Cacao’s simmering potential

Source: CoCoTea 2015

COCOA, the raw material for chocolate, is enjoying a turn in the commodities spotlight, with global prices driven to their highest levels since 2011 by strong demand and concern over the impact of ebola on the major producing countries of West Africa. Partly as a result of the boom, output is expected to grow in the leading Philippine cocoa region of Davao, as well as Mindanao in general. But for the growth to be sustained, Filipino planters will need to overcome years of neglect and chronic underdevelopment before they can raise their position in world markets.

Commodities traders are betting on economic disruptions in the ebola­hit West African region, even though none of the major producing countries is among those hit by the disease except Nigeria which has only had 20 cases ­­ a fraction of the thousands reported by Sierra Leone or Liberia, the epicenters of the disease. Cote d’Ivoire is the world’s coco leader and Ghana, Nigeria and Cameroon also account for significant quantities.

The actual supply numbers do not yet provide evidence of a shortage. The International Cocoa Organization, while noting that demand is strong due to improving economic conditions in much of the world, forecasts Cote d’Ivoire to break its 2010/2011 record of 1.511 million tons during the current growing season, while noting favorable weather in Ghana. Overall world production is estimated at 4.35 million tons, up 10% from the previous year’s growing season.

Global price movements may of course be based on perceptions of the fragility of Africa rather than reality, but closer to home, governments, NGOs, growers and investors have caught wind of the industry’s potential and are looking at the issue from the point of view of development as well as commercial gain. Their successes and failures in the next few years may determine whether Filipino planters can harness the boom and build an industry worthy of theobroma cacao ­­ the so­called “food of the gods.”

Compared with the West African giants, Philippine output is puny at 4,875 tons in 2013. Not only is it puny, it has also been declining ­­ the crop was 9,848 tons in 1990, and has been shrinking in most of the years since. Exports accelerated from a standing start of close to zero in 2002 to 553 tons in 2013, suggesting that much of the crop is overwhelmingly for domestic use, where it fetches low prices in part because of price­conscious consumers. The exception is the high end, where buyers prefer imports. The market intelligence firm Euromonitor estimated growth in the Philippine chocolate confectionery market to have been a “sluggish” 3% in 2013, with a retail market size projected at P12.6 billion by the end of 2018.

The sprawling Region XI ­­ which consists of Davao City, Davao del Sur, Davao Oriental, Davao del Norte and Compostela Valley ­­ is the leading Philippine growing region, accounting for 3,844 tons in 2013, up 2%. The Department of Agriculture estimates land planted to cocoa in the region at over 5,000 hectares, containing 2.5 million fruit­bearing trees and supporting over 9,000 farmers.

Unlike mature plantation economies, the region remains stuck at a relatively low level of development, with the government occasionally expected to intervene in favor of struggling farmers to provide seed, training and post­harvest facilities. The agriculture department’s Region XI budget to support cocoa production is about P14 million. Specialization in cocoa growing appears to be irregular. A common piece of advice given by agricultural experts is for coconut farmers to “intercrop” with cocoa in order to raise their incomes. Part of the reason is that farmers cannot be made to specialize in cocoa, according to Gov. Corazon N. Malanyaon of Davao Oriental, because of a “sentimental” attachment to coconut. It’s the kind of arrangement that suggests less than full­time devotion to the theobroma tree, possibly resulting in sub­optimal growing methods.

Farmgate prices for beans averaged P63.36 in 2013, according to the Bureau of Agricultural Statistics, though they were down from a recent high of P88.8 in 2011. By way of contrast, the International Cocoa Organization’s average daily price for August 2014 was $3,270 per ton, equivalent to nearly P150 per kilo.

