Copyright 2019. Benzinga.com
The Hershey Co(NYSE: HSY), one of the largest chocolate manufacturers in the world, is promoting environmental sustainability in its cocoa supply chain. Cocoa is the key ingredient in manufacturing chocolate and can only be grown in regions close to the equator.
Hershey sources cocoa primarily from the West African nations of Ivory Coast and Ghana. According to the Observatory of Economic Complexity (published by MIT), the Ivory Coast is the world’s largest exporter of cocoa beans at $3.74 billion, or 37 percent of the global market in 2016. Cocoa accounts for 36 percent of the Ivory Coast’s exports. The United States is the world’s second-largest importer of cocoa beans at $1.27 billion, or 13 percent of the global market in 2016.
Jeff King, senior director of sustainability and social innovation at Hershey, said that Hershey has announced a package of environmental efforts to improve the sustainability of cocoa farming. The package includes helping cocoa farmers diversify their crops to provide them more sources of income and strengthen their economic sustainability. The package also involves planting more trees to provide shade, which makes cocoa trees more productive.
“Cocoa is one of the most important ingredients used at the Hershey Company, so its long-term availability – and the well-being of the communities that cultivate it – is a top priority.” King stated.
King said that Hershey’s effort to increase sustainable cocoa farming began in April 2018 as the Cocoa for Good Initiative. Through the initiative, Hershey is investing $500 million in small farming communities through 2030. Small, family-run farms produce 95 percent of cocoa beans. The investment aims to improve local family nutrition, eliminate child labor from the supply chain, increase local incomes and end deforestation in the Ivory Coast.
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It’s hoped that the investment will prevent farmers from leaving the cocoa farming industry.
According to the International Cocoa Organization and NASDAQ, the price of cocoa per ton was $2,283 on January 24, a decline of around 20 percent since reaching a one-year high of over $2,800 per ton in April 2018. Voice of America said that declining income in cocoa farming coupled with environmental degradation may drive farmers out of the industry, decrease the supply of cocoa beans and make chocolate manufacturing more expensive.
“The farmers themselves are not paid enough, especially when compared to the immense profits reaped by those who buy the cocoa beans and make them into chocolate products,” said Dr. Susan Glover, assistant professor with the department of government at American University.
To ensure its Cocoa for Good initiative promotes sustainability, Hershey has also introduced a supplier code of conduct for its cocoa bean sourcing and other recipe requirements.
“Environmental impact is a key part of The Hershey Company‘s business practices and the company is committed to supporting sustainable operational and agricultural production practices, such as the Food and Agriculture Organization (FAO) of the United Nations – Good Agricultural Practices (GAP) initiative.” said the code of conduct. “At a minimum, suppliers must fully comply with all local environmental laws and regulations and should strive to conduct their operations in a way that conserves natural resources.”
In 2012, Hershey committed itself to sourcing 100 percent environmentally sustainable cocoa by 2020. According to King, the company has achieved 80 percent sustainable cocoa sourcing as of the end of 2018.
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Forest 500, a ratings agency which tracks deforestation due to corporate development, reported that agricultural products including cocoa, palm oil, rubber and timber are the leading causes of deforestation in the Ivory Coast. The country lost 654,000 hectares – five percent of its forest coverage – from 2010 to 2014.
“Low pay for their labor means that farmers are often driven to clear more land to grow more cocoa trees, which in turn makes the entire problem of sustainability worse,” said Glover.
Hershey has seven confectionery manufacturing plants in the United States and others in Brazil, Canada, China, India, Malaysia, Mexico and the United Arab Emirates. To meet consumer demand for chocolate, its worldwide supply chain requires an ongoing and sustainable source of cocoa.