Structural change in the cocoa sectors in Africa, Asia and Latin America

Isabelle Schluep

Center for Corporate Responsibility and Sustainability CCRS at the University of Zurich

23 November 2018, University of Zurich

Pictures: Constantine Bartel (ICCRI, Indonesia); KairosPhotos Paul Jeffreys (San José de Apartadó, Urabá, Colombia, middle); Tanja Sostizzo, Ghana (right).

1. Introduction

2. Why is structural change important ?

3. Situation of cocoa producing countries

4. Findings from a case study in Ghana

5. Findings from a case study in Indonesia

6. Findings from a case study in Colombia

7. Conclusions

Outline

• Cocoa production around the equator (Africa, LATAM, Asia)

• Most important producers in West Africa

• 5.5 million smallholder farmers worldwide

• Consumption mainly in the Global North, except LATAM region

• Highest value addition at the end of the value chain

1. Introduction

Cocoa Production in 1,000 tonnes 2017/18

Source: ICCO 2018, Table 2, 40, found in cocoa Barometer 2018

Colombia

60

• SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

• Structural change such as induced through technological change improves employment and hence purchasing power in rural areas

• Structural change provides OPPORTUNITIES for farms, regions and nations to prosper

• Enablers of change: institutional reforms, land tenure, private sector investments, human capital

2. Why is structural change important ?

Pictures: Stella Maldonado, pilot plant of Fundación Alcarabán, Arauca, Colombia, 2018

3. Situation in the different world regions

Pictures: Tanja Sostizzo, Ghana (upper), Stella Maldonado, Colombia (lower); Constantine Bartel, Indonesia (left)

3. Situation in the different world regions (I)

75.2

16.6

8.2

0

10

20

30

40

50

60

70

80

Africa Americas Asia & Oceania

Pe

rce

nt

Share of production of cocoa beans by world region

Data world regions : Averages 2015-2018 from ICCO Quarterly Bulletin of Cocoa Statistics, Vol. XLIV, No. 3, cocoa year 2017/18; Data Côte d’Ivoire area harvested & share: FAOStats; 2016 share ICCO

2'851'084

42.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

500'000

1'000'000

1'500'000

2'000'000

2'500'000

3'000'000

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

20

09

20

12

20

15

Pe

rce

nt

He

ctar

es

Share of Côte d'Ivoire in world production in percent

Area harvested, hectares Share in world production by Côte d'Ivoire

Côte

d’Ivoire

40%

Ghana

19.8%

Colombia 1.5%

Indonesia 6.3%

3. Situation in the different world regions (II)

Export share of cocoa

products

Number of cocoa

farmers*

Average farm

size [approx.]*

Average yield cocoa

beans [kg/ha]

Yield trend

cocoa

Domestic

consumption

of cocoa

Market

organization

Share of

manufacturing

on GDP

Côte

d’Ivoire

(bulk)

53.3 % [Nuts 3.8%]

Low export

diversification

GCI (‘18): 91/140

900’000 (?) families

3.5 Mio inhabitants

directly involved in

cocoa (?)

(20% of pop. ?)

3 ha (?) AFD & B.C: 435

FAO (2016): 516

In decline

since 2000

[FAO]

Very little Conseil café-

cacao (CCC)

[state

organization]

12.8 %

Ghana

(bulk) 17.3 %

[Gold 57%]

Very low export

diversification

GCI (‘18): 111/137

800’000 families 2 ha FAO (2016): 510 Stable /

increase

[FAO]

Very little COCOBOD

[state

organization]

5 %

Indonesia

(bulk) 0.83 %

[Palm oil 8.4%]

High export

diversification

GCI (‘18): 36/137

1 Mio. families

[50% Sulawesi]

0.6 ha

FAO (2016): 386 In decline

since 2006

[FAO]

Little,

increasing

Multinational &

local companies

Producer org.

National org.

PPP

Public org.

