The west-end Toronto company reclaims a chocolate legacy that might seem un-chocolatey to many — a healthy, spiritual, dark and bitter-tasting food and drink hailing from Mexico Profundo, the ancient Indigenous Mayan culture of Mexico.

ChocoSol is in the business of selling chocolate bars and drinking chocolates, though its business would more accurately be described as a mission to sell goods or services with a social or environmental purpose.

Even by the standards of a “social enterprise,” ChocoSol’s business model seems quirky. Its unbleached packages feature a Mexican Day of the Dead-inspired skull, with bike chains for eyes and teeth. The company’s “ChocoSolistas” also call themselves chocolate “pedallers” and take pride in using bicycles to transport their display tables and power the blenders that make chocolate drinks at farmers’ market stands across the city. The bicycles brand them as supporters of neighbourhood technologies that feature sweat-equity over bank financing.

ChocoSol founder and owner Michael Sacco, who has a side hustle as a PhD student at Trent University in Peterborough, likes to call the company a learning enterprise, because its staff and customers are learning how to produce and live in tune with the environment. But the real learners may well be today’s conventional businesses that can be taught a thing or two about engaging sought-after youthful customers hungry for food choices that smack of authentic and sustainable experiences.

In its latest Flavor & Trend Forecast, marketing agency THP predicts that in 2020 “brands will need to champion a collective appreciation for sustainability, whole ingredients and minimal processing in order to thrive within this emerging consumer narrative.”

ChocoSol has that whole package down pat.

That’s a way of telling informed customers that ChocoSol’s chocolate comes not from monoculture plantations with reputations for using pesticides and child labour, but from diverse gardens planted with vanilla, achiote peppers, coffee, hardwood and fruits alongside cacao trees.

As a Toronto food policy enthusiast and chair of the Coalition for a Green Economy, I toured these forest gardens with Sacco in 2007. Through “horizontal” trade, ChocoSol cuts out the vertical supply chain relied on by most big companies and deals directly with producers, commonly offering them 15 per cent above the going international wholesale price (up to 300 per cent more for some rarer beans). Relying on face-to-face relationships, direct traders reduce the red tape common with fair trade labels that deal with large-volume producers.

But behind its social, ethical and small-scale artisanal production methods, ChocoSol runs as much on hard-edged business forecasts as integrity and soul.

“They’ve got what all their competitors would die for,” says Barry Martin, owner of the communications firm Hypenotic, which handles ChocoSol’s account, as well as that of many others in the “purpose-driven” space of Toronto food-based businesses.

“ChocoSol makes what people need, does it in a way that’s memorable, generates an experience, tells a great story that makes it bigger than life,” Martin says. “Of all my clients, ChocoSol best expresses the whole range that companies need to strive for” to avoid the downward spiral of competing as a commodity for lowest cost.

Sacco, who brands himself an “ecopreneur,” has raised up the company by its bootstraps since 2006, when he launched with a $15,000 line of credit and $15,000 “from the bank of friends and family.” Purchases from these “bankers” and their contacts probably accounted for most of the $20,000 in ChocoSol sales that year.

In 2019, says Sacco, ChocoSol will clear $1.8 million in sales, half to wholesale accounts — despite the fact it retails for twice the price of conventional chocolate.

The company won top prizes at the 2016 and 2017 Canadian National Competition for chocolate-makers and took gold for its Jaguar Pure, and bronze and silver for its Jaguar Swirl and Crunch, in this year’s International Chocolate Awards.

Jaguar is a ChocoSol standout specialty, inspired by a woman elder from San Pablo Etla, just outside the city of Oaxaca. She took Sacco under her wing when he was a graduate student doing action research on Indigenous food traditions in Oaxaca, the unofficial capital of Mayan corn, cacao and grasshopper-based cuisine.

Struck by Jaguar’s commercial potential to support forest-based peasant-style agriculture in village communities in the Oaxaca region, Sacco developed “direct trade” relationships with small family farmers who sold him chocolate, coffee and vanilla from their communal forest gardens. To support a premium niche market around Jaguar, Sacco and community groups planted more than 50,000 trees yielding the Jaguar species of cacao around tiny villages such as Felipe de Léon.

