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Sustainable agricultural commodities: To decrease sourcing risk, focus on enabling social opportunity

Sourcing companies providing cash incentives to farming families is a good start, yet there much more to do, write Dr Peter Stanbury and Tobias Webb

In January 2022, Nestlé announced a new programme which aims “to improve the livelihoods of cocoa-farming families, while also advancing regenerative agriculture practices and gender equality.” The Income Accelerator Programme will pay cash incentives to farming families of up to CHF 500 (485 Euros) per year for actions which are designed to steadily build social and economic resilience over time. These include school enrolment for the children in the household; implementing good agricultural practices, like pruning; improving agroforestry activities, and generating a more diversified income through growing additional crops.

It is not simply the scale of this new development which is important, given that Nestlé plans to invest CHF 1.3 billion (1.26 bn in Euros) into its cocoa sustainability activities, more than tripling its current annual investment.

It is the shift in approach which is especially significant. In taking this new step, Nestlé has recognised that the way to address the challenges in the cocoa supply chain is to see them within the wider context of the places where that supply chain operates.

Full report:

Our recent ground-breaking recent research, which explored a wide range of smallholder supply chains, concluded that the current approach to sustainability is not sustainable. The prevailing model has been of commodity-specific programmes operating largely independently. Whilst these may work well in supporting farmers on coffee, cocoa or whatever, they do not generally seek link ups with programmes working with farmers on other commodities, or with the efforts of other actors, such as host government extension services. What we have at present, therefore, is a fragmented approach to tackling systemic challenges.

We have written in the past both about the need to understand the wider context in which supply chains operate, but also to take a collaborative approach to addressing the challenges which are identified. The reality is that problems in smallholder supply chains cannot be properly solved unless one understands the wider causation of those problems.

An issue such as child labour in the cocoa cultivation is not a cocoa problem, it is a problem which stems from societal issues in West Africa. Only by understanding those wider issues can one hope properly to address the challenge in ways that will actually work. Moreover it is not in the capability of any one organisation to be able to address highly complex issues like this. Only through collaboration between different actors will this be possible.

It is for these reasons that the Nestlé announcement is so significant. It recognises that challenges in the cocoa supply chain need to be addressed by taking a more holistic approach. There is also a clear acceptance that their own efforts need to be even better joined up with others, in particular with the national governments of Ghana and Cote d’Ivoire.

It is significant that the announcement of this new initiative was made, not just by Nestlé CEO, Mark Schneider, but also by the Ivoirian Prime Minister, Patrick Achi, but also by the Ivoirian Prime Minister, Patrick Achi. One of the members of the Strategic Advisory Board, which will support the new programme, is Alex Assanvo, formerly a senior executive with Mars, who now runs the Côte d’Ivoire and Ghana Cocoa Initiative. Clearly Nestlé realise the need to link their work closely to that of the host governments.

This opens the door to look more broadly at what needs to be done if the cocoa supply chain is to be made properly sustainable. There are two wider, contextual issues which also need to be addressed.

The first is the question of whether the current model of smallholder farming in cocoa (and indeed in many other commodities) is actually sustainable. A report by UNCTAD conducted in 2015 found that 84% of the world’s farms are smaller than 2 hectares. As populations continue to rise sharply in sub-Saharan Africa and elsewhere, these farms will rapidly decrease further in size. There is a need to consider seriously what a longer term rural economy looks like, in which there may be fewer, larger, but profitable farms.

This obviously begs the question about what to do with the excess labour that would exist if fewer people were farming. Here again there is a need to look at the wider context of cocoa. At present, Cote d’Ivoire and Ghana export their cocoa in a largely un-refined state. Real transformation in this sector would come if more on-shore processing took place. Not only would this provide jobs, but would also significantly benefit the wider economy.

For exactly this reason, companies which desire systemic change in the sourcing areas or nations they ultimately buy from, must now focus on how they can enhance and enable social opportunity as their key driver of risk management.

The historic narrow focus on risks that cannot be totally minimised “zero net deforestation” and “no child labour” represent a flawed approach that whilst having some successes delivering “cleaner” supply chains, have not fundamentally impacted the states, regions and systems they have focused on.

What was once known as “shared value” approach, i.e. taking a broader approach to sustainability in supply chains, should actually have focused on enhancing social opportunity. After all, it is people who cut down forests, due to the wrong incentives. The right incentives come from shared opportunities, whereby business works with representative institutions and bodies to create real value, as the example of on-shore processing (hard though it is to do) illustrates.

The need to think more systemically about how to create genuinely durable smallholder supply chains, and to foster greater practical-level collaboration is why we launched our Innovation Accelerator Network.

This uses the findings of our previous research to explore in detail the context in which our partners operate, and identify how best to work with others to effect systemic change. The idea of Collaborative Development Governance, which we have written about, is a clumsily titled way to do that. Business needs to help sourcing nations or regions within them (the landscape approach) improve their incentives for the right outcomes. Increasingly, we know what these are now. Here’s a simple example.

Nestlé’s new initiative is a serious and impressive step along that road. But to go far, we must go together. Companies must start sharing how their journeys interact, across commodities, and focus on delivering shared social opportunity to achieve their objectives. In future posts, we shall explore what these can, and do, look like in action.

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Dr Peter Stanbury is a senior associate at Innovation Forum. He has spent 30 years working with companies in developing countries as an advisor, researcher and consultant.

Tobias Webb is founder of Innovation Forum. He has been running media, research, advisory and stakeholder engagement businesses in sustainable supply chains since 2001.