Cocoa-producers raise the bar on price of chocolate
Plans by Ghana and Ivory Coast to levy a surcharge on cocoa to help poverty-stricken West African producers could leave a bad taste in the mouths of serious chocoholics
Efforts to improve the lives of impoverished farmers in two of the world’s biggest cocoa-producing countries could mean chocolate lovers pay more for Lindt and other private-label chocolates in future. And prices could surge even further, should the coronavirus pandemic force long-term shutdowns and have an effect on harvests.
But the good news for consumers is that this Easter’s chocolate supply will not be affected.
Ghana and Ivory Coast, which together produce 65% of the world’s cocoa, last year introduced a surcharge of $400 a ton above the futures price of cocoa — a so-called living income differential (LID) — meant to benefit cocoa farmers. It was announced last October, to kick in later this year.
Ghanaian president Nana Akufo-Addo told the Africa Investment Forum in Joburg in November that the LID is a "bonus" to farmers so that they "may also get more value out of this $100bn industry", from which Ghana and Ivory Coast themselves derive only $6bn a year.
"The end result of this is going to be a considerable enhancement of the fortunes of our farmers," he said.
This came after a slump in cocoa prices from $3,000 a ton in 2015 to about $2,000 a ton in 2017.
Alhaji Alhassan Bukari, head of the farmers’ union in Ghana, told AFP at the time the union supported the government’s move. Farmers felt it would help them afford fertiliser, weedkiller and extra labour to help increase production.
Swiss chocolatier Lindt & Sprüngli says the LID will have a knock-on effect on the price of the chocolates it makes. Mass-produced chocolate manufacturers, on the other hand, are likely to tweak their recipes and chocolate bar sizes to keep their consumer prices the same.
Lindt & Sprüngli gets 80% of its cocoa from Ghana, and changing the bean mix in its recipes by switching suppliers now could affect the taste.
Company spokesperson Sara Thallner says price rises due to the new surcharge will be felt only in October, when the new season starts. She adds that the coronavirus pandemic will not affect supply for now.
"The seasonal Easter products were fully distributed to the grocery trade already some weeks ago, before the start of the pandemic," Thallner says.
She explains that Lindt & Sprüngli supports the Ghanaian and Ivory Coast governments’ efforts "to contribute to improved livelihoods of cocoa farmers". At the same time, the company will continue its programme to support its own producers.
But the introduction of the LID hasn’t been without controversy. Cocoa sales have already declined on the back of the West African surcharge, despite big cocoa consumers — including Belgian confectionery company Barry Callebaut, US chocolate giant Mars and Swiss food company Nestlé — all saying they support the LID.
Bloomberg last month reported Lindt & Sprüngli CEO Dieter Weisskopf as saying that demand was suffering and that Ghana, as a result, was giving buyers a discount on the differential it charges for the quality of its beans.
"That’s not them being accommodating. It’s just that now demand is already suffering a bit," he said. "They already can’t really demand that premium."
Tedd George, founder of Kleos Advisory, says buyers have been holding back partly because they have enough cocoa for now, and partly because of uncertainty over the LID. This puts the two governments in a weaker position. "There is a huge lack of clarity on the LID," he explains.
Though the impression has been created that the money will go straight to farmers, George says Ivory Coast is putting it into a fund to support a high farm gate price next season, which means farmers will get it back in that way.
"But there’s no transparency exactly [about] how that system is going to work," he says.
George has advocated the use of technology and data to track beans to their origin and do away with the numerous middlemen involved in the cocoa-selling process locally.
Nick Weatherill, executive director of International Cocoa Initiative, a nonprofit funded by major chocolate makers, has warned that the LID should be "accompanied by measures to ensure it does indeed have a positive impact on farmer livelihoods, and [be] accompanied by measures, including supply management, to ensure that any resultant expansion of cocoa production doesn’t inadvertently exacerbate risks of child labour or deforestation".
