A Hershey's Kiss is more complicated than it looks. Most of the cocoa in it and other chocolate candies comes from West Africa, and it makes its way through a long supply chain to get to U.S. factories.
Now more than ever, Fortune 500 companies such as Hershey (HSY) have to take responsibility for every link in that chain. On January 30, Hershey announced plans to put $10 million towards solving child labor problems on West African cocoa farms by 2017. The money should also help farmers access educational programs and improve their cocoa yield.
Hershey's latest move is part of a larger effort to secure the cocoa supply chain, a campaign that began with the founding of the World Cocoa Foundation (WCF) in 2000. The WCF joined big chocolate companies -- including Hershey and its competitors Mars, Nestlé, and Kraft (KFT) -- with governments and farmers in cocoa-producing nations.
Big businesses run on growth and profit, two figures that aren't necessarily linked to the well-being of small farmers in foreign countries. But certain characteristics of cocoa may put the chocolate industry in a sweet spot for sustainable development.
What goes into making our cocoa
Sustainable cocoa development requires competing companies to work together to help farmers, no small hurdle. "The global confectionery packaged goods industry is intensely competitive," Hershey said in its 2010 annual report. "Some of our competitors are much larger firms that have greater resources and more substantial international operations."
But there is common ground. All industry players benefit if farmers produce more cocoa. Market demand is growing. As nations like India and China grow wealthier, new members of their burgeoning middle classes have developed an appetite for luxury goods such as coffee and chocolate.
At the same time, companies are keeping an eye on environmental and political threats to cocoa yields. Space to grow cocoa is limited; it only thrives in equatorial climates. About a third of the crop grown every year is trashed because of pests and disease. Unstable political conditions in cocoa-producing nations also adds to the volatility in the market. Cote d'Ivoire, for example, produces over a third of the world's cocoa. In 2011, political unrest surrounding a local election caused the government to cease all exports, which limited the cocoa supply and sent cocoa prices skyward.
Companies need to get on the ground to ensure their supply. Hershey, for example, introduced a program called COCOALINK in 2011. COCOALINK distributes information about climate and pest control via SMS to farmers with cell phones, which most of them already have. "We're starting to see the benefits when you really get to the farmers and give them the best information," says Andrew McCormick, the vice president of public affairs at Hershey. "The preliminary results are that it will double crop yields in a couple of years."
Chocolate companies are also working on other kinds of community outreach. In 2009, several companies joined the Bill and Melinda Gates foundation on a $40 million project to boost education and improve farming practices in cocoa-growing regions.
