Cocoa Deforestation – lessons from Palm Oil

There are many significant challenges in the cocoa sector.  One of these is deforestation.  Cocoa smallholder farmers are encroaching on forested land in an attempt to improve their income.  There are many issues intertwined with this – low yields on existing plots (which is itself connected with the issues of a living income), a lack of full-appreciation of on the importance of the forests, an unknown farmer base (companies don’t know which farmers they buy from let alone whether they are farming deforested land) etc.  Because small-scale farmers do not have access to adequate financial resources and services, it’s more economical for them to clear new land, with the slash and burn method, than to use intensive agricultural practices such as fertilising.  So how can these challenges be addressed?  Maybe lessons can be learnt from the Palm Oil sector.

Palm Oil and Cocoa similarities

  • Unknown smallholder farmers:  In both sectors, the industry is supplied by thousands of smallholder farmers working in remote and vast areas.  The current data on these farmers is extremely limited.

  • Forest encroachment:  Smallholder farmers are either expanding existing plots into forested land or developing new plots in forested land.

  • Middle men and tracing data:  There are many middle men purchasing from smallholder farmers and selling to traders, exporters, and processors.  There is usually very little data conveyed at the point of sale as to where the product was originally sourced from, the quality and prices paid.  This makes it difficult to understand whether produce was grown on deforested land and if farmers receive the right market signals.

What is being done in Palm Oil

The Palm Oil sector has started tackling the issue of deforestation head-on.  There are a number of things happening in the sector, which the cocoa industry could learn from:

  1. Collaboration:  Any solution requires collaboration between a range of stakeholders from Government and Industry bodies enforcing policy and standards, to private sector companies adopting new sourcing practices, and NGOs supporting through training and education.  In Indonesia, we are seeing numerous stakeholders come together to tackle Palm Oil related issues.  The projects we are involved with include traders, mills, middlemen, smallholder farmers, funders, NGOs.  Collectively they are providing the resources and opportunities to adopt technology and behaviours to limit deforestation and at the same time help increase crop yields.

  2. Traceability:  Key to eliminating deforestation is a transparent supply chain that provides visibility of where produce is sourced.  To enable this, GeoT has successfully developed the first ever genuine tracing system able to link oil palm Fresh Fruit Bunches arriving at the mill back to the field where it was grown.  This means that all fruit processed at the mill can be traced back to the farmer who produced it.  The mapping functionality of the GeoT’ System shows for each consignment received at the mill the location of the fields where the fruits were harvested.  There are other benefits to this system as well, such as the ability to send real-time alerts when issues arise.

  3. Yield improvements:  Farmers must receive a living income.  Without this it is no wonder that forest encroachment occurs to increase incomes.  Therefore, if deforestation is to be tackled it must be hand-in-hand with improving the yield farmers receive from their crop.  To support this, the GeoT System is used to collect data on the farmer’s production methods and crop characteristics.  This is used to generate individual business plans , which set-out for each farmer what practices they need to adopt or how they should modify existing practices to improve their yield.  Working with NGOs, agronomists, and the private sector, an aggregated plan can then be used to target interventions effectively.  This information is passed to financial institutions to provide tailored financial services to farmer groups and individual farmers.  The traceability data, which usually includes delivery records, can then be also used to monitor changes in yield and farming practices.  Over time, the production data can be re-collected and the plans adapted accordingly.

These ideas of collaboration, traceability, geo-localisation and yield improving practices could also be adopted by the cocoa sector to tackle deforestation and other sustainability issues.

If you are interested in discussing these ideas further, please get in touch at info@geotraceability.com.

 

You think you’re investing in a traceability system – is that really the case?

I have had the chance to meet and discuss with many supply chain and sustainability managers across multiple industries and geographies.  I often realise that there is confusion on traceability and traceability systems.  Some people think that they trace their raw materials by subscribing to a digital solution or by complying with a certification scheme, but they don’t.

Some clarifications would certainly be useful to understand what is happening and make the right decision when investing in a traceability solution.

The International Organisation of Standardisation (ISO) defines food traceability as the ‘ability to follow the movement of a feed or food through specified stage(s) of production, processing and distribution’, and a traceability system as ‘the totality of data and operations that is capable of maintaining desired information about a product and its components through all or part of its production and utilisation chain’.

If we replace feed and food with raw materials to cover all supply chains, it is obvious that ISO is referring to physical traceability:  tracing in space and time the raw materials as they change their status to become ingredients or components of a final product.  We can even go beyond this to how the final product is terminated and recycled.  There is no reference to a ‘one step back, one step forward’ approach, which so many organisations seem to limit traceability to.  A proper system should trace all the way through a supply chain and consider all the tiers.

 

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So, if the system you use doesn’t physically trace raw materials, ingredients, components and products, you should not claim that you’re performing traceability.  Is it possible to say your supply chain is overall 10% traced because you know your suppliers three tiers down? In my opinion, no. But you could say, if you can prove it, that 10% of your procurements and products are 100% traceable!