The coronavirus pandemic could, however, ultimately disrupt many efforts to benefit West African farmers. Should it drag on for too long, it could block deliveries of cocoa and increase post-harvest losses, as few farmers or local aggregators have proper storage facilities, George says.
"For now the chocolate companies have enough cocoa and are coming off the back of a strong main crop, so if the disruption is a few months, they should be able to manage their stocks without difficulty," he says.
Should the lockdown still be in effect at the start of the new season in October, and should there be a large-scale breakout of the virus in neighbouring countries, it could mean that seasonal labourers from Guinea and Burkina Faso will not be able to travel to cocoa plantations.
"This could result in a slump in production," George says. "It could have a disastrous impact on the 2020/2021 crop, and drive a surge in prices."
Finding the sweet spot
You don’t have to go far to find a slab of locally manufactured, or bean-to-tree, chocolate in Madagascar — the shelves of supermarket chain Shoprite are heaving with them. Flavours range from white chocolate specked with locally grown vanilla to strongly flavoured 100% cacao (Cacao is the raw bean, in its processed form it’s called cocoa) which shows off the smooth fruitiness Malagasy beans are famous for.
Madagascar produces less than 1% of the world’s cocoa, but the island-state is known among connoisseurs for its homegrown chocolate, made from single-origin cacao.
Early colonisers brought criollo cacao beans from Réunion Island in the 1800s. Madagascar’s rain forests, climate and soil contribute to the cacao’s unique taste.
Though 85% of the island’s cacao is exported without much processing, the history of local chocolate-making stretches back 80 years to when Chocolaterie Robert was established by a French-Réunionais family. It’s now owned by the local Ramanandraibe Group, to which it was sold in 1977.
The company has been exporting its chocolate, under the brand name Chocolat Madagascar, to places such as the UK, France, Germany, Japan, Russia and the US since 2004. It has ambitions to turn Madagascar into a "world-leading fine chocolate factory", says founding director Neil Kelsall. "The aim is to create wealth — instead of [just] exporting cacao, to [also] invest and facilitate chocolate-making and develop export markets through a process called Raisetrade."
Raisetrade’s vision is to raise the country’s per capita GDP, which is only about 1% that of the US, by making chocolates at origin and increasing tax revenue in Madagascar, rather than just exporting the commodity at a fair price.
Kelsall says Chocolat Madagascar has inspired two more companies — Chocolaterie Cinagra and Chocolaterie Colbert — to do the same. "Exporting chocolates creates 400% more value than exporting cacao only," he explains, and it promotes the country for travel and investment. "If cacao is exported, the [chocolate’s] origin is hidden behind a Western country’s brand."
Taste and freshness are also considerations. Chocolat Madagascar’s cacao is grown, fermented, dried, roasted, ground, conched, tempered and made within days — not months or years, as could be the case with mass-produced chocolate. It also doesn’t need chemical processing or large amounts of sugar, Kelsall says. And it’s packaged locally.
The quality is good. Chocolat Madagascar has won the Golden Bean Award, one of the most prestigious accolades, and 42 other international awards. It also creates jobs, employing about 3,000 farmers and 150 factory workers. And 50 people work globally in marketing, sales and design.
Among the challenges are training local workers in the international requirements for exporting a finished chocolate product.
The market buying the product also has to be educated. "The mainstream market of chocolate uses cacao produced at unsustainably low prices from West Africa, and people are used to consuming these brands. The true value of chocolate has been devalued so much that it is not sustainable for the origin producers," Kelsall says.
"The problem with West Africa is cacao is treated as a bulk commodity, and quality is not important. It’s just about the lowest costs, and the prices are determined by cocoa prices in London." (Cocoa is one of few commodities still traded in pounds and not dollars.) "We in Madagascar determine prices by quality and availability. It’s about management of the cacao value chain. It’s about incentives to grow the best quality and flavour cacao, and then craft this into the best chocolate. It is not about the lowest cost."