Davos, Switzerland, the highest city in Europe, venue of the World Economic Forum, and this year, the location of Chocovision. It is late Spring and the weather has warmed up a little, although the temperature still hovered below 20 deg C, which is about the highest it will go. Dry and gentle breeze swept across the city that is sandwiched between the snowcapped Plessur and Albula Range of the Swiss Alps, a picture of serenity and one that is in stark contrast to the turbulent undercurrent of the cocoa industry.
The issue that the cocoa industry is facing may seem like a luxury problem to the outsider, but the implications are real and may have a far reaching impact on the survival of the industry. Driven by surging demands for chocolate in Asia, which is ranked the world’s lowest per capita in 2013, chocolate makers are struggling to source for quality cocoa beans to make their products.
Currently, China constitutes a minute share of the global chocolate market at just around two percent. However, with greater spending power, Chinese consumers are beginning to indulge in more Western flavours. That, together with the rapidly growing markets of India and Indonesia, means that demand for chocolate products and in turn, cocoa beans, is expected to rise exponentially in the coming years.
According to Hardman & Co, a London-based research firm, the global deficit is projected to reach one million metric tonnes by 2020, which is one third of the current global output.
“In five years, consumption of cocoa in emerging markets will outpace mature markets,” said Francois-Xavier de Mallmann, global head of consumer retail group of Goldman Sachs. “Sustainability has moved from optional extra to priority.”
Beans Of Gold
Cocoa trees grow in tropical environments. The ideal climate for cocoa is hot, rainy and tropical, with lush vegetation to provide shades for the trees. The plant is grown in Africa, Asia and Latin America, with Cote d’Ivoire producing 33 percent of the global supply.
According to the World Cocoa Foundation, an organisation representing member companies from across the cocoa value chain that aims to ensure a sustainable economy, around 80-90 percent of the cocoa comes from small, family-run farms and there are around five to six million cocoa farmers worldwide.
The job of the farmers is to grow the crop, harvest the pods and collect the beans before drying, packing and selling them to exporting companies. The quantity and quality of harvest can vary highly due to limited knowledge of modern farming techniques, management skills and tools, extreme weather conditions, pests and diseases, and even the local political climate.
jan hamlet, Frankfurt, Germany
Sensing the impeding threat of bean shortage, Barry Callebaut, the world’s largest chocolate manufacturer, launched Chocovision, an international, biannual conference for the industry, in 2012, to gather key stakeholders from across the value chain to engage in meaningful dialogues that would hopefully unlock the enigma to a sustainable and successful future.
As attendees listened intently to what the speakers had to offer, their composed appearance could not hide the differences in opinions and views, especially between the executives from the chocolate manufacturers and the farmer representatives from Africa.
During his opening address, Andreas Jacobs, chairman of Barry Callebaut, said that one of the main issues with the cocoa supply chain is that it is fragmented and that a part of the supply chain does not benefit from equal value and continues to be stuck in poverty. He advocated for inclusive growth and greater sharing along the chain.
In response, executives from major cocoa buyers, such as Mars, Mondelez International, Olam International, ADM Cocoa and The Hershey Company, shared the corporate initiatives and programs that were launched with the aim of improving the standard of living for farmers and creating more incentives for growing cocoa by improving productivity.
Over the years, they have started educational campaigns to transfer knowledge and techniques that are practiced in Europe and other more agriculturally advanced nations to local farmers in Africa. By achieving better yield, farmers will be able to earn more and expand their plots. They even gave examples of farmers drastically growing their farms and employing other farmers to help.
In 2000, the World Cocoa Foundation was founded as an international membership organisation representing more than 100 member companies across the cocoa value chain. The objective of the foundation is to put the farmers first by promoting agricultural and environmental stewardship and strengthening development in cocoa-growing communities.
The foundation started the Cocoa Action plan, which gathers major cocoa processors and branded consumer chocolate companies together in a non-competitive manner, in consultation with national governments, to align their sustainable efforts to improve farmer incomes and increase productivity by 2020.
Despite the numerous stories of success on display, the industry has never felt more fragmented and the disparity in ideology had never been greater.
Compared to other coastal African nations, Cote d’Ivoire was left relatively untouched by the Europeans in the 1400s as ships preferred other areas with better harbours. It was not until the mid-19th century that the French finally established themselves in the country.
Ghana, on the other hand, was not as fortunate. Since being colonised by the Portuguese in 1482, the country has seen Dutch, Swedish, Danish, German and other European traders venturing into the region after being enticed by its rich resources, in particular, gold.
During that dark period of history, besides minerals trading, another trade flourished—slavery. Ghana was the more affected of the two nations, with many of the locals being taken from their villages and shipped to their ‘owners’ from the West. It was not until the 20th century that both countries managed to achieved independence.