Most of the standards certifying products use a mass-balance approach, where certified raw materials, such as cocoa, coffee, tea, palm oil, cotton, are mixed with non-certified ones.  Is this traceability?  Absolutely not.  These standards don’t even ask the organisations selling certified products to indicate on the wrapping what the ratio is of certified and non-certified raw material in a specific consumer product.

Sometimes certification standards use the segregation or identity preservation model.  This only results in proper traceability if the raw material is physically separated from non-certified products at each stage along the supply chain and if the final output (the consumer product) can be linked with the initial input (the raw material).  This is rarely the case in the certification world.

Another method that we often hear about is administrative traceability or a chain of custody approach (following the paper trail).  Again, this is not traceability as you track product movement and transactions with volumes and quantities but not the product as such.  You can record in a system that a consignment as moved from point A to B and changed ownership but can you confirm without any doubt that no product substitution or contamination happened?

Let’s now look at digital supply chain mapping and supplier risk assessment systems.  We found many providers offering this type of solution and some of them insert ‘traceability’ in the description of their system.  Sorry but mapping all the tiers of your supply chain and assessing the risks for each supplier doesn’t result in traceability.

However, if you put in place a traceability system and you start tracing the raw materials throughout all the tiers to your own facilities (end to end traceability), you’ll obtain a detailed map of your supply chain, updated for each consignment you’re receiving; thus, killing two birds with one stone.

Some digital systems will put the emphasis on product compliance and give you the tools to verify it.  For example, you could document at different tiers of your supply chain if the cold chain requirements are respected, regulations are observed and your product specs are applied.  Again, this information is certainly highly valuable and useful but this is not traceability.

At this point, you might want to ask is there a solution on the market that could perform traceability, risk assessments and compliance assurance at once?  To my knowledge no, but if you know of one please let me know.

Why is this?  Each of these systems is inherently complex and when applied to large logistical and manufacturing operations the level of complexity only increases.  If you need to pursue the three objectives, you’d do better with three different systems that, and this is very important, could interoperate with each other (pull and push data from system to system).

If you ask your IT provider if their system can interoperate with others and if they use APIs, and they look at you as a deer does at night on the road in the car’s lights, walk away!

At GeoTraceability, we’ve deliberately developed a traceability system adapted to the raw material produced by smallholders.  For us, traceability starts at the production site - the field, the forest - or at the extraction site - the mine, the sea.

The main originality of our solution is the ability to combine geo data with traceability data.  Not only do you know the origin of the raw material but you also know who produced it, how, and what could be the human and environmental impacts.  This upstream information will follow the raw material throughout your supply chain and enrich as other relevant data is added.

Do not hesitate to contact me if you wish to discuss further traceability and supply chains matters.  It will be my pleasure to exchange with you.

The biggest threat to your brand and reputation happens when performance does not meet expectation.  So, please don’t claim that you perform end-to-end traceability when you don’t.

What is traceability and why is it needed?

Tracing products is an important aspect of supply chain management and resilience.  There are varying motivations for understanding the origin of products. In some industries, such as the mining sector in Rwanda, traceability is a regulatory requirement.  Elsewhere it is a way of monitoring the impact of initiatives, such as climate-smart agriculture or livelihood improvement programs with smallholder farmers.  In Malaysia, our clients use tracing tools to tackle deforestation in the palm oil sector, which improves the sustainability of the product and reduces brand risk. In other instances, tracing data is used to support brand promises about the origin of a product, especially high-end goods claiming single origin.  These examples highlight the fact that “Traceability” has become a word frequently used in respect to varying objectives, so what does it actually mean?

There are different ‘levels’ of traceability.  For some, traceability is the ability to trace the chain of custody for a product back to its origin.  It is knowing that this bag of coffee was produced by that farmer.  This is particularly important where the productivity of individual farmers is being monitored or where there are risks in the supply chain surrounding the conditions and circumstances in which goods are produced, such as child-labour and deforestation.  For others tracing to a community or farmer organisation level is sufficient, for example assessing the impact of community self-help groups or informing a customer of the region in which their cocoa was produced.  However, tracing to this level in developing countries can be difficult, especially when multiple stakeholders and middle men are involved.

In addition to tracing products, traceability can also be used as a term to describe the tracing of finance and effort.  For example, many development projects want to trace resources provided to farmers, whether this is the provision of inputs, knowledge (i.e. training), or finances.  An example of this type of tracing is a project we are working on with coffee farmers in Uganda.

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At GeoT, we have developed a system that allows customers to know specifically where their goods come from and connect this with information about the production processes.  This allows companies and development initiatives to adopt a holistic approach to supply chain management, resilience and sustainability.  The design of investment initiatives into smallholder farmers can be determined through the data collected on their practices, initiatives can then be monitored through the collection of project data (such as records of training, input distribution, etc), and the impact of an initiative assessed through a combination of data collection (to see how practices have changed) and traceability (to monitor the quality and quantity of the produce).

