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Ethical chocolate: 21st century Willie Wonkas

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In an industry tainted by human rights abuses and ecosystem destruction, starting a chocolate factory can be bittersweet. Dagoba founder talks about fair trade, organic, and shade-grown and more.

The worldwide chocolate market is worth more than 60 billion dollars annually. Despite the profits of Big Chocolate -multinationals like Nestlé, Hershey, M&M Mars and Cadbury-, cocoa farmers often work for as little as a dollar a day.

In West African countries like the Ivory Coast- where 40% of cocoa originates-, journalist reports of child slave labor have led to action by the US Congress.

But the Cocoa Protocol– an attempt to withdraw a guarantee from chocolate manufacturers that their product is “slave free”- has been delayed for years.

Human rights allegations are only a part of the problem facing the conventional chocolate industry. Motivated by the promise of a higher-yielding crop, some cocoa farmers have been clearcutting rainforest to plant a non-native type of cacao.

Back in 2001, 30-year-old Frederick Schilling entered this marketplace knowing little about the product, but that he wanted to do good. Six years later his Dagoba Chocolate company wants to be a model of equitable chocolate production. We talked to Schilling in Dagoba‘s Ashland, Oregon headquarters.

“I didn’t like chocolate as a child. I was a declared religion major at school and it wasn’t until I realized the importance of cacao in the Mesoamerican cultures that I really kind of honed in on chocolate and cacao. Once I started learning about the importance of it in the culture of the Mayans and the Aztecs, I dug deep and it latched on pretty quickly.”

“I started experimenting with chocolate. I started doing research and realized that cacao being a rainforest tree, it can be very beneficial to rainforest conservation and potentially reforestation.”

Part of the response is looking back: returning to the shade-grown cocoa plantations

Traditional cocoa plantations are shade grown: the cacao trees are planted beneath larger cover trees and grown with few or no pesticides. According to the Rainforest Alliance, shade-grown cacao grows in harmony with natural forests. “Historically, cocoa farms served as refuges for a wide range of animals, including howler monkeys, ocelots and parrots.”

More recently, some cocoa growers have begun clearcutting rainforest to plant a full-sun hybrid. This variety can produce a higher yield than the native cacao, but it is more prone to bugs and requires more pesticides and fertilizers.

The Rainforest Alliance warns that this newer way of farming has proved disastrous for the local ecosystems. “The forest clearing and agrochemical use required by full-sun cocoa hybrids has increased erosion and run-off, which reduce soil fertility and contribute to water contamination and health problems.”

Recognizing the rainforest destruction as well as the loss of heirloom varietals often associated with conventional cocoa production, Schilling decided to source only organic, shade grown cacao for his young company. Instead of relying on a faceless commodities market for his supply, Schilling travels to his sources.

“One of my passions is working directly with the farmers so one of my jobs is to travel directly to the source and not only work with the existing farmers, but also look for new sources of cocoa.”

“The cocoa originally came from Mexico, in Chiapas. Every country that has cocoa in it has a story so I like to go down to new regions where they grow cocoa, but they’re not really known for their cocoa. Their reputation is not developed yet. I love going down there, working with the growers helping to improve their post harvest handling, the fermentation and drying, which is very very important for good tasting chocolate.”

In praise of good cocoa; plus fighting high interest loans

“I’ve been speaking with this newly formed co-operative [Red Guaconejo Cooperative], a group of about 200 farmers who live in the Guaconejo Reserve in the Dominican Republic and it’s crucial for the headwaters for a lot of the Dominican Republic’s drinking water. It’s very important that we preserve the water shed and the forest there. And cocoa is the conservation crop. I’m working with this group of farmers and I’ve also been working with the World Bank for the last two years.”

“A big issue for farmers in developing countries is access to loans. This one co-operative is paying 30% annual interest rate on the loans they have. In a developed world a 30% interest rate is unsustainable. Now you’re talking about cocoa growers that make about $10 a day. I’m actually going down there next week to this co-operative with a couple people from the World Bank to get them a low interest loan, about 5-6%, with the guarantee that I will buy their cocoa. It’s a great model for developing sustainable supply chains from the farm all the way to the consumer.”

The demand for organic chocolate is growing rapidly: worldwide, it nearly doubled between 2002 and 2005 and in the US in 2007, it grew by 49%. Growth is limited by current supply since farmers can’t simply plant trees and harvest immediately. A newly-planted cacao tree takes 4-5 years to bear fruit.

To take advantage of an untapped supply of organic beans, Schilling is targeting an uncertified crop with potential.

“The organic market is an emerging one and for chocolate it’s still very young. Ninety-eight percent of the world’s cocoa is grown organically by default simply because the growers can’t afford chemical inputs. It’s simply getting the farms certified organic. Why even get certified? Why should they pay money to fill out paperwork? So manufacturers like us go and help them with the certification process and even fund it.”

