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Raising the Bar: Developing a business case for one of the world’s leading cocoa companies

The cocoa industry is a large market. In 2014 the cocoa sector was responsible for an estimated $100 billion in annual global turnover, with around 5-6 million smallholder farming households growing cocoa. However, the cocoa sector is struggling with many sustainability challenges, including but not limited to persistent poverty, deforestation, forced and child labor, and vulnerability to climate change. Previous actions have been undertaken to tackle complex and critical issues within the cocoa sector on multiple levels, such as CocoaAction, CSP, UTZ/RA, Fairtrade and the ICCO. Nonetheless, many of the sector’s challenges have proven pervasive, read our article to learn more on this.

NewForesight supports Barry Callebaut in taking a data-driven sustainability approach

“The NewForesight team goes the extra mile, always thinking with and ahead of the client. NewForesight combines analytical strength with passion and diligence in delivery and the outcome of the project was far above expectations”

David Imbert│ Global Head, Sustainability Finance & Reporting. Barry Callebaut.

 Among the clients with the closest philosophical fit with NewForesight in terms of business thinking in sustainability is Barry Callebaut, one of the largest cocoa and chocolate companies in the world. With their global sustainability approach Forever Chocolate they use bold new ways of doing business to make sustainable chocolate the norm. One of four key ambitions in this strategy is to lift 500,000 cocoa farmers out of poverty by 2025. We consider Barry Callebaut an ideal client for NewForesight with whom we share many core principles. These include a commitment to business thinking, innovation and risk-taking, and an innovative drive, combined with strong values such as honesty, directness and transparency.

We have supported Barry Callebaut since 2016 with a range of assignments all centered around assessing and strengthening the business case for sustainability interventions. For example, we delivered a Service Delivery Model (SDM) analysis of Barry Callebaut’s farm services activities in Côte d’Ivoire and assessed sustainability
challenges and opportunities in all of Barry Callebaut’s origin countries.

Creating a business case for sustainability at farm and company level

We have recently created a fully dynamic business and financial model to assess the business case for sustainability at the farm and Barry Callebaut levels, translating these to detailed financials of the Barry Callebaut Farm Services business. This model can analyze up to 10 farmer profiles, each of which can differ in terms of a wide variety of variables, including farm size, yields, tree ages, non-cocoa income, and household size. With these different profiles, it is possible to assess the projected impact on farm business cases under various scenarios, revolving around the various productivity and replanting packages that Barry Callebaut offers to farmers.

Besides assessing the expected impacts of Barry Callebaut’s interventions on farmer livelihoods, the model also creates detailed financials for Barry Callebaut’s Farm Services business over a 15-year period. This is done based on estimating the number of farmers purchasing the various offered packages. It is also fully dynamic, allowing sensitivity analyses across factors such as default rates, movement between (or graduation across) more extensive packages, loan interest rates and repayment grace periods. In addition, the model calculates in a detailed and bottom-up manner the business requirements, such as staffing needs and costs, infrastructure and working capital needs. These variables are aggregated in detailed 15-year financials for the Farm Services business, including income statement, cash flow, and balance sheets.

In short, the model was and is used to:

  • Answer the question under which conditions and in which timeframe the incomes of farmers can be lifted.
  • Analyze the impact of a changing environment on these targets (for instance as related to price developments and adoption rates).
  • Detail the operating model to serve these farmers, and estimate the operational (e.g., headcount) and capital (e.g., working capital, investment costs, infrastructure) investment needed over time.
  • Assess when and under which conditions the Barry Callebaut Farm Services business can be economically sustainable.
  • Serve as a blueprint for partnerships with other stakeholders including customers, investors, donors, and implementers.

Following our engagement, the model was brought to the field inside a BC custom built “Farm Business Plan” application used to advise farmers on how to invest in their farms, where NewForesight provided analytical support to program the logic of that application.

Two reasons why NewForesight is the right partner for your sustainable business challenge

  1. NewForesight has extensive experience developing business models that enable our clients to assess and optimize the business case of their sustainability interventions. Our end-goal is to find market-based solutions to sustainability challenges, solutions which generate value to all stakeholders, including farmers, service providers, and off-takers.   With this understanding we can translate complexity into clear, scalable, sustainable and strategic recommendations.
  2. We combine deep sustainability knowledge with strong economic and financial modelling perspectives, allowing us to generate value for various audiences, from sustainability departments, to investors, to financial planners, to senior management.

Do you want to know more about our work on Sustainable Business Models and Analytics? Visit the domain page.

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