According to agriculturist Bernardo Baruiz of the Davao City Agriculture Office, ordinary beans from the region command a price of P60­80 per kilo, while fermented beans can fetch as much as P120. Fermentation is a critical process, explains Eduardo de Vera of the Balingaeng Multipurpose Cooperative (BMPC), because it removes tannins, improving the flavor and aroma of cocoa. The catch is that farmers sometimes cannot sell fermented beans for the higher price, because processors would rather work with raw beans. “Exporters like Puentespina Farms in Malagos do not buy fermented cacao because they have the facilities to do that,” Mr. Baruiz said, indicating that, as with many agricultural products, control of the value­added processes can make a huge difference in payoff.

Development organizations have not been blind to the potential of cocoa for lifting farmers out of poverty ­­ particularly coconut farmers whose trees were destroyed by recent typhoons, as well as banana farmers under the long­term threat of plant disease. The World Bank­funded Philippine Rural Development Program (PRDP) recognizes cocoa as a main crop for Davao Oriental and Davao del Norte. Arnel V. de Mesa, PRDP deputy program director, said the program seeks to provide farmers with funding, technical analysis, and opportunities to capture more value­added for their produce.

In 2015, the program is spending P5.8 billion, of which P2 billion will go to Mindanao. Of the Mindanao total, P300 million will be set aside for enterprise development; it is not inconceivable that the cocoa industry may receive a boost if farmers receive even a fraction of this funding.

Among the commercial planters, Kennemer Foods International Inc. is the most high­profile private investor so far, entering into various partnership arrangements for its venture, signing up agrarian reform beneficiaries in the Davao region, local government units in Surigao del Sur province, and a rural
bank in Misamis Oriental. It is also developing farms in Agusan del Norte and Lanao del Sur, suggesting a new frontier for cocoa growing outside the Davao strongholds, starting from a low base and expanding rapidly. The Caraga region, which includes Surigao del Sur and Agusan del Norte produced only 57 tons of cocoa in 2013, while output for the Autonomous Region in Muslim Mindanao, which includes Lanao del Sur, was only 85 tons.

The Kennemer model follows the typical developmental road map ­­ providing planting materials and technical aid to farmers, including training for “cacao doctors” who can later help other farmers ­­ but is building its cocoa empire on a breathtaking scale, with a target of developing 50,000 hectares ­­ 10 times the cocoa acreage of the Davao region ­­ over the next five years in the Philippines, 80% of which will be in Mindanao.

If Kennemer and many other players now working to grow the industry succeed, cocoa may again take its place as an important Philippine crop. It used to be so in the days when the islands were an important producer for the Spanish empire. Historical evidence of the former excellence of the Philippine bean is not particularly hard to find, but perhaps this extract will suffice as a representative opinion, and also as a vision of an alternative future when the quality of Philippine chocolate again commands premium prices.

The source is Fedor Jagor, a German ethnologist and explorer whose Travels in the Philippines, published in 1875, was an influence on the young Jose Rizal. It was Jagor who later helped open doors to the highest German scientific circles for the future national hero. Convalescing in Bicol from an injury sustained while climbing Mount Mayon, Jagor wrote:

“My house was built upon the banks of a small stream, and stood in the middle of a garden in which coffee, cacao, oranges, papayas, and bananas grew luxuriantly, in spite of the tall weeds which surrounded them. Several over­ripe berries had fallen to the ground, and I had them collected, roasted, mixed with an equal quantity of sugar, and made into chocolate; an art in which the natives greatly excel. With the Spaniards chocolate takes the place of coffee and tea, and even the mestizos and the well­to­do natives drink a great deal of it…

“It was first imported into the Philippines from Acapulco; either, according to Camarines, by a pilot called Pedro Brabo de Lagunas, in 1670; or, according to Samar, by some Jesuits, during Salcedo’s government, between 1663 and 1668. Since then it has spread over the greater part of the Island; and, although it is not cultivated with any excessive care, its fruit is of excellent quality. The cacao of Albay, if its cheapness be taken into consideration, may be considered at least equal to that of Caracas, which is so highly prized in Europe, and which, on account of its high price, generally is largely mixed with inferior kinds. The bushes are usually found in small gardens, close to the houses; but so great is the native laziness that frequently the berries are allowed to decay, although the local cacao sells for a higher price than the imported.”