Chocolate Wars

by Deborah Cadbury

  This phenomenon has played out in the chocolate industry: A succession of smaller firms, Fry, Rowntree, Terry, and Cadbury, have disappeared into two giant corporations: Nestlé and Kraft. In the process, a myriad of middle ranking and senior positions have disappeared to create fewer, more highly paid top jobs. The credit crunch has brought with it stunning revelations about excessive pay, bonuses, and pensions for those in the upper echelons of multinational institutions and companies and a growing gap between rich and poor in the West. In the United States, the ratio of chief executive pay to factory worker pay has risen from 42:1 in 1960 to 344:1 in 2007. In real terms, the median compensation for the chief executives of companies in the Dow Jones Industrial Average was $19.8 million in 2009, well over five hundred times more than the median worker’s pay of $36,000. The British press was quick to point out that in the year that Irene Rosenfeld launched a hostile bid for Cadbury, she received a 40 percent rise in compensation, bringing her total package of salary, stock, and other incentive awards to $26.3 million. By contrast, in the wake of the takeover, many Cadbury workers faced an ultimatum: Accept a three-year pay freeze or leave the final salary pension scheme.

  For Timothy Phillips, who is also a director of Scott Bader, a chemicals firm owned collectively by its workforce, the astonishing differential between the highest and lowest salaries are socially corrosive and undermine the fabric of our institutions. He argues that the global village of the twenty-first century requires more aggressive international regulation—not the least to tackle glaring inconsistencies in how resources are shared worldwide. Again the chocolate industry illustrates the point. While the top executives of today’s global power-houses are handsomely rewarded, workers at the bottom rung of the ladder—in our global village, cocoa farmers in West Africa, for instance—may earn a mere $2 a day. In the worldwide race to manufacture chocolate ever more cheaply and maximize returns to shareholders, horrendous pressures remain on Third World producers. Several reports since 2001 have highlighted serious underlying concerns: the use of trafficked child labor in the production of cocoa in West Africa, especially the Ivory Coast. For these children, there is no pay at all.

  The International Labour Organisation, a special UN agency that investigates labor issues, found there are more than 200,000 child laborers in the Ivory Coast of which 12,000 are estimated to be the victims of trafficking. Alarmed by the delay in improving conditions, the International Labour Rights Forum, a human rights watch group, filed a lawsuit in 2005 against Nestlé and commodity traders Cargill and Archer Daniels Midland. They claimed that Malian children were trafficked to the Ivory Coast and forced to work up to fourteen hours a day with no pay and frequent beatings. “A Cocoa Protocol is in place setting out corporate chains of accountability,” said Timothy Newman for the International Labour Rights Forum. “It’s outrageous that this has not been implemented.” Nestlé replied that it is “committed to following and respecting all international laws and does not tolerate illegal and discriminatory practices.”

  Cadbury buys cocoa principally from the neighboring country of Ghana, the world’s second largest cocoa producer, and has been working with the Fairtrade Foundation to try to improve labor conditions. The Fairtrade Foundation was established in 1992 by CAFOD (Catholic Agency for Overseas Development), Christian Aid, Traidcraft, and the World Development Movement to tackle trade injustices and help farmers out of poverty. Fairtrade ensures a guaranteed minimum price of $1,600 per ton to cocoa producers, even if world cocoa prices fall below this level. This stability of income helps farmers trade themselves out of poverty. In addition, no matter how high the price of cocoa rises, Fairtrade guarantees a $150 premium per ton on top to help farmers grow their business and develop their community. Fairtrade cannot rule out the possibility of child labor on its farms, but it provides better traceability and more direct contact with cocoa producers, making it possible to identify and address poor labor practices.

