General Mills Commits To Sourcing 100% Sustainable Cocoa

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case W04C83

February 25, 2016

General Mills Commits to Sourcing 100% Sustainable


Cocoa

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After watching the sun rise from his office window over the Mississippi River, Jacob Madisson,i chief
sustainability officer at General Mills, sat down at his desk. Cradling a cup of coffee in his hands, he tried
to prepare himself for what promised to be a long day. On his desk at the company’s corporate headquarters
in Golden Valley, Minnesota, sat a glossy copy of the General Mills 2015 Global Responsibility Report.
From health and wellness to the environment, the 119-page document detailed the significant progress the
company had made toward its aim of being “one of the world’s most responsible food companies.”1
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This morning, Madisson mulled over the new commitment General Mills made yesterday, pledging to
eliminate 28% of the greenhouse gas (GHG) emissions in its value chain by 2025.2 The company was making
real progress, and he was happy to be a part of it. But that did not ease the pit that sat in his stomach
because of cocoa. In 2013, General Mills announced its goal to sustainably source 100% of its top 10 priority
ingredients, which accounted for 50% of its total raw material purchases, by 2020.3 The sourcing of eight of
these materials was improving steadily, though his team had made little headway on cocoa and domestically
sourced corn. For him, cocoa was a much more pressing concern. Many were worried that the supply of cocoa
could run out in a few years because of increased demand.4 With only 10% of its African-based cocoa sourced
sustainably in 2014,5 General Mills needed a new strategy. What could General Mills do to accomplish such
an aggressive commitment, while not sacrificing the other promises the company had already made? How
should the company successfully transition to sustainable sourcing, given the complexities of the cocoa
international supply chain? What should General Mills do to change its strategy?

At noon, Madisson needed to answer these questions and address his team as well as Chief Executive
Officer Ken Powell on how to move forward with cocoa.

History of General Mills Inc.

General Mills’ beginnings date to the 1866 formation of the Washburn Mill, which later became the
Washburn Crosby Company. Situated in Minneapolis, Minnesota, the Washburn Crosby Company introduced
i Jacob Madisson is a fictional character.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
©2016 Rebecca J. Baylor, Zhanyang Gao, and Katherine W. Price. This case was written under the supervision of Andrew Hoffman
(Holcim Professor of Sustainable Enterprise at the Ross School of Business) at the University of Michigan by graduate students Rebecca
J. Baylor, Zhanyang Gao, and Katherine W. Price as the basis for class discussion rather than to illustrate either effective or ineffective
handling of an administrative situation. This case was designed for academic purposes to simulate a scenario that could occur in the
business world. While secondary research was performed to accurately portray information about the featured organization, this is a
hypothetical scenario, and company representatives were not involved in the creation of this case.

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Gold Medal flour in 1880. General Mills was incorporated June 20, 1928, as a result of a merger between the
Washburn Crosby Company and four other flour mills. This merger was prompted by a decrease in activity for
flour mills in the late 1920s. General Mills started trading publicly under the stock ticker GIS in November of
that year.6 The company continued to merge with other milling companies until it became the largest flour
milling company in the United States.7

General Mills formed out of a necessity to adapt to a changing market, a skill that the company
continued to use throughout its next 90 years of operation. During World War II, General Mills adapted
some of its facilities to produce military equipment. During this time, company employees developed “the
hedgehog,” an important military technology that allowed missiles to find moving targets. On the home
front, General Mills introduced “Vibic Flour,” flour enriched with vitamin B, calcium, and iron that allowed
consumers to purchase more with their rations.8

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In the 1960s and 1970s, General Mills greatly diversified the industries in the company’s portfolio.9 With
the purchases of Rainbow Crafts (producers of Play-Doh10) in 1965, Kenner Toys in (creators of the Easy-Bake

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Oven11) in 1967, and Parker Brothers (makers of Monopoly12), among other acquisitions, General Mills became

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the largest toy manufacturer in the world for a time.13 General Mills also entered into the apparel industry
(Lacoste and Izod brands, Eddie Bauer, and Talbots) and the restaurant industry (Red Lobster, York Steak
House, and Olive Garden, which was developed by General Mills).14 General Mills divested from many of these
industries between 1985 and 1990.15 Over the next 25 years, the company strengthened its food-focused
portfolio, most notably with the acquisition of Pillsbury in 2000,16 and established itself as a leading global
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food company with a diverse portfolio of products, including Betty Crocker, Cheerios, Gold Medal flour, and
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Häagen-Dazs ice cream.

Major Competitors in the Food Industry

Kellogg Company
The world’s largest cereal producer, Kellogg was founded more than 100 years ago by W.K. Kellogg in
Battle Creek, Michigan. As a major market competitor, Kellogg strengthened its environmental standards and
reduced overall GHG emissions by 15–20% from 2005–2015.17 Like General Mills, Kellogg committed to more
responsible sourcing of some of its most crucial raw materials, including cocoa, corn, and palm oil.18

Post Holdings Inc.


