The chocolate industry is worth almost 10 billion dollars annually. Surprisingly, cocoa traders source most of the cacao supply from just two countries, Ghana and Cote d’Ivoire. Millions of farmers grow cacao on small farms. The three largest cocoa traders buy almost all of the beans.
However, before the beans are sold to these traders, the cocoa meanders its way through the extremely complicated cocoa supply chain. Most farmers cannot transport their cocoa to the port, so they sell their cocoa to a pisteur. The pisteur buys cocoa from farmers and then transports it closer to the port. Along the way, the cocoa could be sold to coops of differing sizes or other third parties before it finally arrives at the port. There, the cocoa is sold to exporters who sell the cocoa to cocoa traders who effectively control the market.
Problems with the Cocoa Supply Chain
The cocoa supply chain systematically keeps farmers in poverty. Unfortunately, farmers have no control over the price of their cocoa. Because of this, many farmers live in poverty and have to resort to extreme measures to feed their families. Many farmers will illegally grow cocoa on protected forest lands. As a result, Cote d’Ivoire has lost 85% of its protected forests since 1990.
The cocoa industry also supports slavery. It is estimated that over 30,000 children are being trafficked to work in the cocoa industry. Farmers are poor, and growing cocoa is labor-intensive. Even today, methods for harvesting and processing cocoa at the farms have not evolved. Surprisingly, farmers still harvest cocoa using only a machete. Farmers have no money to invest in machinery or more sustainable growing practices. Unfortunately, this results in slavery, deforestation, and systematic poverty.
Regulations and Why They Fail
Regulations to keep the price of beans higher usually fail. The cocoa board of the Ivoirian government sets the price of cocoa beans. This price is called the farm gate price and fluctuates depending on the market supply and demand. Unfortunately, the farm gate price is not regulated. Often the pisteur buys cocoa at a discount since they serve as a middle man and the farmer has no way of transporting the cocoa to get a better price. Even if the farm gate price was regulated, it is still not a living wage.
The biggest problem with the chocolate industry is the supply chain. Thankfully, blockchain is a proven solution to supply chain management. Fortunately, companies in the cocoa industry now have the ability to track their cocoa beans from farm to chocolate bar using blockchain technology. Unfortunately, very few players control the chocolate industry, so new technology is not easy to introduce.
One company is striving to put an end to slavery in the chocolate industry. Tony’s Chocolonely is using blockchain technology to track each batch of beans. To heal the supply chain, Tony’s pays 40% on top of the farm gate price. Because Tony’s knows from which farmers they get their beans, they can pay extra to reward those farmers using sustainable and safe business practices. The blockchain technology manages the supply chain by assigning a unique batch number to each batch of beans, and tracks those beans all the way through the supply chain. For now, the blockchain technology is not quite ready for use.
Tony’s anticipates it will take another three to five years before the blockchain aspect of their Beantracker will be business operations viable. In 2012, the company partnered with Barry Cellebaut, the largest chocolate manufacturer. Hopefully, with this serious partner, Tony’s and their blockchain technology can begin to transform the chocolate industry’s broken supply chain.