20.5 %

Colombia

(bulk / fine

& flavor)

0.42 % [Coffee 7.8%]

Medium export

diversification

GCI (‘18): 66/137

38’000 families

[70% members of

Fedecacao]

4 ha Marginal: >300

Tradit.: 300-500

Cash: 1200-1800

Diversif: 300-600

FAO (2016): 339

In decline

since 2004

[FAO]

Staple food

[bevarage]

production =

consumption

Local private

companies

[Top 2: 80-90%];

Producer org.

National org.

PPP

Public org.

11.5 %

Source MIT Atlas, data 2016

GCI 2017/18 WEF

Export diversification IMF

Data is scarce,

approximations

*indicative numbers

Data is scarce,

approximations

*indicative numbers

Côte d’Ivoire: AFD & Barry

Callebaut (2017)

Colombia: USAID et al. 2017

FAOSTAT Different Different Manufact. Value

Added (MVA)/GDP

from IMF

Elaborated by Isabelle Schluep, CCRS

4. Findings from of a case study in Ghana (Tanja Sostizzo, UZH & CCRs)

Pictures: Tanja Sostizzo, Ghana

4. Findings from a case study in Ghana (I)

Research question:

Do the initiatives of Swiss chocolate manufacturers lead to a more future-oriented and more sustainable cocoa production in Ghana?

Method:

Mixed method approach (treatment & control group)

Source: Sostizzo-Graf, T. (2017). Sustainable and Future Oriented Cocoa Production in Ghana: Analysis of the Initiatives of two Swiss Chocolate Manufacturers, M.S. thesis, Environmental Sciences, University of Zurich, Switzerland.

4. Findings from a case study in Ghana (III)

Major problems

Environment

Deforestation

Soil degradation

Economics

Low yields

Too low producer prices

Lack of investments

Politics/ Framework

COCOBOD patronising & rent seeking

Exclusion of the private sector

Social

Ageing farmer population

Land tenure, poor infrastructure

Lack of farmer organizations

Source: Sostizzo-Graf, T. (2017). Sustainable and Future Oriented Cocoa Production in Ghana: Analysis of the Initiatives of two Swiss Chocolate Manufacturers, M.S. thesis, Environmental Sciences, University of Zurich, Switzerland. Pictures T. Sostizzo

4. Findings from a case study in Ghana (II)

Case study Läderach Goals: Improve economic situation of the farmers, environmentally sound production, no child labour, high quality

Implementation: Rainforest Alliance certification and “family life”

Results Economic aspects Farms benefitting from company projects (treatment

group) show significantly higher yield per hectare & income

Environment Not enough shade trees

Production practices Production practices improved Low usage of agro-inputs

Social Children are in school Missing infrastructure

Left: Adjusted R2 0.95 (F(1, 63)= 1185, p < 0.0001)

Source: Sostizzo-Graf, T. (2017). Sustainable and Future Oriented Cocoa Production in Ghana: Analysis of the Initiatives of two Swiss Chocolate Manufacturers, M.S. thesis, Environmental Sciences, University of Zurich, Switzerland.

5. Findings from of a case study in Indonesia (Constantine Bartel, CCRS)

Pictures: Constantine Bartel, Indonesia

Marketing & retail

to

Chocolate/Confecti

onary Markets

and

Cosmetic Markets

• Developing

consumer

recipes

• Branding

• Marketing

• Mixing cocoa

products with

other

ingredients,

e.g. sugar,

milk etc.

• Refining &

processing

• Cleaning,

breaking &

winnowing

• Roasting

• Grinding

• Pressing

• Local Collection

• Local Trade

• Sorting & Drying

• Global Trade

• Growing

• Harvesting

• Fermentation

• Drying

Indonesia: Opportunities for local entrepreneurs in the cocoa-value chain (II)

Cocoa

Production Trade Processing

Industrial

Chocolate

Manufacturing

Distribution

and

Marketing

Brand

Chocolate

Manufacturing

Cocoa beans Cocoa liqueur,

butter and powder Industrial

Chocolate Consumer confectionary chocolate

1 million smallholder

farmers produce

6000'000 MT on 1.7

million ha

3 MNEs control over 60% of trade and industrial chocolate

processing ($700-800 million per year)

4 MNEs control

over 50% of the

global market

Grocery retailers

distribute 60% by

retail value

4 - 6 % 24% 70 - 72%

Distribution of value along the chain % of local

participation in

cocoa value

chain (estimates) 100% 15-20% 5-10% 1-3% 1-3% 5-10%

Source: Bartel, C. (2017). Potential Sustainability Effects Resulting from Embeddedness. Indonesia Case Study on Cocoa. September. CCRS. Unpublished.

