Fine cocoa, but not so fine a price
Cocoa produced on Jamaican farms may be categorised as fine flavoured, but has a long way to go before it can attract premium prices in the vein of Blue Mountain Coffee (BMC) on international markets.
Leroy Grey, acting secretary, manager of the Cocoa Industry Board, notes that - using London Terminal prices as the reference point - fine flavoured cocoa fetches a premium of 50 per cent on average above the price of bulk cocoa on international markets.
The current bulk price is about £1,500 to £1,600 per tonne for bulk, which means that the base price for fine cocoa is around £2,250 per tonne, said Grey.
The 50 per cent premium for fine cocoa compares comfortably only to regular specialty coffees that attract a 30-50 cent premium over commodity prices determined on the New York Mercantile Exchange.
However, fine cocoa is out of the pricing league of coffees such as the Blue Mountain brand, whose tonne equivalent currently amounts to about US$25,000.
For BMC, the base price set by the Coffee Board is now US$11.50 per pound or US$25.30 per kilogramme (US$25,300/tonne), compared to the US$2.50 per kilogramme attracted by regular speciality coffees.
The base price is not a floor on premium Jamaican coffee. BMC might be sold for lower or higher by dealers, according to the Coffee Board.
"In terms of all cocoa consumption, there is not that much demand at this higher level, and it is probably true that some fine or flavoured cocoa does not achieve a very significant premium regardless of its quality, because it is not marketed properly or sold to the type of user or manufacturer that would appreciate its special characteristics," Michael Segal, information and media officer with the International Cocoa Organisation (ICCO), told Wednesday Business.
According to the Worldcocoafoundation.org, total cocoa production has increased in absolute terms from 3.66 million tonnes in 2007/08 to 3.98 million tonnes in 2011/12.
Comparatively, world demand for coffee is 120 million bags per year. Coffee is second only to oil as the most traded commodity.
Scarcity, history and romance attached to the Blue Mountain brand have influenced its high price.
The small volumes of cocoa, coupled with inadequate attempts to market the commodity, are contributory factors to the difficulty in achieving better pricing, says ICCO.
Fine flavoured cocoa, such as the output from Jamaica, comprises less than five per cent of world cocoa production.
"Virtually all major activity over the past five decades has involved bulk cocoa," ICCO says on its website.
The Cocoa Board's Leroy Grey says the market for Jamaica's cocoa is unpredictable. It's why the board has now resorted to short-term supply contracts.
"We have been avoiding long contracts. But, prior to this we were doing 500 tonnes and 300 tonnes to Switzerland through a broker," he told Wednesday Business.
The Cocoa Board, because of previous long-term contracts, might have missed out on higher prices reaching 30-year highs at the beginning of March 2011 in the midst of the political crisis in top supplier market, the Ivory Coast, industry analyses indicate.
"The last price we were paid was £2,300 per tonne. We have filled our quota currently and are seeking new contracts," Grey said.
Currently, market prospects favour higher prices. "We are getting some interest out of the United States which points to better pricing. The point is, if we are able to sell directly to the chocolatiers, you normally get a better result," said Grey.
"What I would prefer is to have several smaller contracts with chocolatiers instead of the massive contract. You might end up with eight or nine with smaller players. If you get direct to the chocolatiers they are in a better position to pay a greater sum than when the middleman is involved," he said.
Jamaica aims to produce 500 tonnes of cocoa this crop year, which closes in September. Grey is unsure that the target will be met, saying the sector is facing challenges that could derail output.
One such challenge is discontent among supplier farmers because of late payments. The Cocoa Board has since secured financing for the payments via a loan from the Development Bank of Jamaica (DBJ).
The size of the loan and its payment terms were not immediately available. However, the Cocoa Board previously said it was seeking financing of J$62 million, some of which would be used to pay some 6,000 farmers for their supplies.
"We expect to treat our farmers as best as possible. Now that we are sourcing working capital from the DBJ, we are able to pay at a quicker rate, as we used to before," said Grey.