1. 1
GEST-S471 - Management and sustainable development : constraints and opportunities
How could the cocoa value chain become more sustainable?
DERDIKI Youssef
LEJEUNE Lucie
ROSTENNE Simon
ROUSSIEAU Romain
VAN DEN HAUTE Jean-Philippe
VOISIN Manon
22 December 2016

2. Executive summary
2
• Most of the cocoa production comes from smallholders farmers in Africa, Asia and Latin
America
– Cocoa needs very specific weather conditions, restricting its production to some areas
– While production is decreasing, demand keeps increasing, leading to a potential scarcity in the future
• The cocoa value chain comprises 5 main steps : cultivating, harvesting, trading & exporting,
processing and manufacturing & distribution.
– Rajouter info sur les acteurs
• This value chain faces a combination of social, economic and environmental issues.
– It leads to a low productivity and low power of the farmers in the value chain
– Impacts the cocoa supply and its sustainability
• Recommendations can be formulated around the three above axes. There is a need to:
– Empower farmers as economic entities
– Reinforce economic and social initiatives to support cacao’s production
– Raise awareness to lower the impact of cocoa production on the environment

3. Most of the cocoa production comes from smallholders
farmers in Africa, Asia and Latin America
• Cocoa trees grow in tropical environments, within 15 to
20 degrees latitude from the equator. The ideal climate
for growing cocoa is hot and rainy.
• The primary growing regions are Africa, Asia and Latin
America. The largest producing country by volume is
Ivory Coast, which produces 33% of global supply.
Major producing countries in each region include:
– Africa Ivory Coast, Ghana, Nigeria, Cameroon
– Asia/Oceania Indonesia, Malaysia, Papua New
Guinea
– Americas Brazil, Ecuador, Colombia
3
68%
17%
15%
Global cocoa production1
Africa
Asia
Americas
• 80% to 90% of cocoa comes from small, family-run farms,
with approximately five to six million cocoa farmers
worldwide.
• Supply experienced a 2% annual decline in the past few years
• Cocoa trees are sensitive to changing weather
patterns  Periods of drought and of excessive rain
or wind can negatively impact yield, is likely to worsen
as climate change intensifies.
• Productivity is low due to a lack of investments and
variability of price causes farmers to abandon cocoa
farming.
• According to the International Cocoa Organization
(ICCO), 40% of the crop is lost each year.
• Global demand is growing at a 2% to 3% rate annually, and
consumers increasingly demand products from sustainable
sources.
• Demand for sustainable cocoa is expected to reach
50% of global production by 2020.
Cocoa needs very specific weather conditions,
restricting its production to some areas
While production is decreasing, demand keeps
increasing, leading to a potential scarcity in the future
Notes: 1.Global production = 3.5 million metric tons per year
Sources: World Cocoa Foundation
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
 Need to improve the entire supply chain in order to
secure long-term supply of sustainable cocoa.

4. 1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
4
Cultivating
- The cocoa trees grow
on smal farms
- Tropical environment
- Sensitive to diseases
and climate
- Must fertilize the soil
and be aware for signs
of diseases or pest
Harvesting
- Usually, two peak
harvests per year
- The Pods are harvested
with scissors, machetes, by
hands or sticks
- Then, the pods are cut
open to remove the beans
- That beans are fermented
to develop the
flavor&aroma
- Then, beans are dried
under the sun or dryers to
lose humidity & acidity
Trading and exporting
- The beans are packed into
bags
- Farmers sell it to local agent
or buying station
- Then, that buyers will
transport it to exporting
companies who will ship the
beans to destinations
- A quality test is made and
then stored within
warehouse
-Then, transported by truck
or train to manufacturer
Processing
- The beans are roasted
and ground into a paste
- That create the cocoa
liquor, a semi-finished
product that can be
already sold
- Then, comes the pressing
step. The cocoa liquor is
pressed to split the liquor
into butter and cocoa
cakes.
- The latter can be sold or
transformed into a fine
powder to make
chocolate-flavoured
product
Manufacturing and
distribution
- Finally, chocolate
manufacturers mixe the
cocoa liquor with different
input depending the
product
- Then, the product is fed
into conches before the
tempering & molding
process
- Finally, the last step of the
value chain is the packaging,
commercial marketing and
retailing
The cocoa value chain comprises 5 main steps
6% 7% 87%
Share of revenues
in the sale of a
final product1
Source: 1.

