Tag Archives: Corporate citizenship

Corporate Social Responsibility Within the Chocolate Industry: Analyzing Nestlé

In an era where small batch chocolate producers have already taken effective steps in creating a more sustainable and equitable chocolate supply chain, larger corporations have also begun to take up the mantle and move in a positive direction. The large players in the chocolate market are perhaps the most crucial to making significant improvements to the system of the cacao production. Companies like Nestle have started focusing on sustainability, beginning to finally look at some of the core issues behind cacao sourcing. In analyzing the sustainability section in Nestlé’s annual report, I aim to evaluate their success in becoming a solution to the problems of the cacao-chocolate supply chain.

Creating Shared Value

Corporate Social Responsibility is a form of self-regulating business model that aims to create positive social and environmental impacts through managing shared risks and creating shared opportunities. It goes beyond just compliance and corporate philanthropy. Nestle seems to have a solid conceptual understanding of effective corporate social responsibility, stating a clear goal of ‘creating shared value’. While they still have a lot more room to make actual improvements in their supply chain and production, Nestlé still stands as a good example to begin leading other companies in the right direction.

The most salient and material risks I see for Nestle as a business are nutrition, rural development, human rights, and climate change. Several of these issues are ethical issues we’ve talked about in class and all of them have been touched on in their sustainability report. The fact that Nestlé recognizes such issues is a strong success in itself, but Nestle could be more effective in taking action on their goals.

Nutrition

Nutrition is a salient goal for Nestle because of the increases in obesity and other health problems among adults. In sweetness and power, Mintz argues that the desirability of sugar confronts the costs it poses to health and world systems. Sugar consumption has increased by 50% since the 1970s, and is a cause of increasing dietary problems. A large majority of Nestle products are high in sugar, making this one of the issues that core to their business and therefore most important to address in an actionable way. There is also a material opportunity for Nestle in this issue; There is a growing consumer base looking for healthier foods. Nestle acknowledges this in their own report, referencing a value add for investors of selling healthier options. The legitimacy of addressing this problem is validated by its inclusion into their strategic initiatives, but Nestlé could perhaps make it more core to their business strategy.

They mention multiple examples of new healthy offerings, but could use more work in increasing the healthiness of existing products. Most Nestle products still contain very high amounts of sugar and they only give anecdotal evidence of examples of sugar reduction. For example, on their website under the “Our Impact” tab, they discuss having already decreased the sugar content of the KitKat and plans to reduce the sugar content of it even further. To truly create value for a consumer base that is eating too much sugar, making more major changes to existing products is necessary in addition to just taking advantage of the material opportunity of providing new healthy options. Yet these small steps are important in leading large corporations towards making real changes to our system of sugar consumption. It proves that companies can still be economically successful even as they take steps to create a more sustainable relationship with their customers.

Social Inequality

Rural development and poverty reduction is another issue at the core of ethical considerations within the chocolate supply chain. Rural farmers receive only a fraction of the profits from chocolate production. They are in fact “the most poorly compensated for their efforts,” especially in relation to the amount of effort contributed (Leissle 129). The largest share of profits is 44.2% which goes to retailers, while only 6.6% goes to the farmers themselves (Leissle 129).

This issue of rural development and poverty reduction is touched on by Nestlé but perhaps more superficially than is necessary to affect the entire system of chocolate production. As one of the top three chocolate producers in the world, they have the ability to affect approximately 10% of chocolate sourcing (Statista 2016). As one of these top companies, taking charge to reduce inequity would force the hand of other chocolate companies to do the same. Instead, Nestlé emphasizes inconsequential initiatives like using cage free eggs and broadly touch on “responsible sourcing” in the major summary areas on “adding value to communities”. This in in lieu of talking about the fact that cacao farmers receive less than 10% of the profits from production. Nestle responds only to the material as opposed to salient points of the issue by creating training for farmers in order to achieve more effective cacao growth. Nestle could do a lot more to achieve higher percentages of responsibly sourced cacao and other raw materials.

Outside of their annual report, sustainability report, and information on the impact tab of their website, Nestlé has a separate website explaining their cacao plan. This plan explains the future goals Nestlé has for continuing to combat the inherent inequality in the supply chain. It points to solid initiatives of funding a co-op system that offers a higher premium for cacao to the farmers. This is an effective program but they could learn from small, mission focused chocolate companies to make such a system cover 100% of the cacao they source (as opposed to the portion it covers currently).

