{"id":12493,"date":"2016-11-04T16:35:21","date_gmt":"2016-11-04T20:35:21","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/hersheys-chocolate-has-climate-change-turned-it-bittersweet\/"},"modified":"2016-11-04T16:39:48","modified_gmt":"2016-11-04T20:39:48","slug":"hersheys-chocolate-has-climate-change-made-it-bittersweet","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hersheys-chocolate-has-climate-change-made-it-bittersweet\/","title":{"rendered":"Hershey\u2019s Chocolate: Has Climate Change Made It Bittersweet?"},"content":{"rendered":"

Imagine a world where hot chocolate costs $20, and chocolate-chip cookies are a rarity. Given the impacts of climate change on cocoa beans, this could be the future. \u00a0Hershey Company is sitting on the forefront of this crisis and witnessing the world\u2019s supply of cocoa melt away. \u00a0 How did we get here, and can we fix it?<\/p>\n

Where does life\u2019s most wonderful pleasure come from?<\/strong><\/p>\n

Chocolate comes from cocoa trees called Theobroma<\/em>, which, like other plants, are sensitive to water, sunshine, temperature, and soil conditions. \u00a0The high fat-content in beans is harvested and then ground before being mixed with sugar and other ingredients to create cocoa-based products such as drinks, bars, and powder [1].\u00a0 Harvesting is labor intensive since beans are extracted by splitting cocoa pods and sun-dried for several days prior to packaging and shipment [2].<\/p>\n

In 1874, cocoa production moved from Brazil to Nigeria, which soon became the largest producer of cocoa in the world.<\/p>\n

\"Source:<\/a>
Source: chocolateclass.files.wordpress.com\/2016\/05\/cocoabarometer2015_4.png?w=1024<\/figcaption><\/figure>\n

Recently, however, West African production has declined due to climate change impacts on the plant\u2019s growth phases [3].<\/p>\n

    \n
  1. Drought:<\/strong> water deficit is directly correlated with decreased pod sizing, which affects bean size and fat-content ratios<\/li>\n
  2. High temperatures:<\/strong> warmer temperatures increase survival rates for capsids (insects that damage cocoa trees) and other pests which were previously eliminated by colder winters<\/li>\n
  3. Longer wet season \/ cloudy days:<\/strong> prolonged wetness leads to decreased atmospheric evaporability, which impacts the drying process for cocoa beans.\u00a0 Additionally, unnaturally long wet periods have increased landslides and soil nutrient depletion [4]<\/li>\n<\/ol>\n

    A look at Hershey\u2019s: America\u2019s original \u201csweetheart\u201d<\/strong><\/p>\n

    The Hershey Chocolate Company was established in 1894 by Milton Hershey.\u00a0 What had begun as a small chocolate producer soon expanded into a chocolate empire. With net sales of $6B, Hershey is one of the world\u2019s largest producers of chocolate and sells products in 70 countries.<\/p>\n

    Despite being one step removed from cocoa production (it purchases its beans from the world exchange), Hershey is highly sensitive to bean price fluctuations, since cocoa accounts for a significant portion of Hershey\u2019s raw material costs. \u00a0With prices soaring by 60% in the last four years alone, Hershey is facing dire impacts on its business.\u00a0 Global chocolate demand to expected to exceed supply by 980,000 tons in 2020 [5].<\/p>\n

    If this trend continues, costs of goods sold will increase such that either Hershey\u2019s profit margins will narrow or price hikes on consumers will be necessary.\u00a0 If margins thin, the company will slash costs elsewhere, either by employing cheaper labor or consolidating its product portfolio.\u00a0 If the company chooses to pass costs onto consumers, it will find itself battling to keep its market share dominance with the price-sensitive \u201ceveryday man.\u201d\u00a0 Further, increased prices will force Hershey\u2019s products to directly compete with gourmet European chocolatiers.\u00a0 Both outcomes are detrimental to Hershey, which is scrambling to mitigate climate change effects on its key ingredient.<\/p>\n

    Unwrapping Climate Change<\/strong><\/p>\n

    Hershey has taken action in several key areas to alter cocoa production trends.\u00a0 First, Hershey created a position of \u201cforesight manager\u201d to analyze climate change impact on cocoa trees and forecast weather effects on cocoa supply.\u00a0 Like the Beer Game exercise, Hershey is attempting to understand its ability get its raw materials orders filled.\u00a0 The foresight manager collaborates with other stakeholders to understand these trends [6].\u00a0 Second, Hershey has invested $10M in capital for R&D projects working to find innovative ways to make irrigation systems more efficient.\u00a0 Irrigation systems are the only means to water plants if rainfall volumes are not sufficient.\u00a0 Third, Hershey has encouraged farmers to plant tall trees around shorter cocoa plants to shade them from the sun [7]. Finally, Hershey launched CocoaLink, a mobile phone project that allows farmers to receive texts and phone calls regarding pests, weather conditions, and contact a real-time hotline to chat with cocoa experts [8].<\/p>\n

