TONY'S CHOCOLONELY: TAKING ON "BIG COCOA" AND WEST AFRICAN CHILD SLAVERY IN THE

SUPPLY CHAIN¹

On February 16, 2021, trade journals and the mainstream media reported the removal of Tony's
Chocolonely (Tony's), a chocolate company based in Amsterdam, the Netherlands, from Slave Free
Chocolate (SFC)'s "Ethical Chocolate Companies" list. The removal was due to Tony's association with
Barry Callebaut, a Swiss company that was one of the accused "Big Cocoa" companies in a US
Supreme Court case against child slavery in West Africa. Tony's pushed back at the removal, saying.
"Slavefreechocolate.org is not an official certification. When it comes to official certifications like
Fairtrade and B-Corp, Tony's passes with flying colours.... The Slave Free Chocolate list feels that us
working with Barry Callebaut is at odds with our mission to make all chocolate 100% slave free, but
we work with Barry Callebaut to make this mission possible on a global scale."

In the Supreme Court case, Tony's had filed a "Friend of the Court" brief against "Big Cocon." The
company had been planning a major expansion, and its credibility as a mission-driven B Corp-
certified company was at stake. Henk Jan Beltman, the chief executive officer (CEO) and 51 per cent
owner of Tony's, would have to decide how to respond to the removal.

THE GLOBAL CHOCOLATE INDUSTRY (SEE EXHIBIT 1)

Demand

In 2020, the estimated size of the global chocolate market was over €118 billion; the market was
expected to grow at an annual rate of 4.8 per cent to reach nearly €171 billion by 2028. Buyers not
only consumed chocolate in its pure form (such as in chocolate bars) but also used it in products
such as cookies, cakes, and ice cream. There were three chocolate product segments; white
chocolate, milk chocolate, and dark chocolate; of these, milk chocolate accounted for 54 per cent of
the demand." White chocolate was an important ingredient in many confectionery products, while
the putative health benefits of dark chocolate accounted for its popularity and growth. Forty-two
per cent of all chocolate sold worldwide was through supermarket and hypermarket chains such as
Wal-Mart in the United States and Carrefour and Aldi in Europe, which dominated the retailing of
chocolate. Europe held the dominant market share with 45 per cent of consumption, followed by
North America and the Asia Pacific market."

Incorporated (Cargill) and Barry Callebaut were major players in the upstream side of the value
chain. Cargill, based in Minnesota, United States, was a private company that traded grains and
various agricultural commodities and processed raw materials into a semi-finished form for its
customers. Barry Callebaut, a large cocoa processor and chocolate manufacturer based in Zurich,
Switzerland, was formed by the 1996 merger of Callebaut, a Belgian company, and Cacao Barry, a
French company. With revenues of €6.4 billion, it was a vertically integrated player that served
artisans and chefs, food and beverage manufacturers, and the vending channel." Barry Callebaut had
sixty-one factories around the world and served a global customer base including leading chocolate
companies such as Nestlé and Mondelez International"

Nestlé, Mondelēz International, and the Hershey Company were among the major manufacturers of
branded chocolates. Nestlé, based in Switzerland, reported total revenues of around €77 billion in
fiscal 2020, of which chocolates accounted for nearly £6.4 billion. Among its well-known brands
were Kit Kat, Smarties, and 12 Orion. Mondelēz International was a company based in Illinois, United
States, with €22.68 billion in global revenues for 2021. Its chocolate brands such as Cadbury's, Milka,
and Toblerone-accounted for 31 per cent of its revenues In the case of the Hershey Company, a
confectionery multinational based in Pennsylvania, United States, its voting rights were controlled by
a trust that had been created by the company's founder, Milton S. Hershey." The Hershey Company
reported revenues of €6.95 billion for 2021, with North America accounting for 83 per cent of global
sales. Chocolate manufacturers bought semi-finished cocoa liquor and added their own flavours and
other ingredients to make the finished products.

Supply

The cocoa bean from the seed of the cacao tree yielded a liquid paste or liquor that was the key
ingredient in both cocoa powder and chocolate. The chocolate industry was the biggest end-user of
cocoa. The West African countries of Côte d'Ivoire and Ghana accounted for 60 per cent of the global
supply of cocoa. and cacao crop growing was largely fragmented, with hundreds of thousands of
smallholders operating small acreage farms. Smallholders sold the crop to intermediaries or
cooperatives, who aggregated and sold cocoa beans to processing companies such as Cargill and
Barry Callebaut.

Child Slavery in the Cocoa Industry

Modern slavery was defined as "the severe exploitation of other people for personal or commercial
gain." -30 There were an estimated forty million people trapped in modern slavery worldwide." Child
slavery, a subset of slavery, "was the enforced exploitation of a child for someone else's gain."

