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Competition heats up in cocoa market

Published:Friday | January 27, 2012 | 12:00 AM
Clayton Williams, president, Jamaica Cocoa Farmers' Association. - file
Cocoa pod
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Avia Collinder, Business Writer

Cocoa prices have been falling on the international market, but Jamaican growers expect a turnaround and are positioning internally to ride the upswing.

The private group of growers, Jamaica Cocoa Farmers' Association (JCFA), believe this year they can emerge as serious rivals to the state-run board, which functions both as a regulator and marketer of cocoa.

Acting as a middle man, the JCFA has already began competing on price paid to cocoa producers for their crop - offering J$2,500 per box or 25 per cent more than the J$2,000 paid by the Cocoa Industry Board (CIB).

But serious rivalry will be a heavy lift for the group in a sector where the JCFA's membership is less than a tenth the population of growers, and the Cocoa Industry Board says it last bought up 98 per cent of the crop.

Underlying the optimism that is fuelling competitive surge is the fact that while prices are trending down internationally, demand for Jamaican cocoa appears to be increasing.

"The macro-market prospects for 2012 are very good. The world market conditions are still very good and prices are expected to maintain or improve their current value throughout the year," said president of JCFA, Clayton Williams.

Jamaican cocoa is a top-quality bean fetching premium prices on the world market, but crop volumes have been inconsistent leading to missed market opportunities from overseas buyers. Suppliers like Madagascar have been known to pick up the slack whenever Jamaican exports fall.

Cocoa is used in the manufacture of chocolate, other food products and beverages.

"Jamaica's distinction of being an exclusive fine-flavour producer affords us a premium price over the international traded price," said Williams.

"This premium can vary according to the international price but, generally, fine-flavour cocoa in the Caribbean would attract a price in excess of US$4,000 per metric tonne," he said.

a poor job

Williams' group, which was formed in 2008, believes the Cocoa Board is doing a poor job of marketing the Jamaican product, and is seeking representation in the form of directorships on the state agency's board of directors to influence its operations.

The Cocoa Board is both the regulator of the industry and marketer of the beans to overseas buyers.

"There has been a practice of automatically renewing contracts without due diligence being done, which contributed to our farmers receiving the lowest farm-gate price in the Western Hemisphere," said the JCFA president in criticism of the Cocoa Board's operation.

"Our lobbying efforts have contributed to the review of this practice," he said.

The JCFA's other strategy is to seek its own markets, hence the move to dent the Cocoa Board's position as top buyer of the domestic crop. Paying farmers more is also likely to give them an incentive to expand their orchards.

Steven Watson, general manager of the Cocoa Board, said prices paid internationally for the Jamaican bean fell consistently in 2011.

Jamaica's bulk cocoa at December 30 fetched US$2,109 per metric tonne, which represents a 30 per cent decline within the year, and 19 per cent in the fourth calendar quarter, Watson said.

The Cocoa Board bought up 20,000 boxes from growers in the last year, which he said represented 98 per cent of the market. The crop year closes each September.

And while it was not always the case, cocoa has fetched a higher farm-gate price than Blue Mountain coffee - at J$146,000 per tonne versus J$J117,000 to J$125,000 - since the recession and up to 2010, according to Planning Institute of Jamaica data.

The cocoa industry has some 10,926 growers. The average farm size is about 2.5 acres, according to Williams, whose association represents about 1,000 growers.

Exports generate earnings of just US$1 million to US$2 million.

Half of Jamaica's premium cocoa is shipped to France to makers of premium chocolates, and the rest is distributed through a broker who sells the beans to Italian, Swiss and Belgian companies.

New markets

The JCFA appears to have found new markets for its farmers.

In 2011, the group, with the assistance of the Cocoa Board and US-based Transmar Commodity Group, exported its first shipment to Hershey's.

The cocoa, shipped primarily from Bachelor's Hall Estate in St Thomas, was dried by a USAID-funded solar dryer.

"The result was deemed to be excellent quality by Hershey's and garnered a high-end price valuation. We are not at liberty to state the sale price but we will say it is comfortably above the current market price," said Williams.

Williams says JCFA has since engaged buyers in Asia, Europe and North America.

