the investment forum in fine cocoa 2012
TRANSCRIPT
Vernon Patrick Barrett
THE COCOA INVESTMENT FORUM Economics of the Cocoa Value Chain
Vernon Patrick Barrett
THE COCOA INVESTMENT FORUM Economics of the Cocoa Value Chain
RAISING FINANCE FOR THE
CHOCOLATE FACTORY
Economics of the Cocoa Value Chain
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Background to the COMMERCE of Cocoa
Three Presentations
Micro-Financing the small Cocoa farmer (Sandeep Jagger)
Raising finance for The Chocolate Factory (Vernon Barrett)
Credit & Investment Services for Cocoa (ADB – Glen Ramjag)
Q&A
What is currently happening
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A renewed interest in Cocoa:
Diaspora members from Jamaican community (esp. UK)
reclaiming their inheritance
Existing middle-age well-to-do members of the residential
professional community in Trinidad moving from town to
country (“new farmers”)
Small to medium cocoa processers visiting the region from
overseas
Larger companies from overseas also visiting and looking to
connect with local growers (Joint Ventures)
What is currently happening
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Examples of revival happening:
Larger established farmers in Western Jamaica seeking to plant
out >1,000 acres amongst themselves
Requests for cocoa farmland by buyers / investors
Business Plans being prepared for a number of entrepreneurs
Ortinola
Bachelors Hall
What are the finances of Cocoa ?
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Subsistence farming in many cases historically
Used to be much larger scale production levels
Decline of industry, urbanisation in Caribbean countries
Now new niches are developing, globally...
Multiple business models around cocoa which can make the
proposition of farming it in middle developing countries
more viable
The Small Farmer Perspective
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Small levels of production of cocoa with a weak bargaining
position for selling price
Inadequate finance and limited access to funding
Concerned about day-to-day living and cash flow
Has a choice of crops in a portfolio
Cannot afford to invest even in power tools
Has to collaborate with others and/or partake in value chain
The Processor’s Perspective
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Requires inputs from more than 1 farmer to get economies
of scale in fermenting, drying, quality control, distribution
If in public sector hands, not able to make quick investment
decisions
In a complex context usually
Requires significant coordination of getting in cocoa beans
which can be costly
Quality control is a key concern
If they don’t end process then they have to sell on to
someone else (Cash Flow issues)
The Manufacturer’s Perspective
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Has to import semi-finished cocoa value-add products –
butter, paste, couveture, etc.
Substantial investment in equipment required
Needs reliability of supply of such inputs
Know-how of processing beans not easily acquired
End market untested – specialist, high end
The Overseas Buyers Perspective
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Buyers of BEANS want two main things
Quality of beans supplied
Continuity of supply to feed its machinery
In a word RELIABILITY
Consumer Market growing & segmenting
Vernon Patrick Barrett
THE COCOA INVESTMENT FORUM Economics of the Cocoa Value Chain
RAISING FINANCE FOR THE
CHOCOLATE FACTORY
Value-add to the Cocoa Beans
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Fairly lengthy process with many steps
An art and a science
A batch process
Minimum investment in processing equipment which is
significant to a small player (US$100k)+
Equipment becoming specifically made for cocoa bean
processing – previously it was improvisation; hair dryers,
food blenders, hydraulic presses etc.
Either a kitchen sized operation OR a huge Industrial
complex
The Origins of Small Scale Ops
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Small Scale Cocoa Operations
Fine Cocoa Value Chain
FERMENT
& DRY
BEAN
CONVERSION GROW
FINAL
MANUFACTURE
The CHOCOLATE FACTORY
Existing Small Scale Processors
EXPORT EXPORT
Semi-industrial Level Processing
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Cocoa Processing
Co #1
Cocoa Processing
Co #2
Cocoa Processing
Co #3
CFCF Headquarters R&D
Training &
Learning
Centre
Line 1 Line 2 Line 3
The Features of The Chocolate Factory
Multi-purpose Facility with several Income Streams
Agro-processing facility for hire/lease
Training
Research into chocolate production
Production of own single origin products from cocoa
Trinidad
Caribbean (blend)
Production of intermediate cocoa products – butter, paste, etc.
Home to other processors (Chocolatiers) which will co-locate
Cluster benefits
Culinary & Heritage Tourist Attraction
Why the need for The Chocolate Factory
Catalyse the development of the downstream industry
Will evolve slowly through entrepreneurs
Risky and capital intensive
Develop a business model which mitigates the risks
Share the cost of investing
Minimise the cost of borrowing
The Benefits of The Chocolate Factory
Small Cocoa Farmer & Associations
Allows you to partake in the value-add
Bring the beans to us and we will process them for you and give
you back the finished or intermediate products
You hire out the facility to do your own processing
You can JV with a chocolatier who may need a processing unit
in country
The Benefits of The Chocolate Factory
Existing and Prospective Processors
Gives access to cocoa intermediate products without the need
to invest in the equipment
Cocoa Paste
Cocoa Butter
Cocoa Liqueur
Chocolate Couverture
Hire / Lease a processing line from the Factory
Co-locate on premises to cluster
Research and development of products
Business & Marketing support in “incubator” style setting
Raising Finance for
THE CHOCOLATE FACTORY
STAKEHOLDERS
Cocoa Industry Board (T&T Government)
Cocoa Growers
Cocoa Associations
MSME’s who use cocoa as inputs
Raising Finance for
THE CHOCOLATE FACTORY
OPTIONS
Banks – not dynamic or risk-takers
Private Finance – You and others could invest directly
Industrial Development Bond
Equity Finance – T&T Stock Exchange
Secondary Markets
Government Stake-holding
CCIB
MTI
Invest TT
Two Stage Establishment of Factory
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Creation & Start-up
Seed Financing
Equity stakes
Steady State
Divest to third parties with vested interest
What are Development Bonds?
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Bonds issued by a government to raise
money for funding one or more specific
projects or development work in geographic
area.
What are Industrial Development Bonds?
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Private corporation is responsible for payments to
bondholders.
In the USA - Industrial bonds are subject to special IRS
rules governing the tax exemption of interest.
Bond ratings on revenue bonds are based on the credit
rating of the private corporation backing the lease or
rental agreement covering the facilities, because the
ultimate source of repayment is the corporation, rather
than the bond issuer.
What are Industrial Development Bonds?
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The proceeds from the IDB issues can be used to buy
land or manufacturing equipment, and to build new
facilities.
About $3 billion in IDBs were issued in 2007, up 158%
from 2006, according to the Council of Development
Finance Agencies, which represents issuers of IDBs.
Funding The Chocolate Factory
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The proposal is to: Offer Public Shares in a Government
backed Cocoa Industry Development Bond
The Chocolate Factory to pay bond’s share holders
returns on the bond through the performance of the
Chocolate Factory with the ability for investors to exist
with reasonable notice
Investor funds are secured by a guarantee by the Trinidad
& Tobago Government
Raising Finance for
THE CHOCOLATE FACTORY
Where are we now?
Identified seed capital (Compete Caribbean & European Union)
Securing other development finance
May need additional funds
Thank You!
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For Further Information Please Contact
Vernon Barrett
Email: [email protected]
Web: www.caribbeanfinecocoaforum.net