Nestlé’s cocoa crisis response summary: how it’s managing supply
- Cocoa prices have quadrupled due to climate change impacts on production
- Nestlé secures supply through long-term farmer partnerships and diversification
- Farmers face lower yields while higher cocoa prices are delayed
- Sustainability programmes boost farmer income, productivity, and long-term resilience
- Agroforestry initiatives protect cocoa trees and futureproof global chocolate supply
Although concentrated in West Africa, the cocoa crisis is being felt far and wide. All chocolate makers are grappling with cocoa shortages, leading to eye-watering price hikes. Not all businesses will make it, but so far it’s looking like the big ones will.
Nestlé is a prime example. The maker of chocolate favourites like KitKat, Aero and Smarties is weathering the storm and planning for a future firmly cemented in cocoa.
Nestlé sees cocoa prices quadruple
There is no single cause of the cocoa crisis, but fingers can be pointed at climate change. That’s where Nestlé’s cocoa manager Darrell High is looking.
“I’ve been involved in cocoa for 25 years, and what we’ve seen over the last couple of seasons has been exceptional.”
He links lower cocoa production in West Africa, where the vast majority of the world’s cocoa is sourced, to changing weather patterns, “typically because of climate change”. As per the basic rules of supply and demand, when the shortage hit, prices spiked. They quadrupled, recalls High, describing the shock as the biggest he’s seen in 25 years.
Like all chocolate makers, Nestlé has felt the pinch. In the UK, the company has had to drop the word ‘chocolate’ from its white chocolate KitKat after cocoa butter levels dropped below the legal minimum.
And Nestlé’s recent half-year results showed a dip in real internal growth for its confectionery portfolio. Like many in chocolate, it’s been raising prices to manage high cocoa costs, and consumers are starting to feel it.
But supply is secured, at least for now. “We’ve been building up long-term relationships with our suppliers and farmer cooperatives, and this has really helped us in a period of deficit,” explains High. “We want to be their best buyer – their preferred buyer."
Diversification of sourcing is also important. Most of Nestlé’s cocoa comes from West Africa, but not all. The chocolate maker is also sourcing from Latin American countries like Ecuador and Brazil.
What price fluctuations mean for cocoa farmers
So we know how the cocoa crisis has hit Nestlé, but what about its impact on Nestlé’s farmers?
Well, for cocoa farmers across the board – whether they supply Nestlé or not – the cocoa crisis hasn’t been good. It takes time for high prices to filter through to farmers because of national selling systems, explains Nestlé’s cocoa chief. But equally, lower prices also take time to reach farmers.
“At the moment, it’s a double whammy for farmers, with lower production and not yet the higher prices.”
On the financial side of things, Nestlé says it’s working to increase farmer income and boost productivity from the same area of land. Sustainability programmes like the Cocoa Plan and the Income Accelerator Programme are a win-win.
How does Nestlé's Income Accelerator Programme work?
The programme aims to help boost cocoa farmer incomes. If farmers take on new agricultural techniques such as pruning, take part in agroforestry programmes, and develop aditional sources of income, they can earn additional money. Half the money goes to the farmer, and half to the spouse - as further encouragement for their children to go to school.
“They help our business become more resilient in the face of these events,” says High. And the results are encouraging: Nestlé sees an improvement in resilience for farmers and their households. “We see them building their assets and improving productivity.
“We see that all moving in the right direction, to help the farmers, our supply and our business.”
It’s a double whammy for cocoa farmers, with lower production and not yet the higher prices
Darrell High, cocoa manager, Nestlé
How Nestlé is securing cocoa supply for the future
The chocolate sector is not just grappling with volatile cocoa prices, but with the genuine risk of limited cocoa supply. Nestlé is among those working hard to help futureproof the commodity, according to High. Primary risks include weather and climate change: “We’re seeing longer periods of drought and erratic rains.”
The answer lies in building resilience in the cocoa plantations, so that in periods of drought, trees can withstand longer periods of harsh sunlight and less rain. One initiative is to help farmers grow forest trees on their cocoa farms, explains the cocoa manager. “We need shade during period of harsh sunlight. Likewise, cocoa trees also need shade to help them through periods of drought.”
This falls under the umbrella of agroforestry – a key lever Nestlé is pulling to secure cocoa supply for the future. The company is encouraging farmers to move away from a monocrop culture, to embrace other forest and fruit trees. “We supply these forest and fruit trees to farmers as saplings, and eventually they grow higher than the cocoa to cast shade and help famers through difficult climate change.”
These kinds of sustainability initiatives aren’t just required to futureproof supply, they’re demanded by the other end of the supply chain: the consumer.
Shoppers used to be happy with sustainability certification, but now they want much more than that, says High. “They expect all the compliance to be done, all the audits. They expect companies to go beyond that and do added-value programmes.”
Through programmes like the Cocoa Plan and its Income Accelerator, Nestlé says it’s listening.
Darrell High, cocoa manager at Nestlé, is speaking at our Climate Smart Food broadcast series. It’s available to watch now on-demand.
You can find more information on the programme and register for free over at our Climate Smart Food website.