Post traces its heritage to C.W. Post, who introduced Grape-Nuts, the first natural ready-to-eat cereal
marketed to enhance health and vitality, in 1897. With headquarters in Saint Louis, Missouri, Post Holdings
was a principal player in the ready-to-eat cereal industry.19 In 2014, Post began producing non-GMO Grape-
Nuts verified by the Non-GMO Project, a third-party certification body,20 and made a public commitment to
sustainably source 100% of its palm oil in 2015.21

Seneca Foods Corporation


Founded in 1949, Seneca was a major food processor and distributor with headquarters in Marion,
New York.22 Under the slogan “Always in Season,” the company specialized in making packaged fruits and
vegetables available any time of the year.23 Seneca was committed to using non-GMO fruits and vegetables
in its products, increasing the energy efficiency of its operations, and lowering its carbon footprint, but
sustainable sourcing was not listed as a high-priority issue on the company’s website.24

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Key Food Industry Partnership

Nestlé S.A.
Nestlé was established in 1866 when the Anglo-Swiss Condensed Milk Company opened the first European
condensed milk factory in Switzerland. Henri Nestlé developed a breakthrough infant food in 1867, and in
1905 the company he founded merged with Anglo-Swiss to form what became known as the Nestlé Group.25
As part of the Nestlé Cocoa Plan, Nestlé made a global pledge to source 150,000 tons of sustainably produced
cocoa by 2017.26 Nestlé entered the cereal market in 1991 when Cereal Partners Worldwide (CPW), a 50-50
partnership with General Mills,27 was founded to increase cereal sales outside Canada and the United States28
by marketing products under Nestlé’s well-known global brand. CPW products had been sold in 130 countries
worldwide, accounting for 84% of General Mills’ joint venture sales.29 General Mills did not buy cocoa directly
from farmers; products such as chocolate were sourced from ingredient suppliers like Nestlé.30

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Consumer Preferences: Concerns Regarding Genetically Modified Organisms (GMO)

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and Preservatives

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With net retail sales in the United States down 4% to $2.76 million in the second quarter of 2015,31 the
future of General Mills depended on providing more of what consumers wanted. Kirstie Foster, a spokeswoman
for General Mills, told Bloomberg Business News that General Mills was “continually looking at how we
can shape our portfolio to meet the needs of consumers in the U.S. and around the world.”32 But what
did consumers want? Recent history suggested they wanted more fresh, healthy, socially responsible, and
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sustainable foods.

Organic food had been an area of particularly high demand (Exhibit 1); in 2014 the industry experienced
double-digit growth rates.33 According to Health Focus International, a significant percentage of food consumers
around the world were “extremely” or “very concerned” about pesticides (58%), food preservatives (49%),
and GMOs (48%).34 The company responded to such pressures by incorporating non-GMO alternatives and
eliminating certain preservatives from its product line. As of January 2014, General Mills pledged to remove
all genetically modified ingredients from its original Cheerios cereal.35 However, such promises were not made
for other variations, such as Honey Nut Cheerios. Some shareholders, including Harriet Crosby, were likewise
“concerned by our reputation as a company that uses genetically modified organisms.”36 Despite Crosby’s
expressed concerns, only 2% of shareholders supported a companywide ban of GMOs in September 2014.37

Consumers were also concerned about social and environmental standards inherent in the food they
bought. Several food companies, including General Mills, had been targeted with these demands. In fact, the
biggest backlash against General Mills’ chosen ingredients and product choices had arisen from consumers
in the form of petition-based campaigns. In 2014, as part of Oxfam’s “Behind the Brands”38 campaign, over
640,000 people asked the 10 largest food companies in the world—General Mills included—to do more to
tackle climate change and other global sustainability issues in their supply chains.39 In partial response to
Oxfam’s campaign, General Mills and Kellogg joined the Business for Innovation Climate and Energy Policy
(BICEP) coalition to better address consumer concerns.40 Food blogger Vani Hari and her followers, deemed
the “Food Babe Army,” started a petition to ban butylated hydroxytoluene (BHT), a controversial preservative
used commonly within the U.S. food industry but banned in many other countries.41 In a few hours, the
petition received over 17,000 signatures and stood at more than 32,000 in February 2015.42 General Mills
subsequently released an official statement announcing the removal of BHT from all its cereals.43

Because of its organizational changes in response to consumer preferences, General Mills had made some
headway toward targeting health- and sustainability-minded shoppers. General Mills was the fourth-largest