"This has greatly increased our exposure with the objective of obtaining the highest value for our cocoa, but to also build lasting commercial relationships through fair pricing of our cocoa," he said.

"The vast majority of Jamaican cocoa has been going to a few countries in Europe for years and the JCFA sees this as an ill-advised practice. It has neither resulted in the farmer receiving a better price nor has it helped expose our cocoa to other markets. The lack of exposure of our cocoa to other markets has resulted in little competition for our cocoa, which has resulted in Jamaica obtaining the lowest price in the Caribbean when compared to other exclusive fine-flavour producing countries, though our cocoa is not considered inferior," he said.

The JCFA says the J$2,500 per box is paid within five working days by deposit to members' individual accounts at National Commercial Bank. Each box holds about 22 pounds or 10 kilogrammes of dried cocoa; 100 boxes is equivalent to a tonne of beans.

"Our price is J$500 more than the price paid to farmers by the Cocoa Industry Board and will be increased, hopefully in the next two months, once the benefits of economies of scale are achieved," said Williams.

changing dynamics

The Jamaican growers have taken note of changing market dynamics and are laying the groundwork for improvements to crop volumes in order to position for more business.

"It is expected that the world will have a million metric tonne shortfall in this decade, thus average prices are projected to rise in the long term, despite periodic downturns," said Williams..

"The JCFA sees its partnership with USAID resulting in more extension services to the farmers, resulting in increased productivity. This, when done in tandem with increases given in the farm-gate price and based on historical data, should result in more cocoa harvested."

Watson is also optimistic in this regard. He said output was depressed last year, but is already seeing a turnaround for the new crop season.

"The prospects for the 2011-12 year are excellent and promising. In the first quarter - October to December - we purchased 259 metric tonnes of beans versus 200 metric tonnes in all of 2010/11," said the Cocoa Board's boss.

"The favourable weather conditions and the benefits from the EU project have contributed substantially to that. The major factor affecting cocoa, as well as other agricultural production, is the weather. With favourable weather we can meet our projections."

Watson said the Cocoa Board received a second grant of €300,000 (J$33.6m) from the EU which will be used for nursery development and new acreages. The first EU project, he said, focused on rehabilitating existing acreages.

But, while the JCFA is happy about the resulting build-out in capacity, they say that information on the programme is being withheld from the group.

"This grant was given to the CIB. The details of this grant have not been shared with the farmers, nor has the JCFA been sufficiently informed as to the objectives of activities to be funded with the funding from this grant. We have requested that CIB consider engaging in a greater level of transparency and cooperation with the farmers that the grant is intended to benefit. We see this exclusionary approach as counter-intuitive to the forward movement of the industry," Williams said.

He points out, nevertheless, that assistance from USAID and the EU with regard to nursery development is vital.

"One of the major factors that will affect our growth potential is the availability of planting material. As farmers rehabilitate their farms, they must replace their unproductive trees and trees lost through neglect. This is necessary for farmers to maximise their land's potential by having the recommended planting density," the JCFA president said.

"The lack of seedlings will also hamper new entrants to the industry who wish to plant new fields, so we see this as a probable limitation on the immediate growth potential. USAID and EU have, however, provided funding to address this issue."

The JCFA's partnership with Transmar aims to improve output and quality, but declined to outline the specifics of the arrangement.

"The intent of this partnership is to improve the lives of the farmers while adding value to our cocoa production. The JCFA intends to increase cocoa production to sustainable levels to make a value-added cocoa-processing facility viable," said Williams.

JCFA's immediate goal, he said, is to increase crop production nationally to 1,500 metric tonnes by the latest 2014 as part of the programme to eventually shift into making value-added products.

Transmar Commodity Group, as described at the company's website transmarusa.com, is a cocoa trading and cocoa products supplier to the international confectionery industry. It is said to operate a trading book in most if not all major bean origins, with clients in most consumer nations.

Other support for JCFA comes from the USAID-funded Marketing and Agriculture for Jamaican Improved Competitiveness programme.

"We are still building out our infrastructure with financing from a USAID grant and expect to complete this work within the next two months," Williams said.

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