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6 things we would change about the cocoa sector today

The cocoa sector is in crisis, with years of exploitation and climate challenges driving volatile prices and threatening the future of smallholder farmers. Six experts share their bold ideas for transforming the value chain and creating lasting change.

By: Acumen
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Cocoa’s business model is unsustainable. Years of underpaying and exploiting smallholder cocoa farmers, coupled with underinvested farms and climate disasters, drove a surge in cocoa prices in the last year. But the hike in prices is part of the temporary boom-and-bust cycle pervasive in commodity crops. The sector knows that it’s time for change towards a more sustainable, equitable value chain, but how do we get there? To answer that, we asked six cocoa experts.

Since 2015, Acumen has provided capital to six cocoa companies with operations across Latin America, West Africa, and East Africa, aiming to create a more sustainable value chain with the smallholder farmer at the center. We asked each company, if you could change one thing about how the cocoa sector operates, what would you change? Here’s what they said.

Bridge the gap through the consumer

Carlos Velasco, Cacao Hunters

One of Cacao Hunters’ missions is to bridge the knowledge gap between the chocolate industry and cocoa production, since in most cases, both are unknown to each other. Cocoa producers do not always have the necessary tools and knowledge to optimize the quality of their product, and many chocolatiers do not know the traceability and origin of the cocoa. This lack of knowledge often affects the quality of the chocolate.

Our work in Colombia focuses on creating this two-way conversation. By learning more about both worlds and bridging this gap, we can improve both the industry as a whole and the quality of life for many people. Improving cocoa and chocolate quality translates into better incomes. When chocolate buyers recognize differences in cocoa quality, farmers can fetch an additional $500 to $2,000 per metric ton.

We believe that addressing this challenge is in the hands of consumers, who understand the importance of traceability and quality of cocoa and chocolate, who learn to consume and value their quality, just as it happened with the coffee business and its boom in the country. In chocolate, we are years behind, but the consumer is the one who values quality and gives the wings that the industry needs.

Change the directionality of cocoa pricing

Emily Stone, Uncommon Cacao

If I could change one thing about how the cocoa sector operates, I would change the directionality of cocoa pricing so that it flows from the farmer forward, rather than from the buyer backward. Cocoa producers, and the attributes of the cocoa they farm, would be responsible for determining the price, and buyers would be responsible for pushing the economics of those prices forward into the market of chocolate sales and ultimately chocolate consumers. Right now, price is “discovered” (i.e. set) in cocoa by a futures market, with little to no influence of anything on price beyond general global expectations on future supply and demand. Without a reconsideration of the price discovery mechanisms in cocoa, it will continue to be nearly impossible to build a long term sustainable industry that pays farmers enough value for their crop for smallholder farming to continue. 

Cocoa is considered a “fungible” commodity, which means that all cocoa from anywhere around the world is essentially the same and interchangeable, thus able to be traded on paper and as financial derivatives under the premise of a singular global market. To reconsider price discovery in cocoa, we must decommoditize cocoa, identifying and valuing the unique intrinsic and extrinsic attributes (concept adopted from SCA) of any particular cocoa. Some Colombia cocoa, for example, has guava and cherry flavors, while some Guatemalan cocoa has strawberry and mocha flavors. These attributes could also include the deforestation profile of the farm, the cadmium content, the quality, or the payment of a living income reference price to the producer. Under this kind of decommoditized market structure, cocoa that was grown on deforestation-free land and which provided a living income to the farmer would be priced according to these values, and the industry would be able to attract and retain smallholder families who would be encouraged to adhere to these practices over the long term.

Reduce the incentives, increase the prices

Kwabena Mends, EMFED

If I could change one thing about the sector, specifically in Ghana, I would change the way that the Ghanaian government pays farmers for cocoa. In Ghana, all cocoa is bought and then traded internationally by Cocobod, the country’s state agency responsible for the management and development of the cocoa industry. But the incentives and payoff that farmers receive are lopsided.  Farmers in Ghana need to receive a higher farm gate price, and Cocobod can do this by reducing the ‘presumed incentive’ for farmers.

