* Nestle aims to source all cocoa sustainably by 2025
* Child labor common on cocoa fields in Ghana, Ivory Coast
ZURICH/LONDON, Jan 27 (Reuters) - Nestle said on Thursday it will start paying cocoa farmers cash if they send their children to school rather than out to tend crops as part of a push to purchase all of its cocoa through a fully traceable, directly sourced supply chain by 2025.
Chocolate makers are coming under mounting pressure from investors, consumers and governments to make sure the cocoa beans they source are not produced using child labor or in illegal cocoa plantations in protected forests, both of which are common in West Africa.
The food group behind KitKat chocolate bars and Smarties confectionery said it will triple its current annual spending on sustainable cocoa to give a total investment of 1.3 billion Swiss francs ($1.41 billion) by 2030.
"Nestle's new initiative focuses on the root causes for child labor and the living income gap farmers and their families face," Nestle Chief Executive Officer Mark Schneider said during a webcast.
He said the new income accelerator program was a major step towards farming practices that benefit farmers and the environment, but acknowledged the path to a living income for cocoa households would be long and winding.
A recent survey by the University of Chicago found that among children in agricultural households in Ivory Coast and Ghana cocoa growing areas 45% were engaged in child labor https://www.reuters.com/article/uk-cocoa-childlabour-ivorycoast-ghana-idUKKBN2742FU.
Ivory Coast's Prime Minister Patrick Achi said his country welcomed the new program, saying it would help companies and countries meet the requirements set out in looming due diligence legislation, notably in the European Union.
"We must at all costs and by all means deal with the root cause of the ills on which we all agree, which is the income of the farming population," he said during the webcast, adding that Ivory Coast and Ghana's living income differential had so far yielded mixed results.
To qualify for the payments from Nestle, farmers have to send their children to school, prune cocoa trees, plant shade trees and diversify their income with other crops or livestock.
To check that children really are attending school and farmers are following the rules, IDH, The Sustainable Trade Initiative, will monitor the program with other third parties.
Children casually helping on family farms outside of school time do not fall under the International Labour Organization's definition of child labor. https://www.ilo.org/ipec/facts/lang--en/index.htm
The sustainability schemes which chocolate makers have used to date have had limited success in tackling human rights and environmental issues in cocoa, and Western governments are now looking to legislate.
Nestle said 51% of the cocoa it used in 2021 was directly sourced and traceable, versus 46% in 2020. By 2025, it wants to be able to trace 100% of its cocoa back to specific farms under its in-house sustainability scheme, the Nestle Cocoa Plan.
"We're very confident this will be a game changer on the road to reducing the risk of child labor," Magdi Batato, head of operations at Nestle, told Reuters in an interview this week..
'BIG STEP FORWARD'
Under the new program, farmers will receive direct cash payments via mobile transfer of up to 500 Swiss francs ($543) a year, which Batato said represented 20-25% of a farmer's average annual income. The incentive will then be leveled at 250 francs after two years and progressively extended to all of Nestle's 160,000 cocoa farmers by 2030.
Unlike current premiums that are paid per tonne and can encourage overproduction, Nestle, which used over 436,000 tonnes of cocoa in total in 2020, said it would pay farmers and their spouses directly, independently of volumes produced.
"An incentive to the household is much more inclusive of the smaller farmers, really making sure that nobody gets left out," Alexander von Maillot, Nestle's head of confectionary, said in the interview.
Nestle is going to launch KitKat products next year made with cocoa from farms that received cash incentives. Von Maillot said the company's efforts might ultimately lead to higher prices for consumers.
"Over time, there might be an increased price for some of the products, definitely," he said, adding that consumers were willing to pay if responsible business practices justified the price. Batato said operational efficiencies would also help finance the investment.
The VOICE Network, a global grouping of non-governmental organizations and trade unions working on sustainability in cocoa, said Nestle's cash transfer plan was "a big step forward."
It added, however, that cash transfers were not a substitute for a commitment to paying a fair overall price for the bean and farmers were still vulnerable to low world market prices. ($1 = 0.9200 Swiss francs) (Reporting by Silke Koltrowitz and Maytaal Angel, Editing by Alexandra Hudson and Paul Simao)