Initial Thoughts: CHOCOA 2014

Clay Gordon
04/03/14 04:28:13AM
1,680 posts

Chocoa Trade Fair, Conference, and Festival
March 27-31, 2014

The program for the 2nd CHOCOA Conference was and is ambitious. The first CHOCOA in 2013 was more modest in scope but no less ambitious in its own way: the Dutch government has made a commitment to 100% sustainable chocolate by 2025 and CHOCOA is a part of the effort to help Dutch consumers understand why sustainable cocoa and chocolate are important.

An important part of this endeavor is to communicate what the word sustainable actually means to find ways to convey what are very complex global socio-economic issues in simple, powerful ways that can affect behavior meaningfully.

The first day of CHOCOA 2014 was dedicated to an experimental trade fair. The concept for the trade fair was to provide a means to introduce small cocoa producers and craft chocolate makers to each other. The stretch goal for the trade fair, which was not reached, was to provide a platform for a live auction of cocoa beans that the producers brought with them.

It was very fitting, then, that the CHOCOA conference program was held in the Beurs van Berlage, home to the world's first stock and commodities exchanges - the trading platform that funded the exploration and exploitation of the New World and the African colonies. (Ghana was a Dutch colony.)

The interior of the Beurs in trade fair mode.

In the end, there was not enough time to arrange the shipment of more than sample quantities of beans, though the auction component is still very much in the organizers' sights for 2015 and beyond. Bringing sample quantities proved to be more than enough as one key goal of the trade fair was achieved - introducing small chocolate makers to small cocoa producers for the purpose of buying beans directly. While I don't know of any committed transactions that took place during the trade fair itself, I do know that many chocolate makers left happy to have made direct personal contact with producers from new origins and that these introductions will lead to a lot of very good new chocolates being produced over the coming years.

For me, personally, the trade fair day meant finally getting to meet long-time ChocolateLife members and contributors Juan Pablo Buchert (Nahua Chocolate, Costa Rica) and Carlos Eichenberger (Danta Chocolate, Guatemala) as well as many old - and new - friends and colleagues.

Carlos Eichenberger. (Sorry, JP - the photo was too blurry to use!)

The second day of CHOCOA was filled with a conference program presentations from "leaders" in the sustainable cocoa and chocolate industry and learn what progress has been made toward sustainable cocoa with the theme of what the mainstream cocoa market could learn from the fine-flavor specialty market.

It is here that the complete and total disconnect between the specialty market and the mass market becomes clear.

If there is one takeaway, for me, from the conference program, it is that the specialty fine-flavor market needs to be very careful talking to the mass market companies because the mass market companies will co-op and subvert the language of specialty cocoa, emptying it of value and meaning. The case in point was an extended infomercial for Unilever given by their Director of Corporate Sustainability, Anneik Mauser, where the word sustainability was stripped of all credible meaning in the pursuit of globalization and corporate profiteering.

Most damning in Ms Mauser's presentation was the admission that nearly 70% of the potential impact of sustainability (and that word was not defined clearly even when asked directly) is in the hands of consumers. Unilever - who as a company consumes about 1.5% of the world's cocoa crop - is working hard to wring the benefits of "sustainability" over less than one-third of their global footprint. The other two-thirds can only be influenced through big-brother marketing designed to modify consumer thinking and behavior; i.e., control consumer thinking and behavor in a way that is designed to make people loyal consumers of Unilever products. That might be sustainable for Unilever's bottom line, but it's not clear that it means that people toiling at the bottom of the supply chain - for example, cocoa farmers - can earn a decent living.

There is a total of about 15 companies that effectively control the global cocoa industry, and therefore the market price of cocoa. There is a tendency to lay blame at the feet of these companies for all that is wrong in the world of cocoa. However, the world is a far more complex place than this and it is important to also recognize the consumer's role, especially through the proxy of global retailers such as Wal Mart. Companies like Mars and Nestle might not actually have much wiggle room in their cost structures as long as behemoths like Wal Mart wield huge influence through setting consumer prices. Wal Mart and their competitors are putting constant pressure on suppliers to reduce costs - placing the blame on the consumer and not inexorable pressure bottom line returns to outperform competitors that Wall Street investors demand. Wal Mart and their ilk are just as much to blame (or more) as any.

