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Strategy & Organizations

Inequity, the guilty and not so hidden side of cocoa supply chains

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The cocoa supply chain is among the top 5 agricultural commodities traded in international markets, with an estimated value approaching $200 billion in 2026, 60% of which comes from the Ivory Coast and Ghana. However, chocolate seems to be truly a guilty pleasure.

Currently, the whole cocoa supply chain is unsustainable and unfair for the farmers who earn $0.5 per day on average, which is below the poverty threshold set by the World Bank at $2 per day. More so, a set of unwanted externalities plague the cocoa supply chain like child exploitation, illiteracy, political instability, corruption, deforestation, and lack of information. Supply chain equity is currently a utopic goal in many global agricultural supply chains.

The attempts to improve supply chain equity include Fair Trade, Organic Movement, Rainforest/UTZ certification, and voluntary corporate commitments such as Tony’s Choco Lonely. Although notable improvements are made, they are primarily local and circumscribed, and the problem from a systemic perspective still needs to be solved.

Problematic hourglass shape

In cocoa producing countries, more than 5 million small-scale local farmers produce and work without automation or machinery. After the two harvesting seasons per year, the cocoa receives initial processing in the field, is aggregated into gradually larger batches, and transported to local collection centers. At this stage, multiple intermediaries are involved for transportation, storage, and financing.

Since local consumption, although growing, is still close to zero, the next step is the export and processing of cocoa beans into semi-finished products. Processing into semi-finished products occurs mainly in importing countries. 5 multinational companies control around 60% of the exports for historical, regulatory, and efficiency reasons. Export is by container ship, usually in 25-ton batches.

The companies producing the final product are in Europe and North America and absorb almost all the global production of cocoa beans. Market concentration is very high at this stage, with ten multinationals dominating nearly 50 percent of the final market. Because of their physical characteristics, Cocoa beans can be stored for up to 5 years without losing quality. Consequently, Europe and North America maintain very high reserves throughout the year.

Finally, chocolate arrives at the final market with an audience of millions of consumers. This configuration gives the supply chain an hourglass shape, with millions of producers and consumers and a handful of multinational corporations controlling the central part of the chain.

Figure 1: Cocoa Supply Chain Source: Agricultural value chains facing the biodiversity challenge: the cocoa-chocolate example
Figure 1: Cocoa Supply Chain
Source: Agricultural value chains facing the biodiversity challenge: the cocoa-chocolate example

Supply chain equity

The supply chain management field has recently incorporated the concept of equity within its sustainable development paradigm, the latter composed of three dimensions: economic, environmental, and social. Economic equity ensures that all members receive fair monetary compensation for their contribution to the supply chain and involves equitable profit-sharing mechanisms. Environmental equity refers to the mechanisms that ensure an equal distribution of environmental responsibilities and the removal of environmental harms like pollution, resource depletion, waste, or energy consumption. Finally, social equity consists of the joint adoption of fair and social practices by all supply chain members, ensuring that their activities do not discriminate against people based on race or gender while providing safe and fair working conditions.

Asymmetric bargaining power

In a study conducted by myself and my colleagues*, several industry experts were interviewed and dozens of governmental and company reports were analyzed. Various challenges to supply chain equity emerge, with bargaining power asymmetry being the most important. It refers to an entity’s ability to shape a business relationship’s terms and conditions to its advantage by possessing and exploiting distinctive and valuable resources.

Bargaining power is highly influenced by two key factors: information asymmetry and financial asymmetry within the supply chain. Information asymmetry consists of an uneven distribution of critical information among supply chain members, leading more informed parties to better negotiate contractual terms. Similarly, financial asymmetry refers to the uneven distribution of financial resources and capabilities among the members. The members with greater financial strength can have more influence and control over the supply chain, from pricing and procurement to distribution and marketing.

Farmers mostly lack access to vital information that could strengthen their bargaining position. This lack of information includes insights into end-market prices, consumer preferences, weather forecasts, and warehouse saturation in European markets. Even when farmers do manage to obtain part of it, the majority need to be more literate and thus able to fully understand or capitalize on the information they have.

Farmers also find themselves grappling with dire financial circumstances, with many living at or below the poverty line. This financial vulnerability necessitates quick sales and immediate cash payment, as farmers generally lack access to credit and banking facilities. Conversely, traders have broader financial tools to manage their fiscal requirements. The financial asymmetry influences the negotiating power of the parties involved and, consequently, the price that farmers can command for their cocoa.

Blockchain as a potential solution

Uneven distribution of information access and financial resources results in disproportionate bargaining power and unjust situations. Among the possible solutions, blockchain technology can be an effective candidate to mitigate both information and financial asymmetries; in fact, blockchain provides a transparent and decentralized ledger that ensures equal access to critical data for all supply chain members and facilitates secure and equitable financial transactions.

With the help of blockchain, we can record and store dozens of pieces of information, including quantities mobilized, exchange prices, geographic origin, product quality, and the actors who produced and oversee the cocoa along the supply chain. This information is collected using side technologies such as mobile devices capable of accessing blockchain without an internet connection. These devices are given to farmers or delegates to collect information in the field.

Towards fair pricing

International organizations and governments should improve the education level of farmers, who are currently at a disadvantage in supply chain negotiations due to their inability to read and understand available information effectively. This target aligns with the 10th Sustainable Development Goal (SDG) of the United Nations on reduced inequalities, SDG 4 on quality of education, and SDG 8 on decent work conditions. Having better information, farmers can negotiate more advantageous financial conditions.

Alongside these educational and information transparency initiatives, governments and organizations should increase farmers’ access to credit through subsidized schemes and ensure fair pricing throughout the supply chain.

These objectives could be furthered by integrating blockchain technology, focusing first on information symmetry and then on financial balance.

*This article is based on an ongoing study conducted by Daniel Ruzza (Bocconi University, Milan, Italy), Wissam El Hachem (emlyon business school, Lyon, France), Pietro De Giovanni (SDA Bocconi School of Management, Milan, Italy), Frank Wiengarten (ESADE Ramon Llull University, Barcelona, Spain).