Ferrero Case

case W13C26
March 31, 2022

Andrew Hoffman
A Sweet Dilemma: Sourcing Palm Oil with Ferrero SpA

and Nestlé
There were not enough Nestlé Laffy Taffy candies in the world to put a smile on Zeta Farini’si face after
seeing this headline: Nestlé suspended from sustainable palm oil group following conduct breaches.1 Less
than two months previously, in May 2018, Farini, as head of the acquisitions due diligence team of Ferrero
SpA, had helped the Ferrero Group purchase Nestlé’s U.S. confectionery brands. She was devastated to see
the company’s newest purchase becoming a magnet of unfavorable media. Ferrero was a family company
that touted its strong values of integrity and protecting human rights, and it was committed to sourcing
100% sustainable palm oil, an important ingredient in many of its confectionery treats. So, Nestlé’s alleged
inability to source palm oil sustainably called into question how true to its values Ferrero really was.
Whether the removal of Nestlé from the Roundtable on Sustainable Palm Oil (RSPO)ii was initiated for valid
reasons or not, it had happened in Ferrero’s backyard.
Farini had worked with Giovanni Ferrero, the executive chairman of the Ferrero Group, to take over the U.S.
brands. The two assured the board that this acquisition would give Ferrero a fighting chance in the American
markets. What they had not thoroughly acknowledged was the degree to which Nestlé was constantly facing
scrutiny from environmentalists around the world about its palm oil, a major ingredient in candy-making.
Now, in a matter of minutes, Giovanni Ferrero himself would be ringing Farini’s line, expecting an
explanation about why this two-month-old acquisition was tainting the image of the Ferrero family. The
acquisition strategy had already been contentious, as Giovanni’s late father, who previously ran the company,
was opposed to focusing on acquisition rather than native brand development to build Ferrero. Now the
acquisition strategy, and therefore the leaders’ reputations, were at great risk.
i
Zeta Farini is a fictional character.
ii
The RSPO is a not-for-profit group that develops and implements global standards for sustainable palm oil. It includes stakeholders
from the seven sectors of the palm oil industry: oil palm producers, processors, and traders, plus consumer goods manufacturers,
retailers, banks/investors, and environmental and social non-governmental organizations.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
© 2022 Stephen Alessandro, Christopher Hamama, Jordan Manley, Lindsey Masterman, and Lucie Tatouskova. This case was written
by University of Michigan undergraduate students Stephen Alessandro, Christopher Hamama, Jordan Manley, Lindsey Masterman, and
Lucie Tatouskova, under the supervision of Andrew Hoffman, Holcim (US) Professor of Sustainable Enterprise, a position that holds
joint appointments at the University of Michigan’s Ross School of Business and School for Environment and Sustainability. The case
was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of a situation. The case
should not be considered criticism or endorsement and should not be used as a source of primary data. The opening situation in the
case is fictional in order to provide a more robust student learning experience.
This document is authorized for use only in Ximena Rueda Fajardo's UNIANDES MGAD CADENAS VALOR SOSTENIBLE S1 ONLINE (2023-10) XRF ng at Universidad de Los Andes -
Colombia (UniAndes) from Feb 2023 to May 2023.
A Sweet Dilemma: Sourcing Palm Oil with Ferrero SpA and Nestlé W13C26
A plethora of questions flew through Farini’s mind. What should Ferrero do regarding the Nestlé brands
it was selling in the United States, given the maker’s current tainted state? Distance itself? Would such a
move be acceptable to the family company’s value system? Was it possible to change the Nestlé brands’
supply chains to source palm oil sustainably while still maintaining a profit? If Farini wanted to keep her
job, she was going to have to explain exactly what was going on in the palm oil industry and how she was
going to fix Ferrero’s situation. With the future of the Ferrero brand and her own career weighing on her
mind, Farini explored and considered the options before her while dreading the inevitable, fast-approaching
ring of her phone.