  In 2009, Cadbury launched its leading brand, Dairy Milk, in Britain, as Fairtrade-certified, a move that tripled the sales of Fairtrade cocoa from Ghana. This was swiftly followed by the launch of all Cadbury beverages as Fairtrade, along with the global Green and Blacks organic line of chocolate bars, and Cadbury’s Buttons and Dairy Milk in Canada, Australia, New Zealand, and Japan. “We were trying to make George Cadbury’s nineteenth-century Quaker principle that ‘Doing good is good for business’ relevant to the twenty-first century,” says Todd Stitzer. “We sought to do this by creating a sustainable supply of high-quality cocoa while creating a sustainable life for cocoa farmers.”

  On the hundred-year anniversary of William Cadbury’s first initiative in Ghana, Stitzer and the Cadbury team announced the Cocoa Partnership in collaboration with the UN, Anti-Slavery International, World Vision, Care, and VSO. Cadbury made a £45 million ($79 million) commitment over ten years to enhance the lives of cocoa farmers in Ghana, India, and the Caribbean. “The aim is to work in a holistic way in rural communities to improve conditions,” says David Croft, Cadbury’s head of sustainability. The scheme provides funds for farmers to increase their income by investing in their farms while also building schools and infrastructure in rural districts. Nestlé soon followed suit. In December 2009, Nestlé launched Fairtrade Kit Kat and promised £65 million ($113 million) for cocoa farmers over a ten-year period.

  Kraft buys most of its cocoa from the Ivory Coast and uses a different certification scheme: the Rainforest Alliance. Irene Rosenfeld has said that Kraft has taken “a very strong stance with respect to Rainforest Alliance coffee.” In 2009, Kraft also bought 4,500 tons of Rainforest-certified cocoa beans and plans to increase the amount to 30,000 tons. Like Fairtrade, Rainforest aims to ensure that no child labor is employed, but its approach, with an emphasis on environmental issues, is slightly different. Kraft’s vice president of sustainability, Steve Yucknut, says the differences between Fairtrade and the Rainforest Alliance are “minor” and calls both organizations “outstanding.” David Croft says Cadbury chose to work with Fairtrade because they believe the scheme is “more holistic in tackling injustices of trade” than other certification schemes and “gives more power to farmers.”

  Steve Yucknut confirmed that Cadbury’s Fairtrade commitments prior to the Kraft acquisition, including the £45 million ($79 million) commitment to Ghanaian farmers, would be respected, but he could not guarantee that the agreement would be extended. Yucknut insists that since Irene Rosenfeld took over, “We have elevated the importance of sustainability.” He rejects “out of hand” the idea that Cadbury was doing a better job on sustainability than Kraft and points to a wide range of company programs related to worldwide hunger relief, promoting a healthy lifestyle, volunteerism, and a number of “green” initiatives such as reducing the use of water, energy, packaging, and transport.

  Not everyone is convinced. Adam Leyland writing in the Grocer claims, “For Cadbury, corporate social responsibility isn’t the latest faddish addition to the annual report. Doing the right thing is in the company’s DNA. Kraft has a corporate reputation agenda, as all big corporates now do, but it’s a box to be ticked.” Alex Cole, director of corporate affairs at Cadbury, agrees: “At Cadbury we lived the values. The challenge for Kraft and others is to try to see it through.” Irene Rosenfeld disagrees: “At Kraft Foods, sustainability is not just an initiative or a check-the-box exercise; it goes to the heart of how we operate as a company. In fact one of the most exciting aspects of the integration process has been realizing just how aligned our two companies are in their values.” But as Kraft comes under pressure to meet performance targets that have been promised to investors, will ethical standards be compromised?

  For the developed world, there is one glaring irony in all this, living as we do in a world enriched so spectacularly with cheap confectionery: The West is facing an obesity epidemic. Far removed from the Puritanical ideal of abstemiousness and self-denial, competition between global food giants has proved so successful in pleas
ing the public that one in four people in Britain is clinically obese. In the United States, the figure is even higher, reaching close to 40 percent of the adult population. Levels of childhood obesity in both countries have soared. No one is claiming that confectionery is the only reason for this alarming epidemic, but it certainly plays a part.