    Some additional things that Hershey can do:<\/p>\n

      \n
    • Stockpiling:<\/strong> encourage farmers to have a seed stockpile in case natural disaster wipes out seedlings. This can create a seed inventory buffer which serves as an emergency seed stash<\/li>\n
    • R&D for Soil Retention:<\/strong> invest capital for research to understand whether chemicals or nutrients can be added to the soil to enhance water-retention. This can completely change the African landscape and may not be too costly to implement on a mass scale<\/li>\n
    • Technology:<\/strong> genetically modifying cocoa plants for more heat and disease resistance<\/li>\n
    • Government:<\/strong> work with the Nigerian government to create more regional dialogue between farmers to share best practices, resources, or expensive technology. While this is somewhat achieved through CocoaLink, more knowledge-share can be created by rotating various cocoa farmers across different farming communities<\/li>\n<\/ul>\n

      Overall, cocoa production remains at high-risk, and given continued global warming, cocoa farmers will indefinitely face pressures unless corporations and governments can agree to come together and fight back.\u00a0 Otherwise, Hershey may have to blow chocolate a kiss goodbye.<\/p>\n

      (796 words)<\/p>\n

       <\/p>\n

      [1] L\u00e4derach, P., Martinez-valle, A., Schroth, G. & Castro, N. (2013). “Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, Ghana and C\u00f4te d’Ivoire”,\u00a0Climatic Change,\u00a0<\/em>vol. 119, no. 3-4, pp. 841-854.<\/p>\n

      [2] Baird, H., Guevara, N. & Karpechenko, A. (2012). \u201cThe Hershey Company and West African Cocoa Communities,\u201d Daniels Fund Ethics Initiative<\/em>, www.danielsethics.mgt.unm.edu\/pdf\/hershey case.pdf.<\/p>\n

      [3] Oyekale, A. S., Bolaji, M. B., & Olowa, O. W. (2009). \u201cThe effects of climate change on cocoa production and vulnerability assessment in Nigeria\u201d, Agricultural Journal<\/em>, vol. 4, no. 2, pp. 77-85.<\/p>\n

      [4] Nieburg, O. (2015, December 21). \u201cDevastating impact of climate change on cocoa can\u2019t be ignored, says Rainforest alliance\u201d, Confectionery News<\/em>, www.confectionerynews.com\/Commodities\/Climate-change-Impact-on-cocoa-production-devastating.<\/p>\n

      [5] Yasin, S. (2014, November 20). \u201cWhy climate change could mean the end of chocolate\u201d, www.salon.com\/2014\/11\/20\/why_climate_change_could_mean_the_end_of_chocolate_partner.<\/p>\n

      [6] Meyer, R. (2014, February 21). \u201cHershey\u2019s is hiring a chocolate futurist\u201d, The Atlantic<\/em>, www.theatlantic.com\/technology\/archive\/2014\/02\/hersheys-is-hiring-a-chocolate-futurist\/284010.<\/p>\n

      [7] Gerrard, J. (2016, June 02). \u201cCocoa, chocolate companies unite to address climate change\u201d, Food Engineering Magazine<\/em>, www.foodengineeringmag.com\/articles\/95784-cocoa-chocolate-companies-unite-to-address-climate-change.<\/p>\n

      [8] Beckman, J. (2012, January 30). \u201cHershey expands responsible cocoa community programs in west Africa\u201d, Business Wire, <\/em>www.businesswire.com\/news\/home\/20120130005249\/en\/Hershey-Expands-Responsible-Cocoa-Community-Programs-West.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Chocolate makes everything better… but what if it no longer existed? Can climate change eliminate chocolate forever?<\/p>\n","protected":false},"author":2213,"featured_media":12494,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-12493","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nHershey\u2019s Chocolate: Has Climate Change Made It Bittersweet? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hersheys-chocolate-has-climate-change-made-it-bittersweet\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Hershey\u2019s Chocolate: Has Climate Change Made It Bittersweet? - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Chocolate makes everything better... but what if it no longer existed? 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