Companies involved in Africa’s commodity supply chains are navigating an increasingly difficult due diligence terrain, as governments eye tougher regulation and Covid-19 drives up the possibility that goods such as cocoa, coffee and tea could be linked to human rights abuses. Yet there’s hope that technology solutions and partnerships with local governments could help limit corporate exposure to tainted goods. Felix Thompson reports.
As governments in markets such as the EU prepare the rollout of environmental, social and governance (ESG) due diligence legislation, human rights risks continue to hound multinational companies sourcing commodities across the African continent – posing potential civil or criminal headaches for firms buying sought-after goods such as cocoa and cobalt.
As detailed in a September 2020 Verisk Maplecroft report, the cocoa, tea and coffee sectors were already at “high” or “extreme risk” of forced and child labour in Nigeria, Côte d’Ivoire, Ghana, Ethiopia and Kenya even prior to the onset of the pandemic.
But in the wake of negative economic impacts of Covid-19, combined with fluctuating demand and falling prices for key export commodities, analysts say that it could become increasingly difficult to eliminate such practices in African commodity supply chains over the next few years.
Drawing on its own commodity data set, the risk analysis firm notes that in some sectors there could actually be a rise in violations.
Cocoa has long been a sector of particular concern in West Africa, with a landmark US government-funded study released in October last year highlighting the drastic scale of child labour abuses in the region.
Research by the National Opinion Research Center (NORC) at the University of Chicago, run in conjunction with the Ghana and Côte d’Ivoire governments, found that there were nearly 1.5 million minors engaged in “hazardous” child labour across the two countries from 2018 to 2019, and even more subject to child labour in all its forms.
Children engaged in hazardous work are exposed to dangerous farm jobs, including land clearing, spraying of agro-chemicals, exposure to sharp tools, and long working hours and night shifts.
The NORC report further details that 19% of children working in cocoa production in these countries either did not attend school, or said the work interfered with their schooling.
Experts say that such problems are inexorably linked to environmental abuses in the region, with campaigners also wary of heightened deforestation risks in West African countries.
Verisk Maplecroft notes in its report that declining cocoa prices over the past two decades have increasingly driven farmers in Côte d’Ivoire to compensate for their reduced income by expanding their growing areas.
“This has resulted in children being trafficked in from neighbouring Burkina Faso and Mali to help clear forest,” the report says.
“While border closures associated with the pandemic have decreased the flow of child workers between countries, this has compelled many farmers to resort to relying on underage relatives to meet labour requirements,” it adds.
Move towards stricter controls
Amid these ongoing concerns for human rights and the risks within commodity sectors, regulators around the world are introducing more stringent legislation to ensure that companies meet certain environmental and social standards.
For instance, increased scrutiny has been placed on supply chains with links to China’s Xinjiang region, where global leaders have decried the alleged use of forced labour and other human rights abuses on Uyghur Muslims.
In January, the US rolled out a wide-ranging import ban on all cotton, tomatoes and related downstream products from the region, and has since gone on to target specific companies – such as in the solar panel-making industry – and detain shipments of goods upon entry into the US.
European governments have also started to introduce broader due diligence legislation, which in some instances threatens to penalise non-compliant companies with civil or criminal penalties.
Germany’s parliament passed a law in June that requires large corporates to establish procedures aimed at preventing human rights and environmental abuses within their global supply chains – and to take steps when they discover violations by foreign suppliers.
German companies that fail to comply with the law, due to come into effect in 2023, could face fines of up to 2% of global turnover.
Likewise, in the Netherlands, lawmakers adopted legislation in 2019 obliging companies to investigate whether their goods or services have been produced using child labour and to devise a plan to eradicate and prevent the practice.
Non-compliance could mean fines of up to €870,000, as well as two-year prison sentences for senior executives.
Eyes are currently also on the European Commission, which is expected to introduce a proposal for a wide-ranging corporate due diligence package this year that NGOs hope will include recourse for human rights abuse victims to take multinational companies to court.
New legislation should “ensure that there is meaningful access to remedy for those most impacted by harmful business activities”, campaign group Global Witness said in an April report.
Cocoa sector campaigners have long criticised the current EU system for being unable to tackle low prices, poverty, child labour and deforestation in the industry, questioning the impact of voluntary schemes such as third-party certification, or companies’ own programmes.
In a bid to combat such practices, major commodity traders have turned to third-party certification and audits to prove that their goods are sourced sustainably.