During one the afternoon breakout sessions, Frank Homann of Xoco (Honduras) presented an economic analysis of what the price for cocoa would have to be in order for cocoa farmers to be profitable. His calculations start out with saying that it basically impossible for the smallholder farmer to be profitable on the 2.5-5 Ha of land that is typical. Instead, farmer co-operatives of at least 100 Ha and a farm gate price of over $8.30 per kilo ($8300/MT) is the baseline and that profitability can't be achieved in the short run - timelines of five and ten years are needed because of the need to replace bulk cocoa varieties with specialty beans.

Frank also calculates that the market for high-end specialty cocoa is probably smaller than most people think: Specialty cocoa in the up to $8-9/kg range could be only a few tenths of 1% of the market; the very high end of the market might be less than 100 MT.

Jos Harmsen of Max Havelaar drove the point home that certifications - all certifications, not just Fair Trade - are not the answer to the problems of creating sustainable livelihoods for cocoa farmers. The reasons are complex, of course, but some aspects stand out.

One is that the certification industry has done a much better job of creating supply than demand. By one estimate, at some certified co-ops the percentage of the crop sold on Fairtrade terms may be only 10-20% of what's grown. The co-op pays for certifying 100% of what they grow, but can only recoup the cost of certification from the part they sell as certified. It doesn't take much (or too deep) thinking to realize that certification can actually be a money-losing proposition for many, if not most, co-ops. One chilling side effect of this is that few new co-ops are becoming certified as there is no demand for their cocoa. I was in a shop selling Fair Trade certified coffee drinks that proudly posted "Fair Trade guarantees a better deal for farmers" on one of its signboards.

Guarantees? Really? I mean, Really?

Another reason comes from examining how the Fair Trade floor price (currently US$2000/MT) is calculated. We are told that the starting point is the cost of sustainable production, but that is just the starting point of negotiations. Apparently, the buyers get to weigh in on this price and it is in their best interests to make the price as low as possible. With Frank Homann saying that the cost of sustainable production on a 100Ha farm is $8300/MT and Fair Trade saying it's less than one-quarter of that, there is some work that needs to be done in order to arrive at a figure that resembles ground truth. From my perspective, the Fair Trade figure is immediately (more) suspect for at least two reasons: a) the buyers get to "help" determine what it is -- and these discussions, like the TTIP negotiations, are not public; and b) it's the same price for every producing country, which implies that the cost of living and other factors are the same everywhere in the world, which makes no sense at all.

At this point it becomes clear that there is little that the bulk market can learn from the specialty market that can have any meaningful return to the cocoa farmer. The mass market for cheap and cheerful chocolate is just simply not going to absorb a permanent 300-400% price increase for its basic raw material.

What is clear is that the economic interests of the large cocoa and chocolate companies are diametrically opposed to the basic needs of cacao farmers. As the largest cacao-producing country in the world, the Ivory Coast (and West Africa in general) basically get to dictate the positions that ICCO will take on matters - and these are the interests of bulk cocoa. As long as the purpose of a public company is to maximize return to shareholders then farmers everywhere will be hammered on pricing and their livelihoods will suffer.

What's needed, I think, is a different pricing model. And this is someplace where the specialty market (perhaps spearheaded by the organization Direct Cacao) can innovate. For about five years I've been an advocate of a VAT model in conjunction with traceable supply chains. Rather than trying to recoup 100% of the cost of production on the first sale, the idea of the VAT model is to enable the farmer to participate in the transformation of cocoa to chocolate and to the point of sale to the consumer. I called it 5 Percent 4 Farmers (5%4F).