Cocoa farming was labour-intensive in that both tree planting and cocoa pod harvesting had to be
done by hand. Mechanization required large-scale landholding, and while the Americas had a few
large-scale cocoa operations (e.g., companies in Peru and Nicaragua holding up to 4,000 hectares of
land), small farmers grew 80-90 per cent of the world's cocoa. Cocoa farming in West Africa involved
600,000-800,000 smallholders who each owned and operated farms of between 2 and 4 hectares
that yielded 1 to 2 tons of cocoa per year." Cocoa prices in the international commodities markets
had fluctuated between a low of €1,730 per ton in 2017 and a high of €2,586 in late 2020. A study
pointed out that a farmer in Côte d'Ivoire owning 2 hectares of land for cocoa farming earned E1.77
a day, while a farmer in Ghana with a similar cultivated area carned €2.29 a day. With an average
family size of five people, their per-person daily earnings fell far short of the €1.62 per-day global
poverty line." Given the adverse economics of growing cocoa, farmers in Côte d'Ivoire and Ghana
used child labourers-not just their own children, but also other children from within their countries
and other parts of West Africa. A University of Chicago report estimated that 1.56 million child
labourers (below the age of sixteen) worked on cocoa farms in Côte d'Ivoire and Ghana." As a
Fortune article recounted, "Production begins amid crippling poverty and underage workers, who
spend hours a day hacking away at cocoa pods with machetes for little or no pay.

The Harkin-Engel Protocol

In 2001, two US legislators, Senator Tom Harkin and Congressman Eliot Engel, sought to enact a law
that would necessitate labelling all chocolate products to indicate whether they were made using
slave labour. Facing pushback from the chocolate lobby, the two legislators later agreed on a public-
private-partnership-based protocol that put the onus of eradicating slavery from the global cocoa
supply chain on the chocolate industry Several stakeholders including Nestle, Mars Incorporated,
Mondelez International, the Hershey Company, and four other chocolate producers signed the
protocol, which pledged to remove the worst forms of slavery (child labour, in particular) by 2005.
When the signatories failed to meet the pledge, they moved the deadline to 2008, and then to 2010,
and later to 2020. More recently, they amended the deadline from 2020 to 2025,2

The 2021 US Supreme Court Case

In February 2021, an international human rights organization filed a lawsuit against the leading
chocolate companies (including Nestlé, Mars Incorporated, and Barry Callebaut) on behalf of eight
Malians who were trafficked to work on cocoa farms in Côte d'Ivoire while under the age of sixteen."
The case alleged that the major chocolate companies knowingly aided and abetted the practice of
child slavery in return for economic gains. The case sought punitive damages under an eighteenth-
century law called the Alien Tort Statute. Under this law, companies with operations in the United
States could be held liable for crimes in other parts of the world.

When the US Supreme Court heard the case, Tony's was one of many organizations that filed a
"Friend of the Court" brief. In its brief, Tony's pointed out that the global cocoa supply chain was
broken and that companies that abetted forced child labour should be held liable. The brief also
described Tony's own efforts "Tony's has created a system that combines, among other strategies,
transparency, higher prices for cocoa beans, strong farmers, long-term commitments, and
interventions to support quality and productivity-all elements of a legitimate due diligence system
that allows it to source cocoa responsibly "
TONY'S CHOCOLONELY

Origin Story

In 2003, Dutch journalist Teun van de Keuken learned about slavery in the global cocoa supply chain.
His investigation led him to contact chocolate companies about their awareness of this issue:

For the launch of the movie Charlie and the Chocolate Factory, Nestlé, the official partner of the
movie, planned to produce special chocolate bars. Teun phoned up their brand manager to propose
his idea for these bars: "Wouldn't it be great to celebrate the movie by bringing out special
chocolate bars that are 100% guaranteed slave free?" The brand manager's response spoke
volumes: "Okay, how do you spell that word, 'slave free"?" It was the first time she had heard of it.
This opened Teun's eyes: Nestlé was not even aware of the slavery practices!"

