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‘Straw In The Wind’ – Rebalancing Cocoa Supply

Last week the professional end of the Latin American cocoa producer sector was excited by the news that Mars Inc was acquiring the Hacienda La Chola cocoa plantation developed under the guidance of leading cocoa planter and agronomist Roberto Mollison. La Chola is one of a group of ‘high tech’ cocoa farms, often referred to as the ‘Cerecita Cluster’ in Ecuador’s St Elena Peninsula region for which the city of Guayaquil is the main access point. See Mars press release at bottom of this note.

The acquisition is likely to have been strongly motivated by a desire to have access to the innovative approach to cocoa cultivation and the agronomic techniques being developed by Roberto Mollison. The so called ‘Cerecita Cluster’ of cocoa farmers has grounds for claiming a global lead in the push to modernize cocoa production. While there are other serious innovators such as Graham McNally of AgMark in PNG, Angelo de Sa of Agricola Cantagalo and others in Brazil, and a number of forward thinking producers dispersed across Central America, the acquisition of La Chola is likely to be seen as confirmation of the innovation leadership within the ‘Cerecita Cluster’.

Some commentators have interpreted the development as evidence of the downstream sector seeking to take control of source production. We think this unlikely, but conversely we do expect to see the large cocoa processors and some of the global brands taking an increasingly active interest in the development of modern cocoa farming with a view to agreeing sourcing contracts from trustworthy producers /(partners) of sustainable cocoa.

The smallholder system is creaking, it has proven to be greedy with land and slow to improve efficiencies, and it is fraught with reputational risk.  As detailed in the chart below growth in land use has been climbing steeply since the mid 1990s – as the big economies of Asia began to expand strongly – but yields per ha have remained stubbornly low over the period. The production of cocoa has a way yet to go before yields in excess of 2.0mt/2.5mt ha at maturity (as targeted by high tech Ecuadorean and other Latam cocoa producers) can be assumed to be the norm for commercial plantations, but contrast this with the average global yield per ha: 0.4mt/ha.

Cocoa-World Harvested Area

The Mars acquisition of La Chola – at the very least – seems likely to reposition agricultural efficiency as a major theme in the sustainability debate, which to date has been dominated by concerns about farmer welfare and not land use efficiency.

Significant producers of sustainable cocoa have an opportunity to develop valuable businesses, especially if they have strong ‘brand’ associations with high quality, good flavour cocoa, with low cadmium content, produced without damage to the environment and with a positive impact on the local community.   In this context the Mars acquisition of La Chola may be heralding a rebalancing in the supply side relationship with the downstream sector, away from reliance on smallholders for 95% of the global crop, towards a future partnership with reliable professional producers of high quality sustainable cocoa.

See below for a cross section of cocoa sector views on the acquisition.

  1. A sector focused senior NGO executive
    • It is no secret that to Mars almost the whole solution to sustainable cocoa lies in increasing productivity: they are all for more efficiency.
    • I am deeply concerned about the use of fertigation and a dependency on irrigation.
  2. A foreign investor in the Ecuadorean cocoa sector
    • There is no question that such an acquisition in Ecuador, in Cerecita, will be a “game changer” for the “cocoa cluster” in this region.
    • We expect to see in the months/years ahead a leverage of innovation in agriculture and the maximization of cocoa’s potential.
    • Ecuador is affirming its cocoa leader position in LATAM/the world
    • That a big multinational chocolate group like Mars should acquire one of the best cocoa farms in the world is expected to be a positive development for knowledge transfer around the world.
  3. A regional cocoa plantation developer
    • Other Ecuadorian cocoa estates may now be unrealistically revaluing their farms based on the price level Mars is rumoured to have paid.

Please click here for Mars Inc official announcement.