Chocolate is the elixir of life, or so it would seem from the world’s annual chocolate sales. The rich, decadent confection is an $83 billion enterprise that spans the globe and sweetens revenues for multinational corporations as well as small, organic niche producers. It drives earnings greater than some countries’ GDPs and almost single-handedly defines the make-or-break success of holidays like Valentine’s Day.
For people who grow cacao, chocolate production is anything but a confection. It isn’t defined by its sweetness, but its commercial viability as a hardy, weathered bean — and oftentimes by the scruples of the buyer and vigilance of advocacy organizations.
A handful of non-governmental organizations oversee the certification of businesses when it comes to fair trade commerce. In a nutshell, fair trade certification organizations ensure that small-holder farmers in areas like the Congo, the Ivory Coast and Ecuador get fair and equitable pay for their product, are treated fairly, and have leverage when it comes to negotiating with foreign manufacturers. Each of these NGOs play an intrinsic role in promoting the concept of fair trade.
Their programs — which may certify an organization from the supply chain all the way to the factory, or may just certify the ethical sourcing and supply of ingredients at the commodity level — oftentimes include incentives that help the farming communities gain access to education, funding and infrastructure improvements.
All ‘fair trade’ is not created equal
But these organizations also differ in their view of how products that contain fair trade commodities like cocoa should be labelled. Several organizations, including Fair Trade USA and Fair Trade International, allow the use of a mass balance system, in which a cocoa purchaser or producer can obtain fair trade cocoa certification for the final product (say, a chocolate bar), even if the fair trade cocoa is mixed with conventional at the factory level.
To give an example, if 10 percent of the total cocoa purchased comes from fair trade sources, 10 percent of a company’s chocolate bars made with that mix of cocoa can include the fair trade (FT) certified label. While the actual cocoa in the actual bar might be 90% conventional, the benefit to farmers who sowed the fair trade cocoa still receive 100% of their premiums.
Some certifiers like Fair for Life don’t permit this process and require full traceability throughout the manufacturing process. Others, like Rainforest Alliance, take a middle-of-the-road approach, permitting the mixing of fair trade and conventional ingredients at a later point in the manufacturing process to ease tracking for product manufacturers while keeping things clear for consumers.
To make things more complicated, there are various degrees of certification each certifier offers based on whether that chocolate bar includes multiple FT ingredients or just (for example) FT cocoa, but that is outside the scope of this article. Back to mass balance.
Not surprisingly, mass balance is a controversial subject. Proponents argue it eases the transition to fair trade, which can grow the market for all those commodity farmers the fair trade movement aims to protect. Sri Artham, who serves as the VP of consumer packaged goods for Fair Trade USA, said the principle has a practical application: to make it easier for companies that have traditionally purchased their ingredients via conventional markets to transition to fair trade.
“There are certain ingredients, like cocoa and sugar, that are often produced in large factories and processed on a continuous basis. This is different than other products, like tea or coffee, that are usually processed in batches,” Artham said.
The mass balance system makes it easier for new producers to get excited about fair trade, because it actually makes it feasible to participate. “The challenge with continuously-processed ingredients is that in order to change from one product to the next, the entire line has to be shut down, reset and then re-started, which means lost production time and increased labor costs,” Artham explained. He pointed out that the global fair trade market is still pretty small, and only represents about 1 percent of the cocoa trade in the U.S.
In October 2012, Hershey announced its plan to source 100 percent of its chocolate ingredients from certified sources by 2020. In keeping with that goal, the company set out a number of social initiatives that would serve to underwrite its fair trade ambitions. “Most of those programs were already in place through the U.S. Department of Labor, United Nations, World Cocoa Foundation and other global initiatives,” the company said.
In March 2013, the company announced that it would work with Fair Trade USA, as well as other certifying agencies, in what it called its 21st Century Cocoa Plan. It laid out incremental steps for attaining 100 percent fair trade certification in 2020.
Transitioning to fair trade certified ingredients can be challenging for large producers, said Artham, who pointed out that the road to 100 percent fair trade becomes even more expensive when companies have to stop, clean and restart equipment as they switch gears between conventional and fair trade ingredients. It makes it “a cost-prohibitive option for them and their customers … That doesn’t benefit farmers, which is what fair trade is all about.”
Are chocolate companies holding out on us, or is it all just part of the journey?
Joe Whinney, CEO of Theo Chocolate, an organic and fair trade company based in Seattle, was skeptical about the switching costs argument. (Theo is certified through the stringent Fair for Life program, which doesn’t permit mass balance in its certification.)
Whinney argues that companies that use mass balance, for the most part, already have the mechanisms in place to support 100 percent traceable sourcing.
