EIB Global and the Government of Australia have signed a declaration of intent to enhance cooperation on critical raw materials.
This initiative seeks to strengthen sustainable and resilient supply chains between the EU and Australia for critical raw materials.
The declaration builds on an existing memorandum of understanding (MoU) between the EU and Australia.
As the development arm of the European Investment Bank (EIB), EIB Global is taking concrete steps to reinforce this cooperation through targeted investment and advisory support.
The declaration was signed by Australia’s Ambassador to the EU, Angus Campbell, and EIB vice-president Nicola Beer.
Campbell said: “Australia is a trusted supplier of critical minerals, and this partnership with the EU reinforces our shared commitment to sustainable development and secure supply chains.”
The partnership is intended to finance critical minerals projects in Australia and deepen collaboration across the entire value chain.
It will cover all stages of the critical raw materials value chain including exploration, extraction, processing, recycling and innovation.
By promoting sustainable development in the sector, the partnership supports mutual goals around clean energy, innovation, defence and economic security.
Beer said: “Teaming up with Australia will provide the type of win-win partnership we are eager to build: a partnership with a like-minded actor – one that engages communities, values transparency and ensures community trust in critical raw materials initiatives.
“Australia’s strong track record in environmental responsibility and sustainable mining aligns with the EIB’s commitment to innovation and green investments. In this way, we strengthen Australia’s and Europe’s strategic autonomy.”
In March this year, the EIB and Orano signed a €400m ($433.5) loan agreement to finance the expansion of the Georges Besse 2 uranium enrichment plant in Tricastin, France.
“EIB Global, Australia partnership to strengthen critical raw materials ” was originally created and published by Mining Technology, a GlobalData owned brand.
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When the EU and Canada meet for talks this week, their encounter will be calm, pleasant and even, in the words of one EU diplomat, “just plain boring.” But both sides will be contending with a looming problem — Donald J. Trump.
The prospect of another Trump presidency in the U.S. is spooking both Brussels and Ottawa as leaders plan to meet in St. John’s, a remote Canadian harbor city symbolic of their bilateral relationship: historically rooted, pleasant and friendly.
The U.S. is key to the economies of both sides. As the EU, especially, struggles to cope with the trade legacy of the previous Trump term, the unpredictability of another Trump presidency is sending shivers through Brussels. POLITICO spoke to several officials briefed on the summit who said next year’s U.S. elections will overshadow the talks.
After the recent visit of EU leaders to the White House, the bloc’s relationship with the U.S. will be discussed with Canadian Prime Minister Justin Trudeau, according to officials briefed on the summit. Another four years of antagonism under a Trump White House would be a grave blow to the EU and Canada; both also fear that U.S. military and financial support for Ukraine will disintegrate with a Trump presidency.
For now, the talks should provide the participants with a breakafter weeks of navigating both the war in Ukraine and the Israel-Hamas war.
European Council President Charles Michel met Ukrainian President Volodymyr Zelenskyy in Kyiv earlier this week, while Commission President Ursula von der Leyen has travelled to the Middle East following initial criticism of her response to the war between Israel and Hamas — geopolitical challenges on which the EU and Canada are cooperating at “unrivaled historic levels,” according to an EU official. In early December, both European leaders are set to travel to Beijing for their EU-China summit, from which they risk returning empty-handed.
Meanwhile, Canadian Prime Minister Justin Trudeau’s approval ratings have been in free-fall since the summer. Court rulings and the politics of affordability have dented his record on the climate, casting uncertainty on timelines for major projects. Fallout from the Israel-Hamas war has also hurt morale within his Liberal Party.
In St. John’s, at least, leaders will be able to reaffirm their bilateral relationship and underscore their “shared commitment to democratic values, multilateralism and the international rules-based order,” which elsewhere are falling apart. The two sides are set to double down on their bilateral commitments in new policy fields with an “impressive list of deliverables,” according to the EU official, including a green alliance, more cooperation on raw materials, and a digital partnership.
Another EU diplomat said that while there are no mutual irritants, “a few irritants could be a welcome challenge to dynamize the relationship.”