3
General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

natural and organic food producer in the United States and a top-five purchaser of organic ingredients in
North America. Even so, the company was focused on expanding its natural and organic product offering and
planned to double the North American-based organic farming acreage by 2020.44 General Mills made public
statements in support of national-level GMO labeling standards, as opposed to state-by-state regulation, and
recognized that “some people may prefer products made without GMO ingredients. That’s why General Mills
offers a choice of organic and non-GMO alternatives in most of our major categories in the U.S.”45 According
to Powell (CEO), part of the company’s strategy to remain a relevant brand was to acquire smaller food
companies, such as Annie’s, because millennial consumers were more loyal to them.46

Exhibit 1
U. S. Organic Market Sales and Growth

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Source: Greene, Catherine. “Growth Patterns in the U.S. Organic Industry.” U.S. Department of Agriculture. Oct. 2013. Accessed 23 Feb. 2016.
<http://www.ers.usda.gov/amber-waves/2013-october/growth-patterns-in-the-us-organic-industry.aspx>.

Environmental Regulation

Since 1970, the U.S. Environmental Protection Agency (EPA) has made tremendous strides toward
implementing environmental regulations focusing on cleaning and protecting the water and air.47 In addition,
the 3rd and 4th Intergovernmental Panel on Climate Change (IPCC) assessment reports, published in 2001
and 2007, respectively, stressed the importance of reducing GHGs and painted an uncertain future for the
environment. In agriculture, GHG emissions were forecast to rise with increasing use of inputs (e.g., fertilizers
and pesticides),48 and forecasted crop yields were highly speculative due to uncertainty regarding how climates
would change.49 The abundance of EPA regulations and increased awareness of environmental importance and
future environmental uncertainty had helped intensify conversations about protecting the environment. As
a result, companies were increasingly being held more accountable for their effects on the environment. The
BP oil company provides a good example. In 2006, one of BP’s oil pipelines ruptured, spilling 200,000 gallons
into the waters around Alaska.50 BP was fined $20 million and was still facing lawsuits from shareholders in

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

2014.51 In 2010, BP’s Deepwater Horizon spill resulted in about 3.19 million barrels of oil entering the Gulf
of Mexico. The company agreed to pay $18.7 billion to settle civil lawsuits in 2015.52

General Mills’ Move toward Organic

From its beginning, at the heart of all of General Mills’ actions has been its mission to “innovate to make
people’s lives healthier, easier and richer.”53 Since 2000, the company had scaled up this mission by building
a robust organic foods portfolio, beginning with its purchase of Small Planet Foods in 2000.54 Small Planet
Foods came with two natural food brands, Cascadian Farms, makers of cereal, frozen fruit, vegetables, snack
bars, and fruit spreads,55 and Muir Glen, a maker of salsa and pasta sauce.56 In 2008, General Mills purchased
Humm Foods, giving it the brand Lärabar. General Mills in 2012 acquired Foods Should Taste Good,57 makers of
GMO-free and vegan chips,58 and in 2014 it bought Annie’s Inc., maker of organic, preservative-free foods.59

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General Mills’ Sustainability Objectives

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In 2012, General Mills worked with the World Wildlife Fund (WWF) and the Rainforest Alliance to
create a comprehensive assessment of the raw materials that it bought worldwide. Each raw material was
measured against many risk categories, including animal welfare, forced and child labor, health and safety
of workers, indigenous peoples’ rights, deforestation, economic sustainability, fertilizer (nitrogen) use, GHG
emissions, soil loss, water quality, and water use. Through these measurements, General Mills identified
10 priority ingredients that had the greatest sourcing and sustainability impacts on the company’s supply
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chain (Exhibit 2). General Mills formed strategic goals around sourcing each of these raw materials and
partnered with various industry partners and nongovernmental organizations to realize them.60 Additionally,
in 2014, in an effort to combat the multiplicity of issues faced in its supply chains, General Mills joined
the Supplier Ethical Data Exchange (SEDEX),61 a not-for-profit membership organization dedicated to driving
improvements in responsible and ethical business practices in global supply chains.62

General Mills’ Top 10 Priority Ingredients

Vanilla
The primary challenge to sourcing vanilla responsibly was economic. Smallholder farmers in Madagascar
were pressured by local traders to sell their crops at lower prices. General Mills partnered with CARE, the
international humanitarian organization, and Fanamby, a Madagascar-based NGO, to ensure that high-quality
vanilla beans were purchased directly from the farmers. Forty-five percent of the vanilla that General Mills
sourced in 2014 was sustainably sourced.63

