Creating Sustainable Value in the Cocoa Sector through Mutual Ownership
Abstract and Keywords
Divine Chocolate, a UK-based Fairtrade confectionary company has an innovative ownership model in which a Ghanaian farmer-owned co-operative supplies its cocoa and owns 44 per cent of the Divine Chocolate business. The co-operative shares in the profits of the business and has a say in the running of the company, including being represented on the board of Divine Chocolate. It thereby seeks to address the numerous challenges facing the chocolate industry of farmers’ income, low productivity, price instability, child labour, and deforestation, driving many people to leave cocoa farming. Divine Chocolate has had a significant impact on practices in the chocolate industry and expects this to increase as its business expands.
Founded in 1998 and designed as a social enterprise driven by a social mission, Divine Chocolate is a UK-based Fairtrade confectionery company that also operates in the United States. With offices in London and Washington DC, the business maintains strong partnerships with a variety of NGOs, and in 2017–18 brought in an annual revenue of £15 million.1 Well-known companies including the Body Shop have supported Divine Chocolate and its organizational mission. Divine Chocolate has approximately twenty UK employees and twelve US employees.
The company, which began selling its chocolate bars within the UK market but now sells globally, is known for its distinctive ownership model. The Ghanaian farmer-owned co-operative Kuapa Kokoo supplies the cocoa and owns 44 per cent of the Divine Chocolate business. Crucially, the smallholder farmers, as co-owners of the business ‘get a share in the distributed profits, a say in the company, and a voice in the global marketplace’.2 This joint-ownership model between cocoa growers and retailers enables farmers to earn more for their cocoa and to see their interests reflected higher up the value chain.
(p.326) Significant environmental, social, and commercial challenges face the cocoa sector. Deforestation, child labour, and low farmer incomes all threaten the world’s cocoa supply. With a host of issues facing the entire sector, questions remain as to whether confectionery businesses will be equipped to address the reputational challenges and supply pressures associated with cocoa farming. Threats to the cocoa sector’s long-term viability and production require multi-pronged solutions to ensure the sustainability of cocoa production.3
Pain Points in the Ecosystem
The significant and complex problems facing the cocoa value chain are well known. Every year, multilateral initiatives invest huge amounts of time and resources into tackling the key issues of farmer income, low productivity, price instability, child labour, and deforestation. Multi-stakeholder groups such as the World Cocoa Foundation and the International Cocoa Initiative work to promote cocoa sustainability and to protect children from the abuses of child labour.4
To compound matters, cocoa is grown by highly vulnerable smallholder farmers, many of whom live below the poverty line. Given their position, farmers have little or no ability to invest in their farms and to improve their livelihoods. The challenge of sustainable livelihoods persists throughout cocoa-growing communities and, in many cases, farmers receive less than 6 per cent of the price paid by consumers.5 Cocoa-growing communities, as a result, struggle with the difficulty of boosting farmer incomes. This makes Fairtrade’s decision to provide cocoa farmers with a living income all the more important.
Perhaps unsurprisingly given these myriad challenges, the next generation of potential cocoa growers do not wish to work as smallholder farmers. This lack of incentive to continue to farm represents a significant obstacle in the way of meeting the world’s ever-growing demand for chocolate. Media coverage of this issue has sounded the alarm as limited supply struggles to keep pace with global demand. With the growth of consumer markets in India and China, coupled with ‘the remarkable and still growing Western taste for chocolate with everything’, research (p.327) suggested that the world might face a ‘global shortage’ of cocoa by the year 2020.6 But a cocoa glut and lower demand from China, as seen recently in 2017, in fact led to a fall in price. This inability to predict demand accurately makes it especially urgent to identify sustainable solutions across the cocoa value chain.
Naturally, confectionery businesses, many of which rely on cocoa as the primary ingredient in their products, also want to address the challenges facing the sector.7 Divine Chocolate’s ownership structure may present one model to address widespread and persistent problems within the cocoa supply chain. The social enterprise has set its business strategy to engage alternative governance and ownership models, which aim to empower the weakest in the ecosystem so that they are able to share in a greater proportion of the benefits. Divine Chocolate believes that it has developed a prototype for organizing more equitable cocoa supply chains that deliver not only better livelihoods for farmers, but also tackle problems seemingly endemic to the sector.