But while the EU remains on a good footing with Canada, it has struggled with the current U.S. administration of President Joe Biden, most notably with Washington’s Inflation Reduction Act, which will also be discussed on the sidelines of the St. John’s summit. The EU had worried that the $369 billion IRA would hollow out the bloc’s economy as firms decamped across the Atlantic to take advantage of its massive subsidies. Brussels and Washington continue to negotiate a high-stakes agreement on critical minerals to allow electric vehicle batteries made by European companies to qualify for the IRA’s consumer tax credits.
EU Ambassador to Canada Melita Gabrič told POLITICO that Ottawa’s relationship with the bloc is “closer than it has ever been.” She declined, however, to say if she saw Trump’s potential return as a catalyst for even closer ties in the year ahead.
“We will see what happens, but certainly we put a premium on our transatlantic relations,” she said, referring to both the U.S. and Canada.
Barbara Moens reported from Brussels. Zi-Ann Lum reported from Ottawa. Camille Gijs contributed reporting from Brussels.
BRUSSELS — The chips industry faces a different kind of summer heat: Chinese and Western governments meddling with its supply chains.
From Tuesday, China is putting the brakes on the export of two critical metals for making chips — gallium and germanium — in retaliation for the United States, the Netherlands and Japan curbing exports of some advanced chip printers. The Dutch restrictions, published before summer, will apply from September 1.
This tit-for-tat trade war is unfolding against the backdrop of a global subsidies race to re-shore and secure microchip production. What began in a time of pandemic-era shortages is now a race to avoid supply chokepoints in case conflict breaks out in Taiwan, a major chips hub.
Despite China’s stranglehold on raw materials — with, for example, 95 percent of the world’s supply of primary gallium — chips companies have stayed relatively quiet about the incoming restrictions in their recent quarterly earnings reports.
Europe’s leading chip makers, like NXP Semiconductors, rarely mention China’s upcoming raw materials restrictions in their earnings releases or follow-up calls with analysts.
There was equal indifference to the Western restrictions that provoked the Chinese counter-move. ASML, the Dutch chip equipment supplier that is the main target of the Dutch export controls, said the measures would not have a “material impact” on the firm’s 2023 outlook, nor on longer-term scenarios.
But that doesn’t mean there won’t be any consequences.
Because Chinese gallium and germanium producers will have to seek export permits, much will depend on how rigorous the permitting procedure is, analysts from research firm Wood Mackenzie wrote in a report in early July with the ominous title, “Chips wars: a sign of things to come?”
“If the permitting process restricts the supply of raw materials to chip manufacturers outside China, this will impact downstream end-use markets, including electric vehicles,” the report reads. That brings back memories of the chips shortages in 2020 and 2021, which increased waiting times for car deliveries.
Particularly vulnerable countries in Europe: Germany — the second-largest importer of gallium after Japan — and the Netherlands.
Ramping up
A bigger concern, however, is that the current restrictions are only the start of a larger escalating trade war. “The concern is that this protectionism could escalate to other critical materials end sectors,” according to the Wood Mackenzie report.
ASML CEO Peter Wennink was already forced to comment during the company’s quarterly earnings presentation on media reports that more chip export controls out of the U.S. are coming: “Of course, we will and cannot respond to speculation.” But more in general, he had to admit during the same earnings call that there’s “significant uncertainty” in the market, citing “the geopolitical environment, including export controls” as one of the reasons.
The message: The industry is waking up to the fact that governments consider semiconductors to be strategically important and no longer hesitate to intervene to secure their national security interests.
Both the U.S. and the EU have rolled out multibillions’ worth of subsidy programs — the EU’s Chips Act (€43 billion) and the U.S.’s CHIPS and Science Act ($52 billion) — to lure private investments from U.S.-based Intel, South Korea’s Samsung or Taiwan’s TSMC.
If that’s the carrot tack, some experts point out that governments are also increasingly using the stick approach of export controls — and the current pace of restrictions between the West and China would have been unthinkable a few years ago.
Chris Miller, an associate professor of international history at Tufts University and author of the book “Chip War,” said last week at an event in Washington that he was “surprised by the success” of the U.S.-led effort to build a coalition on export controls.
“Zoom back five years ago, in 2018, ask anyone in this room: Would it have been possible to have established an export control regime bringing together countries from Europe and Asia? Most people would have bet against it,” Miller said.
It’s a new reality for the companies involved — and one that could have unintended consequences.
