Cadbury is planting millions of cocoa trees in India to see off the threat of dwindling world supplies and soaring prices. James Ball reports
Tree planting seems to be de rigueur these days. Toilet roll producers frequently point out they replace the trees they use, while nearly every CSR plan boasts about growing foliage for carbon offsetting.
So when Cadbury announces it's planting trees in India this year, at first it seems hard to get excited. But this eco-scheme is a bit different. For one, Cadbury is planting 7.5 million trees this year and 10 million next, so it's on a rather different scale from most tree planting initiatives.
More importantly, it is planting cocoa, a tree not native to India, in an effort to secure its cocoa supply, initially for the relatively undeveloped Indian chocolate market and ultimately for the global chocolate market. The risks are significant but the benefits could be too.
"We can sustain a growth rate of more than 20% a year," says Cadbury India MD Anand Kripalu. "That means we're doubling our sales every four years, and doubling our profits every three."
With that kind of growth rate, Cadbury India will be bigger than the UK division within 10 years - a target the Cadbury India management is going for with gusto.
Confectioners are currently battling soaring prices and dwindling supplies of both their key commodities - cocoa and sugar (see p21). The world's main cocoa producers, Ghana and the Ivory Coast, are plagued by political turmoil and failing crops, sending cocoa prices skyward. For Cadbury India, this situation is made worse by heavy import duties on cocoa.
Cadbury's fast-growing Indian operation has chosen to tackle the situation by attempting to boost India's cocoa production tenfold by 2020. The confectionery company has been working with Indian agricultural universities to develop new varieties of cocoa suitable for growing in southern India, which is outside traditional cocoa-growing latitudes.
Cocoa production in India currently stands at 10,000 tonnes a year, enough to service half Cadbury India's needs. By 2015, Cadbury believes it can be self-sufficient. By 2020, it estimates the country could produce 150,000 tonnes, 3% of global production, and become a cocoa exporter.
The plan relies on Cadbury growing cocoa seedlings in 22 company-owned nurseries around the country. These seedlings are then given away to farmers, who also receive training in how to grow the plants on their existing farmland. The government then subsidises fertiliser and other costs on the cocoa trees for three years until they begin producing a crop.
But therein lies the biggest risk to the scheme. India's recently re-elected Congress party is coming under significant pressure to liberalise the tightly controlled economy and remove import duties - a key motivation for Cadbury's scheme. But modernisers are also calling for the withdrawal or reduction of the country's substantial farming subsidies, which could make attracting farmers considerably more difficult.
"We believe this is one of the largest organised crop interventions by a private enterprise in the world," says KP Magudapathy,
associate VP of Cadbury India. "This is about a lot more than just avoiding tariffs. Even if they were one day withdrawn, this would still benefit Cadbury."
The introduction of cocoa makes India the only country where chocolate is produced from bean to bar.
The initial impact of the scheme will be small. Cadbury India makes up only about 4% of Cadbury's total revenue, and so accounts for only a small proportion of its cocoa use. But Indians eat on average only 50g per head of chocolate each year compared with 10kg per head in the UK - meaning there is no shortage of growth potential, especially if the country's economy continues to grow by 7% a year.
Sorting out where India gets its cocoa from could prove a very big deal for Cadbury's bottom line.
Tree planting seems to be de rigueur these days. Toilet roll producers frequently point out they replace the trees they use, while nearly every CSR plan boasts about growing foliage for carbon offsetting.
So when Cadbury announces it's planting trees in India this year, at first it seems hard to get excited. But this eco-scheme is a bit different. For one, Cadbury is planting 7.5 million trees this year and 10 million next, so it's on a rather different scale from most tree planting initiatives.
More importantly, it is planting cocoa, a tree not native to India, in an effort to secure its cocoa supply, initially for the relatively undeveloped Indian chocolate market and ultimately for the global chocolate market. The risks are significant but the benefits could be too.
"We can sustain a growth rate of more than 20% a year," says Cadbury India MD Anand Kripalu. "That means we're doubling our sales every four years, and doubling our profits every three."
With that kind of growth rate, Cadbury India will be bigger than the UK division within 10 years - a target the Cadbury India management is going for with gusto.
Confectioners are currently battling soaring prices and dwindling supplies of both their key commodities - cocoa and sugar (see p21). The world's main cocoa producers, Ghana and the Ivory Coast, are plagued by political turmoil and failing crops, sending cocoa prices skyward. For Cadbury India, this situation is made worse by heavy import duties on cocoa.
Cadbury's fast-growing Indian operation has chosen to tackle the situation by attempting to boost India's cocoa production tenfold by 2020. The confectionery company has been working with Indian agricultural universities to develop new varieties of cocoa suitable for growing in southern India, which is outside traditional cocoa-growing latitudes.
Cocoa production in India currently stands at 10,000 tonnes a year, enough to service half Cadbury India's needs. By 2015, Cadbury believes it can be self-sufficient. By 2020, it estimates the country could produce 150,000 tonnes, 3% of global production, and become a cocoa exporter.
The plan relies on Cadbury growing cocoa seedlings in 22 company-owned nurseries around the country. These seedlings are then given away to farmers, who also receive training in how to grow the plants on their existing farmland. The government then subsidises fertiliser and other costs on the cocoa trees for three years until they begin producing a crop.
But therein lies the biggest risk to the scheme. India's recently re-elected Congress party is coming under significant pressure to liberalise the tightly controlled economy and remove import duties - a key motivation for Cadbury's scheme. But modernisers are also calling for the withdrawal or reduction of the country's substantial farming subsidies, which could make attracting farmers considerably more difficult.
"We believe this is one of the largest organised crop interventions by a private enterprise in the world," says KP Magudapathy,
associate VP of Cadbury India. "This is about a lot more than just avoiding tariffs. Even if they were one day withdrawn, this would still benefit Cadbury."
The introduction of cocoa makes India the only country where chocolate is produced from bean to bar.
The initial impact of the scheme will be small. Cadbury India makes up only about 4% of Cadbury's total revenue, and so accounts for only a small proportion of its cocoa use. But Indians eat on average only 50g per head of chocolate each year compared with 10kg per head in the UK - meaning there is no shortage of growth potential, especially if the country's economy continues to grow by 7% a year.
Sorting out where India gets its cocoa from could prove a very big deal for Cadbury's bottom line.
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