  Even so, some of the most talented managers and marketers, under pressure to deliver higher returns to shareholders, are searching for ever more skillful ways to persuade us to eat yet more chocolate and candy. It is tempting to have some sympathy with the early Quaker capitalists who felt the process was somehow dishonest, and that heavy promotion was like “an assault” on the unwary consumer. In many countries where global giants have succeeded in introducing Western-style confectionery, food, and drinks, obesity has risen exponentially. Mexico, for example, is on course to become the fattest nation on earth and is currently second only to America. Joseph Rowntree would be dismayed to learn that the poorest are the hardest hit. In the slums of Mexico City, children are more obese than adults, and the epidemic is threatening to lower life expectancy. According to the Global Post in August 2009, this trend mirrors Mexico’s switch from a local to a global economy following the North American Treaty Act Agreement of 1994, which opened the door to processed food and drink from its U.S. neighbor.

  It is curious to think that the extraordinary journey for the cocoa bean began in Mexico City nearly five centuries ago. The process of chocolate manufacture has come a long way since the Aztec emperor Montezuma tried to appease the threatening conquistadors with bejewelled goblets filled with a chili-spiced cocoa drink. The legacy he bequeathed, transformed by industrialization, has become today’s rich cornucopia of chocolate confections sold all over the world. The early nineteenth-century chocolatiers who created their drinks and concoctions of sometimes doubtful wholesomeness in the backrooms of shops and sheds would indeed be amazed at the vast global enterprise that their efforts have produced.

  John Cadbury in his Victorian shop, wooden planks on the floor, tins of cocoa on display, would struggle to comprehend that his modest enterprise, often on the verge of failure, had evolved into a global business worth billions. Would he turn in his grave over Kraft’s hostile bid? No, I don’t think so. But as he sat upright in his hard back chair, true puritan conceding not one inch to self indulgence, if he listened to the language of today’s deal makers and their earnest discussions of “pre-tax synergies,” “revenue synergies,” “vision into action,” and growth in “instant consumption channels,” would he recognize the spirit of what he was trying to achieve? I think not. It would be hard to see anything close to the motives that drove him and the spirit in which he and his sons founded the business in today’s leaders. Would he lament that something was missing in the modern world? Yes—I believe he would.

  The objectives of the chocolate Quaker capitalists like John and George Cadbury and Joseph Rowntree and the spirit in which they pursued them appear as far removed from the greed of the modern corporate world—exemplified by the worst excesses of the financial crisis—as it is possible to imagine. For them making money was a means to an end and not an end in its own right. Making a profit was important; Quaker elders were quick to point out that a failing business was no good to anyone. But it was not the only goal. The idea that wealth creation was only for the owners of the business was unacceptable. According to Alfred Gardiner, spiritual wealth, not material wealth, was for them the enlarging force that led to “a wealth of noble living,” which was the real goal of civilization. “Being” not “having” was the true test of worth. By inviting their workers to pray when faced with a difficult decision, they wanted God’s guidance to make their business a force for good. Ethical and wider humanitarian decisions really did matter. It was as though, for them, God was the ultimate chairman.

  The Kraft takeover represents a poignant symbolic end point to this remarkable business enterprise that had its origins in the religious thinking of the English Civil War and was integral to British culture. Will Kraft act with this bigger spirit for the betterment of the world—not just the top management? Will this “global powerhouse,” in Irene Rosenfeld’s words, also show leadership by being a tangible force for good in our global village? It’s difficult not to feel skeptical. And that’s why, despite all the praise for globalization and the excitement of giant takeovers, it is hard not to believe that something irreplaceable and of infinite value—immeasurable in the neat columns of a balance sheet—has been signed away with a handshake.

  Epilogue

  Whatever lies in store for Britain’s chocolate industry, the trusts created by the pioneer chocolatiers will survive. George Cadbury’s Bournville Village Trust has grown into a thriving enterprise that is still run principally by the direct descendants of George and his brother Richard. The trust is responsible for more than 8,000 properties and 1,100 acres across the West Midlands and Shropshire as well as 2,500 acres of farmland to preserve the green belt around southwest Birmingham: a small piece of England that cannot be signed away.

