The Retailer Cocoa Collaboration’s (RCC) latest trader assessment, published today, has revealed that the incoming EU Deforestation Regulation (EUDR) is driving efforts on traceability of cocoa supplies. However, alongside this positive finding, the RCC reports a lack of progress on tackling poverty and child labor within the sector.

The report is based on the results of a questionnaire sent to nine global cocoa traders prevalent in RCC Member supply chains, assessing their performance during 2023 against a range of social and environmental metrics. This year, seven of them responded to the trader assessment questionnaire. The two non-responders were assessed based on publicly available information and data supplied in previous years. The work is carried out by sustainability advisors, 3Keel, on behalf of the RCC, which is a coalition of 11 UK and EU retailers, including Tesco, Aldi, and Sainsbury’s.

The key takeaway from the report is that indirect supply chains are risk hotspots for environmental and human rights issues. Indirect supply is where a trader does not buy directly from the cocoa farmer and can comprise the majority of a trader’s cocoa supply. Nearly all commitments and initiatives cover just the direct portion of a trader’s supply chain (i.e. when the trader buys directly from a cocoa farmer), leaving risks of unchecked human rights abuses and deforestation in a significant proportion of supply chains.

Some progress on traceability but limited to direct supply chains

The assessment has revealed that the forthcoming EUDR is driving progress in making direct supply chains traceable. 

The average proportion of a trader’s direct supply of cocoa traceable to farm has jumped from 52% in 2022 to 71% in 2023—an increase of 19 percentage points. Three traders were able to report near-full traceability of their direct supply chain. 

“This is welcome news,” says Holly Cooper, the report’s lead author. “However, it’s a different story when it comes to cocoa from indirect sources.”

In 2022, the average proportion of a trader’s indirect supply of cocoa traceable to farm was just 9%. In 2023, this increased to 22%. “This increase in traceability is a step in the right direction,” says Cooper. “But traders source as much as 97% of their cocoa indirectly, so this means that overall, the sector is not yet ready for the EUDR. More fundamentally, this lack of traceability means the sector has significant blind spots in its ability to understand and address sustainability risks in the cocoa supply chain”

Lack of progress on tackling key issues

The report highlights some progress in tackling cocoa-linked deforestation. Overall, while most traders now have a zero deforestation commitment and policies in place, these are nearly always limited in scope by geography and/or exclude land conversion.

Elsewhere, there is a distinct lag when it comes to paying farmers a living wage and eradicating child labor. These issues are widespread and have complex roots and so have been a focus for action in cocoa supply chains for many years. 

• Only five traders reported data on the use of Child Labour Monitoring and Remediation Systems (CLMRS), which remain a key tool for traders to tackle child labor. 
• None of the traders reported CLMRS use within indirect supply chains, creating a very significant risk of child labor occurring.
• The two best performing traders have just over half their direct supply farmers receiving a living income, with three reporting that just 10% or fewer did so. Only one trader reported on living wages in their indirect supply chain, with 51% of farmers receiving a living income.

The report shows that certification schemes remain a key tool for supporting improved practices and demonstrating a commitment to sustainable production. The proportion of supply chain certification has increased, with the Rainforest Alliance the most prevalent independent scheme. Traders have significant volumes falling under their own proprietary certification schemes.

Looking forward

Cocoa prices have soared in the past few months, driven by poor harvests in key producing regions, reaching unprecedented levels on global markets. Against the backdrop of limited progress identified in the RCC report, there are significant risks and opportunities created by these market shifts.

Cooper says: “With global supply tight and prices exceptionally high, there is real risk that progress on addressing environmental and social issues could be stalled or even reversed in the scramble for high-quality supply. The lack of policies and commitments covering indirect supply make these particularly high-risk.”

The RCC has made four recommendations for traders:

1. Include indirect supply chain in sustainability commitments and actions.
2. Ensure that deforestation commitments are adjusted to cover all possible sources and relevant causes of deforestation, while incorporating restrictions on land conversion.
3. Address and report progress on child labor in supply chain
4. Ensure all cocoa farmers receive a living income.

Read the full report here.

Related: ofi publishes Cocoa Compass sustainability impact report