Richard Edwards

Confectionary giant Cadbury is to treble its sourcing of cocoa from Ghana in an effort to secure its supply at a time of uncertainty for the industry. 

The new plans will see Britain’s biggest selling chocolate brand, Dairy Milk, being sold under the Fairtrade label in a move that will see the company’s margins come under pressure but reflects Cadbury’s success in slashing its costs at a time of record cocoa prices.

Cocoa is Ghana’s second biggest export after gold, and provides one of the UK’s oldest companies with almost two-thirds of its cocoa. However, a recent study by the University of Sussex and the University of Ghana found that the average cocoa farm in the country was only operating at 40% of its optimum and, with young farmers increasingly looking for employment elsewhere, facing an uncertain future.

It’s this decline that Cadbury, which is sinking £45m into sustainable cocoa farming in Ghana over the next 10 years, is keen to halt in order to secure the security of a supply chain that is fundamental to its business.

And with Fairtrade farms in the country performing far more effectively than their competitors it’s little wonder that Cadbury has moved to protect its interest.

“As 50 percent of our business is chocolate orientated, we are looking to create a good and sustainable business,” Cadbury’s CEO Todd Stitzer said. “We believe that by joining forces with the Fairtrade Foundation, we can further improve living standards and conditions for farmers and farming communities, and create a sustainable supply of high quality cocoa for Cadbury.”

Richard Edwards

The World Bank has handed Brazil a $1.3bn loan in an effort to encourage one of the world’s biggest polluters and most popular low-cost sourcing destinations to clean up its act.
 
Brazil, which has become a magnet for companies looking to source from the commodity-rich country in recent years, has some of the most bountiful resources of any nation on earth.

However, the country, which is home to one-third of the world’s tropical rain forests and the largest reservoir of fresh water, has been dogged by ethical questions over the continuing deforestation of the Amazon.

Successive crackdowns by a Brazilian government keen on attracting foreign investment have failed to bring an end to persistent deforestation – which increased in 2008 for the first time in four years – but it’s hoped the new cash injection will force the country to take serious action.

Speaking exclusively to Sustainable Sourcing, Rene Duvekot, CEO of Miami-based sourcing advisory firm Duvekot Corporation, said he believed that the World Bank’s influence in the country could prove to be a turning point.
“It surprises me that Brazil is receptive to foreign funds for this purpose, so it appears that the country is finally getting serious about protecting its natural resources, especially the Amazon rain forest,” he says. “It’s refreshing that a foreign organisation (World Bank) will be looking over Brazil’s shoulders.”

For those organisations already sourcing from the country, Brazil’s action also offers proof of the country’s willingness to improve its patchy sustainability record. “Brazil has made enormous progress in making manufacturers adhere to higher standards, and the growing numbers of ISO certifications (both 9 and 14) is a testament to that,” Duvekot says. “For buyers a key concern is assurance of continuity, and buyers are increasingly requesting proof of supplier compliance with local (Brazilian) working and environmental regulations.”

However, the loan has already caused controversy, with some environmental groups expressing fears that the new money will be used to finance a number of controversial projects – including the building of several large dams in the Amazon basin.

The World Bank, however, insists that the loan will be handed out in two installments, with the second tranche of $500m being paid only when a series of project goals have been hit.

Richard Edwards

Asia’s traditional sourcing hotspots need to take a more proactive approach to the management of climate change – particularly after the change of leadership in the U.S. 
 
Speaking at a sustainability conference in Singapore, Simon Tay, Schwartz Fellow of the Asia Society, warned that failure to do so could result in countries such as Vietnam having policies dictated to them by the world’s most powerful nations.
 
His warning comes in a year that will see industrialised nations attempt to garner support for a wider agreement on climate change that will usurp the Kyoto Protocol, which is expected to be sealed in Copenhagen in December.
 
Mr Tay, who is also the chairman of the Singapore Institute of International Affairs, however, believes that Asia is still lagging behind when it comes to climate change.
 