Ferrero Company History and Financials
Based in the Piedmont region of Italy, Ferrero Rocher was one of the world’s largest chocolate
manufacturers. Operating in 160 countries across Europe, North America, and the Middle East, the privately
held company had over 5% of the global chocolate market.2 In addition, the group also produced bakery
products, snacks, spreads, mints, and beverages.3 Main brands were Kinder Chocolate, Ferrero Rocher, Ferrero
Rondnoir, Pocket Coffee, Raffaello, Ferrero Manderly, Kinder Joy, Kinder Surprise, Tic-Tac, Nutella, Kinder
Bueno, Kinder Pingui, Estathe, and more.4 Because Ferrero was a privately held group, it was not required
to disclose its financial information. However, it recorded revenues of approximately $11.4 billion in 2016
and $12.5 billion in 2017.5 The company reportedly enjoyed a 10% net profit margin.6
The Ferrero Group was a third-generation company with a rich history. The group’s story began in 1923,
directly after World War I, when Pietro Ferrero began a pastry shop in Dogliani in northwestern Italy.7 He
soon married Piera Cillario, and they had their first son, Michele. The family moved around Italy while
Pietro Ferrero worked in various confectionery shops until, in 1938, the family moved to East Africa to sell
cookies to the Italian troops that were deployed there by Mussolini. When Mussolini’s troops withdrew, the
family moved back to the Piedmont in Italy, settling in the city of Alba, where Ferrero began to experiment
with various chocolate recipes of his own.8 According to Giovanni Ferrero, grandfather Pietro “had inventor
syndrome” and “would wake up at any hour, go to the laboratories and right in the middle of the night would
wake up his wife, saying, ‘Taste this. This is a great recipe.’”9
One experiment resulted in Ferrero discovering a chocolate substitute—a blend of molasses, hazelnut
oil, coconut butter, and cocoa. It was cheaper and more accessible than chocolate, a luxury that was
difficult to come by in wartime Italy.10 Ferrero called his mix Giandujot and began wrapping it into pieces
and selling it on the streets.11 Through word-of-mouth publicity Giandujot proved to be a huge success. So,
in 1946 Pietro Ferrero and his brother Giovanni Ferrero founded Ferrero SpA in Alba.12 The two refined the
Giandujot recipe and renamed it Supercrema. Geared toward the price-sensitive consumer, Supercrema was
sold in jars so that consumers could reuse the containers, and was sold through sales representatives rather
than wholesalers, enabling Ferrero to keep its profit margins high and prices low.13
Pietro Ferrero died in 1949 at age 50, and then when Giovanni Ferrero died in 1957 at age 53, Michele
Ferrero was left in charge of the company. He quickly began to expand the company internationally. He
converted a Nazi missile factory in Germany into a candy factory and built another plant in France soon
after. Then came production centers in Belgium, the Netherlands, Austria, Switzerland, Sweden, the United
Kingdom, Ireland, and Spain.14 Throughout this time, the company remained focused on its native brands,
launching the Kinder line in 1968, Tic Tac in 1969, and Ferrero Rocher pralines in 1982.15 Meanwhile, the
company increased the proportion of cocoa in Supercrema and rebranded it as Nutella.16 Later, the company
expanded into North and South America, Southeast Asia, Eastern Europe, Africa, Australia, Turkey, Mexico,
and China.17
Michele Ferrero remained CEO of the company until 1997, when he passed control of the company to
his sons, Giovanni and Pietro, while remaining executive chairman.18 In 2011, Pietro Ferrero died of a heart
attack at age 47, leaving his brother Giovanni Ferrero to run the company.19 Three years later, Michele
Ferrero died.20 The majority share of the company was left to Giovanni, with the rest going to Pietro’s heirs.