So, to answer the initial question, the exact definition of traceability depends on what the motivation is for it.  As with so much, the level of traceability adopted will depend on what is required to achieve the traceability objective, taking into consideration the parameters of price, time and quality.  Whatever system specifications are implemented, a tracing system should result in greater knowledge, trust, and accountability along the supply chain.

 

Creating Transparency: a new supply chain alert system

The three pillars of supply chain development are Trust, Transparency and Sustainability. This can be difficult to achieve when smallholder farmers and artisan producers in developing countries are involved at the start of the supply chain. However, this is where GeoT focuses, offering innovative technology systems to help companies working with smallholder farmers and artisan producers. Trust and transparency are achieved through geo-data collection on the production of goods and tracing the movement of those goods from farm to export. The information gathered can then be used to support sustainability initiatives and monitor their progress. However, our latest feature – the Alert System – allows companies to go one step further.

In many supply chains, accurate timely data is important for managing and coordinating activities, whether this is organising delivery trucks or monitoring the quality of produce. With the GeoTraceability System, it is now possible to gather data on independent farmers, trace produce from these farmers through the supply chain (even when middle men are involved), record delivery of goods at processing plants, and send alerts (via email or SMS) when there are delays in the delivery of goods or issues with the quality. This allows action to be taken in a timely fashion.  

Whether you are a commercial company looking to improve your supply or implementing a development program to improve farmer livelihoods, the new Alert System (combined with the suite of other GeoT tools saves time and hassle). Instead of having to regularly check the data to be aware of issues, you can set-up alerts for the areas that matter most for your business and supply chain. The geo-data collection on farmers and farming practices combined with the traceability data allows you to target initiatives where they are most needed. The Alert System is another tool for monitoring the success of initiatives and improving the supply chain. Our competitive rates and flexible fee structure, means this is also an affordable option for many organisations.

You can learn more about the System by reading the case study below or by getting in touch with us (Contact us).

 

Palm Oil Case Study

A key challenge in the palm oil supply chain is minimising the time between when the fruit is harvested and processed. The quality of the Fresh Fruit Bunches (FFBs) deteriorates very quickly and it should ideally, be processed within 48 hours of harvesting. However, this can be a challenge for the mills purchasing fruit from independent small holder farmers who are farming in remote locations. The new GeoT Alert System allows those managing the logistics of the supply chain to be informed when the time between harvesting FFBs and processing them is in excess of 48 hrs.  This allows the FFB procurement team to monitor these instances and minimize them in order to improve FFB quality and the oil extraction rate. In addition, alerts can be sent notifying the logistics team of farms where there is fruit that has not been collected and is still sitting on the roadside. This transparency can facilitate an efficient collection process.

Further information on GeoT’s innovative work in palm oil can be found here Geotraceability for Palm Oil.pdf

 

Electrical Faults: will the switch to electric cars create healthy shockwaves in the cobalt supply chain?

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Electric cars are the solution to all our transport pollution issues. Or are they? Following France’s ban on petrol and diesel cars by 2040, other countries are following suit. The result is an expected increase in electric cars operated on re-chargeable batteries and a decrease in pollution. However, in addition to the fact that electric cars are powered by electricity from coal fueled plants, there are also issues in the supply chains of the components of the cars, particularly that of lithium-ion batteries. Production of the battery requires cobalt, but supplies of this mineral are currently limited (due to the lack of sources) and ethically questionable. The majority of the world’s cobalt is from the DRC, however, the current unstable political climate in the country has led to a fall in production and a sharp increase in price. Over the last year the price has more than doubled, reaching 59784USD/MT in June. With supply still restricted and demand set to increase further, the market is expecting further increases in price. One potential consequence of this is that the increased profit margins will draw artisan miners and traders into the market who couldn’t not previously afford to operate. This trend is likely to increase the risk of conflict-minerals entering the supply chain, something which is unfortunately already occurring. There is a lack of transparency in the sourcing of cobalt, which not only impacts the car industry, but has a broader reach into other supply chains, such as that of the smart phones most of us use.

Can anything be done to address these supply chain issues? There is no doubt that solving the sourcing issues for cobalt and other minerals is highly complex and requires a holistic multi-agency approach. However, the expected rise in the price of cobalt, resulting from the increased demand, should allow extraction companies to invest in their mining processes and traceability solutions. One of the issues is that as the price of cobalt increases, it will be attractive for people to sell cobalt on the black market, hiding the origin of the mineral and the practices used to extract it. With supply limited, buyers may also choose to turn a blind eye to practices in order to obtain the cobalt they need. However, for those who choose to, the increased profit margins could be re-invested in the supply chain to improve its sustainability, including increased transparency. GeoT already supports companies demonstrate that their tin, tantalum and tungsten are sourced ethically, and provides tools to gather data on interventions taken with artisan producers.

With the increased global focus on the cobalt supply chain, extraction companies now have the opportunity to differentiate themselves through providing customers with piece of mind about the origin of their cobalt.