5. Findings from a case study in Indonesia (I)

Research question:

What is the embeddedness of a subsidiary of a Swiss Multinational Company?

Method:

Mixed method approach with surveys

Source: Bartel, C. (2017). Potential Sustainability Effects Resulting from Embeddedness. Indonesia Case Study on Cocoa. September. CCRS. Unpublished.

RESULTS 1: Experts agree that fostering farmers entrepreneurship is the best

strategy for economic empowerment and sustainable transformation of cocoa

communities

Vision of the training program for farmers: Identify Challenges and set Targets -

double productivity……Concept of Cocoa Farmers of the Future….profit making

40 year olds

Plan to achieve the vision: transform 40% of the total cocoa farmer population

into ‘Professional Farmer’ and 40% ‘Farmer in Transition’ by 2020.

RESULTS 2: 60% of farmers say poverty is the most urgent development priority in the village; 20% point to the

lack of food security and 17% cite unemployment as important bottleneck. 43% of farmers have been on the

farm for between 20-35 years and have always grown cocoa. 10% of farms in the past five years are new farms.

RESULTS 3: Climate change – six months prededing the survey 37% of farmers suffered from drought ; 30%

from intense rain; 33% of crops pest infested; small number of underperforming farmers with neglected crops

harbour disease and are said to be responsible for 50% of negative environmental impacts in the cocoa industry

and soil erosion.

5. Findings from a case study in Indonesia(III)

Major problems

Environment

Climate change

Poor agricultural practices, neglected plants

prone to disease

Deforestation & soil degradation

Ageing cocoa tree population

Economics

Low yield and low quality

Low productivity and low incomes

Strong competition from palm oil, rubber

Politics/ Framework

Liberalized market

Rural development / transformation

strategy needed

Social

Ageing farmer population

Not attractive for next generation

Poverty

Lack of food security

Source: Bartel, C. (2017). Potential Sustainability Effects Resulting from Embeddedness. Indonesia Case Study on Cocoa. September. CCRS. Unpublished.

6. Findings from of a case study in Colombia (Stella Maldonado & María del Pilar Acosta Universidad ICESI & Observatorio Kairós)

Pictures: FEDECACAO (left), Stella Maldonado, Colombia (middle, right)

6. Findings from a case study in Colombia (I)

Research question:

-What is the embeddedness of the “multilatinas” in the Colombian cocoa sector ?

-What are the characteristics of the cocoa value chains in Santander («heartland») and Arauca («newcomer») departments ?

Method:

Mixed method approach: interviews with manufacturers (Nutresa, Casa Luker, 2 SME), experts (Fedecacao, Foundation Alcarabán, chambers of commerce) and cocoa farmers («cacaocultores») and secondary information

Colombia Cacao

Total cocoa production: 87’632 MT (2014)

Total area harvested: 164’332 ha (2014)

Santander: largest producer 25.1 % (MT)

Arauca: third largest producer 7.9 % (MT)

Nariño: second largest producer 8.4 %

Source: DANE, 3er censo nacional agropecuario, 2014

6. Findings from a case study in Colombia (II)

Sources: Elaborated by Maldonado García, S., and Acosta Collazos M. P. (2018); inputs from secundary sources such as Abbott, et al., 2017; Pedraza, 2017 y Ríos, 2018.

COLOMBIA

Production Market Marketing

(internal,

export)

Processing

(Agroindustry)

Commerciali-

zation

Input suppliers

(plant material,

fertilizer, etc.)