In 2017 Lapo Civiletti was appointed CEO while Giovanni Ferrero retained his role as executive chairman.21
Giovanni Ferrero’s leadership marked a dramatic shift in company strategy. Rather than counting on
Ferrero’s original brands for growth, Giovanni focused on acquisitions to boost the revenue, a strategy his
father had vehemently resisted.22 Giovanni Ferrero justified this strategy by arguing that, in the long run,
acquisitions would be necessary to compete with multinational confectionery giants like Mars and Mondelez.23
In 2015, the Ferrero Group acquired British chocolatier Thorntons for $170 million24 and integrated Oltan, a
Turkish hazelnut collection, roasting, and trading company, into the group and renamed it Ferrero Findik.25
Ferrero’s presence in the U.S. market was first established in 2017 when the company acquired Fannie May
Confections Brands for $115 million and the Ferrara Candy Company, a separate Chicago-based manufacturer,
for $1.3 billion.26
In 2018, the Ferrero Group announced that it would be acquiring Nestlé’s U.S. confectionery business for
$2.8 billion cash.27 In 2016, Nestlé’s U.S. confectionery business had generated sales of approximately $900
million.28 The acquisition included over 20 brands including Butterfinger, Baby Ruth, 100 Grand, Raisinets,
Wonka, SweeTarts, Laffy Taffy, and Nerds. Ferrero also gained Nestlé’s three manufacturing facilities in
Illinois.29,30,31 According to Giovanni Ferrero, the acquisition was made in order to increase Ferrero’s presence
in the U.S. confectionery market—the world’s largest.32 He said, “We look forward to … continuing to invest
in and grow all of our production and brands in this key strategic and attractive market.”33 However, the
newly acquired Nestlé brands were not as premium as Ferrero’s legacy brands and had different business
models based on lower profit margins.34
Ferrero Group leaders prided themselves in being extremely value-driven, seeing loyalty, trust, respect,
responsibility, integrity, moderation, and quality as core to their culture.35 Ferrero publicly supported
the “protection of human dignity, as well as the absolute and unconditional respect of human rights
wherever the Ferrero Group companies operate.”36 Their customer communications were motivated by
moral and ethical principles, prioritizing transparency and the promotion of a healthy lifestyle. Ferrero
considered a key element of their success to be their raw material sourcing, done in accordance with a
“strict ethical code concerning their origin, harvesting, and manufacturing.”37 Ferrero operated under a
motto, introduced in 1949, of “work, create, donate.”38 This mentality inspired the creation in 2005 of the
“Progetto Imprenditoriale Michele Ferrero,” or the Michael Ferrero Entrepreneurial Project, a philanthropic
organization that worked to create new jobs and promote the health, education, and social development of
young people in South Africa, Cameroon, and India.39
The company also gave back through the Ferrero Foundation, a philanthropic organization founded
in 1991 that works to maintain positive relations with its retirees and the communities in which it
operates.40,41 The foundation operates three recreation and volunteering facilities in Europe which are open
to all Ferrero retirees, sponsors educational scholarships for the children of Ferrero employees, and funds
scientific research.42
Confectionery Industry Overview
The global candy and chocolate manufacturing industry encompasses all stages of the confectionery
process, from the purchasing and processing of sugar, cocoa, nuts, and fruits to the creation of products
including “chocolate, chewing gum, hard candies, marshmallows, and toffee.”43 The global confectionery
industry was growing rapidly, with some experts predicting nearly $275.8 billion in revenue by 2025.44
While the industry grew, so did a trend of health-conscious consumers, influenced by groups such
as the World Health Organization, which recommended children and adults cut their sugar consumption
“to less than 10% of their total energy intake.”45 A 2018 survey conducted by Wakefield Research found
that 47% of Americans planned to “eat less sugar or buy more ‘no sugar added’ products.”46 As a result
of these changing consumer preferences, manufacturers developed more health-conscious products, often
sugar-free or sugar-reduced alternatives. Some companies went one step further in developing “functional”
confectionery products, defined as “foods that provide additional benefits [such as disease prevention]
