Child labor concerns across Hershey’s supply chain prove it pays to be proactive

This story has been updated to include a comment from Hershey regarding one of its critics’ comments.

Earlier this month, Whole Foods Market (NASDAQ:WFM) said it has halted orders of Scharffen Berger chocolates — one of The Hershey Company’s (NYSE:HSY) artisan chocolate brands — over concerns about child labor in Hershey’s West African supply chain. Whole Foods says the chocolates will remain off store shelves “pending receiving further information from Hershey’s.”

While sales of Scharffen Berger amount to a relatively small percentage of Hershey’s total revenue, the company is now mired in a costly public relations quagmire involving one of the most appalling varieties of human rights abuses.

Whole Foods’s decision came in response to a campaign organized by Raise the Bar, Hershey, a coalition made up of leading nonprofits and advocacy groups. Since 2010, Raise the Bar has mobilized more than 150,000 consumers to send emails, talk to store managers, and post handbills at stores around the country demanding that Hershey be held accountable for child labor in its supply chain.

The child labor situation in the West African cocoa sector is tragic. An estimated 73 percent of the world’s four million tons of cocoa is produced by more than two million cocoa farms spread across West Africa. Côte d’Ivoire alone exports more than $2.3 billion in cocoa annually, amounting to about 10 percent of its GDP.

A study funded by the U.S. Department of Labor estimates that more than 1.8 million children in Ghana and Côte d’Ivoire are employed in cocoa-related agriculture, and most of them work without pay. “Children working in cocoa agriculture [in Ghana and Côte d’Ivoire] are frequently involved in hazardous child labor and there is evidence of individual cases of children exposed to … child trafficking, forced labor, etc.,” states the report.

Still, the problem is bigger than Hershey. Certified cocoa represents only 5 percent of the total cocoa volume in the world today, and nearly every major cocoa buyer has been cited for labor abuses in the last decade.

Moreover, Hershey just committed to sourcing 100 percent certified cocoa for all of its products by 2020, and all of its Scharffen Berger chocolate will be certified by the end of 2013. Its Dagoba brand is already certified by the Rainforest Alliance, and certified Bliss brand products will be on store shelves by the end of 2012.

“With our announcement to source 100 percent certified cocoa for all of our products by 2020, along with our substantial on-the-ground programs for many years, Hershey’s commitment to eliminating child labor and using ethically sourced cocoa is at the forefront of global chocolate companies,” said Jeff Beckman, Hershey’s Director of Corporate Communications.

Hershey is also a founding member of the World Cocoa Foundation (WCF), the International Cocoa Initiative, and the WCF’s ECHOES (Empowering Cocoa Households with Opportunities and Education Solutions) Alliance. The company, along with industry peers and the Bill and Melinda Gates Foundation, is investing in the $40 million, five-year “WCF Cocoa Livelihoods Program,” which trains hundreds of thousands of West African farmers on good farming and labor practices.

“Many of my chocolate and cocoa company members have been providing assistance to these farmers since the early to mid-1900s, none more than The Hershey Company,” wrote Larry Graham, President of the National Confectioners Association, in a recent blog post.

So why is Hershey being singled out? First, size matters. With 42 percent of the U.S. market, Hershey is the biggest chocolate company in the U.S. and the largest U.S. purchaser of West African cocoa. Advocacy groups tend to target the biggest companies because their policies have the most significant impacts.

But more importantly, labor rights groups who monitor companies’ labor policies in West Africa say Hershey lags behind its competitors on eliminating child labor in its supply chain. A scorecard produced by the Uniting Church in Australia found Hershey has done the least of all major chocolate sellers to address child labor.

“From what companies have publicly disclosed, The Hershey Company is the chocolate company that appears to be putting in the least effort to ensure cocoa production in West Africa is free of forced and child labor,” Dr. Mark Zirnsak, social justice spokesperson for the Uniting Church.

said Zimsak’s comment “was made before we announced our 2020 certification commitment, so it is a little misleading and out of date.”

Sean Rudolph, Campaign Director at the International Labor Rights Forum, echoed Zimsak’s sentiment. “If you stack [Hershey] up against what their major competitors have done, they are years behind” in addressing child labor and farmer poverty in West Africa, he said.

Mars made its first commitment to source certified cocoa in 2009, and works with UTZ, the Rainforest Alliance and Fairtrade International, three of the most prominent certification bodies. Likewise, Nestlé (ETR:NESR) created the Nestlé Cocoa Plan in 2009, and works with UTZ, Fairtrade International, and the Fair Labor Association to monitor and certify its supply chain.

Hershey has been somewhat vague on the specifics of its certification plan, although it is already working with the Rainforest Alliance and Fair Trade. Hershey points out that the massive volume requirements of its global product lines necessitate working with numerous certifiers to reach 100 percent certification.

“We will use these third-parties to audit, document and certify the cocoa is ethically produced with no child labor,” said Beckman. Hershey will also report on its progress towards the 2020 goals in its annual CSR report. The company is now in its third year of reporting its annual CSR progress.

Still, while Hershey’s efforts to combat child labor are by no means inconsiderable, the company has failed to convince industry watchdog groups of its sincerity.

“With Hershey, it’s been over a decade that they’ve been dropping the ball on [labor issues], and trying to figure out ways to get out of this without spending a ton of money,” said Rudolph. “It would be nice to think that they’re actually going to do this, but there’s nothing that’s legally binding them or obligating them to follow through.”

By falling behind the competition in making meaningful strides towards fixing its labor abuses, Hershey has lost the trust of labor rights advocates, and that has exposed the company to greater risk of scandal in the future. Now if Hershey wants to avoid scandal and accusations of greenwashing, it will have to work even harder than its competitors to monitor and prevent labor abuses.

And that may mean more than earning certification. Bill Baue, Co-Founder of the Sustainability Context Group, points out that successful CSR programs look beyond certification to comprehensively address issues unique to the company’s supply chain.

“The corporate sustainability field is moving toward a post-certification world,” said Baue, “where certification plays not an exclusive but rather a complementary role alongside company-specific initiatives, external partnerships, and other innovations on the journey toward achieving authentic sustainability and responsibility.”

To adequately mitigate the risks that come with having a massive and complex supply chain, it is necessary for companies, especially the largest ones, to stay ahead of the curve in addressing human rights issues along their supply chains. Ultimately, it pays to be proactive.

Photo of street orphan provided by Lloyd Smith / Shutterstock.com.