The Bittersweet Story of Traceability and Ethical Sourcing Practices of Confectionery Industry Leaders

The Bitter Story Behind the Cocoa Industry

The European Union (EU) is the largest cocoa consumer and export market, with an average per capita consumption of 5 kilograms (kg), nearly five times higher than the world average of 0.9 kg per capita.

The Netherlands and Germany collectively import a substantial volume of cocoa beans. In 2023, the Netherlands imported 885 thousand metric tons (mt) of cocoa beans, while Germany imported 434 thousand mt during the same period. Together, these two countries accounted for approximately 30% of the global market share for cocoa bean imports, mostly originating from Côte d'Ivoire, Ghana, and Cameroon. This significant import volume signifies the importance of these European nations as key players in the global cocoa market.

However, the bitter story behind the beloved sweets is that the cocoa industry is rife with allegations of unsustainable farming methods and illegal logging.

As the world’s largest cocoa consumer, importer, and chocolate producer, the EU can be considered as one of the most significant contributors to global forest degradation, increased carbon emissions, and biodiversity loss.

Figure 1: Europe's Annual Chocolate Consumption per capita

Source: Center for the Promotion of Imports

A source of heated discourse, the European Union Deforestation Regulation (EUDR) under the EU Green Deal is one of the EU’s most recent efforts to increase traceability and transparency. The EU directive aims to ensure that after December 31, 2020, commodities exported to the EU market, including cocoa, do not originate from land subjected to deforestation. Companies must conduct due diligence, which requires geo-location information, supplier or trader identification, country of origin, and production date. Enforced on Jun-23 and set to take effect at the end of 2024, suppliers and traders have 18 months to review their supply chain.

Introduction of the EUDR

Reactions from Major Confectionery Giants

The EU is home to major chocolate producers and manufacturing plants, producing around 3.6 million metric tons (mmt) of final chocolate products in 2020 from international confectionery brands, including Nestlé S.A., Mondelēz, Mars Inc, and Ferrero Group. Despite the imminent deadline, major confectionery brands have voiced their support for the passing of the EUDR and expressed their willingness and readiness to fulfill their commitments.

In an interview, Ferrero Group, owner of Kinder, Nutella, and Ferrero Rocher, stated that around 96% of its cocoa supply chain in the 21/22 season was traceable and would be able to comply with the EUDR. Nestlé S.A., another major market player that owns well-known chocolate brands including KitKat, Milkybar, and Aero, also claimed that 90% of their commodities, not including cocoa beans, have been 'deforestation-free' since Dec-20. They have further shown support for the legislation through a joint statement calling for the expansion of measures to scale up innovative technologies for supply chain transparency.

Utilizing Technology and AI in Traceability

Nestlé and Ferrero have attributed their deforestation-free supply chain and ethical sourcing to innovative technologies that allow real-time data acquisition and remote monitoring. These technologies include Starling satellite, which uses satellite images to detect when deforestation has occurred. Another includes polygon mapping, which uses GPS polygons to map out the exact perimeter of their farm and allows more precise verification of cocoa and palm oil origination.

Other upcoming and exciting breakthroughs include utilizing Artificial Intelligence (AI) to increase precision and take preventive measures against deforestation. Examples include Geographic Information System (GIS) technology from the Rainforest Alliance, an international NGO aiming to protect the environment and farmer’s life, and PrevisIA technology launched by Imazon, Microsoft, and Fundo Vale. PrevisIA uses artificial intelligence to predict high risk areas of illegal logging, which allows a more proactive approach to preventing deforestation than receiving satellite images of deforested lands.

Figure 2: AI-led mapping of lands at risk of deforestation in Brazil

Source: Imazon

Will Confectionery Brands be able to keep their Promise?

Technological advancements and machine learning tools are promising in reforming the cocoa industry and increasing farm-level traceability. However, despite initiatives and impressive figures, confectionery companies realizing their net-zero deforestation goals and their ability to comply with EUDR standards are questionable.

In 2010, some of the world’s largest consumer companies, such as Mars, Nestlé, and Walmart, made different levels of commitment to establish a deforestation-free supply chain by 2020. However, none of the companies realized their goals as they encountered hurdles and difficulty in tracing products to their origin and verifying their diverse pool of suppliers. In addition, a 2023 annual report released by environmental organization Rainforest Action Network (RAN) found that, based on the EUDR regulation, none of the companies that they evaluated, which includes Nestlé, Mars, Ferrero, and Mondelēz, are on track to comply with the new requirements.

Therefore, the validity of figures and deforestation-free supply chain claims from the company need further examination and verification from a third party. For example, from a closer look at Nestlé’s 2020 claim that 90% of its products originate from non-deforested land, only 11% of the land is based on satellite monitoring or on-the-ground assessment. Nestlé assumes the remaining 79% of the land is cleared from illegal logging as the products originate from low-risk regions.

With the EUDR deadline fast approaching without a concrete action plan on increasing supply chain transparency, suppliers may face a sudden cut-off to one of their most important export markets and buyers from their largest cocoa bean sources. Global conglomerates, SMEs, local suppliers, and farmers will need support from government bodies, international organizations, and tech companies specializing in the agricultural sector to create a data-driven solution to meet the EUDR requirements and tackle the issue of global transparency and ethical sourcing. Cocoa industry players can also look to Tridge to facilitate trade in emerging markets, connecting suppliers and buyers, and will continue to monitor and provide insights on the issue of traceability and the EUDR.