through the addition of specific ingredients.”47 An example was Hershey’s Ice Breakers Ice Cubes White, a
chewing gum that claimed to whiten teeth and remove plaque.48 In 2015, functional confectionery value
sales reached $12.9 billion globally, and Euromonitor International expected China to be the leading growth
market for these products with an estimated 46% value gain by 2020.49
Despite projected successes, this industry was not immune to challenges, such as increased competition,
consumers’ health concerns, and volatile cocoa and sugar prices.50 According to IBISWorld, in order to be
successful in this industry, a company or brand should possess at least one of the following factors: 1)
membership in an industry organization, which allows for greater access to industry-relevant information;
2) economies of scale, which produce lower per-unit costs; 3) the ability to adapt to change and consumer
preferences more quickly than competitors; 4) product differentiation, primarily through branding; and 5)
reliable supply contracts that can help reduce already intense supply volatility.51
Palm Oil
Confectionery companies that use palm oil in their products are often forced to make tradeoffs between
ensuring optimal quality in their goods and protecting the environment. Palm oil is an edible vegetable oil
that is sourced from the fruit of oil palm trees. Indonesia and Malaysia produce 85% of the world’s palm oil,
with the remainder spread among 42 other countries.52 Worldwide palm oil production experienced a surge in
the late 20th and early 21st centuries and was expected to reach 240 million tons by 2050, which would be
four times 2015 levels. The surge is thought to have been spearheaded by two developments. First, in the
1960s, scientists started warning the public of butter’s high saturated fat content. Second, manufacturers
wanted to find a replacement for vegetable oils due to their high trans-fat content as a result of partial
hydrogenation. Palm oil seemed like a good solution, as it has less saturated fat content than butter and
helped make products without relying on hydrogenation.53
Palm oil enhances products in a variety of ways. It ensures that chocolate products have a shiny and
smooth appearance and helps keep them from undesirable melting.54 Palm oil is able to resist oxidation
and therefore spoilage, giving products a longer shelf life.55 It is odorless and colorless, so it doesn’t alter
either the smell or appearance of food products.56 Furthermore, palm oil is stable at higher temperatures
than other oils, helping give fried products a crunchy and crispy texture, and it is semi-solid at room
temperature, helping spreads like Nutella stay spreadable.57 Palm oil gives Nutella its signature creamy
texture and ensures that the product avoids the hydrogenation process that other vegetable oils have to
go through, which produces unhealthy trans-fatty acids.58
Another significant reason why palm oil is used so frequently is its sheer efficiency. Palms can produce
more oil per land area than any other equivalent vegetable crop. Palm oil supplies 40% of the world’s
vegetable oil demand and takes up just 6% of the land used to produce those vegetable oils. Getting the
same amount of oil from crops such as soybeans, coconuts, or sunflowers would require four to ten times
more land.59
But the palm oil supply chain causes immense environmental damage. Palm oil is a huge driver of
deforestation, particularly of some of the world’s most biodiverse forests. Between 2001 and 2016, palm
oil accounted for 23% of Indonesia’s total deforestation.60 This destruction has led to the demolition of the
habitats of multiple species, including the Sumatran rhino, pygmy elephant, and orangutan, threatening
those species’ livelihoods.61 Expansion of oil palm groves could affect 54% of threatened mammals and 64%
of threatened birds around the world.62
The capital value of the palm oil sector was $200 billion in 2017.63 (See Exhibit 1 for an overview of
the palm oil supply chain.)
Sustainable Palm Oil
The Roundtable on Sustainable Palm Oil (RSPO) was established in 2004 to promote the production and
use of sustainable palm oil by uniting stakeholders from various sectors across the palm oil industry, including
producers, traders, manufacturers, retailers, investors, and environmental and social non-governmental
organizations.64 As of 2018, the year when Ferrero bought Nestlé’s U.S. brands, the RSPO had more than
4,000 members worldwide and certified roughly 20% of global palm oil production.65 (See Exhibit 2 for a
representation of RSPO members by country.)