Cocoa
A litany of challenges was associated with sustainably sourcing cocoa. Key among them was economic.
In 2009, General Mills and CARE started Join My Village, a nonprofit organization that supported cocoa
farmers, provided education for children, and offered training programs in Malawi, India, Ghana, and Cote
D’Ivoire.64 General Mills acknowledged that industry-wide collaboration was necessary to address the systemic
labor issues in the cocoa supply chain, while prohibiting the use of forced or child labor in the making of its
ingredients and products.65 In 2014, more than 70% of the cocoa sourced by the company came from Côte
d’Ivoire and Ghana, and 10% of the total cocoa purchased was sustainably sourced.66

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Palm Oil
The increasing global demand for palm oil had led to expansions of palm plantations and deforestation
of the world’s rain forests. To contend with this issue, General Mills developed an elaborate purchasing code
of conduct for sourcing palm oil. Eighty-three percent of the palm oil General Mills purchased was sustainably
sourced in fiscal 2014; at the end of 2014, 69% of the company’s palm oil volume was categorized as
traceable to the extraction mill.67

Sugarcane
The primary challenge associated with sugarcane was poor labor practices. Both forced and child labor
practices had been connected to sugarcane harvesting in many of the tropical and subtropical regions in
which it was grown. General Mills had joined Bonsucro, an international organization focused on improving
environmental, social, and economic conditions for sugarcane farmers. Forty-two percent of the sugarcane

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General Mills purchased was sustainably sourced in fiscal year 2014.68

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Oats

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Oats are generally thought of as an environmentally friendly crop to grow because they require relatively
less water and chemical inputs. However, the North American oat supply was steadily decreasing as farmers
switched to more profitable crops (for example, corn and wheat). General Mills partnered with several
associations to encourage the scaling of oat farming in Canada’s Manitoba and Saskatchewan growing
regions. Thirty-five percent of the oats General Mills purchased was sustainably sourced in fiscal 2014.69
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Wheat
GHG emissions, water usage, and lack of biodiversity were the primary challenges associated with wheat
farming. General Mills partnered with wheat farmers in Idaho’s Snake River growing region to develop field-to-
market pilots. Fifteen percent of the wheat General Mills purchased was sustainably sourced in fiscal 2014.70

Sugar Beets
GHG emissions, soil erosion, and lack of biodiversity are the primary challenges associated with sugar
beet farming. General Mills partnered with sugar beet farmers in North Dakota, Minnesota, and Manitoba,
Canada, to pilot sustainability projects with multiple growing associations. Thirty-four percent of the beet
sugar General Mills purchased was sustainably sourced in fiscal 2014.71

Corn
GHG gas emissions, nutrient utilization, and lack of biodiversity are the primary challenges associated
with corn farming. General Mills launched a field-to-market pilot program in eastern Wisconsin to encourage
sustainable corn farming practices. Six percent of the dry-milled corn General Mills purchased was sustainably
sourced in fiscal 2014.72

Dairy
Challenges in the dairy business include the need to reduce GHG emissions and control water usage.
General Mills collaborated with industry partners such as the Michigan Milk Producers Association to pilot
innovative dairy life cycle analyses. Twenty percent of the directly sourced fluid milk General Mills purchased
was sustainably sourced in fiscal 2014.73

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Fiber Packaging
“Fiber packaging” referred to the fiber, pulp, and paper used in the company’s packaging. The primary
risk coming from fiber sourcing is deforestation. To combat this, General Mills shifted its guidelines to
purchasing from North American sources. Ninety-nine percent of the fiber packaging General Mills purchased
was sustainably sourced in fiscal 2014.74

Exhibit 2
General Mills’ 10 Priority Ingredients

Performance dashboard (see sustainability definitions on page 123)


FY2020 target (% of spend Progress through FY2014 (% of
Ingredient Primary challenges
sourced sustainably) spend sourced sustainably***)

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Vanilla Smallholder farmer incomes, food security, quality of ingredients 100% 45%
Smallholder farmer incomes, community economic/social
Cocoa development, education (child labor), deforestation/environment 100% 10%
Deforestation (biodiversity, endangered species,
100%* 83%

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Palm oil environmental impact), indigenous peoples’ rights

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Labor rights (child & forced labor, working conditions);
Sugarcane lack of origin visibility due to supply chain complexity 100% 42%
Oats Declining supply due to profitability vs. other crops 100% 35%
U.S. wheat GHG emissions, water usage, biodiversity 100% 15%
U.S. sugar beets GHG emissions, soil loss 100% 34%
U.S. corn (dry milled) GHG emissions, nutrient utilization, biodiversity 100% 6%
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Dairy (fluid milk)** GHG emissions, water usage, water quality, animal well-being 100% 20%
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Fiber packaging Deforestation 100% 99%


* Palm oil 100% by 2015; baseline year FY2014 for all ingredients except palm oil (baseline year FY2010) G4-FP2
** Excludes Yoplait International
*** Progress numbers may vary from year to year due to changes in suppliers, market conditions or improvements in data tracking methodology.