Agribusiness and commodities giant Olam, for example, says its own approach to sustainability is complemented by third-party certifications, including Cotton Made in Africa, Rainforest Alliance, Fairtrade, Organic and 4C.
However, experts say that certification schemes have their shortcomings and, in some cases, have complicated ESG problems.
Tedd George, founder and chief narrative officer at Kleos Advisory, notes that Fairtrade, Rainforest Alliance and Utz have been the three main schemes used in the cocoa sector. However, the latter – which merged with Rainforest Alliance in 2018 – was caught up in a major scandal in the years before that.
“During an audit in Côte d’Ivoire, it was discovered that Utz was buying cocoa from over 100 farms that were in protected forest areas. This was total failure of the certification programme, whose aim was to protect biodiversity, as they had been offering a higher price and unwittingly contributing to deforestation,” says George, a consultant and industry thought leader on African markets, commodities and fintech.
Broadly, there are also concerns that while some companies may be serious about ensuring sustainability in their supply chains, and use schemes such as Fairtrade, much of the world’s cocoa is traded outside of the purview of these structures.
Dario Soto Abril, Fairtrade CEO, said in July last year that the scheme’s ability to tackle the issue of child labour and poverty in cocoa is “directly related to the amount of cocoa producers can sell on Fairtrade terms”.
Pointing to the organisation’s own data, he added that less than 5% of cocoa currently sold globally – and around 8% from Côte d’Ivoire – is sold under Fairtrade provisions.
Soto Abril has joined calls for stringent EU due diligence requirements. “Voluntary measures undertaken by companies aren’t enough to tackle human rights violations, poverty and environmental harms,” he said.
Soft commodity traceability
Should ESG-focused due diligence legislation come into play across the EU, companies of all sizes would face increasing pressure to prove precisely where their cocoa has come from.
Erica Gerretsen, acting director for sustainable finance, investment and jobs at the European Commission, said in a meeting in March that intended reforms “will require companies to map their supply chains to identify adverse impacts on human rights and the environment”.
“Traceability systems will help producing countries and companies alike to comply with these requirements,” she added.
But traceability is no easy feat in West Africa, where major commodity traders tend to buy from cooperatives or local buying centres, rather than from the smallholder farmers who are responsible for much of the region’s production. A report from social enterprise IDH, The Sustainable Trade Initiative on cocoa traceability within global snack company Mondelz International’s supply chains, notes that the sheer number of so-called “unorganised farmers” that are not part of a cooperative in Côte d’Ivoire poses problems.
Only two out of every five farmers are registered members of a cooperative in the country, the report says.
In a broader analysis of the state of traceability across West and Central Africa’s cocoa sector, released earlier this year, IDH says that such issues are endemic within the industry.
Since most cocoa traceability systems today focus on traceability back to the first point of purchase, such as cooperatives or local buying centres, data on traceability to farm level is “often unavailable or unreliable”, it says.
“This underlines one of the key challenges to traceability in the cocoa sector, a challenge that must be overcome to provide accountability on sustainability commitments: the first mile of the cocoa value chain from the farm to the first point of purchase is under-reported in the majority of existing traceability systems.”
George at Kleos Advisory echoes this view, and tells GTR that for companies such as Olam and Cargill, “the problem is the first mile”.
“From the field warehouse, to the chocolate bar, these companies have systems to track cocoa really, really well. But how did that cocoa get to the field warehouse? That’s what they’re trying to fix now.”
Olam, which has an ultimate goal of eliminating child labour entirely from its direct supply chain by 2030, has created an app-based child labour monitoring and remediation system, developed in collaboration with the Fair Labor Association.
Meanwhile, Cargill has been partnering with Oslo-headquartered software as a service company Farmforce, which runs a cloud-based mobile platform allowing international companies and NGOs to manage their smallholder farmer relationships.
Farmforce CEO Anne Jorun Aas tells GTR that agents employed by major companies or NGOs on the ground conduct surveys related to farmers, their family and infrastructure, and input the findings on the platform, allowing customers to identify where child labour risks are most acute.
Quantitative data about the farms themselves is also recorded on the platform, she says, which helps companies analyse heightened child labour risks. “If a farm is 20 kilometres away from the nearest school, high yields are observed and there is no hired labour, there’s certainly a higher probability of children being at risk for farm labour,” she says.
The platform – which counts multinationals and the likes of Fairtrade among its customers – is currently engaged in projects across 30 emerging markets globally, and has onboarded roughly 700,000 farmers.