Intel CEO Pat Gelsinger summed it up at the Aspen Security Forum earlier in July: “Right now, China represents 25 to 30 percent of semiconductor exports. If I have 25 or 30 percent less market, I need to build [fewer] factories.”
That comment got a rebuke from U.S. Commerce Secretary Gina Raimondo, who said that she didn’t see “any inconsistency” between the export controls to China and the U.S.’s multibillion-dollar plan to re-shore chips capacity.
Brendan Bordelon contributed reporting from Washington.
The ghosts of colonial history returned to haunt European and Latin American leaders at their summit in Brussels.
For the guests, four hundred years of European colonial rule, economic exploitation and slavery was front of mind. For the hosts, it was Russia’s war on Ukraine in the here and now.
The divergence in views was so profound that the two sides struggled to align their thinking at their first summit in eight years — especially to find words to condemn Russia’s war of aggression in their closing communiqué.
That made the two-day gathering frustrating for all concerned — but especially for leaders of the EU’s newest member states from Eastern Europe, which have their own bitter memories of Soviet imperial rule and Russian aggression.
“It is actually a war of colonization,” Latvian Prime Minister Krišjānis Kariņš said of the 16-month-old Ukraine conflict.
“There is a former colonizer, Russia, and a former colony, Ukraine. And the former overlord is trying to take back their one-time possession. I think that many countries around the world can relate to that.”
Despite the pre-summit rhetoric highlighting the two continents’ shared values, EU leaders struggled to persuade the Community of Latin American and Caribbean States (CELAC) — which includes traditional allies of Moscow such as Nicaragua, Cuba and Venezuela — to clearly condemn Russia’s war.
Ukrainian President Volodymyr Zelenskyy — a regular guest in Brussels — wasn’t invited this time. Wrangling over the wording in their joint declaration delayed the end of the meeting by hours as leaders sought to bridge the gaps. In the end, only Nicaragua dissented.
“No one intends to lecture anyone,” said European Council President Charles Michel, seeking to placate his guests. “This is not how it works, we have a lot of respect for those countries, for the traditions, for the culture, and the idea is always to engage in a spirit of mutual respect.”
Four hundred years
Spain, which holds the rotating presidency of the Council of the EU, has its eyes on Latin America and likes to emphasize the close cultural and linguistic ties between the two.
But those links hark back to Spain — and Europe’s — colonial past. The Spanish kingdom colonized much of Latin America starting in 1493 and, over the next 400 years, acquired vast wealth by exploiting its lands and people. The European slave trade also forcibly transported millions of Africans into slavery in Latin America and the Caribbean.
While European leaders hoped to ease geopolitical tensions, their Latin American counterparts came to the table with a clear message: Defining relations today means addressing and rectifying past injustices — especially as the EU looks once again to the resource-rich region, this time to power its green transition.
Saint Vincent and the Grenadines’ Prime Minister Ralph Gonsalves | Jean-Christophe Verhaegen/AFP via Getty Images
The prime minister of Saint Vincent and the Grenadines — a small island state that heads up the 33-nation group — called for talks on economic reparations for colonization and enslavement.
“Resources from the slave trade and from slavery helped to fuel the industrial revolution that has laid the basis for a lot of the wealth within Western Europe,” Ralph Gonsalves told a small group of reporters on Tuesday.
This was part of his argument for a plan to “to repair the historical legacies of underdevelopment resulting from native genocide and the enslavement of African bodies,” as he said on Monday ahead of the summit.
Trade tensions
Trade talks between the EU and Mercosur — which groups four of Latin America’s big economies — also reflected the broader tensions over what it really means for Europe to start afresh in a relationship of equals.
Beyond a cursory mention of a Mercosur deal in the final statement, talks with Brazil, Argentina, Uruguay and Paraguay were kept on the sidelinesdespite previous hopes that the summit could inject new energy into negotiations on wrapping up a trade deal.
European Commission President Ursula von der Leyen did, however, say after the summit that “our ambition is to … conclude [at] the latest by the end of this year.”
Industry and civil society have fundamentally different interpretations around how much — or how little — the deal would help put the countries on equal footing with their European partners.
For businesses, the deal needs to happen to ensure the region remains on the EU’s political and economic map.