Source: General Mills Inc. “Global Responsibility Report 2015.” Page 41. Accessed 28 Jan. 2016. <https://www.generalmills.com/en/Responsibility/~/
media/4588CAEA15604E0C91DE2D29F198FA08.ashx>.

The Problem with Cocoa

Location
Cocoa, the raw ingredient used for making chocolate, is a sensitive crop that is grown in tropical regions
within 15–20 degrees latitude from the equator.75 Sixty-eight percent of the cocoa produced in the world
comes from Africa, 17% from Asia, and 15% from the Americas (see Exhibit 3). By far, the largest volume of
cocoa is generated from Côte d’Ivoire, which contributed 33% of the global supply in 2013.76

Demand and Supply: The Cocoa Crisis


According to the World Cocoa Foundation, demand for cocoa rose by 3% annually from 2008–2014.77
According to sales, the International Cocoa Organization (ICCO) ranked the top manufacturer of chocolate
in the world as Mars Inc. with net sales of $18.4 billion in 2015, followed by Mondelēz International,
Ferrero Group, and Nestlé SA Switzerland.78 The United States imported more cocoa beans than any other
country in the world and was the second-largest exporter of chocolate candy, after the European Union, in
2015.79 Although people began consuming chocolate over 4,000 years ago, demand had recently increased
dramatically.80 In 2012, 4.1 million metric tons of cocoa beans were produced for consumption.81 Rising
incomes in emerging markets such as India and China, combined with expected economic recovery in
northern countries, led to industry forecasts of a 30% growth in demand to more than 4.5 million tons by
2020 (see Exhibit 4).82

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Exhibit 3
Global Cocoa Production 2013/2014 (thousands of metric tons)

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Source: Morgan, Geoffrey. “Why There May Not be Enough Chocolate in the World Anymore.” Financial Post. 18 Oct. 2014. Accessed 23 Feb. 2016.
<http://business.financialpost.com/news/cocoa-production-crisis-taking-bite-out-of-chocolate-retailers>.

Exhibit 4
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Cocoa Demand in Emerging Markets

Source: Wexler, Alexandra, and Biman Mukherji. “Emerging Markets’ Chocolate Lovers Boost Cocoa Prices.” Wall Street Journal. Accessed 28 Jan. 2016. <http://www.wsj.com/
articles/emerging-markets-chocolate-lovers-boost-cocoa-prices-1404849640>.

Unlike demand, the supply of cocoa had not been stable or predictable. In four of the past 10 years
there had been cocoa bean shortages, with a forecast shortage of 17,000 metric tons for the 2014–2015
harvesting season (see Exhibit 5).83 The International Cocoa Organization further forecast that there would
be a shortage until the 2018–2019 season (see Exhibit 6).84 This instability was the result of changing
8
2006/07 3 430 -9.9% 3 675 4.3% - 279 1 613 43.9
2007/08 3 737 9.0% 3 775 2.7% - 75 1 538 40.7
General Mills Commits to
2008/09 Sourcing 100%
3 592 -3.9% Sustainable
3 537 Cocoa-6.3% + 19 1 557 44.0 W04C83
2009/10 3 634 1.2% 3 737 5.7% - 139 1 418 37.9
2010/11 4 309 18.6% 3 938 5.4% + 328 1 746 44.3
2011/12 4 095 -5.0% 3 972 0.9% + 82 1 828 46.0
climates, susceptibility to pests and diseases, and cocoa farmers’ lack of funding to invest in younger plants
2012/13 3 943 -3.7% 4 173 5.1% - 269 1 559 37.4
and nutrient inputs.85 In April 2015, the ICCO forecast that global demand of cocoa would likely exceed
2013/14 4 372 10.9% 4 322 3.6% + 6 1 565 36.2
supply in 2018–2020.86
Estimates
2014/15 4 201 -3.9% 4 123 -4.6% + 36 1 601 38.8
Exhibit 5
Historical Global Cocoa Supply and Demand, 2005–2015

4 500 + 500

thousand tonnes (Surplus/Deficit)


thousand tonnes (Production/Grindings)

4 200 + 400
3 900
+ 300
3 600
3 300 + 200
3 000 + 100

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2 700 -
2 400
- 100
2 100

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1 800 - 200

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1 500 - 300
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Source: International Cocoa Organization. Quarterly Bulletin of Cocoa Statistics. Vol. XLI, No. 4, Cocoa year 2014/15. 27 Nov. 2015. Accessed 24 Feb. 2016.
<http://www.icco.org/about-us/international-cocoa-agreements/cat_view/30-related-documents/47-statistics-supply-demand.html>.
Source: ICCO Quarterly Bulletin of Cocoa Statistics, Vol. XLI, No. 4, Cocoa year 2014/15

