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Wholesale Banking

Tasting good – and doing good

Barry Callebaut has a long pedigree when it comes to sustainability and the company has just embarked on a new chapter that will transform the lives of the farmers it works with.

For most of us, chocolate is an occasional luxury: it’s associated with pleasure and relaxation and few consider where chocolate comes from. But the journey from the cocoa farms of West Africa and elsewhere to the mouths of Europe, the US and Asia is one of the most contentious in the food industry. Cocoa beans are at the forefront of debate about sustainability and the responsibilities of companies working in some of the world’s most impoverished countries.

According to Remco Steenbergen, CFO of Barry Callebaut, the world's leading supplier of high-quality chocolate and cocoa products, which has about 11,000 employees and sells its products to customers in approximately 140 countries, sustainability is especially important in the chocolate business because of the structural issues in the value chain. “Low productivity on cocoa farms as a result of poor agricultural practices, nutrient depleted soil and ageing cocoa trees is keeping many farmers in a state of poverty,” he notes.

Poverty prevents cocoa farmers from investing in their farms and in new farming practices to increase productivity and boost their incomes. “In addition, poverty keeps farmers from hiring professional workers, forcing them to rely on their family members, including their children, to work the fields,” explains Steenbergen. He believes that making sustainable chocolate the norm will not only benefit farmers in Barry Callebaut’s supply chain but is the only way it can thrive as a company.

“Our sustainability efforts have a clear moral case, but also a clear business case: after all if there is no cocoa there will be no chocolate,” says de Steenbergen. Taking a sustainable approach also helps the company support customers, which are increasingly switching to sustainable products. “Plus employees feel proud of working for a company with a good purpose,” he adds. “We call this doing well, by doing good.”

A new approach to sustainability

While sustainability has been at the heart of Barry Callebaut's business strategy since its parent companies began operating more than 150 years ago, as its insights have progressed, it has regularly assessed and updated its tools and policies. “Forever Chocolate is the next phase: it is more ambitious, setting clear targets and timelines,” says Pablo Perversi, chief innovation, sustainability and quality officer at Barry Callebaut.

Forever Chocolate is a new approach to cocoa farming, which generates social and environmental benefits to cocoa farming communities. “Cocoa farmer poverty is directly impacting child labour and deforestation,” notes Perversi. “So tackling farmer poverty is our starting point.”

In February, Barry Callebaut launched the first pilot of this new approach in Indonesia. In the coming months it will launch similar pilots in four other cocoa sourcing countries. Forever Chocolate will also result in clearer reporting so that progress and lessons learned can be more easily identified and applied elsewhere. The first progress report was published in December 2017.

Crucially, improving sustainability is not something the company can accomplish on its own. “We want to inspire the building of a movement to make sustainable chocolate the norm by 2025, because we know the destination, and want to learn how we can get there quicker,” says Perversi. “We require industry partners, non-governmental organisations, governments, and academia to join us on our journey,” he adds.

Immediate results – and long-term change

Barry Callebaut’s Forever Chocolate strategy is already delivering practical results. The company is working with the Dutch Sustainable Trade Initiative (IDH) on the Initiative Sustainable Landscapes project, which focuses on increasing the productivity of cocoa farmers around Tai National Park and the Cavally Fôret classé in Côte d'Ivoire.

The company has also set up a risk- sharing facility with IDH and the International Finance Corporation (the private sector arm of the World Bank) to enable it to lend to farmers to invest in productivity packages. Other initiatives include funding training for women and seeking to eradicate deforestation from the cocoa supply chain by declaring a moratorium on the conversion of forest land for cocoa production and the sourcing of cocoa from national parks.

Despite numerous short-term wins – Barry Callebaut trained over 157,000 farmers in good agricultural practices in 2016/17 – the company recognises that change will take many years: its strategy focuses on taking 500,000 cocoa farmers out of poverty, eradicating child labour, having a net positive impact on carbon and forests and using sustainable ingredients by 2025. “This is a big project and 2025 is therefore extremely ambitious,” says Perversi.

Using technology to improve sustainability

Barry Callebaut is committed to using technology to improve its supply chain. It is using more energy efficient process technologies, such as continuous conching and high-speed refining, and has implemented a number of continuous improvement initiatives to increase the output and utilisation of its assets, including optimised planning and scheduling and downtime reduction.

Rather than dramatic transformation, many of Barry Callebaut’s uses of technology are about making incremental changes that, when aggregated, yield significant benefits. “Through our maintenance programs we have systematically replaced older equipment with more energy efficient equipment, including high yield electrical motors, energy efficient lighting and gas burners,” explains Perversi.

Similarly, better planning of the company’s internal product flows – mainly between origin countries and consuming countries – has reduced its internal transport needs. “We are in the process of introducing digital solutions to better monitor our process performance which will result in higher efficiencies on output and energy,” says Perversi.

Barry Callebaut is currently evaluating how it can use new technologies like digitalisation, big data analysis and automation to create added value in its business. “We expect that these new technologies will improve our operational performance and lower our energy consumption per ton of product, contributing to our sustainability goals,” says Perversi. “Blockchain, for example, can [improve] product traceability and quality assurance. And our cloud-based traceability app Katchilè, enables us to assess the needs of cocoa farmers in our programmes.”

Regardless of new technologies, the cocoa business will nevertheless remain primarily a people business. “The use of big data to better understand the world around us, or grasp the full potential of a cocoa bean, will drive progress,” says Perversi. “However human creativity will remain absolutely fundamental to using these building blocks.” He adds, with a smile: “Artificial intelligence could have never invented chocolate.”

Aligning finance with the business

Unsurprisingly, given the importance it plays in its business, Barry Callebaut’s approach to finance is also informed by its sustainability strategy: in June 2017, it completed a Green Revolving Credit Facility with ING acting as sustainability coordinator, providing advice on structuring and implementation to a syndicate of 13 international banks. “This innovative financing product perfectly fits into the Group’s Forever Chocolate initiative," says Steenbergen. “Additionally, the debt capital markets in general are gradually becoming greener, a trend that we, as a leader in the industry, want to support and be part of.”

The margin Barry Callebaut pays on funds borrowed under this facility is linked to its sustainability rating as assessed and determined by Sustainalytics, an independent, global research and ratings’ provider. “This important feature helps the finance organisation to contribute in a tangible way to our sustainability efforts and mission,” explains Steenbergen. His personal belief in sustainability is tangible: “I strongly believe in a just society, where everyone is empowered to thrive and agreements are respected. I think that a just society is a sustainable society and vice versa.”