“For us, the [trade] agreements are important. We need stability and don’t want to be at the mercy of political changes,” said Luisa Santos of the industry lobby group BusinessEurope.
But NGOs don’t see it that way. “Any proposal that leaves the region as a mere provider of natural resources for the benefit of the one percent in the region, big corporations and rich countries is business as usual,” said Hernán Saenz from the NGO Oxfam.
Resource craze
Sealing the Mercosur deal has gained importance for the EU, which is banking on the resource-rich region to power the wind turbines and electric vehicles it needs to meet its climate targets.
Brazil is the largest exporter of strategic raw materials to the EU by volume, while the “lithium triangle” spanning Chile, Argentina and Bolivia hosts about half of the world’s lithium reserves. As part of the summit, Brussels and Chile signed a new memorandum of understanding on raw materials.
Brazilian President Luiz Inácio Lula da Silva (left) and European Commission President Ursula von der Leyen (right) in Brussels | Dati Bendo/EC
But the EU’s new appetite for those metals and minerals evoques those dark memories of Spanish conquistadors who set out to dominate large parts of South America — in the name of god, glory and, not least, gold, fueling an economic boom back home while stripping Latin America of its riches.
While von der Leyen on Monday announced Brussels will pump over €45 billion into the region through its Global Gateway program — for infrastructure projects that, at least in part, will also benefit the EU’s private sector — Europe is coming late to the party in a region where China has already expanded its influence.
And raw materials partnerships today, the region’s countries emphasized, cannot be based on a model where resource-rich countries mine the valuable resources — often under poor environmental and working conditions — only for them to be shipped abroad for processing and manufacturing, making them reliant on imports for finished products.
“This was the first time that we had the opportunity to discuss in such clear terms a mechanism that would take us away from extractivism in Latin America,” Argentina’s President Alberto Fernández said after the summit.
“It took five centuries, but we managed it — I’m saying that half in jest, but we have at last succeeded.”
Camille Gijs and Barbara Moens contributed reporting.
Germany and Japan agreed on Saturday to strengthen cooperation on economic security in the aftermath of tensions over global supply chains and the economic impact of the war in Ukraine.
In the first high-ministerial government consultations held between the two countries, German Chancellor Olaf Scholz reached out to Tokyo to seek to reduce Germany’s dependence on China for imports of raw materials.
“The current challenges of our time make it clear: It is important to expand cooperation with close partners and acquire new partners. We want to reduce dependencies and increase the resilience of our economies.” the German chancellor said in a tweet.
Scholz and Japanese Prime Minister Fumio Kishida said they believe the agreement will allow both countries to diversify value chains in order to be able to reduce economic risks.
In a joint statement, the two countries said they will work on establishing “a legal framework for bilateral defense and security cooperation activities,” including ways to protect critical infrastructures, trade routes and to secure future supply of sustainable energy.
Germany’s decision to prioritize consultations with Japan came after the Asian country put forward an economic security bill last year aimed at securing the uptake of technology and bolstering critical supply chains.
Japan is Germany’s second-largest trading partner in Asia after China, with a bilateral trade volume of €45.7 billion mainly based on the import and export of machinery, vehicles, electronics and chemical products.
The two leaders also exchanged views on the situation in Ukraine, cooperation in the Indo-Pacific region and the G7 meeting in Hiroshima scheduled for May.
When you’re feeling under the weather, the last thing you want to do is trek from pharmacy to pharmacy searching for basic medicines like cough syrup and antibiotics. Yet many people across Europe — faced with a particularly harsh winter bug season— are having to do just that.
Since late 2022, EU countries have been reporting serious problems trying to source certain important drugs, with a majority now experiencing shortages. So just how bad is the situation and, crucially, what’s being done about it? POLITICO walks you through the main points.
How bad are the shortages?
In a survey of groups representing pharmacies in 29 European countries, including EU members as well as Turkey, Kosovo, Norway and North Macedonia, almost a quarter of countries reported more than 600 drugs in short supply, and 20 percent reported 200-300 drug shortages. Three-quarters of the countries said shortages were worse this winter than a year ago. Groups in four countries said that shortages had been linked to deaths.