  Around the factory in Bournville, George Sr.’s utopian village has grown to 6,000 houses nestled around the original parks and playing fields. The village, however, is no longer surrounded by countryside. It lies on the fringes of Birmingham as the giant conurbation has grown out to meet it. “People still come from around the world to see Bournville,” says Duncan Cadbury, chairman of the Trust’s Housing Services Committee. “They’ve heard it is a garden village which has worked. They even come to hear the carillon on the Junior School.”

  The Bournville Village Trust also works to create communities in collaboration with other housing organizations: 800 homes, shops, and a school at Lightmoor village in Telford, Shropshire; 3,300 homes at Lawley in Telford; and a major redevelopment building 220 homes at Shenley, part of the Bournville estate. “The Trust is much more than just the houses,” says Duncan Cadbury. “We still maintain George’s vision of creating mixed communities with houses for the very poorest alongside those who can afford to buy their homes.” The Bournville estates team is always on hand to fulfill the English dream of cottages and trees surrounding the eternal village green.

  Other legacies bequeathed by family members have fared less well. Travelling out of Birmingham on the Bristol Road, I went in search of George Sr.’s manor house, which was donated to Birmingham University. As I drove up the once tree-lined lane past student housing, suddenly the rambling old house came into view. At first it was hard to believe it was the same house, its ancient multifaceted shape peeping out between concrete shrouds and wooden boards. Its fate was entwined with the vagaries of modern administration. An extension to the original house was added for student housing with huge wings on each side, which give it the appearance of a prison. Now abandoned, George Sr.’s cherished gardens long since vanished, the house appears to belong to a twilight world of a distant century. Nearby, Manor Farm Park, once the annual retreat for 25,000 excited children to enjoy a break in the country, and Pocklington Place for the Blind have suffered a similar decline. Both sites were donated to the local council, and estimates for upgrading the buildings to comply with modern regulations proved prohibitive. Peeping through the boards at the windows, the neglect is a sad indictment: These philanthropic gifts to the community were once supervised effectively by one man and his team. They have failed under public stewardship.

  The remains of the once lively British chocolate industry have also left their mark. Terry’s gargantuan works, now closed, stand a poignant mausoleum to past glories, the telltale broken glass in the yard a symbol of disinterest. Could this be the fate that lies in store for Bournville under Kraft’s management? Michael Mitchell, head of Kraft’s corporate affairs, declined to make any commitment: “Guarantees are not the right word—if you’re asking us about guarantees we’re never going to get there.”

  The sweet aroma of chocolate still wafts over the suburbs of York and down Haxby Road to Joseph Rowntree’s original fac
tory, which is owned today by Nestlé. The factory lies behind metal railings and is patrolled by security. There is one visible reminder of the company founder in the Joseph Rowntree lodge—now derelict—near the main entrance. As I pressed my face to the window to glimpse the empty rooms inside, I saw little more than gathering dust and papers scattered on the floor—and then a guard with a dog came to move me on.

  Like George Cadbury, Joseph Rowntree’s voice still carries into the twenty-first century thanks to the trusts he established. His original three—the Village Trust, the Charitable Trust, and Social Service Trust—have been modified by the trustees to adapt to modern times. True to the analytical spirit of their founder, the trusts today remain heavily involved in investigating causes of social problems. The Village Trust—now known as The Joseph Rowntree Foundation—bestows more than £10 million annually and is one of the largest foundations in England. Research projects cover a wide range of issues, including the causes of persistent poverty, building public support to end poverty, and—in an intriguing full circle—the effects of globalization on poverty. In keeping with Rowntree’s commitment to the temperance cause, there are also research projects underway to help people suffering from alcoholism. Lastly, the Joseph Rowntree Housing Trust, established in 1968, manages housing projects across Yorkshire, including the village of New Earswick, which has grown to 2,500 homes.