There are other problems within the supply chain as well. Human rights is an extremely important issue within Nestlé’s supply chain. Specifically, there is a salient issue of child labor within cacao supply chains. Carol Off references child slavery in the chocolate supply chain by explaining that “boys, some as young as nine, were working on farms where they had no relatives… [and] they weren’t being paid” (Off 121). There has been some success in combatting some of the more obvious forms of child labor, but without being paid enough for their beans, children often join in helping their families out of obligation and necessity. Again, Nestlé does a good job realizing the issue and drawing attention to it, recognizing that this salient risk is becoming more material to them as information becomes more readily globalized to their consumers. Despite this, their proposed plan addressing child labor is not comprehensive and the flier focusing on reducing child labor is highly focused on numbers of children, not percentages, which is very worrying. Nestlé is taking the right steps but similar to the community equity problems, they need to focus on higher percentages of responsibly sourced cacao.

Slide From Nestlé’s Tackling Child Labor Report

In general, Nestlé is very effective at realizing its most salient issues and creating ambitious and actionable goals to alleviate them by finding material opportunities. While their reporting is specific enough to lead to effective goals, Nestlé could increase its legitimacy by taking more immediate action towards those long term goals. They show strides in year over year growth but lack a comprehensive year over year plan. Nestle provides concrete improvements in the CSR space that can be compared to other companies within the food/beverage sphere, but even at the top of their class they ignore major issues by glossing over them with broad language and abstract intermediate goals.

Despite the need for continued improvement in sustainability strategy, I still feel that Corporate Social Responsibility has the opportunity to transform the cacao industry into a more positive space for all stakeholders involved. Small bean-to-bar chocolate companies are great examples of how companies can achieve a double bottom line of economic and social success, but they cannot change the system alone. Large corporations must begin to carry some of the burden through the process of creating shared value, a framework laid out by the UN Sustainable Development Goals and the UN Guiding Principles on Business and Human rights. These frameworks lie outside of direct legislation but instead allow large companies to take some of the burden in fixing the critical problems within the cacao supply chain.

Work Cited

Leissle, Kristy. Cocoa. Polity Press, 2018. 

Off, Carol. Bitter Chocolate: The Dark Side of The World’s Most Seductive Sweet. The New Press, 2006.

 “How Sugar Consumption Is Changing America [INFOGRAPHIC].” Avail Clinical Research, 28 July 2014, www.availclinical.com/news/sugar-rush-how-sugar-consumption-is-changing-america-infographic/.

“U.S. Adult Consumption of Added Sugars Increased by More than 30% over Three Decades.” ScienceDaily, ScienceDaily, 4 Nov. 2014, www.sciencedaily.com/releases/2014/11/141104141731.htm.

 “Chocolate Companies: Market Share Worldwide 2016.” Statista, 2016, http://www.statista.com/statistics/629534/market-share-leading-chocolate-companies-worldwide/.

Links

“Home.” Nestle Cocoa, http://www.nestlecocoaplan.com/.

Nestle.com, www.nestle.com/csv.

Annual Review 2018. 2018, http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2018-annual-review-en.pdf.

El Ceibo: How One Chocolate Producer is Redefining Corporate Contribution

In an industry as overcrowded as chocolate, Big Chocolate companies may justify the negative impact they make on cocoa farmers, consumer’s waistlines, and overly sexualized advertisements as necessary evils to beat their competition. El Ceibo chocolate cooperative separates itself from this bittersweet approach to business by creating a culturally informed product and corporate organization that positively affects farmers, consumers, and countries.

El Ceibo’s tree-adorned packaging and name reference the native ceiba tree renown for its strong, deep roots. The tree serves as a worthy metaphor for the cooperative’s mindset and accomplishments. Producing chocolates since 1977, El Ceibo claims to be the only chocolate brand in the world produced entirely by the cocoa producers themselves from tree to bar.[i] The company’s product line includes drinking chocolate, cocoa powder, and chocolate bars. True to their mission of supporting local culture and products, their bars feature other Bolivian ingredients such as uyuni salt from the flats in southwest Bolivia and Andean royal quinoa from the highlands of the country.

