April 18, 2013

Olam International and the Triple Bottom Line in Action

A cocoa farmer on his cell phone among his cocoa trees. Photo credit: Olam

While environmental externalities have traditionally been ignored by the business community, for agribusiness in particular, natural feedback loops have started to turn these nuisances into actual line item expenses. In our upcoming report Reducing Risk: A Landscape Approach to Sustainable Sourcing, we focus on three organizations that are proving that good stewardship at the landscape level can result in good business ventures. The first organization we are featuring is Olam International. Olam, a global leader in supply chain management and agricultural products, is committed to working ethically and sustainably with its small scale farmers and their land through its “Olam Livelihood Charter”. Olam’s commitment to its charter is best evidenced through the company’s approach with growing cocoa in Ghana.

By focusing only on profit rather than the environmental costs, cocoa production in Ghana became extremely lucrative during the 20th century. The large scale availability of nutrient rich soil, abundance of available forest and the low use of agronomic inputs led to the rapid expansion of cocoa fields that, with a lack of foresight, has made the industry susceptible to a variety of political, economic and environmental factors that together jeopardize the long term viability of the industry in Ghana. Not helping the situation is the conflicting Ghanaian national policy on cocoa that hopes to increase annual cocoa production up to 1,000,000 tons while still profiting from Reducing Emissions from Deforestation and Degradation. It is impossible under a business as usual model to have cocoa production increase at scale without further deforestation into protected forest reserves or significantly reduce carbon dioxide emissions from agriculture without halting and possibly reversing the expansion of new cocoa farms.

In 2011, Olam partnered with the Rainforest Alliance, to start the “Climate Cocoa Partnership for REDD+ Preparation” project in the Western Ghanaian region of Juabeso/Bia.  The main focus of the project is to break the link between cocoa production and deforestation and build cocoa production areas mixed with forest lands to become more resilient to moisture and temperature changes due to climate change. Additionally, the project aims to allow Olam to be the first company to bring climate-friendly cocoa to market, diversify opportunities and increase income for farmers, build efficient value chains, and serve as a learning model for future expansion of the project.

The partnership has worked with stakeholders at all levels through a variety of means in order to accomplish these goals. With farmers, the partnership has been instrumental in training them to be certified under the SAN standard including the additional climate module thus ensuring that both sustainable and climate smart methods of agriculture are followed. Such certification allows for farmers to increase their incomes by not only being paid more for higher quality cocoa but also promotes the intercropping, beekeeping, and maintaining of carbon stocks as supplementary income sources.  Additionally, the partnership has been working closely with the Forestry Commission, traditional authorities and private concession holders on partially or wholly devolving land  rights to local communities who can then support sustainable forest management practices and develop these resources into REDD projects.

Though the project is to last until 2014, there are already results and lessons learned being drawn from the experience. At the end of 2012, there were 833 and 1,259 certified farmers and farms, respectively, which contributed to an estimated yield of 1,295 metric tons of certified beans sold for US$2.4 million. Though the expected sourcing of 3,000 tons of cocoa a year in the first two years of the project make up only 4% of the total amount being sourced by Olam in Ghana, this number will rise over time. While this project represents almost double the cost of a normal business venture of this scale for Olam, the company intends to reduce costs as they learn from mistakes and the project matures. If a success, Olam looks to eventually apply these methods to other cocoa farms in other locations as well to other tree crops, such as coffee.

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