“Our vision is to reimagine opportunities, techniques and organization models for small-plot intensive and underfinanced producers,” Sacco says.

These forest gardens are an economic boost to villagers and also sink enough carbon in the soil and generate enough plant and insect biodiversity to offset any environmental costs of taking cacao and vanilla beans by boat and train to Toronto.

 

Compassionate cacao

Business analyst Grayson Bass, who’s taught innovation strategies at the University of Toronto and is about to launch an Applied Innovation Certificate program there, thinks ChocoSolistas are spot on the money for a wide spectrum of change- and profit-making economic transformations of the near future.

Sooner rather than later, Bass says, social enterprises “will make the Fortune 500.” Why? Because they have compassion, he says. Compassion is not just a sign of emotional intelligence, he reasons. A “strong compassion muscle” is the precursor to business smarts, he says, because it leads innovators to ask the central question: What good does this do?

This gives compassionate entrepreneurs the edge they need to move up the ladder of innovation, he says.

On the lower steps on the ladder, innovators can optimize — find a faster, cheaper, more effective way of doing the same thing. They can also sustain — keep ahead of competitors by adding new services to an existing device.

At the top rung are disruptive innovators who change the nature of the game. To reach the highest rungs, entrepreneurs need to ask a “why” question, says Bass. That’s where companies such as ChocoSol excel, he says. Their “why” — a passion for a tasty health food that supports peasant producers and environmentally friendly production and distribution — leads them to change the consumer market for chocolate.

“Compassionate organizations have an advantage in solving problems and creating disruption because they have a problem to solve, not just a structure to fit into,” Bass says.

Sacco winces when business people call him compassionate or idealistic. “I don’t want to be called a hippie entrepreneur,” he says. “I’m offering a different value proposition.”

This fall, ChocoSol introduced “Halloween chocolate that isn’t scary” — no child labour and no environmental destruction. But that’s true of all their chocolate, including their seasonal Christmas Cranberry bar, dotted with local organic cranberries, or their Merry-Mint, made with dried mint grown on ChocoSol’s green roof. That roof is where cacao bean shells and other food wastes are composted to become soil to nourish new plants for tomorrow’s bars — the model of a circular economy, where yesterday’s waste becomes tomorrow’s food.

“My biggest challenge is focus,” says Sacco, who struggles with finishing his PhD, on the role of cacao and maize (corn) in Indigenous agriculture, while raising three children and managing an underfinanced social enterprise.

Affinity marketing

There are hidden strengths in a social enterprise, Sacco says. Having a cause helps define ChocoSol’s niche and also helps with customer loyalty, staff retention and developing new revenue streams, such as workshops for students, he says.

“We don’t lose any time selling, persuading or convincing customers to pay extra for real cacao mindfully produced. We work with the willing. That’s affinity marketing,” he says. “Our customers are our ambassadors, which is the best advertising we can afford.”

Sacco would like to see other social enterprises feature hundreds of other overlooked plant medicines that can be vehicles for stories — stories that are often suppressed by the way food is commonly marketed as a no-name and placeless commodity divorced from culture or social purpose.

This vision corresponds with the business scenario laid out to an agribusiness summit in New York in early December. Nick Fereday, of Netherlands-based Rabobank, a major banker to the global food and agriculture sector, predicted that today’s classic “Big Food” brands are doomed.

Upstarts “are tapping into the consumer trends of convenience, of health and wellness, of being a premium product and all wrapped up in a very, very strong mission statement,” Fereday told his audience of Big Food executives. If the big brands don’t smarten up, “we will see the end of iconic brands,” he warned. “By 2030, everything will be niche and focused on small markets.”

Alison Blay-Palmer, newly appointed UNESCO Chair in Food, Biodiversity and Sustainability Studies at Wilfrid Laurier University, agrees that food has what it takes to attract change-makers.