From El Ceibo’s official Facebook page, this tree is composed of El Ceibo’s chocolate bar packages. Since El Ceibo was named for the ceiba tree, the metaphor of the product compiled as a tree is powerful.

The cooperative’s innovative and effective management organization has positively impacted the lives of over 1,200 cocao-producing families.[ii] Spurred by a foundational understanding of self-reliance and inclusiveness, El Ceibo introduced an assembly system of representation, equal wage policy, leadership rotation pattern, and training programs. In the rotating governing council, half the members change each year.[iii] Farmers in the El Ceibo cooperative receive a fair wage, optional job training (such as accounting and pruning), and a voice to instruct how the cooperative progresses.

These practices stand in stark contrast to commonplace activities abounding in world cacao production today. Numerous recent reports convict farms in the Ivory Coast and neighboring Ghana of using slave labor, borderline or outright child abduction practices, physical abuse and providing unfair work conditions.[iv], [v] On-site reports claim that most (if not all) farmers interviewed had never tasted the chocolate for which their labor produced the ingredients.[vi] In this practice, the vast majority of bulk cocoa purchased by Big Chocolate is produced in West Africa, then made into chocolate and sold in Europe. Even if wages and working conditions for these West Africans farmers were fair, the fact that they do not know and cannot reasonably afford to purchase the final product of their labor turns chocolate into a product made from the sweat of black bodies, transformed by the factories of Europe, into desserts for white tongues. El Ceibo breaks from this downward spiral and produces chocolates from their homegrown beans that locals and farmers can actually enjoy.

The first stage of breaking this cycle began before El Ceibo became a cooperative. At the time, most cacao farmers in the region were forced to negotiate against one another to win chocolate producers’ business. Now under El Ceibo, farmers’ livelihoods improved through their ability to earn higher returns from their beans. By forming the cooperative, famers have significant leverage over the cacao market in La Paz. The company has been so effective in price stabilization and “spillover benefits” for farmers throughout the Alto Beni region that experts estimate that, “without the presence of their service program and industry, famers would be receiving one half to two thirds of their current cacao income and probably would have abandoned the crop.”[vii] In this way, El Ceibo uses their organizational structure as a cooperative to stabilize the price of cacao and thus enable a more secure livelihood for farmers.

This photo of El Ceibo farmers and leadership together communicates their cooperative’s themes of community-incorporating and tradition-inspired products. The traditional clothing shown conveys that El Ceibo has not allowed their entrance onto the global marketplace to take away the reminders of where they came from.

This market power has also changed farmers’ expectations of fair payment for their product. When La Paz buyers delayed payments or attempted to block price regulation, the then El Ceibo President said, “a taste of higher prices made our people more defiant than ever and determined to resist the efforts by these business groups.”[viii] This “change of taste” for the farmers and their response provides hope to African cacao famers who hedge that if prices go high enough, African farmers’ tastes will change and they will refuse to sell low again, shifting the entire cacao bean market to a level that will reduce the need for unfair labor practices.

Furthermore, the bargaining power in the cacao market has given dignity to farmers and allowed the lower classes to access a new role in society. “Peasant managers had become shrewd negotiators for dealing with a host of institutions, from public bureaucracies to municipal governments, private banks, and business firms,” says El Ceibo observer Kevin Healy.[ix] Seen this way, El Ceibo’s chocolate company is changing not just livelihoods but also the status of farmers as members of society.

The cooperative also provides training that enables the farmers’ future success. A six-week course in accounting, taught by El Ceibo staff, is reportedly always well attended.[x] Through the program for agricultural training called the “Co-Operative Education and Agricultural Extension Division,” twenty-two peasant professionals are taught pruning techniques to fight the cacao-devastating witch’s broom disease. The program also supplies member co-ops and federation programs with “bookkeepers, treasurers, accountants, and savvy officers” who all enable the farmer to focus on his cacao trees.[xi] As a result of these educational investments, El Ceibo had become more knowledgeable about cacao production than the local agricultural research program organized by the Bolivian government. The farmers also practice sustainable farming to invigorate and replenish the cacao trees’ habitats.[xii]

While El Ceibo’s front panel packaging does not list any certifications, this image from their Facebook fan page mentions nine including FDA, USDA Organic, Fairtrade, and Fine Chocolate Industry Association. From our class lectures, we’ve learned that many of these certifications bring satisfaction to consumers more than financial benefit to individual farmers.

