How fair is our food? Big companies take reins on sourcing schemes

From cocoa to tea, food and drink giants are setting their own standards for ethical sourcing of raw materials, moving away from third-party labels such as Fairtrade.

Mondelez International (MDLZ.O), owner of chocolate brands Cadbury and Toblerone, Unilever (ULVR.L), behind tea brands such as Lipton and PG Tips, and Barry Callebaut, the world’s biggest producer of chocolate and cocoa products, have all introduced their own schemes.

They say their targets are more comprehensive and some claim their schemes are more effective in tracking whether a product is ethically sourced every step of the way. With companies under financial pressure, analysts say it has also been a way to save money.

But critics are worried that the standards that third-party groups such as UTZ Certified or Rainforest Alliance have fought to establish risk being muddled and what is deemed ethical and sustainable could become more ambiguous.

“Standards measuring environmental and social issues need to be transparent because, once this process happens behind closed doors, it is difficult to see how companies and farms apply them,” said Sloane Hamilton, labor rights policy advisor at Oxfam, a charity focused on alleviating poverty.

“We don’t want to see standards watered down, and neither do we want customers to be faced by a bewildering proliferation of different certification schemes.”

Third-party certifiers are not opposed to all self-certification, even though the loss of fees could threaten their future. Rather, they are worried standards could become meaningless if too many companies set their own criteria.

Mondelez started selling the first Green & Black’s chocolate in the UK without a Fairtrade logo in August, more than 23 years after the brand’s Maya Gold bar received Britain’s first mark.

The bar instead carries the stamp of “Cocoa Life”, a Mondelez scheme started in 2012 with broad goals including improved productivity, protection of fertile land and gender equality in farming communities.

Mondelez says Fairtrade is still an “implementing partner” and the group’s auditing arm is used to vet cocoa sourced through “Cocoa Life”.

Fairtrade, a non profit, aims to push for a better deal for farmers and workers in developing nations. It sets standards, including a minimum price for raw materials, and requires companies to contribute toward businesses or community projects, in exchange for the Fairtrade stamp.

But as the concept of ethically-sourced ingredients has become better understood by consumers, brands have started adopting standards that work for their business and image.

“It’s opened the door for companies to say ‘well let’s develop a standard that suits our business and also has the impact that we want to have on the ground,” said Alan Rownan, ethical labels analyst at Euromonitor.

Crafting in-house standards has also become a way to trim costs for big companies under financial pressure as economic growth slows and consumers opt for healthier snacks or smaller, more artisan brands.

“When the whole market is certified, the ability to have a higher price for it becomes less,” said Jon Cox, analyst at Kepler Cheuvreux in Zurich, who follows companies such as Nestle and Barry Callebaut.

“So why not bring it in-house anyway and save money? And if they can convince consumers that it’s as good as some of the independents, if not better, then that maybe helps them as well.”

While third-party labels have had a leading role in the drive to stamp out practices such as deforestation and child labor on farms, they have also faced criticism.

Think-tanks and industry groups say the way they enforce standards is not transparent enough and they have failed to align their programmes to reduce complexity. Rainforest Alliance and UTZ Certified are now expected to streamline their standards after recently announcing plans to merge.

With consumer awareness growing, companies are also seeking to track more closely the sourcing of their ingredients and show the impact of certification to their consumers.

Fairtrade ensures that the sourcing of raw materials including coffee and bananas can be traced at every step of farming and processing but it does not provide the same guarantee for cocoa and tea.

It says certified cocoa beans are difficult to track as they can get mixed with conventional beans at the processing stage in countries that do not have the capacity to keep them separate.

This means a Fairtrade chocolate bar may be made with certified and conventional cocoa, with the label only guaranteeing that the company buys a percentage of Fairtrade beans and that any premium paid goes to farmers certified by the organization.

Some food and drinks companies say, as part of their move to new standards, they are taking a more active role in sourcing to show consumers a clearer link.

For example, Barry Callebaut built a dedicated ethically-sourced cocoa butter tank in a factory in Belgium and it has launched a mobile app aimed at improving traceability on farms in the Ivory Coast.

Mondelez does not track cocoa through the entire supply chain, but it says Cocoa Life has allowed for a deeper involvement with farmers. The company uses digital mapping in Ghana, Ivory Coast and Indonesia to boost transparency and traceability from farm to processing facility.

“When you’re simply a buyer of raw materials, then in a typical supply chain, you’re not involved directly on the ground,” said Jonathan Horrell, global director of sustainability for Mondelez.

Some companies have also set deadlines for eliminating unsustainable practices from their supply chain and, as they approach, the pressure to find solutions has intensified.

Unilever has promised to source 100 percent of its materials sustainably by 2020 using both certification and its own “Unilever Sustainable Agriculture Code.”

Barry Callebaut is also aiming to source 100 percent of its ingredients sustainably by 2025, up from 23 percent in 2015. It buys cocoa through external schemes and its own “Cocoa Horizons” program.

“They’re under pressure to reach these (goals),” Rownan said. “And it’s not always easy to reach 100 percent targets following these mainstream, rigid certifications.”

While critics of self-certification worry about muddling standards, consumers are growing savvier. The companies say they risk a fierce backlash if they try to loosen the rules.

“If you connect your name to it…then you want to make sure what you’re putting out there is absolutely credible,” said Christiaan Prins, head of external affairs for Barry Callebaut. “The consumer nowadays can no longer be tricked in any sense.”

Sainsbury’s (SBRY.L) angered consumers and watchdogs in June when it replaced the Fairtrade mark on its own-brand tea with its pilot “Fairly Traded” version, with an eye to possibly extending it to other products such as coffee and bananas.

Under “Fairly Traded”, farmers will get “above and beyond” what they were receiving from Fairtrade and it should help make them more resilient to climate change, said Sainsbury’s head of media relations David Nieberg.

But critics say the scheme takes control away from farmer organizations, who will no longer directly receive a premium for their tea. The premium will be managed by the Sainsbury’s Foundation and will be used to fund farmers’ strategic projects.

Sainsbury’s will not pay licensing fees to Fairtrade but will continue to buy tea from farmers certified by the group. It will also purchase from farmers vetted by other groups if it decides they meet its in-house rules for ethical sourcing, Nieberg said.

Consumer scrutiny is likely to be even greater toward companies using self-made schemes to meet ambitious targets for “sustainable” sourcing – a label that is already ambiguous because it has many standards and meanings.

“When companies move away from certifiers and all of a sudden are able to far more easily achieve their sustainability goals – well what’s changed?” said Rownan. “I think consumers will want to know.”

With questions about their future, third-party certifiers are trying to adapt to the potential dent to licensing fees, which made up 11 million euros ($13.04 million) or 63 percent of Fairtrade International’s income in 2015.

“We’re trying to show them the stories behind the investment,” said Dario Soto Abril, chief executive officer at Fairtrade International. “We’re making a big effort to listen to companies and adapt and innovate within our model.”

Fairtrade also hopes to expand through new partnerships with groups such as Lidl and Aldi, said Abril. Fairtrade’s auditing arm, FLOCERT, also launched an online platform called Fairtrace, to make it easier to track products through the supply chain.

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