Cocoa farmers strike back at Hershey. Cocoa growers in Ghana and the Ivory Coast have hit back at Hershey after the company was found buying cocoa beans through the New York market instead of through the physical market. The majority of cocoa deals are through middlemen where an additional premium is implemented on the sale.
Ghana and Ivory Coast have suspended all of Hershey’s sustainability efforts in the two countries according to a letter on November 30 by Yves Kone, managing director of Ivorian regulator Le Conseil du Cafe-Cacao and Joseph Boahen Aidoo, chief executive of the Ghana Cocoa Board.
According to the two executives, the move by Hershey to buy their cocoa beans through New York was made to avoid the Living Income Differential which is a $400 (~15% of the cocoa bean futures contract price) premium the two countries charge to help support the farmers.
“Some chocolatiers and trade houses have adopted covert strategies to circumvent the farmer income improvement mechanism with the aim of collapsing it,” Aidoo and Kone said regarding Hershey’s choice to purchase their cocoa beans on the futures exchange.
(Chart: Cocoa futures in USD/metric ton. Macrotrends.)
Cocoa bean futures have soared ~18% over the past two and a half weeks partly due to Hershey’s large purchases in the futures market. Normally, large purchases of cocoa beans are transacted off-exchange in private deals.
The choice to source their cocoa beans through the futures exchange lowered costs but it is also impacting their supply chain through decreased flexibility within their supply chain. There are only five ports where there are licensed warehouses for storage of the cocoa beans that are sourced through the ICE Exchange.
While these purchases have impacted their supply chain by lowering costs, it is also likely to impact the perception that consumers have on the brand. According to a survey by Markstein, 70% of consumers want to know what the brands that they support are doing to help support social and environmental issues.
Did Tyson lie to workers about COVID risks? Tyson Foods has been accused of misleading its factory workers about their safety in the Iowa processing plant where a third of the workforce was eventually infected.
The complaint arises from an April meeting where plant managers allegedly directed interpreters to tell a workforce of largely non-English speakers that “everything is fine”. To make matters worse, Tyson allegedly told employees that the factory was cleared by county officials when in reality the county officials advised Tyson to close the factory.
Aside from alleged misinformation to factory workers, a manager was accused of betting on how many workers would be infected by the coronavirus. Tyson did take action against this manager and suspended him.
Supply chains were disrupted in April as the Smithfield pork plant in Sioux Falls, South Dakota and JBS meat plant among others were closed due to a coronavirus outbreak. The Smithfield pork plant is responsible for 4%-5% of the country’s pork production. The outbreaks in meat processing plants created an artificial meat shortage meaning there was plenty of food available but not enough employees to process the meat for consumers.
On the back of an increasing amount of stockouts across the country, the Trump administration signed an executive order ordering processing plants to remain open and declared them part of the nation’s “critical infrastructure”.
The Uyghur Forced Labor Prevention Act is likely to disrupt CPG supply chains. The treatment of Uyghur Muslims in the autonomous territory of Xinjiang in China has been under scrutiny since the middle of 2018. It is common knowledge that the Chinese government is forcing a large portion of the Muslims into re-education camps along with forced labor.
The Uyghur Forced Labor Prevention Act, sponsored by Representative James McGovern (D-MA), is aimed at putting a stop to these horrible practices but this could impact many CPG companies’ supply chains. The bill recently passed through the House of Representatives in September on a vote of 406-3. This bill is currently under consideration in the Senate and would ban imports of goods that impact the electronic, clothing, and automobile markets from the Xinjiang region unless proved that the goods were created without forced labor.
In March 2020, the Congressional-Executive Commission on China released a report that named 83 foreign and Chinese companies that allegedly benefited from Uyghurs in abusive labor programs such as Coca-Cola, Nike, Costco, and Calvin Klein.
The New York Times reports that both Coca-Cola and Nike are both lobbying for certain parts of the bill to be watered down due to it being potentially detrimental to their supply chains. Coca-Cola released a statement to the New York Times that said that “strictly prohibits any type of forced labor in our supply chain”.
While bipartisanship has been difficult to come by for years, it appears that China is viewed as a serious adversary both economically and on a human rights scale. We believe that there is urgency on both sides of the aisle to crack down on China due to their injustices and that companies should be looking for ways to alleviate this supply chain risk.