Integral to Divine’s mutual business strategy was creating the platform for the farmers themselves to be represented higher up the value chain. Divine’s story begins with Kuapa Kokoo, a Ghanaian Fairtrade co-operative set up in 1993. In order to sell and distribute its cocoa the co-operative voted to set up its own Fairtrade chocolate company. With the help of Comic Relief, Twin Trading, the Body Shop, and Christian Aid, Divine Chocolate was launched in 1998 and now reaches multiple international markets.
Today, Kuapa Kokoo owns 44 per cent of Divine, with the remaining shares held by Oikocredit, Twin Trading, and three other smaller social investors. Profits are simply distributed according to shareholding and Kuapa Kokoo has full voting rights. Kuapa Kokoo is able to determine the use of the Fairtrade premium, and Divine dividends democratically align spending with its own principles at the co-op level. In terms of governance structure, two co-operative members sit on the board of Divine Chocolate and are involved in all decision-making.8 There is (p.328) also a shareholder agreement and other policies that align the interests of all shareholders. Divine’s ownership model gives the cocoa farmers the opportunity to be more involved in management decision-making than a usual governance structure would allow.9 These leadership roles and representation at the highest levels of the company ensure that smallholder farmers play a substantive and determinative role in making business decisions for Divine.
In practical terms, Divine purchases its cocoa directly from Kuapa Kokoo via Cocobod, the Ghanaian government-controlled institution that fixes the buying price for cocoa in local currency, at the guaranteed minimum Fairtrade price of $2,000 per tonne and pays an additional premium of $200 per tonne (NB at the time of writing the Fairtrade price and premium are about to be increased).10 Divine, moreover, re-invests 2 per cent of its turnover back into its traceable supply chain, which it manages in its entirety.11 This is in addition to the amount Kuapa Kokoo receives from cocoa sales, Fairtrade premiums, and dividends. For example, Divine has funded a series of Kuapa Kokoo radio programmes which help the co-operative reach its eighty-five thousand members, who live across a vast geographical area. Listening to the radio is very popular in Ghana, and the programme discusses cocoa news, farming techniques, pest-control issues, and democratic decision-making techniques. Divine shares are also an asset on the balance sheet of Kuapa Kokoo, which can then act as security for borrowing, such as for pre-finance, historically a big issue for farmers.
Furthermore, to advance the goal of gender equality, the enterprise has initiated several key practices; and Kuapa Kokoo helps deliver women’s empowerment through training and mentoring.12 For example, introducing quotas (two out of five farmers on the village committee have to be women) has resulted in 35 per cent female membership of the Kuapa Kokoo co-operative.13 Moreover, the success of the co-operative ownership structure and re-investment strategies has enabled capacity-building initiatives designed to improve women’s well-being, particularly in terms of education and equal access to resources. Fairtrade contributions have also helped advance community-building initiatives. Beginning in 2014, with funding from Divine, Kuapa Kokoo initiated several literacy and numeracy programmes, which help women become full participants in (p.329) business activities. Nearly 70 per cent of all programme participants are female and have had little to no previous access to schooling. Building participants’ confidence through training aims to help overcome barriers to positions of leadership and responsibility that many women face.14
In addition to leadership skills, the co-operative also offers workshops to help farmers develop alternative means of livelihood during the off-season. These aim to empower women by providing them with a steady source of income.15 Taken together, these mutual practices ultimately help bolster women’s contribution to household income and increase their ability to participate in the global marketplace. Citing the prominent role of women as a ‘key ingredient’ in the enterprise’s success and reflecting its support of goal five (gender equality) of the UN Sustainable Development Goals (SDGs), Divine Chocolate has instituted practices and marketing strategies that affirm its commitment to women’s empowerment.16 Significantly, women hold key roles throughout the organization, from the very top to the bottom of the value chain.