To participate in RSPO-certified palm oil production, growers had to agree to comply with the RSPO’s
Principles and Criteria (P&C) standards, which were reviewed and updated by members every five years.66
The most recent P&C standards were released in 2018. Although the P&C document was adapted for use in
each country, there were a few broad policies that all members were required to follow. One of the main
concerns with palm oil production was deforestation, so the RSPO required that no new plantings cause
deforestation or replaced areas marked as “high conservation value” forests.67 Certified growers were also
prohibited from planting on peatland, a type of wetland that forms when waterlogged conditions prevent
or slow plant decomposition, resulting in dead plant accumulation that can become several meters or yards
thick.68 The conservation of peatlands is essential to a low-carbon future as these landscapes are one of
the largest natural terrestrial carbon stores.69 When damaged and dug up, peatlands can release up to 1.3
gigatons of CO2 per year.70 Fire prevention was another component of the RSPO’s P&C, which stated that “fire
is not to be used for land preparation under any circumstances.”71
In addition to environmental concerns, the RSPO mandated protection of human and labor rights by
requiring that certified growers pay workers living wages, provide better protection for migrants and contract
workers, and create policies designed to effectively resolve worker grievances.72 Furthermore, the 2018 P&C
stated that all new development must gain “free, prior, and informed consent from local communities.”73
The RSPO had been criticized for “greenwashing” after some RSPO-certified palm oil was linked to
cleared forests and drained peatlands.74 And, since most of the producers who sought certification already
had practices aligned with RSPO standards, critics questioned the true impact of certification achievement.75
To determine certification effectiveness, the Proceedings of the National Academy of Sciences examined
numerous certified and non-certified plantations in search of significant discrepancies. 76 The study found
that RSPO-certified plantations had reduced rates of deforestation and appeared to be “at least as effective
as similar certification systems at reducing deforestation.”77 However, the RSPO certification seemed to have
little causal impact on reducing fire rates.78 Whether or not RSPO-certified palm oil could be considered truly
sustainable continued to be debated.
Ferrero Competitors
The Ferrero Group held a large slice of the global market and continually competed with other major
players, including Mars Inc., Mondelez International Inc., and the Hershey Company. Additionally, the
influx of more health-conscious and sustainability-focused consumers forced Ferrero and its traditional
competitors to take greater action on environmental issues, especially related to palm oil.
Mars
Founded in 1922 as a privately-owned chocolate manufacturer, Mars Inc. had since expanded to more
than 70 countries across five continents.79 In addition to chocolate, Mars manufactured pet care products,
foods, beverages, and other confectionery treats.80 Its well-known confectionery brands included M&Ms,
Snickers, Skittles, Twix, and all Wrigley products.81 As of 2018, Mars was the largest manufacturer in the
global confectionery and candy industry, with an 8.3% market share and a confectionery industry-relevant
revenue of $17.1 billion.82 That made up about half of Mars’ total revenue.83 (See Exhibit 3 for market share
details.)
In terms of palm oil, Mars was active in working toward sustainable and responsible sourcing. Mars
joined the RSPO in 2010, and since 2013 had purchased only 100% RSPO-certified palm oil for all of
its business segments.84 In addition, Mars partnered with Verité, an independent nonprofit dedicated to
solving human rights violations in business supply chains.85 Furthermore, Mars was a strong supporter of the
Coalition for Sustainable Livelihoods, the Consumer Goods Forum Palm Oil Working Group, and the North
American Sustainable Palm Oil Network.86
Mondelez
In 2012, Mondelez International Inc. was established by splitting from Kraft Foods Inc. and primarily
consists of Kraft’s former global snacking and food brands.87 Those brands include Oreo, Nabisco, and
Trident.88 Mondelez reported a confectionery industry-relevant revenue of $11.7 billion in 2017 and held
5.7% of the market share.89 Its overall revenue for 2017 was approximately $25.9 billion.90
Mondelez became a member of the RSPO upon its founding.91 After several years of sourcing 100%
RSPO-certified palm oil, Mondelez reported that, by the end of 2017, 96% of its palm oil was traceable
back to the original mill and 99% of its suppliers had similar values and policies regarding sustainability.92
Mondelez also took an aggressive stance on deforestation, pledging to eliminate contracts with any supplier
who engaged in deforestation. By the end of 2018, it had terminated contracts with 12 suppliers.93
Hershey
Best known for Hershey’s Kisses, the Hershey Company, founded in 1894, had long been one of the top-
selling manufacturers of both chocolate and non-chocolate confectionery products in North America.94 By
the end of 2017, Hershey held roughly 30% of the U.S. confectionery market, but a global share of around