Plants

Inputs

Installations

Tools,

machinery,

equipment

Small and

medium

producers

Large

producers

Large & Small

Collectors

Traders

Local Businesses

Cooperatives

Cocoa Networks

CasaLuker

S.A.

Cocoa exporters

Exporters of

liquor, powder,

butter and cake

Nacional de

Chocolates y

CasaLuker

External Market

Local Market

Institutional framework

Distributors

and chocolate

companies

Dealers

Su

per

mar

kets

, sh

op

s an

d c

afes

FEDECACAO

CIA. Nacional

de Chocolates

Small

producers

6. Findings from a case study in Colombia (III)

Case study Santander Situation:

-largest producer, very traditional

-atomized producers, subsistence, not principal crop, not always best practice

-hard to change traditional practices

-forest trees for shade

-smaller plantations, less extension potential

-resistance to rejuvenate plantations

-disease infestation when pruning is lacking (monilia, witches broom etc.)

-family labor

Case study Arauca Situation:

-new producer (since 2000), commercial orientation

-plantains for shade

-successfully replaced coca crop with cocoa

-large potential for expansion (zone at foot of the mountains)

-pilot plant for cocoa improvement (plant materials, machinery & transformation); PPP with Fedecacao, chamber of commerce and SENA but not with cooperatives [foundation of a petroleum company]

-national government invested money to build a cocoa processing plant (land is secured)

-human capital such as technicians, agronomists

-eager to learn best practices

-family labor

Pictures: FEDECACAO, Guía técnica para el cultivo del cacao, 2015 (left); Stella Maldonado (right), 2018

6. Findings from a case study in Colombia (IV)

Environment:

Shade tree practice

New plant materials

Research activities

Rejuvenation of plantations lagging behind

Soil structure and fertility maintained

With correct maintenance needs very few inputs

Economic aspects:

Plantains prodive income while cocoa grows

Quality assurance by FEDECACAO, formal buyers and cooperatives

With well maintained plantation secure income for many years

No quality checks by informal buyers

Price hedging does not yet get to farm level

Very few Foreign Direct Investments (FDI)

Politics/ Framework:

FEDECACAO exports creates risks

Competition (market share of top 2)

Rough environment for SME’s

Social:

Ageing farmer population (no succession)

Resistance to change (new technologies, best

practices)

Personal security future development ?

7. Conclusions

LONG TERM VIABILITY of cocoa sector at risk for social, economic and environmental reasons

NEW DATA is required (#farmers, yield, farming practices, etc.) to track structural change and

for informed policy making

RURAL INCLUSIVE GROWTH / DEVELOPMENT strategies

ENABLING Institutional framework conditions

IMPROVING FARM STRUCTURES

MAKING A BUSINESS out of cocoa

EMBEDDEDNESS of companies

BUSINESS FRIENDLY environment for companies

More FOREIGN DIRECT INVESTMENT (FDI)

Holistic approaches and clear strategies needed to induce structural changes

Pictures: Tanja Sostizzo, Ghana (upper), GAIN – Global Alliance for Improved Nutrition (lower)

Thank you

Gracias

Danke

Merci

All pictures: FEDECACAO, Guía técnica para el cultivo del cacao, Colombia, 2015.

Tanja Sostizzo, Agroscope

Constantine Bartel, UNCTAD & CCRS

Stella Maldonado, Universidad Icesi & Observatorio Kairós, Cali, Colombia

María del Pilar Acosta, Universidad Icesi & Observatorio Kairós, Cali, Colombia

Patricia Abt, CCRS

Philipp Aerni, CCRS

All panel participants: Luca Costa (Läderach), Clea Kaske-Kuck (Cargill

International), Christiaan Prins (Barry Callebaut), Christian Walter (Bühler Group),

Fritz Brugger (ETH-NADEL), Andrea Bischof (Swiss Platform for Sustainable Cocoa)

The organizers acknowledge the financial support of the Leading House for the Latin

American Region’s Seed Money Grant Nr. 172

Acknowledgements