“Food provides a lever to address many intersecting challenges: climate change, biodiversity, rapid urbanization, health, equity, community well-being and more,” she says. “People who can envision how these issues are interconnected understand the potential of food for far-reaching transformation.”

Most of all, having a cause gets Sacco and his team of 25 full- and part-time staff to work every day. “I don’t think you can start with a business plan,” he says. “You need to start with something that calls you, or you’re off to a bad start.”

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His new goal?

Helping companies build a better chocolate bar.

Global cocoa demand is on the rise and its market value is expected to double by 2025 compared to 2015 levels. Over half of the world’s supply comes from West African countries like Ivory Coast and Ghana, where cocoa isn’t just one of the hardest supply chains to monitor and track, it’s also one of the most destructive.

For as long as there’s been chocolate bars, the cocoa supply chain has been rife with illegal deforestation, human rights violations and child labour. Just last month, The Washington Post reported that two decades after candy makers like Mars, Nestlé and Hershey pledged to stop using cocoa harvested by children, it’s still likely that a chocolate bar purchased in the United States was the product of child labour.

Major cocoa companies use a few different methods to find out how the beans they put on store shelves were grown, picked, traded and processed. Audits and monitoring are one approach. Certification is another. Still another is legislation.

So far, the system isn’t working.

One reason is size. There are 4 to 6 million smallholder cocoa farms around the world. Three of the largest brands, Mondelez, Mars and Nestlé, have a chain of nearly half a million farms. They usually have a direct relationship with over half of the suppliers that source and sell beans from those farms. This leaves millions of suppliers with whom they have no direct relationship, which is where problems arise.

“Cocoa can’t be sustainable unless it’s traceable,” says Juliette Barre of Sourcemap.

Implementing Sourcemap’s app in the field in Ghana

Another is the paper trail. Low tech commodities like cocoa beans exist in a low tech chain. Transactions are tracked on paper and transported on bicycles and trucks, leaving room for social and environmental corruption that isn’t recorded or subject to regulation. Often there’s no digital tracking or paper trail to verify that payroll was made, or taxes paid, or to ensure that the cocoa being sold by one farm wasn’t smuggled in from another.

Bonanni wanted to build a platform to address these challenges directly. But timing was key. In the last few years, Android phones have become better and cheaper. Mobile phone use in Sub-Saharan Africa is growing faster than in any other part of the world. This laid the groundwork for increased traceability even in parts of the continent where electricity can be sparse, and at the end of last year, Sourcemap launched its Responsible Cocoa Platform.

Today, if a farmer has a smartphone, the platform can trace the cocoa he or she produces down to the size, shape and location of the farm as well as its yields, income and workforce.

Suppliers are registered with an online network (the first of its kind), data is captured and scores on sustainability, social compliance, risk and performance are calculated using web or mobile apps. Everything gets stored in the cloud.

Sourcemap’s app used to outline farms in West Africa

Mapping beans—and communities—can mean addressing the system’s inherent inequality. Knowing whether or not a farmer has enough electricity to turn on the lights, confirming the farm’s proximity to drinking water and useable roads and understanding the availability of health care, schools and access to credit is critical.

“That constellation of support,” says Bonanni, “is what powers a sustainable supply chain.”

Technology has a large role to play: in the search for a solution to cocoa’s ills, political will has often come up short. Agreements meant to reduce child labour, like the Harkin-Engel Protocol from 2001, floundered when the chocolate industry failed to meet its goals. Etelle Higonnet of Mighty Earth, a D.C.-based non-profit that works on environmental protection, says that a recent agreement designed to address deforestation, the World Cocoa Foundation’s Cocoa & Forests Initiative, is important—its 34 company signatories account for 85% of the world’s cocoa use—but still needs to deliver real monitoring and traceability.

While certification accounts for a small portion of the market, approximately 20%, it’s received a large amount of attention. In the last three years, two companies, Cadbury (a subsidiary of Mondelez) and Mars, distanced themselves from the Fairtrade and Rainforest Alliance certification standards they had committed to a decade ago and replaced them with their own programs, a move many consider problematic because of a lack of third-party oversight and international consistency.

