"Chocolate and cosmetics face price jolt from cocoa supply chain law"

" Chocolate and cosmetics face price jolt from cocoa supply chain law \r\n\r\nCocoa\u2019s journey from bean to bar\u00a0winds through a rebagging plant\u00a0like this\u00a0one in San Pedro, Ivory Coast, where about 20 trailer trucks arrive every day brimming with tons of stock\u00a0for international markets.\r\n\r\nWorkers wearing masks against the dust unload sacks weighing as much as 65 kilograms (143 pounds) and tear them open, prepping the contents for drying, sorting and cleaning. Others sweep loose beans on the floor into piles for collection.\r\n\r\nEverywhere you look and walk there are cocoa beans. Millions and millions are delivered to similar facilities in West Africa and then shipped to warehouses in Amsterdam; Hamburg; and Antwerp, Belgium, for the world\u2019s top chocolatiers.\r\n\r\nYet a massive change is afoot that threatens to upend this supply chain and jolt prices for sweets, skin-care products and herbal medicines. Starting Dec. 30, the European Union will require companies such as Cargill Inc., Ferrero\u00a0Group, Nestle SA and Mars Inc. to prove that every bean they import to the continent didn\u2019t contribute to deforestation somewhere else.\r\n\r\nThat means tracing cocoa from pod\u00a0to port, a costly mandate for an industry already staggered by declining production and record prices for\u00a0futures. But no proof means no sale \u2014 a significant penalty given the 27-member EU is the biggest buyer from Ivory Coast and Ghana.\r\n\r\n\u201cThere is a gun to our head to set up systems and get ready,\u201d said Paul Davis, president of the European Cocoa Association industry group.\u00a0\u201cWe expect disruption for about one to two years, and that could mean higher pricing in Europe.\u201d\r\n\r\nEvery shipment \u2014 in bags or in bulk \u2014 will have to\u00a0list the GPS coordinates of the farms where the cocoa was grown, and that information needs\u00a0to be uploaded into an EU database.\u00a0Cargill, Ferrero and Nestle said they\u2019re building up their geolocation networks in Ivory Coast, which supplies\u00a044% of the world\u2019s cocoa.\r\n\r\nNone of the companies contacted would say how much they\u2019re spending on their efforts, and they wouldn\u2019t discuss whether consumers ultimately will foot those costs in the form of more expensive chocolate. It\u2019s also unclear if\u00a0the burden will fall on farmers, who already are among the world\u2019s poorest.\r\n\r\nDuring a Feb. 22 earnings call, Nestle Chief Executive Officer Mark Schneider said he is \u201cvery confident\u201d the company will have a deforestation-free supply chain by the deadline.\r\n\r\nYet even while working to meet the mandate,\u00a0some are pushing the bloc\u00a0to delay implementation, according to Peter Feld, CEO\u00a0of Barry Callebaut AG.\r\n\r\n\u201cThe EU regulation came in place and actually didn\u2019t talk to any of the players in the industry,\u201d Feld said during a Nov. 1 earnings call. \u201cThe players are all engaging with the EU Commission to lobby for a transition period.\u201d\r\n\r\nThe EU Deforestation Regulation, or EUDR, also covers palm oil, coffee, soy, timber and cattle \u2014 notorious drivers of clear-cutting. The law, reaching from the Amazon to Africa to Asia, applies to raw materials as well as products such as leather and furniture.\r\n\r\nWithout it, about 248,000 hectares (613,000 acres) of forest would be lost every year by 2030, the bloc estimated.\r\n\r\nBeans deemed non-compliant by companies likely will\u00a0be sold\u00a0in\u00a0the US or Asia \u2014 decidedly smaller, less-lucrative markets for West African producers. If the EU learns that a shipment broke the law, the penalties include fines,\u00a0confiscation or a temporary ban on trading in the bloc.\r\n\r\nThat\u2019s\u00a0created a pressing problem for the industry.\u00a0Cocoa beans take about 12-18 months from the time of harvest to arrive in Europe, so the current crop has to comply with the regulation\u00a0because it will land after Dec. 30.\r\n\r\nAnxiety about the law enveloped the World Cocoa Foundation conference this month in Amsterdam, where a session on \u201cThe Known Unknowns of the EUDR\u201d overflowed with regulators and industry executives.\r\n\r\nAttendees peppered commission policy officer Zoe Druilhe for details on implementation but didn\u2019t get all the answers they wanted.\r\n\r\nDruilhe couldn\u2019t specify when the EUDR website will go live or\u00a0what reference map authorities\u00a0will use to double-check the companies\u2019 submissions.\r\n\r\n\u201cThere is a high level of uneasiness among traders because the regulation will make it difficult for beans to enter the EU market,\u201d said Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company (UK) Ltd. \u201cThat will only push prices higher.