El Ceibo’s impact on farmers goes beyond paychecks and training, though. After the cacao beans are sold at market, El Ceibo fills the empty truck beds returning from La Paz with staples not available in the Alto Beni region. This enables stable access to standard goods and helps regulate prices. In this way, El Ceibo fills the gap between what local markets in the outskirts of Bolivia need and what the “invisible hand” or government programs can consistently supply. Taken together, El Ceibo’s cooperative has helped famers financially, professionally, and socially while regulating markets.

Consumers also benefit from El Ceibo’s corporate existence and products. A “Quinu Coa” product made of Andean grain quinoa with cocoa was incorporated into national school breakfast in increase nutritional content in children’s meals.[xiii] Outside of the nation, according to El Ceibo member Gualberto Condori, a Swiss firm sells El Ceibo, “to consumers willing to pay a slightly higher price for Third World products that increase employment and other benefits for small farmers like ourselves. They say it’s a way to rectify some of the major social injustices…and open new markets for them as well, so there is mutual interest involved in these arrangements.”[xiv] The 2.8 ounce bars retail for $13 USD.[xv]

This American Whole Foods employee poses with EL Ceibo chocolate bars to celebrate the arrival of the bars to American shelves in Virginia. While the just over 2-ounce bars retail for $13, high-end health markets like Whole Foods seem to match buyers who are willing to pay more for a great product that enables farmers better livelihoods with El Ceibo, a cooperative that is redefining corporate contribution.

El Ceibo’s success as a cooperative and chocolate producer has extended beyond the borders of its cacao farms. The company has been designated among Bolivia’s top ten most important exporters of non-traditional products making it an icon of Bolivian pride. The company remembers its roots, too. Former president El Ceibo Leoncio Tipuni mentions that ancestral Aymara, Quechua, and Moseten cultural practices153 inspired the company’s organization. The cooperative reinvests in local cultural festivals that bring together music and dance from various highland traditions of the farmers to preserve their unique cultural identities and traditions. Chocolate expert Susan Terrio explains how companies like El Ceibo’s products are able to shape the national cuisine of Bolivia in the minds of foreign consumers, “In an era of global markets and instantaneous linkages, chefs and cookbooks circulate globally, and the national cuisines they represent shape and are shaped by transnational culture and taste.”[xvi] In this way, El Ceibo is not only creating a product from their farmer’s past to maintain their history, they are influencing the current cuisine of Bolivia.

Inside Bolivia’s borders, the democratic governing structure of El Ceibo teaches good civil education and engagement practices for farmers. The system of self-governed democratic management “derived from local Andean political order”[xvii] and combines democratic assemblies with rotating community leadership. Commentator on democracy and food movements D Schugurensky argues that “one of the best ways to learn democracy is by doing it and one of the best ways to develop effective civic and political skills is by observing them in the real world and exercising them (2003a)”[xviii] Further, academic Charles Levkoe explains how engagement in these governmental structures, “create[s] changes in people that inspire and prepare them to participate in a wider society.”[xix] By teaching good governance, El Ceibo lays the foundation for a stronger democracy and democratic participants in Bolivia.

The cacao-producing cooperative solved another serious government problem—drug production. Farmers report that if El Ceibo didn’t act as buffer and the cacao bean price dropped too low, farmers would cut down their cacao trees and harvested coca. In this way, El Ceibo reduced the supply of regional narcotics by providing legal, alternative forms of income for farmers.

El Ceibo has undoubtedly added great value to the lives, national identity, and taste buds of Bolivians and international customers. However, challenges still persist. Natural disasters such as flooding and tree infections plague farmers. Since only 10% of the total cocoa beans produced annually are fermented and dried in the technical center of Sapecho, the other 90% is fermented and dried by the producers themselves.[xx] While El Ceibo mentions that they visit these farms periodically to check on practices, exposure to nearby dust, rubbish, or fuel exhaust could tarnish the quality and infect the purity of their beans.

As El Ceibo looks to expand to international markets, they may face pressures to change the recipes of their products to match certain national pallets. Further, competing with the Big Five chocolate producers would require slitting their price by nearly $10 or 77%. A 77% decrease in revenue would likely force the company to make many of the poor compromises that the Big Five have—price, cocoa quality, labor payment, purity, and taste would all decline.

