PartC: Investigation on cacao

IntroductionCacao, originated in the Amazon and the Andean foothills, is oneof the most noticeable products today. This tropical fruit notonly shows economic promises but also is expected to have apositive social impact. The global demands for cacao are greatlyincreasing because of the rapid growth of the Asian chocolatemarket and also the increasing demand for high cacao content inchocolate. The cultivation of cacao is contributing to thecommunity development and environment conservation as the ethicalconsumption of chocolate is becoming emphasized. This reportincludes an outline of each step of the supply chain in regardsto cacao as a product as well as the cultivation and processingmethodology of cacao, an outline of the worldwide and Peruviancacao market and a possible export channel, and the possiblesocial impact of cacao business.

Supply chain

Information

Cooperative

organization

1.Production of cacao

a. Growing conditionsThe natural habitat for the cacao tree is the lower story(below altitudes of 1,000 feet) of the evergreenrainforest located in the belt between 10°N and 10°S ofthe Equator. To cultivate cacao trees and run a cacaoplantation there are some environmental factors thatshould be considered: temperature, humidity, rainfall andsoil conditions. Although not all of the cacao-producingareas meet these conditions, these environmentalconditions are still essential.

Production

Harvesting& Post

Processing

Distribution &

Growing conditions

Types of cacao

Cultivation process

Grading

Fermentation

Processingmethod

Cacao Association

-CEPI café & cacao

-Oro Verde

Market analysis

Exportation channel

Social

Buyer

-Square Bar

The appropriate temperature for cacao trees is relativelyhigh, with a maximum annual average of 30-32°C and aminimum average of 18-21°C. Cacao trees are shade-tolerant allowing them to be able to grow well under theshade of the rainforest. Furthermore, a humid atmosphereis essential for the development of cacao trees as well.This can be seen when viewing the relative humidity ofcacao producing regions. These regions generally have ahigh humidity; often as much as 100% during the day,falling to 70-80% during the night.

Rainfall is the most critical factor for the yield ofcacao trees. Rainfall should be well distributed as wellas plentiful because the trees are sensitive to waterdeficiency. An annual rainfall level of between 1,500mmand 2,000mm is generally preferred. Also, during theseasons of the least rainfall at least 1,000mm ofrainfall is required for cacao growth and survival.

Soil conditions are important as well. In terms ofphysical properties, the soil for cacao cultivation hasto have both water retention properties and gooddrainage. The cacao trees need enough water when it growsso

b. Types of cacaoCacao trees are divided into three types; Criollos,Forastero, and Trinitario. Criollos dominated the marketuntil the middle of the eighteenth century, but now it isvery rare. Only in the Venezuela and the Northern part ofthe Peru, Criollo type is produced. Forastero is a largegroup containing populations of Amelonado which are themost extensively planted cacao today. Trinitarios are aspecies descended from a cross between Criollos andForastero.

The world cacao market distinguishes between two broadcategories of cacao beans: “fine or flavor” cacao beans,and “bulk or ordinary” cacao beans. Generally, fine orflavor cacao beans are produced from Criollo orTrinitario cacao-tree varieties, while bulk cacao beanscome from Forastero trees. The fine flavor cacao beansare known as top quality cacao with more aromatic flavorso it is used in fine chocolates. More cacao beans can beyielded with the bulk cacao. While 20~30 pods of beansare produced from the Criollo, 30~50 pods can be producedfrom the Forastero. The share of fine or flavor cacao inthe total world production of cacao beans is just under5% and almost all major activity over the past fivedecades has involved bulk cacao.

c. Cultivation process

d. Production siteCacao grows all around the world in the regions between20° north and 20° south of the equator. West and centralAfrica is the world’s biggest cacao production area.Their supply of cacao accounts for more than 60% of thetotal world production of cacao. The following biggestarea is Southeast Asia forming around 12% of the worldcacao production. South America is only producing smallamount of cacao capturing less than 10% of global cacaoproduction.

As mentioned above, South America gets only a fraction ofworld cacao production and African cacao has beendominating world cacao market. However, South Americancacao is extending its boundary targeting a big nichemarket, premium chocolate market. Cacao from SouthAmerica especially Peru, Ecuador, and Venezuela, isappreciated as a high-quality cacao due to its aromaticflavor. Therefore, more and more premium chocolatecompanies are paying attention to the South Americancacao and its production is increasing.

Peru is the second producer of the fine flavor cacao.Peru produced 62.973 ton of cocoa last year and it isworth more than 130 million US dollars. The production isexpected to increase and improved exportation is lookedfor as well from the fact that 90% of Peruvian cacao isexported. In Peru, there are 10 departments where cacaois growing, Amazonas, Tumbas, Piura, Cajamarca, SanMartin, Huanuca, Ucayali, Junin, Cusco, and Arequipa.Among those areas, there are four major cacao-growingvalleys, Alto Marañon in Piura and Amazonas, HuallagaCentral in San Martin, Apurímac-Ene in Junín, and LaConvención y Lares in Cusco.