Published: 27-11-2015 Exhibit 6


International Cocoa Organization Forecasts for Global Cocoa Supply and Demand,
2014–2020

5 000 500

4 500 400
thousand tonnes (Production/Grindings)

300

thousand tonnes (Surplus/Deficit)


4 000

200
3 500
100
3 000
0

2 500
-100

2 000 -200

1 500 -300

Source: Anga, Jean-Marc. “Latest Developments in the Global Cocoa Market.” International Cocoa Organization. Seventh Multi-year Expert Meeting on Commodities and
Development 15-16 April 2015, Geneva. Accessed 23 Feb. 2016. <http://unctad.org/meetings/en/Presentation/SUC%20MYEM2015%20Jean-Marc%20Anga.pdf>.

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Social Issues
Compared with other, more industrialized agricultural industries, cocoa farming was highly fragmented
with 90% of cocoa grown on small family-owned farms between five and 10 acres in size.87 The cocoa industry
helped to support an aging farmer population in regions such as West Africa, where the average cocoa farmer
was 51 years old.88 In total, 5.5 million people were employed as cocoa farmers.89 Cocoa farmers often faced
poverty because large, consolidated buyers purchased cocoa at a low market price and disenfranchised
farmers. 90 In fact, cocoa farmers attained as little as 40% of the world market price for their beans in 2011.91
On average, cocoa farmers earned less than $2 per day in 2015, an income below the international poverty
line.92 Low profit margins incentivized current cocoa farmers into “leaving cocoa farming altogether.”93 As
recently as 2015, low profits continued to contribute to other serious social concerns for cocoa farmers, such
as increased child labor and trafficking as well as illiteracy and malnutrition.94

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Environmental issues
Despite the large social inequity surrounding cocoa production, the Rainforest Alliance warned that low

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productivity “attributable to aging trees that are past peak productivity, pests and disease, and depleted

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soil fertility” was the greatest concern to the entire industry.95 There were not many species of cacao trees.96
Diseases and pests had adapted to the few types of cacao trees that did exist, making cocoa plantations
very susceptible to being overrun by these pests and diseases. On average, 30–40% of cocoa crops were lost
to disease annually in West Africa.97 In 2007, the IPCC forecast that by 2020, yields in Africa from rain-fed
crops, which made up the vast majority of African crops—including cocoa—could be reduced by up to 50%.98
This was of major concern given that many cocoa-growing countries, such as Côte d’Ivoire, relied on cocoa
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for economic stimulus. Further, as a result of farmers’ economic issues, cocoa producers could not afford
investing in improved farming practices to repair worn-out soil or replace aging cocoa trees, which, in turn,
made the yield of cocoa more unstable.99

The Dilemma: Achieving Sustainable Sourcing

In response to the desire to source materials more sustainably and achieve its environmental goals,
General Mills developed an overall strategy to establish an array of partnerships and coalitions, and add
sustainable operations to its portfolio through acquisitions. As a small part of the overall market, General
Mills did not have control over its cocoa supply chain. General Mills had used third-party partnerships and
coalitions when the company could not directly influence or combat the negative impacts faced by small
farmers and suppliers of these resources.

The cocoa crisis had implications for the stability of the entire cocoa supply chain. It threatened entire
product lines for General Mills, including Cocoa Puffs and Betty Crocker and Pillsbury baking products, as
well as various on-the-go snacks, such as Lärabar. Further up the supply chain, the cocoa crisis had negative
implications for the crop’s social and environmental sustainability. Low productivity threatened resource
availability, while efforts to standardize industry certifications and employment practices affected the social
responsibility of the industry. In response to these threats, General Mills joined Partners in Food Solutions,
a not-for-profit organization created in partnership with Cargill, Royal DSM, Buhler, and Hershey in 2008.100
The goal of Partners in Food Solutions was to help share expertise with small and growing food processors
to improve the food value chain in Africa.101

Further, increasing cocoa prices in the market affected the margins of cocoa purchasers and chocolate
companies around the world. With prices expected to continue rising into the future, General Mills had to
consider how to best stabilize its source of cocoa.

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

The Decision
Madisson leaned back in his chair, the last sip of stale cold coffee still lingering in his mouth. He
needed to make a decision. As the chief sustainability officer, his proposal about how General Mills should
change its strategy, if at all, to achieve its goal of 100% sustainable sourcing of cocoa by 2020 would have
big consequences for the company. There was great potential in this commitment, but General Mills was
not meeting the aggressive goal. Sourcing only 10% sustainable cocoa did not make the company a leader
in sustainability among top food industry competitors, especially considering General Mills’ net sales and
operating profits decreased from fiscal 2014 to 2015. Madisson thought to himself, “How can I support
the financial stability of the company while preventing future consumer backlashes related to social and
environmental sustainability?”