While Mars had committed to selling 100% certified sustainable beans by 2020 and 50% of its beans were already certified by 2018, that year the company’s global VP of cocoa told Reuters that “certification isn’t enough.” Said John Ament, “Our belief is that we need to set more demanding standards than certification sets today.”

Ament isn’t alone in his critique of certifications. Mighty Earth’s Higonnet says that certification bodies such as Fairtrade and Rainforest Alliance need to commit to a higher price floor to address extreme poverty and implement more rigorous monitoring and intervention at every stage of production.

All of which makes traceability and transparency pivotal. To Higonnet this means “you know where your cocoa comes from, so you can discover all the problems in the chain, then start fixing them.”

Bonanni agrees. “There’s no excuse for a chain not to be traceable.”

On the platform today, 250,000 cocoa farms are mapped and traceable and thousands are being added each month for clients like Hershey and Mars. Sourcemap is working on a 100% traceable supply chain, including non-certified cocoa, by 2025—the first time non-certified cocoa has been mapped at scale and an important first step.

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I don’t think there’s a more iconic Easter treat than Cadbury Creme and Mini Eggs. Just seeing the packaging gives me a sugar high. Cadbury is a British confectioner that was bought by American food conglomerate Mondelez International (MDLZ) in 2010.

In 2016, Cadbury made the controversial announcement that it would be removing the Fairtrade logo from the front of its certified brands and replacing it with Mondelez’s in-house Cocoa Life program. While Cocoa Life claims it pays farmers at least as well as Fairtrade requires, questions linger about how stringently its internal guidelines will be applied. For its part, the Fairtrade Foundation says it remains an “implementing partner” and that FLOCERT (Fairtrade’s independent assurance and certification body) will continue to independently verify the supply chain of Cocoa Life as the program grows.

According to Mondelez’s Impact for Growth 2017 Progress Report, 35% of Mondelez’s cocoa was ‘sustainably sourced’ under the Cocoa Life program and the shift from Fairtrade to Cocoa Life covers five times the amount of cocoa previously certified Fairtrade.

While third-party seals have faced their share of criticism for not doing enough to improve the lives of farmers, industry watchdog Fair World Project isn’t impressed with the trend in leading manufacturers moving to self-certification, arguing that it leads to uneven standards, undermines consumer confidence and encourages “fairwashing.”

A fairwashing scandal could trigger a public relations nightmare, and I’d expect the stock to decline in that scenario. For now, I’m happy to see that Fairtrade is still working in partnership with Mondelez and produces an Annual Partnership Statement, but sustainable investors need to keep an eye on Mondelez.

Beyond ditching the Fairtrade logo, Mondelez has been slammed for its deforestation practices. Back in November, Greenpeace issued an entire report dedicated to Mondelez’s troubled palm oil sourcing called ‘Dying for a Cookie – how Mondelez’s dirty palm oil is driving the climate and extinction crisis.’ Greenpeace says that between 2015 and 2017, 22 of Mondelez’s palm oil suppliers cleared over 70,000 hectares of rainforest and almost 25,000 hectares of that was orangutan habitat. With lacklustre performance on other sustainability indicators,  Mondelez only gets one star.

We looked far and wide for the most sustainable chocolate company, but the companies doing really cool things are all either co-ops or private companies. Since we can’t invest in those, we decided to look at Swiss chocolatier Lindt & Sprungli (LISN). Lindt won the Good Egg Award from Mighty Earth in this year’s Easter Chocolate Shopping Guide as the chocolate company with the greatest improvement in sustainable policies.

Lindt also uses an in-house program called the Farming Program to measure progress on social and environmental impact. I’m impressed by their commitment to transparency with 79% of the cocoa beans in their supply chain both traceable and verified by The Earthworm Foundation, up from just 32% in 2015. However, like Mondelez, it doesn’t guarantee a minimum price to farm workers or use third-party labour or environmental certifications, which explains its lack of points for Clean Revenue (below).