“My impression is that it has become a dialogue between the deaf and the dumb,” said Tay. “When we look at the Kyoto regime it cannot seem to work just because it is limited to only Annex 1 developed countries. “Unless Asia gets its act together and starts changing the game we will be dictated to by the developed countries once America comes on board.”
 
One of the initiatives discussed at the conference was the potential introduction of a global cap-and-trade scheme for carbon emissions based on per-capita pollution, although Tay questioned the viability of such a system.
 
“Asia has been a vast production base for a lot of consumption elsewhere,” he said. “In that equation, who is the polluter?”
 
He also argued that some of Asia’s biggest producers should avoid using climate change as the “great validator” for protectionist measures during the global economic slowdown, citing the possible example of a country with a carbon tax regime for its manufacturers imposing import tariffs on one that had no such regime in place. 

David Rae

Sourcing from developing countries is a given for multinational companies, but with the pressure to maintain sustainable procurement policies, purchasing professionals must treat such regions with care.

The topic is given great attention in the latest bulletin from the Royal Tropical Institute (KIT) of the Netherlands which provides detailed case studies of sustainable procurement from developing countries.

Ahold in Mali

Dutch retail giant Ahold is the subject of one of the case studies through its subsidiary Albert Heijn, a supermarket chain with annual sales of more than €6bn. The bulletin provides detailed insight into its sourcing of thousands of tonnes of mangoes from the west African country of Mali. For Ahold, the main drivers for buying mangoes from Mali are business, as it can meet the supermarket’s demand for year-round supply. But the keen eye of CSR-savvy consumers is also trained on its developing world procurement policies.

To this end, it has adopted the GlobaGAP system, a voluntary set of standards for the certification of agricultural products. It has also established a department to develop guidelines for safety, quality and social accountability. On top of this, it has established the Ahold Sustainable Trade Development, with has 2.5 full-time staff, one in the Netherlands, one in Ghana and one part-time in South Africa.

So far, Ahold estimates that through its sustainable trade activities it has boosted turnover by €20m – €25m over the last five years.

Other measures include the formation of a development foundation which has the aim of auditing suppliers and measuring the impact on local farmers and communities.

Through an extremely close relationship between Ahold and Malian farmers, the Dutch company has succeeded in increasing market share (by securing supply year round for a good price); improving its reputation (by supplying a fair trade, traceable product from Africa) and gaining long-term supplier relationships.

AgroFair in South Africa

AgroFair is a relatively small conglomerate which is partowned by the farmers which supply its Fairtrade products. The case study focuses on the procurement of citrus from Limpopo Province in the north east of South Africa.

Despite growing competition from mainstream retailers increasingly getting involved with Fairtrade products, AgroFair was able to increase the turnover of oranges between 2005 and 2007 by about €3.8m. It has invested about €80,000 in various sustainability certifications.

Unifine in Sierra Leone
Unifine Sauces & Spices, part of a cooperative of sugar beet farmers, has since been acquired by private investment company, Clearwood. The case study looks into its sourcing of ginger from Sierra Leone, a developing country with a history of civil war.

The case study looks into how Unifine partnered with the Cotton Tree Foundation Ginger Enterprise (CTFGE) to buy traceable and sustainable root ginger from the country.

This traceability was key as it vastly improves both the quality and sustainability of product, and has led the company to aim for a target of 100% quality and zero losses; but even getting there results in a much more efficient production process.

However, to achieve this level of quality, Unifine has had to invest in costly audits – to the tune of about €100,000 a year. Staff training and storage have also increased to meet the new demand. Whether this is compensated for by a reduction in waste and an increase in quality or business is still unclear, according to the report.

The KIT bulletin provides a detailed look into the challenges that sourcing goods from troubled regions of the world throws up. In doing so, it outlines a number of requirements that companies must address to meet sustainable demands– these range from the drivers necessary to get started to technology and management capacity requirements.

KIT Bulletin 385 can be downloaded at the KIT website, www.kit.nl