Metal and mineral traceability
Similar efforts to tackle human rights abuses and boost traceability in Africa’s hard commodity supply chains are also underway, particularly in high-risk sectors such as cobalt.
The Democratic Republic of Congo’s (DRC’s) cobalt sector is often flagged as a hotbed for human rights violations. An October 2020 blog post from the Council on Foreign Relations details how more than 70% of the world’s cobalt is produced in the DRC, and 15 to 30% of the country’s cobalt is produced by artisanal and small-scale mining – which is particularly susceptible to human rights abuses.
“Child labour, fatal accidents, and violent clashes between artisanal miners and security personnel of large mining firms are recurrent,” the post reads.
Tracking where a batch of cobalt comes from takes on fresh urgency in light of these violations, but according to Siddharth Kara, an author, activist and adjunct lecturer in public policy at Harvard University, the practical realities of the country’s cobalt sector can be messy, with artisanal mining produce often lumped in with formally mined cobalt.
“The fundamental reality is that once cobalt gets to the processor stage, before it leaves the country, it has to be semi-refined. Once it reaches that stage you can no longer disaggregate artisanal production from industrial. But traders and mining companies, including Chinese firms, they bulk buy from everywhere they can,” Kara says.
“By the time it’s in a phone or a car, there’s no way to discriminate one batch of cobalt from another,” he adds.
James Nicholson, Trafigura’s head of corporate responsibility, shares the same concern. He tells GTR that there are a wide range of ESG risks when buying metals and minerals.
He explains that such risks may be “direct”, such as those associated with the activities and impacts of a producer, or “indirect”, where that producer may, for example, have sought to complement their production with purchases from third parties.
Because producers are typically not able to quickly scale up production, “if the price of a particular material rises, a producer may seek to capitalise by purchasing high-grade ore from artisanal producers with a view to then blending and ultimately selling into the market”, he says.
However, he notes that this activity is “unlikely to be an issue if indeed the buyer is made aware, it is in keeping with contractual agreements, and comprehensive ESG diligence has been completed at point of origin and elsewhere where risks are believed to lie, for example, in transportation”.
Where the situation does become problematic is when international companies turn a blind eye to human rights abuses in places such as DRC, says Aba Schubert, CEO and co-founder of Dorae, a blockchain-based platform that tracks the origin and movement of raw materials.
In light of these ongoing traceability pitfalls, some of the world’s largest commodity traders and mining companies are now increasingly looking to use blockchain technology to bolster traceability and resolve such issues.
In May, for example, Glencore announced it would partner with leading cobalt and copper producer CMOC and Eurasian Resources Group, in a collaboration with battery material supplier Umicore, to pilot a solution known as ReISource to trace responsibly produced cobalt from mines in the DRC to downstream electrical vehicle production sites using blockchain technology.
“Not a silver bullet”
While technology can assist companies with traceability, industry figures note that there are limits to its ability to weed out and solve human rights issues and risks.
Dorae’s Schubert says that technology is an important tool for addressing human rights risks in commodity supply chains, but is not a “silver bullet”.
She says there has to be a change in how commodity markets function and the ways that companies price products.
“Downstream manufacturers and consumers have to be willing to pay a premium. Whether it’s a chocolate bar from the supermarket, or the latest electric car from the Chinese market, people will have to accept that they’re going to have to pay more. It’s going to be difficult to eradicate human rights abuses in countries such as Côte d’Ivoire or DRC otherwise,” Schubert says.
“In many supply chains, there are a lot of participants operating on thin margins, and a lot of participants whose business model relies on the opposite of transparency.”
Nonetheless, governments and commodity traders are looking at other tactics to address human rights risks beyond technology.
In November, Trafigura struck a five-year cobalt supply deal with Entreprise Générale du Cobalt (EGC), a DRC state company established in recent years to purchase, process and sell cobalt produced by miners or companies involved in artisanal and small-scale mining in the country.
As part of the agreement, Trafigura will finance the creation of controlled artisanal mining zones, the installation of ore purchasing stations, and logistics to trace cobalt supply.
Global NGO Pact is also involved, and will promote responsible sourcing due diligence, with Nicholson telling GTR that there will be one representative from the group for every 1,000 diggers on site.
While Trafigura had initially aimed to buy cobalt through its commercial relationship with EGC earlier in the year, Nicholson notes that trading is yet to commence.