It’s a portrait backed by data from regulators. Belgian authorities report nearly 300 medicines in short supply. In Germany that number is 408, while in Austria more than 600 medicines can’t be bought in pharmacies at the moment. Italy’s list is even longer — with over 3,000 drugs included, though many are different formulations of the same medicine.
Which medicines are affected?
Antibiotics — particularly amoxicillin, which is used to treat respiratory infections — are in short supply. Other classes of drugs, including cough syrup, children’s paracetamol, and blood pressure medicine, are also scarce.
Why is this happening?
It’s a mix of increased demand and reduced supply.
Seasonal infections — influenza and respiratory syncytial virus (RSV)first and foremost — started early and are stronger than usual. There’s also an unusual outbreak of throat disease Strep A in children. Experts think the unusually high level of disease activity is linked to weaker immune systems that are no longer familiar with the soup of germs surrounding us in daily life, due to lockdowns. This difficult winter, after a couple of quiet years (with the exception of COVID-19), caught drugmakers unprepared.
Inflation and the energy crisis have also been weighing on pharmaceutical companies, affecting supply.
Last year, Centrient Pharmaceuticals, a Dutch producer of active pharmaceutical ingredients, said its plant was producing a quarter lessoutput than in 2021 due to high energy costs. In December, InnoGenerics, another manufacturer from the Netherlands, was bailed out by the government after declaring bankruptcy to keep its factory open.
Commissioner Stella Kyriakides wrote to Greece’s health minister asking him to take into consideration the effects of bans on third countries | Stephanie Lecocq/EPA-EFE
The result, according to Sandoz, one of the largest producers on the European generics market, is an especially “tight supply situation.” A spokesperson told POLITICO that other culprits include scarcity of raw materials and manufacturing capacity constraints.They added that Sandoz is able to meet demand at the moment, but is “facing challenges.”
How are governments reacting?
Some countries are slamming the brakes on exports to protect domestic supplies. In November, Greece’s drugs regulator expanded the list of medicine whose resale to other countries — known as parallel trade — is banned. Romania has temporarily stopped exports of certain antibiotics and kids’ painkillers. Earlier in January, Belgium published a decree that allows the authorities to halt exports in case of a crisis.
These freezes can have knock-on effects. A letter from European Health Commissioner Stella Kyriakides addressed to Greece’s Health Minister Thanos Plevris asked him to take into consideration the effects of bans on third countries. “Member States must refrain from taking national measures that could affect the EU internal market and prevent access to medicines for those in need in other Member States,” wrote Kyriakides.
Germany’s government is considering changing the law to ease procurement requirements, which currently force health insurers to buy medicines where they are cheapest, concentrating the supply into the hands of a few of the most price-competitive producers. The new law would have buyers purchase medicines from multiple suppliers, including more expensive ones, to make supply more reliable. The Netherlands recently introduced a law requiring vendors to keep six weeks of stockpiles to bridge shortages, and in Sweden the government is proposing similar rules.
At a more granular level, a committee led by the EU’s drugs regulator, the European Medicines Agency (EMA), has recommended that rules be loosened to allow pharmacies to dispense pills or medicine doses individually, among other measures. In Germany, the president of the German Medical Association went so far as to call for the creation of informal “flea markets” for medicines, where people could give their unused drugs to patients who needed them. And in France and Germany, pharmacists have started producing their own medicines — though this is unlikely to make a big difference, given the extent of the shortfall.
Can the EU fix it?
In theory, the EU should be more ready thanever to tackle a bloc-wide crisis. It has recently upgraded its legislation to deal with health threats, including a lack of pharmaceuticals. The EMA has been given expanded powers to monitor drug shortages. And a whole new body, the Health Emergency Preparedness and Response Authority (HERA) has been set up, with the power to go on the market and purchase drugs for the entire bloc.
But not everyone agrees that it’s that bad yet.
Last Thursday, the EMA decided not to ask the Commission to declare the amoxycillin shortage a “major event” — an official label that would have triggered some (limited) EU-wide action— saying that current measures are improving the situation.
A European Medicines Agency’s working group on shortages could decide on Thursday whether to recommend that the Commission declares the drug shortages a“major event” — an official label that would trigger some (limited) EU-wide action. An EMA steering group for shortages would have the power to request data on drug stocks of the drugs and production capacity from suppliers, and issue recommendations on how to mitigate shortages.