The company’s hiring of external auditors to ensure good book keeping and financial prudence[xxi] shows a first step in recruiting outside experts to manage or oversee aspects of the business. According to Oxfam, the average chocolate bar pays farmers only 3% of the final mark-up price while 43% goes to retail and supermarket margin. While El Ceibo’s bean-to-bar business structure may have different ratios, the Oxfam finding shows that retail is the profit sweet spot. If El Ceibo wants to increase profits or expand around the world, they may need experts or partners in the retail realm that could take central decision-making out of its countryside origin and overshadow the opinions of small-time farmers.

As demand for El Ceibo beans and chocolate grows, more talented or highly trained workers may insist on higher wages. This could destabilize the “one famer, one voice” and all-equal pay foundation that attracted so many famers initially. If the better producing or better-trained talent is not compensated for their expertise, they may leave the cooperative and become competitors. This would reduce the bargaining power El Ceibo has over the cacao market in La Paz and incentivize other farmers to set out on their own, effectively returning the region to their original fragmented state. Perhaps the camaraderie and benefits of El Ceibo are enough to keep farmers within the organization, though.

The success of El Ceibo casts chocolate as a tool for developing previously untouched corners of the world. Since lesser-developed nations are the main producers of chocolate today, following El Ceibo’s model of production and organization can serve as a tool for bettering farmers, consumers, and nations. El Ceibo’s example is proof that chocolate can be sustainably produced and sold without the problems of child slavery, unfair wages, and unhealthy products that benefit the chocolate companies at the expense of the supply chain and consumers, as is the case in many cacao plantations in West Africa and their Big Chocolate buyers. Further, ethical practices are not only attainable, but also yield benefits for those outside the direct production. True to the tree in their name, El Ceibo has created strong, deep roots to shade and nurture all those under its canopy. Perhaps as it grows larger, the cooperative will prove that chocolate can truly make the world a better place.

To support the positive impact El Ceibo is making and join in on the sweetness, visit their website at www.elceibo.org.

Special thanks to Carmen Segales and her associate Pastor R Payllo of El Ceibo Chocolates for participating in an interview that informed this paper.

[i] El Ceibo website. Accessed March 25, 2015. http://www.elceibo.org/ceibo/en/catalogue/catalogue2009.pdf

[ii] One World Award by Rapunzel. 2010 Finalist. Accessed March 25, 2015. http://www.one-world-award.com/el-ceibo.html

[iii] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001.

[iv] Mistrati, Miki. The Dark Side of Chocolate. 2010.

[v] Off, Carol. Bitter Chocolate: Living and Dying for Cocoa in West Africa. 2008. Pages 129-133.

[vi] Off, Carol. Bitter Chocolate: Living and Dying for Cocoa in West Africa. 2008. Page 7.

[vii] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001. Page 138.

[viii] ibid

[ix] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001. Page 133.

[x] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001. Page 136.

[xi] ibid

[xii] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001.

[xiii] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001.

[xiv] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001. Page 144.

[xv] El Ceibo website. Accessed March 25, 2015. http://www.elceibo.org/ceibo/en/catalogue/catalogue2009.pdf

[xvi] Terrio, Susan. Crafting the Culture and History of French Chocolate. University of California Press, London, England. 2000. Page 55.

[xvii] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001. Page 137.

[xviii] Schugurensky, D. “Three Theses On Citizenship Learning And Participatory Democracy.” Accessed September 2003. 2003. From Levkoe, Charles. “Learning Democracy Through Food Justice Movements.” From Food and Culture. Edited by Counihan, Carole and Van Esterik, Penny. Routledge. New York, New York. 2013. Page 593.

[xix] Levkoe, Charles. “Learning Democracy Through Food Justice Movements.” From Food and Culture. Edited by Counihan, Carole and Van Esterik, Penny. Routledge. New York, New York. 2013. Page 599.

[xx] El Ceibo website. Accessed April 8, 2015. http://www.elceibo.org

[xxi] Healy, Kevin. Llamas, Weavings, and Organic Chocolate. University of Notre Dame Press, Notre Dame, Indiana. 2001.