4%.95 Hershey reported confectionery industry-relevant revenue of $7.5 billion in 2017.96
Hershey had taken great strides toward sourcing more sustainable palm oil. It became a member of the
RSPO in 2011 and committed to sourcing only 100% RSPO-certified, 100% traceable palm oil.97,98,99 Hershey
also collaborated with the Earthworm Foundation to understand where and how its palm oil was produced.100
In addition, Hershey declared in its Responsible Palm Oil Sourcing Policy that all “[n]ew acquisitions will
be incorporated into fully complying with our policy and reporting within one year of full integration.”101
Sourcing Sustainably
Ferrero’s journey toward sustainably sourced palm oil started in 2005 when it became a member
of the RSPO and accepted the organization’s standards. Thus, it implemented an active plan to work
extensively with its suppliers for responsible palm oil procurement.102 To tackle deforestation, high emission
of greenhouse gases, species extinction, and other environmental issues within the supply chain, Ferrero
pledged to responsible palm oil sourcing that was “good for people and nature” through its Palm Oil
Charter, which it committed to in 2013.103,104 In 2015, one year ahead of its target, Ferrero became 100%
committed to responsible sourcing and obtained appropriate RSPO certification.105,106 Ferrero prided itself on
committing to supplier transparency, human rights and social practices, and environmental protection and
sustainability.107 In 2015, the company became an active member of the Palm Oil Innovation Group (POIG),
which incorporated additional critical issues on top of RSPO requirements such as integrity, partnerships
with communities, and workers’ rights. POIG not only aimed to develop and disclose a credible benchmark for
corporate sustainable sourcing but also foster innovations in responsible supply chains and labor rights.108
To be a member of the group, companies had to end forced labor, human trafficking, and child labor within
their supply chains.109
However, with the recent acquisition of Nestlé, Ferrero saw its outstanding reputation in sustainable
supply chains at risk. In 2018, only 64% of Nestlé’s palm oil by volume was sourced responsibly, according to
Nestlé’s Progress Report.110,111 (See Exhibit 4 for Nestlé’s performance in 2016-2018.) Only 54% of its palm
oil was traceable to specific plantations and 91% traceable to mill.112 Previously, in 2016, Nestlé supplier
Wilmar, the world’s largest processor of palm and lauric oils, was accused by Amnesty International of child
labor, exploitation, and forced labor on plantations in Indonesia.113 At the time of the Ferrero acquisition,
Nestlé sourced significant amounts of its palm oil from operations self-reported to be unsustainable, like
AAK and Fuji Oil, according to their supplier disclosures.114 Fuji Oil Holdings admitted that climate change
and human rights issues had not been resolved in their palm oil production. They said they “have not
reached sufficient levels” of human rights recognition “compared to global leaders” in their palm oil sourcing
activities and “hold products that cause a high environmental load.”115 Also, in 2018, Greenpeace released
video evidence that one of Nestlé’s palm oil suppliers destroyed 4,000 hectares of rainforest in Indonesia,
an area almost half the size of Paris.116,117 The palm oil campaigner at Greenpeace USA, Sana Ruiz, said, “We
asked … Nestlé to confirm that they were making good on their commitments to stop buying palm oil from
companies that destroy forests, but this footage reveals just how far behind they really are.”118
For Ferrero, switching the supply lines toward sustainability for its newly acquired U.S. brands was far
from a simple matter. For example, among the non-sustainable producers Ferrero inherited were undoubtedly
thousands of small-scale farmers in developing countries. Cutting them off would fundamentally impact
numerous lives.119 According to RSPO, approximately 40% of the total oil palm plantation area in Malaysia
and Indonesia was represented by smallholder and small-scale farmer production. Globally, more than three
million smallholder farmers depended on palm oil production to make a living.120
Costs were another factor. The newly acquired Nestlé brands were less premium than Ferrero’s legacy
brands and had different business models based on lower profit margins.121 They could not be luxury priced
in order to cover new sustainability expenses. To please affluent customers, Ferrero Rocher chocolates, with
more premium ingredients, underwent a sacco conosciuto quality procedure in which ingredients, taste,
and texture were checked by experts every step of the way in the production process, and suppliers were
inspected to ensure premium raw material inputs.122 Meanwhile, the acquired brands such as Butterfinger
relied on lower-quality ingredients such as fillers, hydrogenated oils, trans fats, and TBHQ, a preservative.123
The pricing difference was substantial. For instance, 48 pieces of Ferrero Rocher chocolate candy sold
for approximately $20 while 48 pieces of a U.S. Nestlé candy cost about $9.124 Meanwhile, sustainable palm
oil was usually $30 more per ton than non-certified palm oil.125 This price difference made the determination
of whether or not to switch Nestle’s U.S. brands to sustainable palm oil a key strategic decision for the
future, as it could imply a change in the brands’ market positioning.
