In recent times, businesses have started to put a real focus on creating more transparent supply chains. This is especially true in the food industry where our booming population is threatening to cause a global food crisis. However, given the sheer scale and complexity of international food supply chains, increasing transparency is much easier said than done.
Take for instance the chocolate supply chain; every year we spend a staggering $83 billion on chocolate products. In 2012 alone, the average American consumed around 5.5 kilograms (approx. 12 pounds) of chocolate while in Europe, the average person ate nearly double that. Despite our sweet tooth however, we rarely consider how this confectionary product goes from bean to bar.
Although 70% of all chocolate is sold in either America or Europe, the main ingredients are often sourced thousands of miles from the end consumer. For example, 85% of the cocoa beans used to make chocolate are grown in West Africa before being exported to manufacturers around the world. While chocolate production is a multi-billion dollar industry, cocoa is an extremely delicate crop and as a result the supply chain is exposed to a huge amount of volatility.
One of the biggest threats to the supply chain is disease. During the 1990s, for example, Brazil’s cocoa trade was virtually wiped out as a fungal disease spread across the country. Known as “Witches Broom”, the fungus attacks cocoa trees and can cause the cocoa bean to rot from within the pod. In Brazil, this disease slashed cocoa exports from 400,000 tons to just 120,000 today.
Although the disease is now present in every cocoa nation, there is some question as to whether the outbreak in Brazil was a consequence of natural causes or whether it was introduced deliberately to hamper the country’s control over the cocoa market. Either way, with such a large drop in the supply of cocoa beans, local farmers suffered a financial blow while businesses further down the supply chain had little choice but to find new sources in West Africa or face costly shortages.
Although the spread of disease can have a huge impact on the supply, volatility can also be caused by price speculation. For cocoa growing nations such as the Ivory Coast and Ghana, cocoa beans are often the main source of income for the national economy. With prices of cocoa set depending on both supply and demand as well as the value of the commodity on international stock markets, the price per ton can fluctuate dramatically. This volatility in price is a particular problem for cocoa growers who often lack market insight and have little choice but to sell their produce through intermediaries, often at a much lower price than the actual market value. Given that in such countries, economic stability is often dependent on cocoa exports, the impact of price speculation can leave local farmers exposed to exploitation.
In order to help farmers receive a fair price for their produce, a number of organizations have been established to develop a more sustainable and transparent cocoa supply chain. For example, co-operations such as the Kuapa Kokoo co-operative have improved supply chain visibility through quality checking and tracing cocoa beans from the moment they leave the farm until the beans reach the port. Through increasing visibility in this way, if any infected beans are found during the quality checks, it is possible to trace the beans back to the source and thus contain the spread of diseases.
Furthermore, the industry has also benefited as other initiatives focus on providing everyone across the supply chain with access to up-to-date market information. While this helps farmers get a fairer price for their crop, companies including Devine Chocolate and Mars have taken this a step further and also offer partner farms a substantial share of the profits.
Although such practices ensure manufacturers and distributors receive quality disease-free cocoa; it is the local communities which produce the cocoa beans that really benefit. Through managing volatility caused by disease and price speculation, farmers can maintain a more stable yield of cocoa bean and receive a fairer price for their crop. Furthermore, profit from major manufacturers can be reinvested into the community to provide education and increase living standards for generations to come. Given that everyone across the cocoa supply chain benefits from the improved supply chain standards, the importance of developing a more transparent chocolate supply chain becomes clear.
Considering some of the supply chain initiatives discussed in this article, can you think of any other industries where transparency has been improved in order to benefit the whole supply chain?
2 comments
When the supply chain goes global, and almost every business has some vendor overseas, the risk goes up significantly. You can’t control what is going on in Brazil or China. Half the time you don’t even know what is really going on! But working globally means trusting your vendors and transparency really helps build that trust.
Good article and points directly to the need and complete acceptance of Risk Management in our supply chains. Must understand that unless we have an actual physical presence in these overseas manufacturing facilities stories like these will not cease or even be limited in nature. As long as we continue to manufacture overseas we must consider and protect ourselves as best we can from these: energy and fuel price volatility, geo-political instability, supplier/vendor bankruptcy, climatic disruptions, etc,. Hope the point is clear.
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