“They invest a tremendous amount of capital to segregate lines, to ensure there is no contamination such as allergens.” For legal reasons companies must be able to source ingredients back to their origination, said Whinney, in case a customer has a problem with a product, such as in the case of an allergy to wheat or nuts. “[The industry has] been able to do it in a way that is remarkable,” Whinney said. “So, they can actually do it more efficiently than a small company like Theo can.”
What do consumers think?
FT USA uses a progressive labelling system to encourage companies to raise the bar in their performance. “Our labeling policy also creates an incentive to maximize fair trade content in a given product – the greater the fair trade content of a product, the stronger the product claim a company can make,” Artham explains
The progressive labeling system includes a variety of choices, with a premium that goes to support the farmers who grow the product. Conceivably, the system encourages the manufacturer to do the right thing and transition fully to fair trade ingredients.
Winney thinks this isn’t enough, because the mass balance system mixes ingredients at the commodity level. “[We] believe that there is a risk that when consumers find out that their product may not contain fair trade ingredients,” said Whinney, who expressed concern that mass balance systems could weaken the fair trade initiative in the eyes of consumers.
Fair Trade USA’s progressive labelling system focuses on ingredients, making no mention of the mass balance issue, so there is no opportunity for consumers to understand how a mix of conventional and fair trade cocoa ended up in their bar.
Artham and Fair Trade USA, however, think the focus on ingredients is a winning scenario for struggling developing-world farmers caught in a competitive market with limited commercial outlets for their product. “For every cocoa bean sold as fair trade, one is bought as fair trade,” Artham pointed out. “Thus, farmers are only positively impacted by the use of mass balance in that there is a greater fair trade market available for their products, and they are earning the same fair trade price and premium as they would without mass balance.”
But can mass balance encourage companies to transition to 100 percent traceable fair trade?
Says Artham, “Mass balance is designed as a step for companies towards fully traceable, and ideally 100 percent, fair trade supply-chains.
“As with most journeys, we find that many companies start in fair trade with a single step – whether that’s with a single ingredient or a single product. And we find that often once they see for themselves how valuable fair trade is, both to the farmers they rely on and their consumers, they’re inclined to continue that journey.”
He said that the “greatest incentive that companies have to source as much as they can as fair trade is actually seeing firsthand how fair trade benefits the farmers in their supply chains. It also helps when consumers reward companies for their fair trade commitment by purchasing more of their products.”
And it is that social pressure in many cases that helps to nudge companies to “do the right thing” in their business environments, as well as in their dealings with small-holder farmers who may not have the clout to command a fair wage or working conditions.
But is that social pressure enough to nudge a company like Hershey or Cadbury’s off a mass balance program once it has reached the 100 percent threshold? Critics argue that there is little incentive for companies to source more expensive fully-traceable ingredients, since that 100 percent claim — even if it comes from mass balance sources — is quite compelling for consumers.
In 2011, Hershey joined the Roundtable on Sustainable Palm Oil (RSPO) and made a commitment to responsibly source palm oil under a mass balance program. In 2014, the company announced that after meeting its goal of transitioning to 100 percent mass-balance, RSPO-certified palm oil, it would up the ante by gradually transitioning to fully traceable palm oil sources. This week the company announced that it had met its sourcing goals for the first quarter of 2015.
Whinney is still skeptical of whether a cocoa mass balance program can encourage members to adopt a fair trade program if they don’t have to. He pointed toward history to make his point, referencing the results of the Harkin-Engel slavery protocol, which was signed by cocoa industry leaders in 2001.
The protocol urged chocolate companies to eradicate child slavery in their supply chains. More than a decade later, it is still far from fulfilled.
“The industry signed the Harkin protocol almost 15 years ago, and that had very, very specific requirements that the auditors certify the supply chain [against the use of slavery],” Whinney said. “As soon at it came to that market, they negotiated. And they renegotiated again … without achieving those initial goals that they all signed off on.”
“Over the past decade, the deadlines for Harkin-Engel Protocol deliverables have been pushed back numerous times,” wrote Adeline Zensius, who based her 2012 masters thesis for Georgetown University on the subject. “The current commitment is that cocoa companies will supply child labor-free chocolate for 70 percent of their supply chains by 2020.” (pg. 43)
Unfortunately, it may be a while before companies can transition off mass balance in favor of pricier, fully traceable fair-trade ingredients. For the time being, however, the mass balance system offers a compromise for those who say they want to do the right thing ethically, but want to be assured their market share will outlive the transition.
Image of cocoa beans: Department of Foreign Affairs and Trade