Dizzying growth in demand for chocolate from underdeveloped markets is combining with a range of constraints on the supply side to threaten a painful pinch in cocoa supplies. In fact, some of the industry's biggest players predict a possible 1Mt shortfall by the end of the decade.
On the demand side, North America and Europe remain the leading chocoholics for now, but other regions are racing to catch up.
For instance, KPMG reported last year that India is consuming 15% more chocolate every year. And China, where widespread lactose intolerance meant a relatively slow start, has experienced 40% growth in chocolate sales since 2009. Russia is another hotspot for chocolate, with KPMG anticipating growth of 45% by 2016.
It's debatable whether the cocoa supply chain can rise to this huge challenge for several reasons. First, cocoa is grown almost exclusively by hard-pressed small farmers, who have historically found it hard to access the healthy plants, training and finance needed to boost yields. Second, there are fundamental constraints on where cocoa can be grown.
"Cocoa can only be grown successfully approximately 20 north and south of the equator," explains Taco Terheijden, manager for sustainable cocoa at Cargill Cocoa & Chocolate. "This obviously places practical restraints on where production can take place, but production is also influenced by where there is a traditional history of production and a suitable infrastructure."
West Africa is the biggest producing region, with Cote d'Ivoire and Ghana accounting for 39% and 19% of the global supply respectively. South East Asia has been increasingly important in recent decades, especially Indonesia and Vietnam, and Brazil has also been getting in on the act.
Blind eye to social problems
Critics say that the industry has historically turned a blind eye to social problems in cocoa farming communities, such as child labour, but it's undeniable that all the leading players have been promoting sustainability to some degree for years. Now the impending supply crunch means that they've been seriously ramping up their efforts.
The biggest companies in the cocoa business have been making hefty investments in programmes to support farmers and encourage greater productivity, such as Nestlé's Cocoa Plan, the Sustainable Cocoa Initiative from Mars, Cargill's Cocoa Promise and Barry Callebaut's Cocoa Horizons.
For example, Barry Callebaut's vice president of sustainability, Daudi Lelijveld, says: "Based on our long experience working directly with farmers and farmer groups, we have decided to focus on three core pillars of activity: farmer practises (with the aim to double yield/hectare and improve quality), farmer education (with the aim to develop the next generation of farmers) and farmer health (to improve community access to water and basic healthcare services)."
With this in mind, the company is due to finish construction of its new Cocoa Center of Excellence in Cote d'Ivoire within the next few weeks. The centre will include training facilities for farmers and a showcase farm to demonstrate intercropping techniques and other yield enhancement practises, such as grafting.
"Barry Callebaut will use the 30-acre showcase farm also to test different approaches for growing cocoa alongside rubber, as well as with other food crops such as plantain, coconut, mango, pineapple, beans and maize. Native shade trees are also being planted. The company is building on its prior experience with inter-cropping of compatible plants to improve productivity and preserve biodiversity," explains Lelijveld.
Healthcare and education
The company has also just unveiled a 'Cocoa Horizons Truck' which will travel around Cote d'Ivoire delivering training, basic healthcare and education to farming communities from July onwards.
Terheijden agrees that educating farmers will be critical in bridging the supply gap: "As part of the training offered to farmers, the soil in farmers' fields is tested for acidity, alkalinity and nutrients to ensure that optimum growing conditions are achieved, linking to the Cargill Cocoa Promise aim of investing in the long-term sustainable production of cocoa.
"Pest and disease control are also important, particularly in Indonesia, because currently more than 50% of the Indonesian cocoa crop is lost to pests, such as Cocoa Pod Borer, and diseases, such as Black Pod and Vascular-Streak Dieback."
And it's not just about training farmers in plant husbandry. The link between a healthy cocoa supply and healthy farming communities cannot be underestimated, stresses Terheijden: "We believe that the welfare of cocoa farmers and their families is a vital part of securing a sustainable supply of cocoa for tomorrow and the future." So, for example, Cargill's partnership with Care International provides education programmes for at least 60,000 children in Ghana.
Even farmers with the best skills will need heavy-cropping varieties if they're going to meet future demand. That's why Nestlé is focusing on techniques for propagating more productive plants.