Divine also helps Kuapa Kokoo to develop further its own governance structures. The farmers’ co-operative is made up of the main Kuapa Kokoo Farmers Union, which comprises fifty-seven districts (each with its own committee) and 1,300 village societies. Members are able to stand for election to the village, district, and Union committees every four years. The Union also owns a Licensed Buying Company that purchases some 60,000 tonnes of cocoa from its members each year, representing around 5 per cent of the Ghanaian cocoa market. The Ghanaian cocoa industry is government-controlled, so all cocoa is sold on to the government agency Cocobod, which handles exports. Cocobod also regulates the price paid to farmers for their cocoa.
Divine Chocolate has generated over £100 million in sales since it started, and during the twelve-month period between June 2016 and June 2017, Divine bought 953 tonnes of cocoa beans from Ghana, ‘all with a Fairtrade premium paid to farmers of $200 a tonne’.17 At the same time, Kuapa Kokoo has seen its membership grow from two thousand (p.330) at its start to over eighty-five thousand in 2018.18 Additionally, the co-operative provides 5 per cent of Ghana’s cocoa and, as noted previously, 35 per cent of its members are women.
The farmer-ownership model of Divine Chocolate has seen the development of self- governed services that many multinational corporations spend tens of millions each year with suppliers and NGOs to cultivate. For example, Kuapa Kokoo has its own child labour awareness programme. This initiative promotes the policy of not tolerating the worst forms of child labour, emphasizes the need for children to attend school, and educates co-operative members on ways to help their children avoid any hazards on the farm. Additionally, an outreach team is responsible for spreading news and disseminating the latest techniques and farming practice. To help ensure that a variety of voices are included in the business, there are regular meetings at village, district, regional, and national levels, as well as at Divine Chocolate’s annual general meeting.
Divine Chocolate is not immune to the logistical and cultural challenges inherent to the cocoa supply chain. Promisingly, however, the social enterprise’s mutual practices have seen success, which opens up possible avenues for expansion. As it reinvests in the local community, Divine Chocolate increases its ability to improve its operation and grow its business.
The social enterprise remains committed to its founding principles, believing that positive performance stems from cultivating social capital in the form of collective and transparent decision-making. From its start, Divine Chocolate factored community well-being, collective action, and trust into its business model.
Some may question whether the business will be able to retain its ethos of mutual practices and reach a truly transformational scale. However, others argue that the purpose of a social business is growth and profit that maximizes social impact. As a business, Divine has had significant social impact on the cocoa sector as a whole, and while growth could lead (p.331) to greater social impact, growth should not be an objective if social impact would be reduced.
(1.) ‘Annual Report 2016–2017’, Divine Chocolate.
(3.) Houston and Wyer (2012).
(4.) For additional information, see: ‘Mission & Vision’, World Cocoa Foundation, http://www.worldcocoafoundation.org/about-wcf/history-mission/; ‘About Us’, International Cocoa Initiative, http://www.cocoainitiative.org/about-ici/about-us/.
(5.) ‘Commodity Briefing: Cocoa,’ Fairtrade Foundation, April 2016, https://www.fairtrade.org.uk/wp-content/uploads/legacy/Cocoa-commodity-briefing-6May16.pdf
(6.) Ford et al. (2014).
(7.) Saldinger (2014).
(8.) ‘The Divine Story,’ Divine Chocolate, http://www.divinechocolate.com/uk/about-us/research-resources/divine-story.
(9.) Wanyama (2014).
(10.) ‘FAQ’, Divine Chocolate, http://www.divinechocolate.com/us/about-us/frequently-asked-questions.
(11.) Jamie Hartzell (chair, Divine Chocolate), personal communication with the authors, 23 April 2018.
(12.) Slavin and Ley (2017).
(13.) Slavin and Ley (2017).
(14.) ‘Annual Report 2015–2016’, Divine Chocolate.
(15.) ‘Kuapa Kokoo, Ghana’, Fairtrade Foundation, https://www.fairtrade.org.uk/Farmers-and-Workers/Cocoa/Kuapa-Kokoo.
(16.) Slavin and Ley (2017).
(17.) ‘Annual Report 2015–2016’, Divine Chocolate.
(18.) Slavin and Ley (2017).