After failing to get a response from the major chocolate companies, van de Keuken hit upon a more
provocative idea to address the problem. He used the Dutch legal concept of "fencing." which made
a consumer of an illegal product guilty of breaking the law." In a segment for an investigative Dutch
television show called Keuringsdienst van Waarde, van de Keuken ate several bars of chocolate and
informed his audience that he was calling the police because he was publicly breaking the law
against slavery. The police chose not to arrest van de Keuken because of the difficulty in directly
connecting the cocoa in the chocolates that he ate to slavery. Van de Keuken and Maurice Dekkers,
the owner of the production company that produced the show, then decided to make 5,000
Fairtrade and traceable milk chocolate bars to raise awareness about the issue. They named these
bars "Tony's Chocolonely" ("Tony" as the anglicized version of "Teun, and "chocolonely" to indicate
their lonely, quixotic quest to take on the major chocolate players) and distributed them in
Amsterdam. These chocolates were a success because of their taste and their social mission to drive
out slavery in the cocoa supply chain; in 2005, with an investment of €60,000 from Dekkers and a
bank loan of €100,000, the duo launched a business to make and sell ethically sourced chocolates. In
2011, van de Keuken and his journalist co-founders sold the controlling interest in the company to
outside investors to avoid a conflict of interest with their investigative role. Henk Jan Beltman
bought a controlling 51 per cent stake in the company for around €330,000 and became its CEO,"

Tony's had always been a de-integrated chocolate player. While it sourced cocoa from its suppliers,
it outsourced the processing activity (roasting, grinding, and producing semi-finished chocolates) to
Barry Callebaut's facility in Wieze, Belgium, and the final chocolate production to Althaea-De Lact
and Kim's Chocolates, both also in Belgium."
The Company in 2021

The Importance of Tony's Mission

Headquartered in Amsterdam, Tony's operated with a mission of "100 per cent slave-free
chocolate." The company's aim was not just to produce slave-free chocolates on its own but to
eradicate slavery from all chocolates worldwide. To fulfill its mission, Tony's used three principles to
guide its actions: raise awareness, lead by example, and inspire others to act." Ben Greensmith, the
head of Tony's UK operations, remarked, "We're not a chocolate company, we're an impact
company that makes chocolates | Reiterating that Tony's was a mission-driven company, Beltman
said, "Tony's remains half-company, half-campaign. It wants to prove that child labour-free [sic]
production is a viable business strategy. What we want to do is to have an impact in mainstream
chocolate. This means that everything we do has to be scalable.

In 2013, Tony's obtained B Corp certification with a B Impact score of 95.9 (out of 200, 80 was the
minimum score required to obtain certification). B Corp was a US-based certification body that used
a self-assessment process to measure each company's actions in four areas governance, workers,
community, and the environment and aimed to ingrain the importance of non-financial measures."
With its certification, Tony's joined a network of B Corp-certified companies including The Body
Shop, Patagonia, and Allbirds.

Organization and Culture

After Beltman took control of the company, Tony's expanded into several European markets and
then in 2015 to the United States. It had the second-highest market share (the highest was
Mondelez International's Milka) among chocolate bars in the Netherlands with 16.4 per cent." In
2019, Tony's began selling its chocolate bars in Sainsbury's, Waitrose, Whole Foods, and through
other UK retailers." It also owned and operated two retail stores, both in Amsterdam." Tony's core
product was an unevenly cut chocolate bar sold in flavours including milk chocolate, milk hazelnut,
and milk caramel sea salt. The uneven cut represented the inequity in revenues distribution across
the value chain. The company employed 230 people in its Amsterdam, UK, and US offices.

Tony's organized its staff into gold, silver, and bronze teams based on the market they served and
the importance of the market in terms of revenue. The gold team served the Netherlands, Germany,
the United States, Austria, and the United Kingdom, and the company had offices and staff in each
gold team country. The Nordic countries, Belgium, and France made up the silver team, and staff
members from the Amsterdam office worked with distributors to promote sales in those countries.
In fiscal 2020, Tony's reclassified its silver and bronze teams as "Team Beyond," and that team's goal
was to promote sales of Tony's chocolates worldwide from the Amsterdam office. Part of Team
Beyond's strategy involved placing and promoting the company's products in duty-free shops in
several international airports, but the team had limited success due to COVID-19 travel restrictions."
Finances

Tony's reported over €88 million in revenue in fiscal 2020 (see Exhibits 2 and 3 for financials)."" It
paid above the market price (as determined by various international commodity markets) for the
cocoa beans that it sourced from farmers in Ghana and Côte d'Ivoire. In addition, Tony's paid two
types of premiums: €170 per ton to qualify for the Fairtrade label, and a "Tony's premium" of around
€150 per ton." The company estimated that the added costs of the cocoa it used made its chocolate
around 15-20 per cent more expensive to produce than its competitors' products."