Seeds, cuttings and grafting are all traditional ways of propagating new plants, but Nestlé's centre in Tours, France, has developed a new approach to propagation in collaboration with its sister research and development centre in Abidjan, Côte d'Ivoire and a number of other research institutes. Accelerated propagation is a new technique that creates new plantlets from cocoa tree flower buds. It does not involve genetic modification, and because the plantlets are genetically similar to the parent trees, it can reliably reproduce 'elite', high-yielding and disease-resistant offspring.
The resulting trees bear pods just 18 months after planting out, and can achieve yields of two tonnes of cocoa beans per hectare once they reach maturity, compared with just 300 to 500kg on average.
"It's already making a lasting positive difference by supplying top quality young trees to farmers that have the potential to deliver 20 years' high yield and quality cocoa beans," says Nestlé. "We will be dramatically increasing the quantity of cocoa trees produced for farmers in Côte d'Ivoire by investing in new facilities in Abidjan to propagate a million trees each year from 2013."
More productive plants
Finding the funding to enable farmers to buy the materials they need to boost productivity is a huge challenge. Barry Callebaut estimates that the investment needed to turn a farm around can result in two years of negative cash flow before farmers can start to realise the benefits.
"As our research showed, for most farmers, the cost of inputs, in particular fertiliser, is prohibitive and financing options are limited or not attractive," says Lelijveld. "We believe every stakeholder in the cocoa sector has a role to play in financing the bridge to prosperity for cocoa farmers. Certainly government and industry can contribute, but also financial institutions, input suppliers, and research institutes, as well as farmer organisations."
Mars is among the organisations that are tackling fertiliser issue head on, according to Peter van Grinsven, cocoa sustainability director for the company's operations and origins department. The first step was to quantify the problem. So how much fertiliser is needed to maintain African soils, based on the nutrients exported in cocoa beans?
"Depending on the formulation of fertiliser, the volumes were staggering," reported van Grinsven in a recent blog post. "For every 1,000kg of cocoa beans exported, we had to bring back 143kg of nutrients, or 300kg of fertiliser, at a cost of $750/t. Aiming to meet the needs of the future, by 2020 we would have to bring 1.2tbn of fertiliser to African cocoa farms, with a cost of nearly US$1bn."
Mars approached Moroccan fertiliser company OCP, which developed a new fertiliser formulation based on reactive rock phosphate with high calcium. It's relatively inexpensive and tackles soil acidification as well as delivering nutrients. This was just the start of a huge collaborative effort.
"Once the cocoa industry and various organisations realised how many nutrients were exported in the form of cocoa beans, there was strong support to collaborate," he says. "And when the financial institutes saw that the fertiliser and cocoa industry were serious, they recognised the need for credit support, as well as the $1bn financing opportunity."
Van Grinsven adds: "Financial institutions are now re-evaluating their risk assessments and are exploring how they can deliver credit systems for small holder cocoa farmers."
Sustainable Trade Initiative
The Sustainable Trade Initiative (IDH) is now coordinating these efforts under its 'Fertiliser Initiative', which includes the fertiliser and cocoa industries, as well as researchers and the governments of Cote d'Ivoire and Nigeria. The first 10,000t of new formulation, affordable fertiliser shipped in March 2013.
"We've only supplied 1% of the fertiliser we need to the cocoa farmers. But perhaps this was the most difficult 1% and we can now focus on scaling this effort up," says van Grinsven.
Seed & Bean takes ethical credentials to Glastonbury
A far cry from the multinationals, bijou British chocolate company Seed & Bean has been chosen as this year's official supplier for the Glastonbury Festival, thanks in part to its claim to be 'the UK's only 100% ethically accredited chocolate company'.
For example, not only is the cocoa in Seed & Bean traceably Fairtrade and organic across 95% of the range, but the company uses organic milk from European sources to ensure good animal husbandry. Even the foil-like inner wrappers are made of biodegradable film from 80% renewable resources. "Every box we're asked to tick we do," says company founder Stephen Rudkin.
The three festival flavours include milk chocolate with tropical lime and Cornish sea salt (new), white raspberry and vanilla (new) and dark chocolate with Sicilian hazelnut.