The concept is simple, every time the cocoa changes hands, a 5% tax is charged on the differential between the buying price and the selling price and all that money goes to the farmer because the supply chain is traceable. No mass balance equivalence, no tricks. Decentralized accounting and accountability that is fully transparent. In order for a retailer to sell 5%4F products, they must agree to the 5% as well in order to be able to display the logo in the store.

Interestingly, Antonie Fountain (Voice Network), one of the speakers at the conference, said that the idea had been brought up and actually made it a long way through the negotiation process at the international level. In the end it was tabled in committee for the reason of in-fighting: Who would get to control the pot of money and decide where it got spent? I suspect this is in part because complete traceability is not really possible in most bulk supply chains and so there is money that can't be traced to particular farmers or co-ops. What is done with this money and who gets to decide the projects on which it gets spent?

Another issue is the actual process of delivering the money to the farmer. What is the mechanism to ensure that the money actually gets into the right hands, especially in places where not everyone has access to banking services? I suspect that the answer is obvious and that the cacao community wants to make it more complicated than it needs to be: controlling the issue through FUD - fear, uncertainty, and doubt. While I don't know that it is a solution, the mobile payment system M-Pesa, branchless banking system originally set up to allow microfinance borrowers to repay their loans offers a model for implementation.

What I now sense is that the specialty cocoa sector has the opportunity to lead the rest of the world in these matters. But in order to do so it needs to stop paying so much attention to the bulk cocoa sector and to stop feeding them ideas that can be used to misconfuse the market and the public.

clay -

updated by @clay: 04/09/15 06:41:29PM
Thomas Forbes
04/03/14 06:11:07PM
102 posts

You sure give me a lot to think about. I do not think the word, sustainable, was ever really defined at the WCF meeting last Oct. in Santo Domingo. I am trying to get a better handle on what a profitable cacao farm looks like in the DR. Thanks.

Clay Gordon
04/04/14 11:58:38AM
1,680 posts


I will see if I can get Frank Homann to share his assumptions and worksheet with us.

clay -
Clay Gordon
04/04/14 12:31:00PM
1,680 posts

Links to copies of the presentations can be found here .

Note that the proposed title of the Unilever presentation is Climate Impact and Biodiversity . When you actually load the PDF you can read the infomercial for the Unilever Sustainable Living Plan . They are not synonymous.

clay -
Thomas Forbes
04/04/14 07:59:22PM
102 posts

Definitely the most interesting of the group on farmers. I am going to have to take some time to really look at this. Thanks.

Adriennne Henson
04/04/14 09:18:07PM
32 posts

I like what you had to say and this area can also be complicated but important to know and learn as to what is going on in the industry

Sweet matter physicist
04/06/14 07:50:49AM
8 posts

Thanks a lot Clay, for sharing your impressions from Chocoa 2014!

I regularly spend time on thinking about 'sustainability', how to define it, and how to strengthen sustainable food production. I also had the strong impression that the big companies have a rapidly growing interest in being associated with sustainable products. That's not necessarily a bad thing, but -as you said- I also believe it will erode the current vague understanding of what is meant by the term. The food labels are a good indicator for me. At least in Europe my own perception is that the label "Fair Trade" had a very positive influence some 10 years ago. It might not always have done a good enough job in actually defining 'good'/'sustainale' working conditions or market prices, but it helpd raising the awareness of severe problems in food production. Unfortunately it seems to make very little sense for some sectors, including cocoa. One could argue that some 10-20 years ago it mainly served in distinguishing more committed from less committed companies (such as the big chocolate companies), which probably was OK. Now, however, such labels are increasingly used by the bigger companies at which points we clearly need to question it's rules and application much more critically.

Vera Hofman
04/06/14 02:56:58PM
16 posts

Thanks Clay!

A Dutch (sorry! maybe Google Translate can help?)blog of the Trade Fair for KoffieTCacao magazine with a few pictures:

Chocolove, Vera


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