It would be highly inappropriate to compare the cocoa trade to slavery, but beneath the surface, it is hard to ignore some daunting similarities. For all their efforts, African farmers earn far below market price for the cocoa beans. The government of Cote d’Ivoire recently agreed to a new regime, guaranteeing at least 60 percent of the international price for its famers. Ghanaian farmers get slightly less than 60 percent for their beans.
That does not tell the entire story; besides being short-changed by their national regulators, FAOSTAT data has shown that African growers typically get around 3.5-6.4 percent of the total value of a chocolate bar.
Growing chocolate demand has increased profits for processors and manufacturers from 56 to 70 percent, while retailers have seen their revenue grow from 12 to 17 percent. Very little of the profit reaches the hands of bean growers, even though cocoa price reached a 32-year high in 2013.
Other Viable Crops
Committing to the sustainable cocoa cause also ties down the biggest assets that the farmers have—their fertile land. In a market driven by price, it makes perfect economic sense for farmers to switch to more lucrative or easy to maintain crops. In recent years, that crop is rubber.
There are many reasons that may swing cocoa growers towards the rubber plant. First of all, rubber is easier to look after and requires less fertilisers and pesticides. In addition, the crop can be harvested monthly, offering more regular income and financial security. But most importantly, most of the big companies using rubber buy directly from the farmers themselves.
Cote d’Ivoire has more than doubled its rubber output over the last decade to become Africa’s biggest producer and exporter according to Ecobank. Compared to cocoa beans, the rubber industry has seen four consecutive years of surplus.
Providing farmers with more improved planting materials, fertilisers and training are kind gestures, but a weak argument for farmers to stick to the crop, especially with alternative options that require less effort and provide more monetary incentives lurking around.
Driven by their passion to provide assistance, what cocoa processors and chocolate manufacturers have failed to realise is the fact that cocoa farmers are not as invested in the cocoa industry as them. Cocoa farming is a livelihood for the growers, but not their sole livelihood. The same cannot be said for stakeholders whose profit and sales are highly dependent on the availability of cocoa beans.
It is difficult to feel like a part of the community and appreciated when you are getting just around five percent of the value of the end product, isn’t it?
Inclusive growth requires the inclusion of every member along the value chain in a meaningful manner. A party can only align with the vision of the group if there is opportunity for growth and development. More than financial gains, it is important to have a sense of purpose, a belief that the success of the group would translate to success for you.
In the cocoa industry, the role of the farmers is akin to that of a mercenary—they are merely hands for hire. There has been no indication from the industry that they play or can play a bigger role. Regardless of how large their farms can grow or the yield they can achieve, they will always remain at the bottom of the supply chain. This detachment makes it easy for them to switch sides at will.
Farming is an ageing profession and the lack of young individuals who are willing to join the farming business has become an alarming issue for the agricultural sector. The children of poor farmers would often rather take their chances at securing a job in the cities, while rich farmers are likely to want their children to get proper education and ‘not go through so much hardship’.
After years of prosperity, Thailand’s agricultural industry began to lose its competitive edge in the mid-1980s due to dwindling land, rural-urban migration and declining world agricultural product prices due to the expansion of global food production.
Agricultural businesses were left at a cross-road and they responded in two ways. Some of them began to mechanise their farming operations to combat the lack of available labour, resulting in higher productivity and output. The approach of the other group helped cement Thailand’s place as one of the biggest food exporters in the world.
Staring at the abundant raw materials at their disposal and the unattractive prices for their goods, they decided against exporting the primary agricultural products at low profit margins. Instead, they added value to their products by processing them into secondary and end consumer goods.
Not only were they able to capture greater value for their products, they also ensured that the impact of international price volatility of primary products was minimised. They have effectively moved up the value chain and contributed to the industrialisation of Thailand.
Empowering The People
USAID US Agency for International Development
During her motivating speech, Dr Auma Obama, founder and director of Sauti Kuu Foundation in Kenya, said that disadvantaged youths in Kenya are more driven by purpose than money. Many of them who worked in the city scavenging at the local landfill refused to return to their village to earn a better living as farmers.
“We speak at length about economically empowering rural people as an essential first step to eradicating poverty,” she said. “We urge young people to appreciate and use their agricultural resources to generate an income for themselves and their families, but we do little to actively change the economic status quo.”
She explained that despite all the efforts, the agricultural land and natural resources continue to be exploited through unfavourable economic treaties, agreements and sanctions that benefit international economies.
Mr Jacobs was right when he said that there is a need to maximise farming and maximise the value for farmers, and that collective actions will be decisive for long term benefits.
Unless the stakeholders of the industry can work together on a level playing field, and unless collective actions are truly collective in that greater financial and developmental prospects can be delivered to the cocoa bean farmers, sustainability for the cocoa industry will remain a distant dream.
Much like the attitude of locals of a colonised land, it makes little difference whether the flag is that of the British or the French.