Switching to producing palm oil sustainably could be difficult for palm oil suppliers, as well. Many
producers in popular supplier regions did not have requirements to minimize or reduce the environmental
damage that their business caused. For example, many smallholder palm farmers in Borneo, Indonesia, did
not have any sort of voluntary commitment to either eliminate or reduce the deforestation that occurred as
a result of growing their businesses.126 The complexity of the palm oil supply chain demanded an investment
of time, resources, and capacity-building.
How to Stay “Sweet” yet Sustainable?
Ferrero and other candy companies around the world have to account for a wide variety of stakeholders
when considering how to handle their palm oil use. They must find a balance between earning profits,
creating high-quality products, appeasing environmentalists and the media, and maintaining the economies
of the developing countries in which they operate. All of this is in addition to the huge ethical dilemma
of enabling poor farming practices that can degrade communities and the environment. Who knew selling
chocolate could be so hard?
As the second-biggest chocolate confectionery producer in the world, Ferrero was poised to create
market shifts in the sustainable sourcing space. With the novel dilemma of incorporating its acquisition,
Ferrero was in a unique position to set a precedent for the market—which was a positive way to look at
the situation. Zeta Farini also had to deal with how to overcome the acquisition’s supply chain challenges.
Should Ferrero find alternatives to palm oil for the U.S. candies? How will the Ferrero brand be impacted
by the environmental harm of its subsidiaries’ sourcing? Do American Nestlé consumers care about palm
oil sourcing as much as their Ferrero-consuming European counterparts? Was RSPO ultimately “sustainable”
enough to be considered the gold standard for palm oil? And, given the nature of the company and the
chairman’s involvement in the acquisition, how will this situation’s outcome impact the long-term legacy
of the Ferrero family? As her phone began to ring, Farini sat up straight, took a deep breath, and prepared
to discuss the future of sustainability at the Ferrero Group.
Exhibits
Exhibit 1
Palm Oil Supply Chain
Source: Venner, James. “Cultivating a catastrophe: the environmental impact of palm oil farming.” Zoo Portraits, 22 Nov. 2018. https://www.zooportraits.com/environmental-
impact-of-palm-oil-farming/. Accessed 23 Feb. 2022.
Exhibits (cont.)
Exhibit 2
Roundtable on Sustainable Palm Oil
(Percentage of members by country)
OECD = Organisation for Economic Co-operation and Development.
Source: Created by the authors based on data from: Khew, Yu Ting Joanne, Shogo Kudo, and Marcin Pawel Jarzebski. “The Efficacy of Voluntary Certification Standards for
Biodiversity Competition.” Policy Matters, no. 21, Sept. 2016, pp. 25-44. https://www.researchgate.net/publication/310334634_The_Efficacy_of_Voluntary_Certification_
Standards_for_Biodiversity_Conservation.
10
Exhibits (cont.)
Exhibit 3
Market Shares for Three Competitors
Source: Buchko, Matthew. Global Candy & Chocolate Manufacturing: Global Industry Report C1113-GL. IBISWorld, July 2021. https://my-ibisworld-com.proxy.lib.umich.
edu/gl/en/industry/c1113-gl/major-companies.
11
Exhibits (cont.)
Exhibit 4
Nestlé’s Progress in Traceability and Responsibly Sourced Palm Oil, 2016-2018
Source: “Palm Oil Responsible Sourcing at Nestlé 2018 Progress Report.” Nestle, 2018. https://www.nestle.com/sites/default/files/asset-library/documents/creating-shared-
value/responsible-sourcing/palm-oil-sourcing-2018.pdf. Accessed 23 Feb. 2022
12

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case W13C26

March 31, 2022

A Sweet Dilemma: Sourcing Palm Oil with Ferrero SpA

Ferrero Company History and Financials

Confectionery Industry Overview

Sustainable Palm Oil

How to Stay “Sweet” yet Sustainable?

OECD = Organisation for Economic Co-operation and Development.

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