5. Actors in the cocoa global value chain
Throughout the cocoa global value chain, we can find several actors with different interest. However, in
the private sector, it seems clear that the cocoa value chains have become more and more concentrated
following a number of mergers and acquisitions for purposes of cost efficiency and higher economies of
scales.
• Retailing of chocolate product level
– The top 10 account for 42% of global confectionary sales for an estimated amount of $196.6 billion (Gayi, S.
& Tsowou, K., 2016)
– E.g.: Nestlé, Mars, Mondelez, Hershey, Ferrero..
• Cocoa processing level
– E.g. Top 4 :Cargill, Barry Callebaut , Blommer Chocolate Company &ADM control about 61% of this market
(Gayi, S. & Tsowou, K., 2016)
• International non-profits founded
– E.g.: WCF & ICI who try to drive sustainability within the value chain
• Multilateral donor agencies
• Impact investors
– E.g.: Root Capital, CGIAR
• In many cocoa growing countries smallholder farmers organize into cooperatives that sell cocoa as a
group
• National governments of cocoa origin countries:
– Especially, in the two main producer countries of Cote D'Ivoire and Ghana, the governments and their
national cocoa regulatory bodies
5
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations

6. The cocoa value chain faces a combination of
social, economic and environmental issues
These factors lead to a low productivity and low power of the farmers in the value chain. The prices do not cover
production costs and drive farmers into poverty. This causes farmers not to make the investments needed to
improve their productivity, or abandon cocoa farming, which impacts the cocoa supply and its sustainability.
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
6
EconomicSocial Environmental
• Low incomes for the farmers,
combined to increasing cost of
living, taxes, price volatility and
speculation
• Limited access to markets
(loans, market information,
investment risk)
• Outdated farming practices and
lack of knowledge on GAP
(Good Agricultural Practices),
leading to a low yield and bad
quality cocoa
• Inadequate infrastructures
(roads, schools, hospitals,
transport costs)
• Violation of human rights (child labour,
forced work, human trafficking)
• Food security and nutrition
• Work conditions (use of harmful chemicals,
polluted water, bad treatment)
• Gender inequality
• Illiteracy and lack of education
• No respect of freedom of association and
collective negotiation of the farmers,
limited organizational leverage
• Ageing farmer population
• Limited access to social security (health
insurance, retirement)
• Unequal power relations (corruption, tax
evasion, political instability, smallholder
farmers against multinationals)
• Old cocoa trees
• Monocultures
• Expansion of cocoa trees at the
expense of forets
 Deforestation
 Loss of biodiversity
 Soil degradation
• Lack of information about climate
change and consequences for
cocoa
• Lack of adaptation policies
towards climate change
• Use of pesticides and harmful
chemicals

7. Means of action:
- Implement local training and create an entrepreneurial dimension to develop their knowledge and skills concerning
the Good Agricultural Practices (GAP), farm management, child labour rights and environmental practices. It would give greater
responsibility to the farmers by giving them the opportunity to understand the pay off of investments from financial and time
point of views. It would fill their lack of economic and agronomic knowledge needed to reduce risks on their farms.
- Develop inter-generational contracts to motivate young people (male and female) to stay in this sector thanks to self-
development opportunities. Research shows that the farms owned by younger or more educated people tend to be more
productive. Young farmers are more likely to introduce innovative production methods which increase yield, creating a virtuous
circle and retaining young people in the cocoa farming. It is critical for the long-term sustainability and growth of the sector.
- Support farmer organisations. This common representation of interests would lead to a collective purchase of inputs, a
higher bargaining power, more credits and financing and some implementation tools (like process control). It would help them to
develop their businesses. Some organisation already exist but often with only social purpose  use them for business purposes
as well
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
7
Empowering farmers as active
economic entities
Social:
Empower farmers
…
Economic:
… with some funds
and initatives’
support …
Environmental:
… to protect the
land used.
Goals
- Creating sustainable work conditions.
- Increasing farmers’ income that would reinforce their consumption and help the country’s growth.
- Supporting the use of environmental-friendly products and practices.

