Organic cocoa prices not sufficient incentive to stimulate production
19 January 2014
Crown of Holland, a processor of organic cocoa, which recently opened a 9,000-tonne organic and speciality cocoa plant in the Netherlands, has called for a rethink of “how farmers can be incentivized to grow organic cocoa because premiums do not currently compensate the productivity shortfalls from not using pesticides and fertiliser”.
According to the Dutch company, “only around 1.5% of global cocoa supply is certified organic,” but according to the International Cocoa Organization (ICCO) website, demand “is growing at a very strong pace”. However, the company considers that the current price premium for organic beans of “10–25% above the market price” is not sufficient to compensate for lower yields, commenting that “farmers using pesticides and fertiliser can reach yields of 0.7–1.5 tonnes per hectare…whereas organic farms typically yield 300-500 kg of cocoa beans per hectare”.
Through the use of improved planting, pruning, fermenting and drying practices, organic yields could be increased up to 1 tonne per hectare, but “these increases in productivity would still fall short of the pay-back farmers could get by simply using fertilizer and pesticides.” In this context, organic cocoa farmers often also opt for Fairtrade certification, “which adds another premium to the price”. Currently, “almost half of organic beans are sold as Fairtrade.”
Organic cocoa comes mainly from Peru and the Dominican Republic, where efforts are under way to strengthen the national control system for organic products. According to the Dominican Republic’s Bureau for Organic Agriculture (OCAO), there are at present some 23,443 organic producers in the Dominican Republic farming on 166,200 certified organic acres: coffee, cocoa and bananas are the main organic products exported. Organic cocoa production constitutes around 25% of total cocoa production in the Dominican Republic .
Of the 21 countries listed by ICCO where certified organic cocoa producers are located, 10 are ACP countries (Madagascar, Tanzania, Uganda, Belize, Dominican Republic, Fiji, Vanuatu, Haiti, Ghana and Côte d’Ivoire ). São Tomé and Príncipe is now also seeking to move into fair-trade-certified production of organic cocoa, while efforts are taking place to develop organic cocoa production in Grenada, largely linked to a local chocolate producer. However, it is Latin American countries that at present dominate the supply of organic cocoa, mainly because the infrastructure for traceable organic production is more developed. Organic cocoa production tends to be concentrated in countries that produce smaller volumes, since it is easier to ensure traceability and transparency.
According to Euromonitor International, global organic chocolate confectionery sales reached US$734 million in 2012, with annual growth of 2–3% projected to 2018, when sales should reach US$886 million. They commented that “Western Europe is the biggest market for organic chocolate, followed by North America and Australasia,”, adding that “sales are expected to grow fastest in the Middle East and Africa, Latin America and North America,” but growing more slowly than in the period 2008 to 2012.
Editorial comment
The observations on current producer price incentives for organic cocoa production highlight the importance of a careful cost–benefit analysis when deciding on which product differentiation strategy to adopt in an effort to better position national production on international markets. Dual certification, as currently being pursued in São Tomé and Príncipe, can be seen as one approach. However, this may not be enough, as strong branding and devoting careful attention to the relationships developed along the supply chain are also necessary. This is illustrated by the situation in the Dominican Republic, which highlights the essential role the state needs to play in cost-effectively supporting the development of organic production and marketing, particularly through ensuring traceability and transparency in organic production.
However, the observation of the CEO of Barry Callebaut – that chocolate companies want sustainability “without increasing the cost” (see Agritrade article ‘ Sustainably certified cocoa supplies available but demand lagging’, 23 December 2014) – would also appear to apply to some extent to organic cocoa production. Until such times as end users (manufacturers and consumers) are willing to pay the full price for organic systems of cocoa production, ACP cocoa producers are likely to be constantly battling to maintain adequate net returns.