At an appearance before the European Parliament’s health committee, the Commission’s top health official, Sandra Gallina, said she wanted to “dismiss a bit the idea that there is a huge shortage,” and said that alternative medications are available to use.
And others believe the situation will get better with time. “I think it will sort itself out, but that depends on the peak of infections,” said Adrian van den Hoven, director general of generics medicines lobby Medicines for Europe. “If we have reached the peak, supply will catch up quickly. If not, probably not a good scenario.”
Helen Collis and Sarah-Taïssir Bencharif contributed reporting.
Europe, the world’s biggest consumer of chocolate, and West Africa, the leading grower of the cocoa beans used to make it, share a common goal to make the sector sustainable.
But they have opposing views on how to put an end to the social, economic and environmental harms caused by satisfying Europe’s sweet tooth, heralding a showdown over who will bear the costs of complying: Big Chocolate or cocoa farmers.
The EU is finalizing regulations that seek to ensure that chocolate entering the market is free from deforestation and child labor. At the same time, Ghana and Ivory Coast, the world’s biggest cocoa producers, are demanding higher prices. That’s vital, they say, to make sustainable chocolate a possibility — and not a pipe dream.
The stakes are high: For the EU, cocoa is a test case for how companies and producers react when the bloc tries to impose higher standards. For producers, the push to set up a cartel could drive up prices in the short term — but also risks stimulating oversupply and ultimately causing a price crash that would deepen the poverty already suffered by most cocoa farmers. Chocolate makers, facing rising costs and greater scrutiny, may reroute supply chains to other cocoa-producing countries seen as less risky.
Doing nothing is not an option, said Alex Assanvo, who heads the joint West African initiative to support cocoa prices.
“We are not asking to pay them more, we are asking to pay them a fair price,” Assanvo told POLITICO in an interview. “If we believe that this is going to create oversupply, well then I don’t know, maybe we should stop eating chocolate.”
Bittersweet taste
Chocolate may be sweet but the industry that makes it is not. Most of the beans used to produce the world’s supply are grown by impoverished West African farmers; all too often from trees planted on deforested land and harvested by children. One problem drives the others. Poverty pushes farmers to chop down forests to produce more beans and profits and to put children to work as they cannot afford to pay wages to adult laborers.
To address this, Ghana and Ivory Coast, which produce 60 percent of the world’s cocoa, formed an export cartel in 2019 modeled on the Organization of the Petroleum Exporting Countries (OPEC). They introduced a $400 per ton Living Income Differential, which aims to bring the floor price up enough to cover the cost of production.
In public, big chocolate manufacturers and traders, including Barry Callebaut, Cargill, Ferrero, Hersey, Lindt, Mars, Mondelez and Nestlé, welcomed the initiative.
Yet behind the scenes many of the firms — which between them account for about 90 percent of the industry’s $130 billion in annual profits — have done everything possible to avoid paying the premium and to drive prices back down, according to the Ivorian Coffee-Cocoa Council (CCC), the Ghana Cocoa Board (Cocobod) and their joint Initiative Cacao Ivory Coast-Ghana (ICCIG).
The companies that responded to requests for comment from POLITICO said that they have paid the Living Income Differential (LID) since its introduction. The Ghanian and Ivorian trade boards and the ICCIG claim, however, that they have negated the LID’s value by forcing down a different premium, the origin differential.
Fed up, these countries boycotted the World Cocoa Foundation Partnership Meeting at the end of October in Brussels. They then gave the companies a deadline: commit to the premiums by November 20 or the countries would ban their buyers from visiting fields to carry out harvest forecasts and suspend their Corporate Social Responsibility programs – which sell well with ethically-minded consumers.
More harm than good?
Another proposed remedy comes from Brussels. Cocoa is one of the products to which the new EU legislation on due diligence — Brussels speak for supply-chain oversight and compliance — would apply.
Under this, large firms operating in the bloc will be forced to evaluate their global supply chains for human rights and environmental abuses, and compensate injured parties. In theory, this should reduce deforestation and child labor and improve the lot of farmers.
Yet, as European ambassadors thrash out the terms — and big players like France push for them to be watered down — concerns are growing that the legislation could turn out at best to be ineffective in practice, and at worst do more harm than good.
