Cocoa’s future lies in Latin America, says Hardman Agribusiness

By Oliver Nieburg

- Last updated on GMT

Latin America the future epicenter of cocoa, claims report. Photo: iStock - dk_photos
Latin America the future epicenter of cocoa, claims report. Photo: iStock - dk_photos

Related tags Cocoa Chocolate West africa Americas International cocoa organization

Future cocoa demand will be met by a thriving professionalized sector in Latin America as chocolate makers move away from a “structurally blighted” West African market, claims Hardman Agribusiness.

The organization – which recently published its report ‘Destruction by Chocolate’​ – identifies at least $1bn earmarked for investment in Latin American cocoa in the next ten years.

Insatiable demand for cocoa

It comes as global cocoa demand is expected to surge. Hardman Agribusiness says if cocoa consumption in China and India – respectively at 52 g and 36 g per capita annually today - reaches levels in Malaysia (around 500 g), the cocoa sector will need extra cocoa equivalent to another Côte D’Ivoire – the world’s top producer.

According to the report, Latin America is best-placed to meet future demand.

From 2000 to 2012, African cocoa yields expanded less than 7% despite 25% growth in the cultivated area, says Hardman’s report.

Over the same period, the top seven producing countries in Americas together grew cocoa production by 73% despite only a 3% rise in harvested area.

Global cocoa production balance 2015/16:

Cocoa beans  - spinetta

Africa – 74%
Americas – 17%
Asia & Oceania  - 9%
[Source: ICCO]

Ecuador: Center of cocoa revolution

Speaking to ConfectioneryNews, Doug Hawkins, author of the report and head of the agricultural practice at Hardman, singled out Ecuador.

“That will be epicenter of the cocoa revolution,” ​he says.

Ecuador – which has overtaken Brazil as the Americas’ top cocoa producer - has pioneered the high-tech cocoa sector, says Hardman’s report.

Large-scale plantations in the country have adopted smart irrigation systems and are aiming for yields at or above two metric tons (MT) per hectare of dry beans - almost triple the yields currently achieved in Africa (0.4-0.5 MT), it says.

The report adds Ecuador benefits from highly experienced, professional cocoa plantation managers, government support and a cocoa heritage pre-dating the Spanish conquests.

cocoa yields comparison - Hardman
Latin America grew cocoa output faster than Africa and Asia from 2000 to 2014. Source: Hardman Agribusiness/ICCO

Rise of premium chocolate

The country is already the leader in fine flavor cocoa amid premiumization in the global chocolate market.

Hawkins says there is a global “shift away from filled chocolate to high flavor providence chocolate”.

Retail sales of dark chocolate tablets have grown 31% globally since 2008 to reach $4.9bn in 2013, led by the European market, according to Euromonitor International.

Hawkins says chocolate companies can expect to pay double the rate of bulk cocoa for Latin American beans, but he adds many firms are prepared to pay the premium.

“The brands are desperately concerned about security of supply,”​ he says.

Excitement in Colombia

Hawkins adds: “There’s real excitement about investment in Colombia,”​ after peace talks with guerilla group FARC.

For example, agriculture group Andean Cacao has acquired land in the country and has started to develop the first 550 hectares of a 5,000 hectare project. It hopes to achieve over two metric tons per hectare.

Efficiency - latam produces 18% of world supply on 17% of harvested area
Efficiency: Latin America produces 18% of the world cocoa supply on 17% of the harvested area. Source: Hardman Agribusiness.

Outdated cocoa sector ‘anything but sustainable’?

Latin America optimism comes amid centuries of limited progress in global cocoa production, says Hawkins.

“In this century alone we planted another 2.4m hectares of cocoa and the yield is still around 0.10 per hectare.”

The report says this contrasts with oil palm yields that have grown globally by 33% in the first 13 years of this century.

Hawkins says cocoa production is “anything but sustainable”​ and argues programs for African cocoa farmers have done little to lift a “bleak outlook”​ for West Africa’s cocoa industry.

Underlying issues in Africa

Africa yields fail to surge desite harvested area growth
Africa's cocoa yields fail to surge desite harvested area growth. Source: Hardman Agribusiness

Hardman’s report says Africa is held back from professionalizing its cocoa sector by cumbersome land ownership systems, preventing many small holders from owning land titles.

The average age of cocoa farmers is also above or near typical life expectancy in the key producing countries. For example, the average age of an Ivorian cocoa farmer is 51, while life expectancy is 50.4.

Hawkins says even when a West African farm is efficient it is “dogged” ​by developing national infrastructure, making it tough to bring the commodity to market.

Illegal plantations in Côte D’Ivoire

"The increasing global demand of cocoa-related consumer goods is leading to the destruction of natural habitats across West Africa,” ​adds Ying-Heng Chen, senior Agri-economist at Hardman, who presented her company’s findings at the recent Cocoa Revolution conference in Vietnam.

How is Hardman Agribusiness financed?

Hardman told ConfectioneryNews it had financed the ’Destruction By Chocolate’ report itself. But it said it was partly retained by parties in the cocoa world including producers, all from Latin America, mainly on an advisory basis. It says its reports are data and knowledge based, adding that it sought to be impartial.

Ohio State University and Universite Felix Houphouet‐Boigny published data in March 2015 suggesting 23 protected forest areas in the country have been converted for cocoa cultivation.

In her presentation, Chen called African cocoa production "inefficient”, “land-hungry”​ and “unsustainable".

Hardman was unable to find reliable data on Côte D’Ivoire’s harvested cocoa area from beyond 2011 and suspects the planted area has grown.

“Every time they want to increase production, they have to plant on more land – that’s not sustainable,” ​says Hawkins. The reports claims Côte D’Ivoire may struggle to top 0.6 MT per hectare annually.

Walking away from Africa?

But will chocolate makers really turn their back on African cocoa farmers – many of whom live well below the poverty line.

What about Asia?

“The cocoa supply coming out of Asia has been in spiraling decline, led by Indonesia,” ​said Hardman’s Doug Hawkins. He said Indonesia, Asia’s largest cocoa grower, already has professional farming sectors in palm and rubber but has been plighted by pests and disease. The report said that while Asia has 19% of the global harvested cocoa area, it only accounts for 10% of world cocoa output. However, it highlighted potential in Vietnam, Papua New Guinea and the Philippines.

Hawkins says a shift to Latin American would be detrimental to African farmers, but adds cocoa in Africa is grueling work and many people moving to urban areas are pleased when they move out of agriculture.

“That’s the way the world will go, if we like it or not,”​ he says, adding that chocolate brands are increasingly concerned about being tied to human rights abuses.

The International Cocoa Organization (ICCO) forecasts the professional sector will grow from 5% of the world’s cocoa output today to 10% by 2020.

Industry reception

One chocolate supplier attendee to the Cocoa Revolution conference called Hardman’s findings "controversial"​ and said comparing cocoa yields to palm oil was dangerous as the latter's expansion had been linked to deforestation.

Mondelēz is among the biggest cocoa users in the world.

Its cocoa sourcing manager for Asia, Roopak Bhat, said the world's joint-largest chocolate company planned eventually to source all its cocoa via its own Cocoa Life program.

Cocoa Life is active in six cocoa growing countries: Côte d’Ivoire, Ghana, Indonesia, India, the Dominican Republic and Brazil.

"From a commercial point of view, getting Latin American cocoa to other countries and to other regions is a little bit tricky for us because it’s got its own unique characteristics."

"…When we do a chocolate we will not be in position to use all Latin American beans because every product we make has specific origin requirements,”​ he said.

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