chocolate is a very special kind of product, a Willy Wonka product — one that doesn't provide consumers with calories they need, but with calories they love.”
This is what makes chocolate the right sector of the food business to pioneer world-bettering practices and products. Consumers should be more willing to support these forward-thinking brands because the higher price is so well justified. Indeed, consumers hold important responsibility here: to be more discerning with the brands they buy and to ensure, to paraphrase Wonka himself, that good deeds shine in a weary world.