A different perspective: Cocoa Buyers must be incentivised to improve chocolate supply chain

The latest Cocoa Barometer​​ highlights some serious problems in the cocoa chain but it is not drafted from an African point of view. It focuses on the role of farmers and the marketing board yet omits the critical role of the intermediaries.

What about the intermediaries?​

The private sector plays a big role in the procurement side of the chain. If this sector is not rewarded adequately and more resources offered to them, they won’t have the ability to drive production from the farmers’ side.

It is time for the confectionery industry to allow the voice of the producing countries to be heard: without the farmers, the procurement companies, and the marketing boards there will be no cocoa at all! The concerns of the cocoa procurement industry should be considered alongside the sustainability and the human due diligence requirements of the cocoa sector.

Incentives to invest in productivity​

We urge the cocoa industry to ask for a partial payment of the taxes attributed to the chocolate industry (VAT, duty or sales tax) to be routed back to origin, and in addition a fixed percentage of the marketing budgets allocated for chocolate to be channeled into a special funding program to be redistributed to both procurers and farmers, based on their sales.

Intermediary companies play a major role in effective cocoa production, and if properly incentivised they can in turn share more profits with farmers and help them to produce more cocoa. One of the important roles of intermediary firms is to enhance efficiency at all levels, monitor the application of inputs into the cocoa industry like fertilizers and training, and most importantly ensure that the resources offered are implemented in the right place.

Financial constraints​

These companies are private entities and are reliant on profits to stay in business. Their aim is solely to increase the cocoa volumes in order to earn more in an efficient manner. But they are facing a profit squeeze and are further at the mercy of banks for their capital requirements.

The private cocoa buying sector is seeking financial assistance and not donations; the lending terms set by local banks makes it difficult to sustain profits and hence the decline in offerings made by these companies to the farmers. When working capital attracts between 25-30% interest, imagine the outcome if these entities are offered the same financing terms as other private entities in the supply chain (typically paying 3-4%). 

Economic realities and farmer pay​

In Africa, the real problem that both farmers and the procurement companies face is the fact that the macroeconomic trend for the past decade has been double digit inflation, and the local currency has always posed a major threat due to its huge fluctuations.

Cocoa intermediaries and farmers trade in local currencies, hence the underlying currency risks are huge. For example, farmers will start the year typically earning $2,000 per metric ton - and will end the year in real purchasing power terms (after computing inflation and currency devaluation) at $1,600 USD in the best case scenarios.

No doubt the farmers’ earnings need to be looked at, but most importantly their living conditions should be ameliorated. If this industry wants to sustain and grow the interest of the farmers in this business then the procurement companies should be rewarded for their efforts order to be able to sustain this industry at such a critical juncture.

As the Cocoa Barometer mentions, the industry spends millions of dollars in order to promote chocolate to consumers (using marketing companies), and the same support should be offered to those procurement companies which will market the vital skills and materials needed by the farmers to grow more cocoa and to sustain their interest in this business.