Cocoa farmers, and the NGOs that support them, have reason to be skeptical: Back in 2000, a BBC documentary exposed the widespread use of child labor on cocoa plantations in Ivory Coast and Ghana. The resulting media pressure led to a proposal for legislation in the United States forcing companies to certify chocolate bars free of child labor.
Companies pushed back hard, Antonie Fountain, managing director of cocoa NGO coalition The Voice Network, told POLITICO. The proposal was dropped and companies committed instead to a voluntary plan to solve child labor, he explained: “And that turned into a two-decade failure of policy.”
The resulting patchwork of pilot projects failed to transform the sector. Despite an initial decline, nearly 20 years after the framework was introduced 790,000 children in Ivory Coast and 770,000 in Ghana are still working in cocoa, with 95 percent of them exposed to the worst forms of child labor, according to a 2020 report.
Deforestation has meanwhile accelerated.
Ivory Coast has lost up to 90 percent of its forest in the last half century. Between 2000 and 2019 alone 2.4 million hectares of forest was cleared for cocoa farms, representing 45 percent of the total deforestation and forest degradation in the country, according to Trase, a data-driven transparency initiative.
The government’s attempts to safeguard what remains are half-hearted and often undermined by corruption: In 2019 a quarter of Ivory Coast’s cocoa production was in protected areas and forest reserves, the Trase study found. This left the EU exposed to 838,000 hectares of deforestation from Ivorian cocoa. Commodity trader Cargill leads the pack, according to Trase, with its 2019 exports exposed to 183,000 hectares of deforestation.
Over the last decade companies have proposed corporate social responsibility (CSR) initiatives that aim to tackle both ills. For instance, Mondelez, the maker of Cadbury and Toblerone, recently committed $600 million to tackle deforestation and forced labor in cocoa-producing countries, bringing its total funding for environmental and social issues to $1 billion since 2010.
These sums are, however, puny by comparison with the profits earned by those firms, said Fountain. Mondelez returned $2.5 billion to investors in the first half of 2022.
Mondelez is “excited” about its investments, the firm said in a statement. But it is calling for more sector-wide actions and rethinking its incentive model. Cargill did not respond to a request for comment.
Social responsibility
The big numbers that companies cite about their CSR programs’ reach often boil down to one-off training sessions on productivity for farmers, Uwe Gneiting, senior researcher at Oxfam, told POLITICO. This was the case for 98 percent of the 400 farmers interviewed for research recently carried out by Gneiting and others from the charity into the impact of sustainability programs over the last decade in Ghana on farmers’ incomes.
The research finds that CSR initiatives, which companies use to tout their sustainability credentials to European consumers, have not meaningfully increased farmers’ productivity or profits, pointed out Gneiting. In fact, farmers end up shouldering the associated costs, because companies offer the training but do not pay for extra labor or the fertilizer that farmers need to put it into action.
Instead, Ghanian and Ivorian farmers have been hammered by the soaring cost of production and of living over the last three years, finds the new Oxfam research. Fertilizer costs have increased by more than 200 percent, said Gneiting, along with labor and transportation costs. That in turn has contributed to a decline in yields that have also been hurt by climate change, with weather patterns becoming increasingly unpredictable.
All of this has meant incomes have declined close to 20 percent since 2019, said Gneiting, which for farmers already living on the poverty line is “existential.” The decline would have been much worse, he added, if it hadn’t been for the Living Income Differential. Nonetheless, 90 percent of the farmers interviewed say they are worse off than three years ago.
Over the same period, as cocoa prices have fallen, companies have made “windfall gains,” said Isaac Gyamfi, director of Solidaridad West Africa. “The raw material became cheaper for them. But the price of chocolate didn’t change.”
Can Brussels sort it out?
To what extent the new due diligence directive will make a difference depends on the final text that was put to a meeting of EU trade ministers on Friday.
When the European Commission first came up with the draft it was seen as a game changer, but subsequent wrangling over the regulation’s scope has raised doubts. Last week, ambassadors from France, Spain, Italy and some smaller countries voted down the text in the European Council, seeing the value chain and civil liability provisions as too wide and too ambitious.