The government of Ghana currently withholds 40 to55% of the world market price of cocoa from the smallholder farmers with the intention of providing the farmers with yield enhancing exercises: free fertilizer, free rehabilitation of old and diseased farms, free seedlings supply, and free pruning and pollination exercises. These are called ‘presumed incentives’. But because of the lack of infrastructure and a proper monitoring system, many of those incentives are only ever ‘presumed’. In reality, too much of the money ends up down the drain without any proper account. Farmers should be empowered to undertake the above exercises by themselves. That way, the sector could pay farmers more competitively.

More partnerships between farmers and the private sector

Daniel Scholler, Lizard Earth

I would create opportunities for cocoa smallholders to pivot from their subsistence to a commercially more rewarding form of agriculture. For many of us, the job we do reflects a choice. For Ibrahim Turay, a cocoa farmer from the rural village of Bandajuma in Eastern Sierra Leone, however, that choice seems tainted: Growing cocoa is hard physical labor. As a smallholder, his field is little more than one hectare in size. At that scale, cocoa cultivation barely covers his household’s financial needs. Young community members tend to pursue other, easier income-generating activities, or choose to migrate to larger towns altogether. 

While the cocoa industry has seen a massive consolidation on one end of the value chain over the past two decades (with multinational traders, grinders and manufacturers getting ever larger), there has been no such development on the other end of the chain: Smallholders have remained smallholders. We need to enable cocoa growers like Ibrahim to pivot from subsistence farming to a stronger commercially oriented form of agriculture. For this, we need more genuine partnerships between farmers and the private sector. Genuine partnerships would mean, for example, that private sector companies share more of the final product value with farmers, implement joint risk-sharing mechanisms, and provide support to smallholders in securing access to land and other productive assets. Importantly, companies generally have better access to finance and land and command stronger investment security than smallholders. Ibrahim’s nephew, Seiyah Musa, is one of the community members working with Lizard Earth. Maybe someday, he will take over a portion of the land he has been working on with us. Ibrahim says that would really make him proud.

Build the industry from the farmer up

Gustavo Mindineros, CortePaz

I would change the dynamics and relationship between farmers associations and institutions into one that actually responds to what farmers and their families need. Right now, institutions give more trainings than we need, and they tell us, “You have to produce more and more,” but they never talk about the reality of family producers. As an association, there have been a couple different topics that are important to us and that we’ve been analyzing.

The first is moving beyond entrepreneurship and into commercialization: how do we bring our products to the market and compete? How do we improve organizational processes? Another question is how we can diversify our crops to assure food security and incomes for our families. The pandemic made it clear that we need diversified incomes. We can only meet the cocoa industry’s needs if we can also meet our family’s needs. Institutions like Fedecacao in Colombia need to evolve to transform these relationship dynamics, strengthen the sector, and generate real change. 

More collaboration and full transparency

Tim McCollum, Chuy del Toro, Tyler Sanderson, Beyond Good

We would have greater collaboration with other NGOs and more knowledge sharing across impact suppliers. Beyond Good has a lot of overlapping goals with NGOs focused on agroforestry and biodiversity, and same for suppliers of other chocolate ingredients. 

We’ve met a few NGOs that want to plant trees and improve agroforestry. We also want this to happen, as it would help our farmers increase their yields. We’ve had success working with Madagascar-based NGOs to survey biodiversity on a parcel of land to quantify how many species are present. But there could be more of it. More collaboration on projects related to reforestation and preventing deforestation would improve results for farmers and biodiversity, and it would reduce efforts and spending on projects.

We also need full transparency on all ingredients. Beyond Good has built a business model where we know our cocoa and vanilla is of superior quality, and farmers are thriving. However, when it comes to finding ingredients like organic sugar, affordable supply seems to be limited, and it is difficult to assess the difference between reality and green washing. At the very least, unique suppliers would be highlighted for the work they are doing. That way we could make more comprehensive business decisions.