Both companies are similar from an investment standpoint. Mondelez is much larger and more diversified, although they both have similar risk and return profiles. This week’s Sustainable Stock Showdown is practically a coin toss, although I’d give it to Lindt by a bunny’s whisker.

Either way, I’m going to satisfy my ‘hair of the rabbit’ craving by supporting Camino, a Canadian chocolate co-op with products that are certified as both organic and fair trade.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or tweet us!  

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing. Tweet him at @timenash.

The post Tim Nash’s sustainable stock showdown: Mondelez (Cadbury) vs. Lindt appeared first on Corporate Knights.

Lindt. Nestlé. Toblerone. Villars. Frey. Favarger. Cailler. The list goes on. And in places such as Geneva, the chocolate isn’t just for eating. Several spas in the country let clients bathe in a bubbling tub of liquid chocolate, no doubt a sold out offering on Valentine’s Day.

Chocolate, quite simply, is at the heart of Switzerland’s international brand and reputation as a global commodities hub. The Swiss are the biggest per-capita chocolate eaters in the world, with each citizen consuming 12 kilograms of the treat annually – about the weight of a large cocker spaniel, and nearly twice as much as the average Canadian.

But the luxurious days of bathing in a plentiful pool of chocolate may be coming to an end if predictions of a global cocoa supply shortage within the next five years come true. Last fall, Swiss-based cocoa manufacturer Barry Callebaut warned of the potential crisis – a big deal, considering the company processes nearly a quarter of the world’s cocoa beans. Company chief executive Juergen Steinemann called it a “serious concern” for the $117 billion (U.S.) global industry.

Two years earlier, the world’s largest chocolate maker, Mars, sparked anxiety among chocolate lovers when it said the industry could face a million-tonne shortage of cocoa by 2020. It also drew attention to the economic and environmental pressures faced by cocoa farmers at a time when demand for chocolate, particularly in developing countries such as China, India and Russia, is expected to grow by 30 per cent within the same timeframe. “It’s just not sustainable,” the U.K. president of Mars said.

To be clear, it’s not like Valentine’s Day will come to a sobbing halt, or for that matter Easter – which by the way is the top-selling chocolate occasion. It means that as demand rises and supply struggles to keep up, the amount and quality of cocoa in what we call chocolate will decline, replaced by imitation fillers. Alternatively, the price of higher-quality chocolate is expected to rise sharply.

A need for sustainable approaches

Switzerland is an interesting case study when it comes to rethinking the way the chocolate industry operates and interacts with cocoa suppliers.

Côte d’Ivoire and Ghana are the biggest cocoa suppliers in the world, representing 36 per cent and 22 per cent of global supply, respectively. They’re also the two biggest suppliers to Switzerland.

“Both face production bottlenecks that threaten cocoa exports in the coming years,” according to the Earth Security Index 2015, a report put out by London-based consultancy Earth Security Group.

“Swiss-based multinationals must go beyond traditional development and CSR approaches to think more creatively about business model innovations that will help smallholder farmers capture more value from the global chocolate market.”

There are many reasons for the bottlenecks in Côte d’Ivoire and Ghana. As Earth Security’s report points out, cocoa trees planted a quarter century ago have hit their production peaks and the land they grow on is no longer as fertile as it once was. “Without large-scale rehabilitation of land and trees production is likely to drop.”

Climate change is also taking its toll, and will continue to do so. Rising temperatures and changing rainfall patterns are affecting the availability of suitable land for growing cocoa trees and increasing the risk of disease.

The bottom line: it’s hard these days to farm cocoa, let alone eke out a living, with roughly 90 per cent of world supply grown on relatively small, family-owned plots. Most farmers are operating well below the line of poverty, forcing them to rely on child labour to lower costs. Alternatively, they abandon cocoa altogether in pursuit of more profitable crops, such as rubber or palm oil.

“Chronic poverty and poor labour conditions are driving an exodus from cocoa farming, just as a new generation of farmers must take the reins of production,” the report states.