Two-thirds of Ivorian cocoa is exported to the EU and the U.K. | Issouf Sanogo/AFP via Getty Images
A European diplomat told POLITICO that France supported the proposed directive “very strongly,” and its view that it was important to concentrate on the “upstream” part of the supply chain was shared by a majority of EU member countries.
NGOs take the view that, while it’s positive that the EU is proposing broad legislation, there is a risk that it ends up replicating the mistakes that undermined the voluntary initiatives. One of these is the potential limitation of the companies’ due diligence obligations to “established business relations.”
“What you’re going to get is a whole bunch of companies that are going to try to have as few established business relations as possible, which just makes supplying commodities more precarious, rather than less,” said Fountain.
Analysis from Trase finds that 55 percent of Ivorian cocoa, two-thirds of which is exported to the EU and the U.K., comes from untraceable sources. NGOs working on cocoa and on other sectors due to be impacted by the new directive are calling for it to be applied to business relationships based on their risk rather than their duration.
The civil liability mechanism, which should guarantee compensation for people whose rights have been violated, has also come under scrutiny. The latest compromise proposal debated in the Council, seen by POLITICO, reduces the risk of companies getting sued by stipulating that a company can only be held liable if it “intentionally or negligently” failed to comply with a due diligence obligation aimed to protect a “natural or legal person” — not a forest, for instance — and subsequently caused damage to that person’s “legal interest protected under national law.” But, it states, a company cannot be held liable “if the damage was caused only by its business partners in its chain of activities.”
Earlier this year, the EU, Ivory Coast and Ghana and the cocoa sector all committed to a roadmap to make cocoa more sustainable, which, they agreed, includes improving farmers’ incomes. Yet it remains unclear whether this will be mentioned in the final draft of the due diligence directive.
“Sustainability cannot exist without a living income,” said Heidi Hautala, Green MEP and chair of the European Parliament’s Responsible Business Conduct Working Group. Hautala, who is among those pushing for the reference to a living income to be included in the final text, added that responsible purchasing practices are “a prerequisite for respect of human rights, environment and climate.”
Living income “needs to be a part of it because otherwise you’re in trouble,” agreed Fountain.
“If you don’t look at what does a farmer need in order to comply, if you don’t make sure that a farmer actually has the right set of income, then all you’re doing is pushing the responsibility for being sustainable back to the farmer. And this is what we’ve done for the last two decades.”
VIP Industries had quite a tumultuous period during the COVID-induced lockdown. However, things are back to normal because of travel and marriage season. The company saw very good traction in the second quarter of this year, which is normally the weakest quarter. “This year, the second quarter has also become quite good. So, we are very optimistic about the future,” Piramal said.
“We are now at about 43 per cent, we have gained market share in the current year and, our aim is to now reach at least 45 per cent market share during this fiscal year. I hope we can even get the back to the high 40s the next year,” Piramal said in an exclusive conversation with Udayan Mukherjee, global business editor, Business Today TV.
, Piramal On being asked about reducing said, “After the pandemic, China costs have become very high, our volumes have gone up so much that we are now rationalising all that. We will buy from China only what is barely the cheapest product there. Will buy a lot from India and Bangladesh. Gradually in the next two years, we should be in the optimum input position for input raw material that will save costs considerably.”
Talking about future plans, Piramal said the company plans to enhance its presence in multinational markets step by step. International sales account for less than 10 per cent of total sales. “We cannot obviously buy from somebody else and sell abroad. We have to make it ourselves and procure more in India. We are, I believe, probably among the lowest-cost producers in the world,” he added.
Commenting on the GST regime, Piramal said it had proven to be a great enabler for organised players. It really reduced the level of taxation which was high on all manufactured products and all branded products because there was a large excise duty and the sales tax was also very high. GST subsumed everything at a rate of 18 per cent and the company also got some input credit set off.
On VIP’s next diversification move, Piramal said, all the ladies’ handbags are in the very hot couture, very high segment, selling for thousands of dollars. There is no big brand that is selling, retailing at under 100 dollars and that is a very good space. “I feel, it’s very similar to luggage in manufacturing and even in distribution, and I hope in some time in the next five years, we are able to address that market in a significant manner.”
The company has manufacturing facilities across India and Bangladesh, producing brands such as Aristocrat, VIP, Skybags, Carlton, and Caprese, which target different price points.