8. Means of action:
- Creating a Global Cocoa Sustainability Fund in order to
provide financial support to project improving sustainability of the
sector. The first steps should be testing its feasibility by finding
potential contributors, assessing the potential rate of return of the
projects and put in place a system of loans and project monitoring.
- Create an international coordination of cocoa
sustainability programmes. A lot of programs already exist
(CocoaConnect, CocoaMap, CocoaDatabank, Ingenic and
Cacaconet) but there is a need for unification to create synergy
between all of them.
- Undertake an inventory of cocoa resources to help
production planning and evaluate the effect of production policies
on farmer’s income.
- Support an economic diversification. Farmers could get an
additional income if they go into cocoa honey, eco-tourism and
carbon credits, and significantly reduce the risk they are facing.
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
8
Reinforcing economic and social initiatives
to support cacao’s production
Social:
Empower farmers
…
Economic:
… with some funds
and initatives’
support …
Environmental:
… to protect the
land used.
Goals
- Providing the support needed to develop an efficient, sustainable and responsible cocoa’s production.
- Easing access to financing in order to foster investment.
- Cooperate with local and national governments
to create a supportive regulatory environment. They act
as regulators (export taxes, business regulations, subsidy
policies, …) and service providers. They can thus have a
strong impact on cocoa’s production, and supportive
policies appear to be mutually beneficial for the public
and private sector.
- Improve the access to financing for the farmers in
order to allow them to make the required investments.
Governments could provide low interest loans or act as
(partial) guarantor of the farmers’ financial obligations
towards the banks.
- Support certifications such as UTZ, Rain Forest and
FairTrade. Encourage companies to use cocoa from
sustainable sources and to use it as a selling point.

9. Means of action:
- Distribution of « productivity package » composed of fertilisers and improved planting material. Harmless for the environment and
the farmers. This can be combined with local training.
- Warmer temperatures across globe will affect which areas are suitable for growing cocoa in ways that we don't truly understand yet,
however we do know that some areas will have to adapt the way they grow cocoa and others will need to transition to other crops.
Some areas may even become more suitable for growing cocoa, particularly in Latin America where some farmers are transitioning
from coffee to cocoa. Climate Smart Cocoa project is finding varieties of cocoa that are tolerant of heat and drought. These materials
will be essential for helping farmers adapt to climate change
- Emphasize respect on the biodiversity to make sure the virtuous circle of nature is effective. Farmers and policies should take into
consideration each element, directly or indirectly linked to the cocoa’s plantation. Every single element has a role and an impact on
nature and it is sometimes underestimated. They could then leave buffer zones with native vegetation and evaluate the long-term
stability of various organisms like birds, and mushrooms in cacao’s plantation.
- Encourage farmers to be careful where to produce: whether is is native forest trees, protected forest, forest patches, it does not have
the same impact on the environment. Farmers should choose first: native forest trees or in a buffer zone close to forest reserves.
1. Cocoa Production 2. Value Chain 3. Challenges 4. Recommendations
9
Raising awareness to lower the impact
of cocoa production on the environment
Social:
Empower farmers
…
Economic:
… with some funds
and initatives’
support …
Environmental:
… to protect the
land used.
Goals
- Reducing the use of harmful chemicals
- Respecting the virtuous circle of nature to improve efficiency
- Adaptation to warmer temperatures

10. Ivory coast
33%
Ghana
21%
Indonesia
15%
Nigeria
7%
Cameroon
6%
Ecuador
4%
Bazil
4%
Rest of
the
world
10%
World production1
10
27%
25%21%
10%
8%
5%
4%
Percentage of global sales on the chocolate
and confectionery market in 20122
Mars
Mondelez
Nestlé
Hershey's
Ferrero
Lindt & Spruengli
Storck
Source: 1. Fairtrade Belgium; 2. Make Chocolate Fair: Campagne européenne pour un chocolat équitable
Appendix
Supply and demand on the cocoa market

11. Volatility of cocoa prices
The instability of cacao prices can be explain by different factors on the
short and long run:
Short run
A higher production leads to a lower price and vice versa.
Production is influenced by :
- Weather conditions : a favourable climate will increase the
production
- Infestations and diseases
- Availability of fertilisers and pesticides
Other factors are:
- Speculation on prices
- Politics instability
- Retention of stocks : in order to influence the price. Caused by
intermediaries and not by producers who need to sell directly.
Long run
- Variation of supply and demand
- Higher production costs due to old age of cacao trees
- Lower productivity and returns due to a bad fermentation of
cocoa, old trees
- Difficulties to invest: low access to financial loans
- Drain of young generations: they leaves their villages for cities
because of the lack of opportunity in cocoa culture
Create income
insecurity among
producers
11
₁
₂
Source : 1. NYSE; 2. Fairtrade Belgium
Appendix

12. Interviews
Paul Macek
Senior Program Director, West Africa
World Cocoa Foundation
Nienke Keen
Program officer – Cocoa
IDH – The Sustainable Trade Initiative
Aaron Mead-Long
Program Associate – West Africa Programs
World Cocoa Foundation
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Appendix

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Appendix

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Appendix