In fiscal 2020, the Netherlands accounted for around €61 million of Tony's revenues, the United
States for €10.3 million (up from €5.6 million in fiscal 2019), the United Kingdom for €8.7 million (up
from €3.2 million in fiscal 2019), and Germany for £2.3 million. Sales from the rest of Europe and
duty-free shops accounted for about €6 million of Tony's revenues."2

Sourcing Principles

Tony's operations used five sourcing principles, collectively called "Tony's Open Chain": traceable
beans, higher wages for farmers, strengthening farmer relationships, long-term commitments, and
productivity and quality (see Exhibit 4).

The Barry Callebaut Partnership

In 2016, Barry Callebaut and Tony's announced a strategic partnership that would enable the
companies to procure fully traceable, 100 per cent sustainably sourced chocolate." As part of the
agreement, Barry Callebaut agreed to install a dedicated cocoa butter tank in its Wieze factory to
procure and store cocoa beans that Tony's would source from its farmer partners in Côte d'Ivoire.
The goal was to combine Barry Callebaut's dedicated cocoa butter facility with the existing
sustainable cocoa liquor that it processed for Tony's to produce sustainable and traceable
chocolate." In announcing the partnership, Barry Callebaut's CEO, Antoine de Saint-Affrique, said:

Tony's keeps pushing us, every day, to try to do things differently, to try to get better traceability. So
those guys are very challenging, but they are very helpful because they help us go to the next level....
We could extend the special facilities that [we] provide to Tony's to others, but what you see is that
some customers-and I will not name them are not interested in sustainability because they don't see
necessarily the benefit."
REMOVAL FROM THE SLAVE FREE CHOCOLATE LIST

Slave Free Chocolate (SFC) was a US-based grassroots activist organization founded in 2007. Its
mission was to raise awareness about child slavery in the cocoa industry in West Africa. Co-founder
Ayn Riggs clarified the role of certification in creating awareness: "Looking for a Fair Trade, organic
label or an explination [sic] of why the source is child labor free is the best we can do as consumers
when purchasing chocolate. Certification programs can only go so far when it comes to eradicating
the Worst Forms of Child Labour including slavery. Together they aren't big enough to be effective"

To fulfill its mission, SFC used its own investigations and a self-reported three-question survey
(asking about cocoa source, how the company created awareness, and initiatives that benefited
farmers and the environment) to create a list of ethical chocolate companies. Tony's had been on
SFC's ethical chocolate companies list every year since SFC's inception; however, on February 16,
2021, reports emerged that SFC had removed Tony's from its list because of the company's
association with Barry Callebaut." Riggs gave the following rationale for the removal: "Their [Tony's]
chocolate is made by Barry Callebaut, which ties them to child slavery. The fact that their chocolate
is made by Barry Callebaut. allows them to produce

chocolate cheaper than those who do everything ethically from soup-to-nuts."

THE DECISION AHEAD

The fallout from the removal of Tony's from the SFC list of ethical chocolate companies posed
challenges for the company in its quest to create a slave-free cocoa supply chain. Riggs had also cast
doubt on the company's mission in public statements such as the following: "Their ethical mission is
merely a way to sell more bars. To me it just smacks of using a bad situation to market your product-
buy me, I'm slave free when in fact nothing is changing for these farmers in these countries."" Tony's
defended its relationship with Barry Callebaut in the following statement:

In 2005, we deliberately chose to partner with Barry Callebaut to show that it is possible to be fully
traceable while working with a large processor. From the start, Barry Callebaut has believed in our
mission and collaborated with us to set up fully segregated processing for our 100% traceable beans,
so they are never mixed with other beans. Working with Barry Callebaut allows us to further scale up
our production.

Removal from SFC's list was also likely to affect Tony's expansion plans, which the company had first
announced in 2018. In June 2020, Tony's unveiled the design for a three-building complex in
Amsterdam- for a "Willy Wonka-type" chocolate factory, additional office space, and a chocolate
museum expected to draw up to 500,000 visitors a year, all for US$105 million"-and announced new
equity partners who contributed €36 million to the company's capital."
At the heart of the challenges Tony's faced was the issue of vertical integration. In laying out what
SFC saw as the options for Tony's to get back onto its list, Riggs maintained that the best option was
for Tony's to make its own chocolate. She believed this would give Tony's a competitive advantage
over "Big Cocoa" because it would make the company's actions, as well as its words, align with its
mission. However, this would have required a sizable capital infusion for Tony's. The other option
that Riggs proposed was for Tony's to outsource the production of its chocolate to a player who was,
unlike Barry Callebaut, not tied to child slavery in West Africa. This meant that Tony's had to find a
processor willing to work within Tony's traceability specifications.

Beltman and his Tony's team would have to address the challenge to its mission. They would need to
respond to the short-term fallout from Tony's removal from the SFC list and create a plan for a long-
term reconfiguration of its identity as a for-profit and mission-driven organization.