\u201d\r\n\r\nLondon futures\u00a0cost\u00a0about $800\u00a0a ton more than those in New York, according to Bloomberg calculations based on most-active contracts.\r\n\r\nCocoa is responsible for 7.5% of the EU\u2019s contribution to global deforestation, according to BloombergNEF. Some companies already track beans through\u00a0voluntary sustainability programs, but the new law requires a deeper level of surveillance\u00a0that\u00a0starts\u00a0with mapping the oft-fuzzy boundaries of remote, individual plots.\r\n\r\nIn Ivory Coast, the biggest cocoa grower, the due-diligence mandate will be a tall order. About 30% of the country\u2019s planted area is within\u00a0protected forests, despite laws against that, a 2022\u00a0research paper\u00a0found.\r\n\r\nThe expansion of cocoa farms was\u00a0linked to the loss of more than 360,000 hectares (890,000 acres) of forest from\u00a02000 to 2020, according to the study.\u00a0That\u2019s twice the size of London.\r\n\r\nVisits by Bloomberg News to way stations across southwest Ivory Coast in late 2023 revealed the kinks that may interrupt\u00a0EUDR\u2019s implementation. Europe is trying to tame a supply chain that\u2019s fractured, low-tech, disorderly and rife for abuse by thousands of small farmers and surreptitious middlemen.\r\n\r\nCocoa presently changes hands at least six times during\u00a0its trek to the bloc, and it\u2019s blended with other batches at every step. A bulk carrier could hold beans from more than 80,000 farms\u00a0\u2014\u00a0and not all of them are known to the traders.\r\n\r\n\u201cThe EU has gotten itself into a deep mire of complexities they don\u2019t understand,\u201d said Marc Donaldson, a cocoa sustainability consultant. \u201cTracking a bag of beans back to a farmer is mind-blowing.\u201d\r\n\r\nThe first mixing comes immediately after harvest at a community buying center, where about 20-30 farmers drop off their product. These small centers dot Ivory Coast\u2019s cocoa belt.\r\n\r\nThere, beans are shoveled into jute bags and trucked to a regional cooperative that receives deliveries from other community centers, as well. Product from as many as 2,000 farms may pass through here.\r\n\r\nAt the Casib Coop-CA in Gabiadji, bags from separate sources are opened and the contents poured onto a massive tarp outside for drying. Workers shuffle through that mottled brown carpet with bare feet \u2014 like kicking sand on the beach \u2014 to expose the harvest to some sun.\r\n\r\nFrom here, the beans go to a facility\u00a0such as the one owned by the Societe Ivoirienne de Transformation des Produits Agricoles about 5 miles from San Pedro\u2019s port.\r\n\r\nMultiple conveyor belts carry beans from multiple co-ops for cleaning, grading and yet more bagging together. Then, they\u2019re taken to the docks and\u00a0shipped abroad.\r\n\r\nComplicating traceability efforts is the existence of a parallel, clandestine network that the Trase consultancy estimates may supply as much as 60% of Ivory Coast\u2019s beans.\r\n\r\nLocal intermediaries, called pisteurs, drive pickup trucks to remote fields, pay farmers in cash for their harvest and bring the cargo straight to warehouses, bypassing previous checkpoints altogether.\r\n\r\nMajor traders need that so-called \u201cindirect\u201d supply to meet customer orders \u2014 and knowing which beans in the flatbed came from which farmer isn\u2019t a priority.\r\n\r\n\u201cThe cocoa that everyone claims being from protected areas is going somewhere, and someone\u2019s buying it,\u201d said Alex Assanvo, executive secretary of the Cote d\u2019Ivoire-Ghana Cocoa Initiative created by the two nations. He believes government-run systems would ensure the data is standardized and all farmers are counted.\r\n\r\n\u201cCompanies rarely disclose how much of their volumes comes from indirect sources,\u201d said Valentin Guye, a researcher at Belgium\u2019s UCLouvain\u00a0university who studies\u00a0cocoa supply chains.\r\n\r\nSome avoid it. Ferrero doesn\u2019t buy indirectly sourced cocoa, and it\u2019s requiring suppliers to provide more details on where their beans originate,\u00a0said Floriane H\u00e9d\u00e9, a traceability manager.\r\n\r\nCargill, the largest agricultural trader, works with about 400,000 cocoa farmers globally, Marijn Moesbergen, the cocoa sourcing lead, said in Amsterdam. The company is mapping plots in Ivory Coast, giving farmers unique QR codes to scan at community centers\u00a0and tagging each bag.\r\n\r\n\u201cThe risk is too high for anyone in the supply chain buying cocoa they can\u2019t trace,\u201d said Jack Steijn, co-founder of sustainable commodities consultancy Equipoise."

"Chocolate and cosmetics face price jolt from cocoa supply chain law"

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