In just two short hours, Madisson would need a new strategy that addressed the complexities of sourcing

Purchased for use on the Digitized and Responsible procurement, at University of Sussex Business School.
cocoa sustainably. What strategic changes, if any, would make General Mills’ supply chain more sustainable,
while effectively controlling the rising purchasing cost of cocoa? Should General Mills continue to purchase
cocoa beans from cocoa suppliers or purchase directly from farmers?

Usage permitted only within these parameters otherwise contact info@thecasecentre.org


Taught by Atanu Chaudhuri, from 5-Sep-2022 to 24-Oct-2022. Order ref F451347.
General Mills needed to balance the need between previously established partnerships and current
supply chain and economic issues, as well as directly confront the cocoa crisis as a company. How should
the company shift its supply chain and increase the sustainability of the cocoa market? Should General Mills
strengthen its cooperation with third-party partners and coalitions, such as Nestlé or BICEP, to improve the
economic, environmental, and social sustainability of cocoa production?
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I

11
General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

Endnotes
1
General Mills Inc. “Global Responsibility Report 2015.” Accessed 21 Jan. 2016. <https://www.generalmills.com/en/
Responsibility/Overview>.
2
Heine, Shannon. “General Mills Makes New Commitment on Climate Change.” General Mills. 31 Aug. 2015. Accessed 21 Jan. 2016.
<http://blog.generalmills.com/2015/08/general-mills-makes-new-commitment-on-climate-change/>.
3
General Mills. “General Mills Commits to Sustainably Source 10 Priority Ingredients by 2020.” 25 Sep. 2013. Accessed 21 Jan.
2016. <https://www.generalmills.com/en/News/NewsReleases/Library/2013/September/sourcing_10/bb896820-1235-403a-be63-
d1a939a37856>.
4
Vanek Smith, Stacey. “U.S. Government Teams Up with Private Sector to Stave Off Cocoa Crisis.” National Public Radio. 5 Mar.
2015. Accessed 21 Jan. 2016. <http://www.npr.org/2015/03/05/390903168/u-s-government-teams-up-with-private-sector-to-
stave-off-cocoa-crisis>.
5
General Mills. “Sustainable Sourcing.” 2014. Accessed 28 Jan. 2016. <http://www.generalmills.com/en/Responsibility/
Sustainable_sourcing>.

Purchased for use on the Digitized and Responsible procurement, at University of Sussex Business School.
6
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.” Accessed 21 Jan. 2016. <https://www.generalmills.
com/en/Company/~/media/3ADEF5ECA41F49D7A28505A3F944103F.ashx>.
7
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.”

Usage permitted only within these parameters otherwise contact info@thecasecentre.org


Taught by Atanu Chaudhuri, from 5-Sep-2022 to 24-Oct-2022. Order ref F451347.
8
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.”
9
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.”
10
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.”
11
Hix, Lisa. 2014. “Easy-Bake: 50 years of cakes, cookies, and gender politics.” Collectors Weekly. <http://www.collectorsweekly.
com/articles/easy-bake-evolution/>.
12
General Mills. “General Mills: 75 Years of Innovation, Invention, Food & Fun.”
Educational material supplied by The Case Centre
Copyright encoded A76HM-JUJ9K-PJMN9I

13
Hix.
14
Hix.
15
Hix.
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19
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20
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21
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22
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23
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24
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25
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history>.
26
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nestle-cocoa-plan>.
27
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international/joint-ventures>.

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

28
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overseas/304770161/>.
29
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30
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Ingredients/Cocoa>.
31
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foodbusinessnews.net/articles/news_home/Business_News/2015/12/Coming_soon_from_General_Mills.aspx?ID={B8A10D52-
F2FD-4580-AF37-D7F5857A8CFE}&AdKeyword=>.
32
Sutherland, Brooke. “General Mills’ Rut Could Put Betty Crocker on Notice: Real M&A.” Accessed 21 Jan. 2016. Bloomberg
Business. <http://www.bloomberg.com/news/articles/2015-03-20/general-mills-rut-could-put-betty-crocker-on-notice-real-m-a>.
33
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gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx>.
34
Watson, Elaine. “87% of Consumers Globally Think Non-Gmo is ‘Healthier.’ But Where’s the Evidence?” William Reed Business

Purchased for use on the Digitized and Responsible procurement, at University of Sussex Business School.
Media. 13 Aug. 2015. Accessed 28 Jan. 2016. <http://www.foodnavigator-usa.com/Manufacturers/87-of-consumers-globally-
think-non-GMO-is-healthier>.
Webb, Tom. “General Mills Treads Carefully in Debate over GMOs.” Twin Cities Pioneer Press. 23 Sep. 2014. Accessed 21 Jan. 2016.