Figure 1 World cacao production site

Figure 2 Cacao production site in Peru

2.Post-harvest processThe post-harvest process of cacao is very important for makingaromatic cacao beans for high-quality chocolate because 50% ofthe beans’ flavor depends on the post-harvest techniques. Themajor process of post-harvest is fermenting and drying. Thisprocesses influence on the acidity and bitterness which is themain factors affecting on the taste of cacao beans.

a. FermentationThis bio-chemical process is done in a wooden box called“sweatboxes”. Covered by banana leaves to keep moisture,the beans are left in the box for 2 to 6 days goingthrough the anaerobic and aerobic phases of fermentation.Micro-organisms decompose the mucilage, the sugary whitepulp enfolding the cocoa beans. They change the pulp intoalcohol and then acetic acid. Heat is generated duringthe process and the temperature of the box goes up to45°C. To prevent the temperature from elevating too much

and maintain optimal oxygen levels for the premieraromatic flavor, the beans are moved regularly. Sometimesthe boxes are arranged in tiers to move the beans easily.

b. DryingAfter the fermentation, the seeds are left in the sun todry, reducing their moisture content from approximately60 percent to fewer than 10 percent, and it takes 5 daysto 7days. This drying process is very important to cocoaflavor because acids in the cocoa are evaporated passingthrough this process. It makes a low acid, high cocoaflavored without bitterness flavored product. Dryingmethods and durations are varied from cooperative andcompanies. The Peruvian chocolate company, Orquidea, hastwo stages for drying. In the first stage called pre-drying stage, the seeds are placed in roofed area beforethey are exposed to the direct sunlight. Leaving theseeds in a heap under the roof for a day allows thepartially fermented beans to complete the fermentationprocess. Then, spread out and turned twice a day with awooden lake for the beans to dry evenly. After thisstage, the beans are brought outside and dried out underthe direct rays.

3.Distribution& Marketing for cacao

a. Market Analysis: Global Cacao Market

i. Supply trend

ii. Demand trendiii. Price

Figure 3 ICCO monthly average cacao prices, January 2010~ January 2014

b. Exportation channelUnderstanding the current exportation channel of cacaowill help Dignitá to export the Peruvian products overthe long run. It will eventually increase the income ofthe communities and prevent the indigenous people to flowinto the cycle of human-trafficking. This part will showpresent cacao exportation processes through the case ofsome Peruvian cacao associations.

In Peru, there are many cacao production associations.Not only are they working for ensuring the profits ofcacao farmers but also they try to develop thecommunities with various social activities. They areusually comprised of small or medium sized producers. Theassociations do workshops for the producers cooperatingwith research institutions to increase their productivityand make them control pests. Also, they lead theexportation of cacao. Most of the associations havestraightforward commercial transaction with foreignbuyers and send their goods directly to their clients.Some big associations have their own exportation officein Lima so make it easy to export. An association called

CEPI Café & Cacao exports the cocoa powder with the priceof $5,500 per ton. Figure 4 shows the groups which areexporting the cacao beans. In the process of exportation;they do quality control and help the producers to get theorganic/ fair-trade certification so that they make theproducers get the good price from their products.

Figure 4 Exportation companies of cacao beans

Oro Verde is one of the cacaoassociations. Thisassociation was organized in2000. It is comprised of 1300small-sized producers mostlyhaving 2hectares of field. Itexports around 50 tons ofcocoas in a year. Its majorclient is TCHO, Americanchocolate company based inSan Francisco. It contractswith two companies to transactthe business, TCHO and Atlantic Cocoa Company as atrader. When TCHO get an order for their goods, they askOro Verde to send cacao beans. Then, Oro Verde sends theproducts to TCHO through the Atlantic Cocoa Co. Itdelivers cocoas dried to Mexico first because it doesn’t

Figure 5 Oro Verde exportation contract

have infrastructure to roast the beans. Some bigassociations install processing facilities and producecacao products like cocoa butter, cocoa powder andchocolate. However, Oro Verde doesn’t have capability tobe equipped. After processed in Mexico, cocoa beans areshipped to the chocolate plant of TCHO in the UnitedStates.

Figure 6 shows the details of the products of Oro Verde.It shows the general information of their commodity. Thespecific conditions of the product depend on the clients’order. Usually clients know what certain state of cocoabeans is the most appropriate for their chocolate andrequire the beans in the conditions. The Oro Verdeclassifies the beans by their weight and decides how longit will ferment and dry the beans in accordance with theorders.

Figure 6 Oro Verde products details

The price of the product isdetermined by the sum of thedeclared value and premiums.The International CocoaOrganization (ICCO) posts thedaily price at the time ofLondon close and theassociation put a price on thecocoa beans with the price.Last time it sold 50 tons ofcacaos with the price $2,970per ton. The cocoa of OroVerde gets a certificate asfair-trade and organic productso it charges the premium,

GeneralCommercial name Dried cocoa

beansScientific name Theobroma

CacaoVarieties Criollo,

TrinitarioCustoms clearancenumber

1801001900

Special techniquesHumidity 7-7.5%Weight of 100beans

Minimum 105g

Well fermentedbeans

Minimum 80%

Less fermentedbeans

0.5%

Moldy beans Maximum 0.5%

$200 and $300 respectively. Lastly, it charges premiumrate according to the quality of cocoa and it costs from$100 to $500.

Figure 7 Price decision factors

The Oro Verde has its own quality grading system to put avalue on the cocoa beans. First, it does the physical testto the beans. It extracts a sample and cut it in a half tocheck its percentage of humidity and fermentation, and ifit has any defects. After this stage, the associationmakes small amount of chocolate in its Flavor Lab andtastes its flavor. In the test, both the members of theassociation and buyers attend. They have certaincategories of flavor characteristics: acidity, bitterness,chocolatey, fruity, nutty, foral, citrus, earthy,astringency. Each person gives marks and they calculatethe average score incorporating the results.

Declared Value$2970

Fair-trade Premium$200

Organic Premium$300

Quality Premium$100~$50

0

Price for

Goods

Figure 8 Cacao grading criteria and its score

The final score is calculated 10maximum. Only the cocoa beans with thescore more than six are able to bepaid premium and exported. The seedsscoring 6-6.5points get $100 aspremium and the seeds with 6-8pointstake $250. The cocoa beans which getmore than 8 points are categorized asreally good beans and receive $500 as premium. Most of thecocoa beans of Oro Verde get the score between 6.5 and8points.