HERSHEY, MARS SAID TO BE SKIRTING COCOA
FARMERS’ PAY BOOST
A fight between the world’s top cocoa producers and America’s largest chocolate makers is getting worse.
Ivory Coast and Ghana, which account for about 70 percent of the world’s supply, accused Hershey Co., the maker of Kisses and Reese’s peanut butter cups, of squeezing the futures market in an effort to avoid paying a premium aimed at boosting farmers’ incomes, according to letters and a statement by cocoa regulators seen by Bloomberg News. The countries also said Mars had changed its buying patterns for the same reason.
As a result, the countries canceled all of the sustainability programs Hershey is involved in directly or indirectly, and said companies running programs on behalf of the Pennsylvania chocolate maker will also be barred from operating them.
The accusations are a further hit to the reputations of chocolate makers, which have come under increasing pressure for their role in deforestation, child labor and poverty.
They also underscore the uneasy, often volatile relationship between poorer nations producing the beans and companies selling the finished product to wealthier customers.
“Some chocolatiers and trade houses have adopted covert strategies to circumvent the farmer income improvement mechanism with the aim of collapsing it,” Yves Kone, managing director of Le Conseil du Cafe-Cacao, and Joseph Boahen Aidoo, chief executive of the Ghana Cocoa Board, said recently.
They said they will do “whatever is within our power to protect the over 3 million farmers from impoverishment.”
Chocolate makers and cocoa processors had agreed to pay the West African nations a “living income differential” of $400 a ton on top of the futures market, but after the pandemic slashed demand, companies are cutting costs to weather a second wave of stay-at-home orders spanning the globe.
Last month, Hershey took the unusual step of directly sourcing its cocoa via the exchange, as the premium charged by Ghana and Ivory Coast made cocoa inventories that back futures contracts in New York more attractive.
The move upended the cocoa market on ICE Futures U.S., with December futures climbing to a record over March.
In a letter to Hershey, Ivory Coast and Ghana accused the company of “conspiracy and machinations,” saying the use of the exchange was a clear indication of Hershey’s intention to avoid paying the living income differential.
Failure to comply with the orders would mean companies could lose their licenses to operate in the countries, they added.
The spat is also a risk for Ivory Coast and Ghana, which still have a lot of their crops to sell, said Judy Ganes, president of J. Ganes Consulting, who has followed markets for more than 30 years.
Ivory Coast and Ghana have in the past threatened to suspend chocolate makers’ sustainability programs, a tactic that has worked before. Still, market conditions are “vastly different” now, and the countries, particularly Ivory Coast, have also failed to limit output as promised, Ganes said.
The countries also accused Chicago cocoa processor Blommer Chocolate Co., which usually processes large amounts of beans for Hershey, of collaborating with Hershey, according to a separate letter sent to the Cocoa Merchants’ Association of America in which the countries withdrew their membership from the group.
“We are fully participating in the [living income differential] for cocoa purchases already made from the 2020-2021 crop as we buy a substantial supply sourced from West Africa,” Hershey said. “We will continue to participate in the [living income differential] to support cocoa farmer livelihoods going forward. We look forward to further discussing this with Cote d’Ivoire and Ghana and to hopefully continue the sustainability programs that are benefiting cocoa farmers today.
“Our concern is that by cutting off industry sustainability programs, cocoa farmers will be negatively impacted as they will no longer receive the benefits provided by our on-the-ground programs as well as the price premium for certified cocoa.”
This year, a report sponsored by the U.S. government showed that child labor had gotten worse, a decade after the $100-billion chocolate industry pledged to reduce it.
The regulators also took aim at the maker of Twix, saying Mars had migrated the bulk of its cocoa butter purchases to its traditional processors, buying from JB Cocoa and Guan Chong Berhad instead just to avoid paying the premium. Mars said it “categorically disagrees” with the allegations and highlighted that it was the first major manufacturer to support the living income differential.