Usage permitted only within these parameters otherwise contact info@thecasecentre.org


35

Taught by Atanu Chaudhuri, from 5-Sep-2022 to 24-Oct-2022. Order ref F451347.


<http://www.twincities.com/business/ci_26590989/general-mills-treads-carefully-debate-over-genetically-modified>.
36
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37
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38
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39
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Educational material supplied by The Case Centre

Accessed 21 Jan. 2016. <http://www.theguardian.com/sustainable-business/food-blog/2014/aug/21/kellogg-general-mills-


Copyright encoded A76HM-JUJ9K-PJMN9I

oxfam-climate-change>.
40
Sahan.
41
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General-Mills-and-Kellogg-s-use-controversial-preseratives-Food-Babe-Army-says-no>.
42
Laine.
43
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statement>.
44
General Mills. “General Mills Invests in Organic Farming Pipeline.” 3 June 2015. Accessed 21 Jan. 2016. <http://www.
generalmills.com/en/News/NewsReleases/Library/2015/June/Prairie%20Organic%20Grain%20Initiative/1780d53e-90fa-49f9-
94ca-2dcdd29e7833>.
45
General Mills. “National labeling—Not State-by-State.” Accessed 21 Jan. 2016. <http://www.generalmills.com/en/News/Issues/
national-labeling15>.
46
Schroeder, Eric. “General Mills: Refreshed and Relevant.” Food Business News. 16 July 2015. Accessed 21 Jan. 2016. <http://www.
foodbusinessnews.net/articles/news_home/Business_News/2015/07/General_Mills_Refreshed_and_re.aspx?ID=%7B39EBC25F-
3347-473A-8E2C-0A14CEE20248%7D&cck=1>.
47
U.S. Environmental Protection Agency. “EPA History.” 14 Jan. 2016. Accessed 21 Jan. 2016. <http://www.epa.gov/aboutepa/
epa-history>.
48
Intergovernmental Panel on Climate Change. “Climate Change 2001: The Scientific Basis.” Cambridge University Press. Pg. 7.
49
Intergovernmental Panel on Climate Change. “Climate Change 2007: Synthesis Report.” Accessed 28 Jan. 2016. <http://www.
ipcc.ch/publications_and_data/ar4/syr/en/spms3.html#spm2>.
50
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force-company-to-pay-more-for-2006-spill>.
51
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the-gulf-of-mexico/>.

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General Mills Commits to Sourcing 100% Sustainable Cocoa W04C83

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54
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55
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cascadian-farm>.
56
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57
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Purchased for use on the Digitized and Responsible procurement, at University of Sussex Business School.
61
General Mills. “Sustainable Sourcing.” 2014. Accessed 28 Jan. 2016. <http://www.generalmills.com/en/Responsibility/
Sustainable_sourcing>.

Usage permitted only within these parameters otherwise contact info@thecasecentre.org


62
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Taught by Atanu Chaudhuri, from 5-Sep-2022 to 24-Oct-2022. Order ref F451347.


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Educational material supplied by The Case Centre

66
General Mills. “Global Responsibility Report 2015.”
Copyright encoded A76HM-JUJ9K-PJMN9I

67
General Mills. “Global Responsibility Report 2015.”
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General Mills. “Global Responsibility Report 2015.”
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General Mills. “Global Responsibility Report 2015.”
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95
Rainforest Alliance and NYU Stern School of Business.
96
Schmitz and Shapiro.

Usage permitted only within these parameters otherwise contact info@thecasecentre.org


Taught by Atanu Chaudhuri, from 5-Sep-2022 to 24-Oct-2022. Order ref F451347.
97
Rainforest Alliance and NYU Stern School of Business.
98
Schmitz and Shapiro.
99
Fountain and Hütz-Adams.
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15
Purchased for use on the Digitized and Responsible procurement, at University of Sussex Business School.
The Erb Institute is committed to creating a socially and environmentally
sustainable society through the power of business. Building on nearly two

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decades of research, teaching, and direct engagement, the Institute has become

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one of the world’s leading sources of innovative knowledge on the culture,
technologies, operations and governance of business in a changing world.
http://erb.umich.edu
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Established at the University of Michigan in 1992, the William Davidson Institute


(WDI) is an independent, non-profit research and educational organization focused on
providing private-sector solutions in emerging markets. Through a unique structure
that integrates research, field-based collaborations, education/training, publishing,
and University of Michigan student opportunities, WDI creates long-term value for
academic institutions, partner organizations, and donor agencies active in emerging
markets. WDI also provides a forum for academics, policy makers, business leaders, and
development experts to enhance their understanding of these economies. WDI is one
of the few institutions of higher learning in the United States that is fully dedicated to
understanding, testing, and implementing actionable, private-sector business models
addressing the challenges and opportunities in emerging markets.

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