The industry hasn’t been blind to these problems. In fact, it has taken some important actions. The largest 13 cocoa-dependent companies have invested hundreds of millions of dollars on sustainability programs, and through an initiative called CocoaAction, have worked with the World Cocoa Foundation to support thousands of farmers.

But efforts so far don’t go far enough. This has many industry observers calling for more innovative approaches, which some smaller and newer chocolate makers are proving can work. London-based Divine Chocolate, for example, has emerged as a successful fair-trade chocolate company that shares ownership directly with the cocoa farmers it relies on.

The company was founded in 1998 as a partnership between Twin Trading, a U.K. fair trade company, and the Kuapa Kokoo cocoa farmer cooperative in Ghana. Cooperative members collectively owns 45 per cent of Divine Chocolate and, on top of being suppliers also get a dividend from the company’s profits. The company, which counts Body Shop among its investors, also devotes 2 per cent of its revenues to farmer education.

Earth Security says this kind of increased integration with farmers is proving so far to be a sustainable model that’s driving positive change in the industry. “However, in order to reach the needed scale, similar innovations must be replicated by the larger players in the industry.”

The value of certification 

For now, the approach to sustainable cocoa production – and specifically, to combat forced and child labour – has been through compliance with sustainability standards, which have experienced strong growth over the past few years. There are four major standards that dominate the cocoa market:

• The Rainforest Alliance Certified seal assures that the cocoa has been grown and harvested using environmentally and socially responsible practices.

• Fairtrade-certified cocoa assures that no forced or child labour is used by cocoa farms, no agrochemicals are used, and that farmers, through membership in a local cooperative, never get paid less than the minimum floor price for cocoa, which assures they make a profit and don’t get taken advantage of by intermediaries.

• Organic-certified cocoa must be produced using natural methods, meaning farmers must adhere to a regime of regular crop rotation that relies on manure fertilization. This assures growing soil remains healthy and productive. Needless to say, no synthetic or toxic pesticides are permitted.

• UTZ Certified farms must used responsible agricultural practices, have a safe and healthy work environment, never use child labour, and meet a minimum standard for environmental protection.

These voluntary sustainability standards first began to appear in the late 1980s, but started to build some serious momentum in the late 1990s. Growth is expected to build, given that major chocolate companies Hershey’s, Ferrero and Mars, together representing nearly half of the confectionary market, have said they will source all of their cocoa supply sustainably by 2020. Which standard they will adhere to, however, is unclear.

To date, the most successful has been the UTZ Certified standard, which represents nearly 15 per cent of the share of global cocoa production, followed by the Rainforest Alliance certification at about 10 per cent. Organic and Fairtrade are far less popular, both sitting at 3 per cent of global production. This is likely because of the higher premium they fetch for farmers. For example, the premium for UTZ Certified cocoa is around 5 per cent, compared to about 18 per cent for organic cocoa.

That said, both organic and Fairtrade cocoa have experienced rapid growth over the past few years. The International Institute for Sustainable Development predicts that Fairtrade certification will continue along this trend, “particularly in light of public commitments by Cadbury and Hershey’s to source Fairtrade cocoa in the coming years, which will likely lead to reductions in the gap between supply and demand in the coming decade,” according to its State of Sustainability Initiatives Review 2014.

Certification may not be a panacea, but industry watchers say it’s a laudable start, perhaps paving the way to more creative business models like that pioneered by Divine Chocolate. Other attempts at addressing a feared cocoa shortage involve genetically modifying cocoa plants to grow in harsher conditions, resist pests and disease and increase their yield.

This may be part of the answer, but beyond concerns about the safety and health issues related to GMO products, the bigger worry for chocolate makers and lovers is that these new super-variety of plants will produce inferior tasting chocolate, the same way GMO strawberries – while larger and more robust – tend to be flavourless and lacking in the rich redness of wild strawberries.

As you savour chocolate treats this Valentine’s Day, ask yourself: How much flavor are you willing to sacrifice? And how much more would you be willing to pay for sustainably grown cocoa and responsibly produced chocolate to satisfy your chocolate cravings?

One thing is for sure: bathing in chocolate in Geneva is going to get mighty expensive.

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