“If we start promoting these countries that we source from then all of a sudden a lot of other chocolate manufacturers want that cocoa. So it’s really just helping to get the momentum going to the larger industry and growers around the world.”

It’s not about planting more trees

Schilling also works to help farmers- the majority of whom work small farms- maximize output with their existing trees.

“Cocoa is a fruit. It is a fruit tree. So if we can teach them proper pruning techniques and help maximize the output of the farm they could potentially double or triple their income with the trees they have. It’s simply working with the farmers with what they have.”

Certified organic farmers are guaranteed a higher price for their beans, but for Schilling this isn’t enough. As a manufacturer of premium chocolate- a market that has grown by 20% since 2001-, he pays above organic price as well.

“In the realm of chocolate that we produce we buy very expensive beans. We’re not buying the bulk beans that exist in the world so we’re always paying above world market price. We’re always paying above fair trade price.”

The meaning of organic and fair trade in the chocolate realm

Some of the Dagoba products are Fairtrade certified, but not all. While Schilling pays more than the fair trade prices minimum for all of his beans, the label doesn’t fit all of his products.

“For example, the paquare comes from a single farm that comes from an individual. He can’t be on the fair trade system because it’s a privately owned farm. Yet he gives his farmers free medical, pays above minimum wage in Costa Rica which is a good wage.”

“The fair trade system is really there to make sure the farmers are getting a fair price for their raw commodities. That’s the baseline principal of fair trade. In organic cacao the baseline price is 2,100 dollars per metric ton for beans. And in my opinion that’s a low price. We’re paying upwards of 3,500 dollars per metric ton for our cacao. Actually, I’m going to a farm in Madagascar and I’m paying 4,500 dollars per metric ton- twice the fair trade base price-. What’s the point of this particular farm joining the FLO system? Sometimes, it seems there’s no need.”

One same answer to every individual?

“You can’t apply the same answer to every location. Fairtrade as an example. They have a system that says the base price for cacao is say 2,100 dollars per metric ton, regardless of a minimum wage law in a country, the standard of living in a country. The standard of living in El Salvador is going to be very different than the Ivory Coast. Can you actually take one system and apply it in each country where the standards in each country are different? I don’t think so. It’s got to be a case-by-case experiment. It’s got to be adjustable. There has to be that flexibility.”

Rather than rely simply on labels like fair trade and organic, Schilling believes it’s up to the consumer to educate themselves.

“For anything that we buy we should take the time to research it. It doesn’t take that long. We don’t consume so many different products that it’s going to take years to research the things we eat. Especially in this day and age with the Internet. You can easily look into a company and see what their philosophies are in their supply chain. It doesn’t take that much effort. We owe it to ourselves, as consumers, to research these companies to see what their buying practices are.”

The best way to help farmers

“If the question was asked, ‘What is the best way to help the farmers?’, 4 years ago I would have said: fair trade, organic. Today, I don’t necessarily believe that organic certification and fair trade certification are necessary. They help, but what is most important is just guaranteeing that the supply chain is sustainable and it has to end at the consumer.”

The growing market for organic and fair trade chocolate grows has sent Big Chocolate looking for a piece of the action. In 2005 Cadbury Schweppes purchased Green & Blacks- the UK’s leading supplier of organic chocolate and manufacturers of Britain’s first Fairtrade-certified product (the Mayan Gold chocolate bar in 1994).

In 2006, Dagoba was bought by Hershey’s, the largest chocolate maker in the United States. While Hershey’s doesn’t have a track record in the equitable chocolate trade, Schilling saw it as an opportunity to teach a much bigger company how to do business in the 21st century.

Deep in the supply chain

“For the last 50 years the American consumer has been spoiled with low cost products and they’re not sustainable and now the structure of our supply chain is falling apart. Everyone from Pepsi Cola to Dagoba to start-ups are grappling with this idea of a sustainable supply chain. How do we make our products and our world more sustainable? It’s happening across all sectors.”

“For the last 50 years our consumption model has been based around low cost goods, low retail price. Anytime you have a low retail price we’re squeezing the farmer or the manufacturer down lower and lower so they can’t be sustainable in their own livelihood.”

“I think what we’re going through right now is the grand adjustment. Over the last 500 years of incredible expansion and exploitation. In the last 20 years we’re starting to realize we need to make some changes in our supply chains. Organic, fair trade are probably some of the answers. They definitely help.”

“Is there room for improvement? By all means, it’s about a constant evolution of the systems that promote balance, sustainability, justice… You know, all these things that we grapple with on a daily basis.”

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