The Department of International Environment and Development Studies, Noragric, is the international gateway for the Norwegian University of Life Sciences (UMB). Eight departments, associated research institutions and the Norwegian College of Veterinary Medicine in Oslo. Established in 1986, Noragric’s contribution to international development lies in the interface between research, education (Bachelor, Master and PhD programmes) and assignments. The Noragric Master theses are the final theses submitted by students in order to fulfil the requirements under the Noragric Master programme “Management of Natural Resources and Sustainable Agriculture” (MNRSA), “Development Studies” and other Master programmes. The findings in this thesis do not necessarily reflect the views of Noragric. Extracts from this publication may only be reproduced after prior consultation with the author and on condition that the source is indicated. For rights of reproduction or translation contact Noragric. ©Marte Haugerud Moe, June 2008 martemoe@gmail.com Noragric Department of International Environment and Development Studies P.O. Box 5003 N-1432 Ås Norway Tel.: +47 64 96 52 00 Fax: +47 64 96 52 01 Internet: http://www.umb.no/noragric

I

Declaration

I, Marte Haugerud Moe, declare that this thesis is a result of my research investigations and

findings. Sources of information other than my own have been acknowledged and a reference list

has been applied. This work has not previously been submitted to any other university for award

of any type of academic degree.

Place and date: Signature:

_________________________________ ______________________________

II

Acknowledgement

To my supervisor Arild Vatn - this thesis could never been accomplished without you,

To my co-supervisor Simon Pahle for inspiration and actuation,

To José Garcia and the rest of the ACDI/VOCA staff in Quevedo,

To Iven Ose and the rest of the ADCI/VOCA staff in Guayaquil,

To Frank Blacio and the rest of the Nestlé staff in Guayaquil,

To all my respondents for sharing their experiences,

To the Nobel Institute for providing a work space and brilliant assistance,

To my family and friends for continuous support and encouragement,

To Jostein for always believing in me,

Thank you / Muchas gracias

III

Abstract Despite Ecuador is considered one of the world’s leading providers of fine and aromatic cocoa,

the economic reward appears to be absent at producer level. The extended poverty found among

Ecuadorian small scale cocoa producers, most studies conclude to be caused by scarce

agricultural output. Writing this thesis, my aim was to see whether there were any additional

explanatory facts, with the attention directed towards the price received by the producers.

I came to recognize the open market structure, prevailing in Ecuador, to be highly labour

intensive and complex. Lack of governmental intervention, neither regulating competition nor

ensuring proper quality controls to be carried out, made intermediaries inhabit a dominant

position. The existing challenges within the conventional market structure have caused a recent

increase of initiatives seeking to break with the traditional structures. In order to answer the main

objective: To calculate the producer price received by Ecuadorian small scale cocoa farmers,

and furthermore seek explanations for the variations I expect to reveal point of departure was

taken in the typology of value chain governance published by Gereffi et al. (2005). By carrying

out a comparative case study, a producer price comparison among the participants in the three

different marketing chains; 1) open markets 2) contractors with MNCs1 and 3) direct purchases.

A price analysis revealed producers carrying out direct sales to receive a price more than 25%

higher than the producers within the open market structure. The positive impacts choice of

marketing channel has on producer price were confirmed running a regression analysis.

Qualitative research found evidence for organizational commitment and assistance from external

contributors (NGOs) to be highly influential to the choice of marketing channel. Additionally, a

quantitative analysis identified Geographical location (+/-), Age group (+), Use of

Fertilizer/pesticides (-) and Access to information of the legal framework (+) to be of influence.

Based on the findings of my research, I developed four recommendations of how to increase the

producer price level among Ecuadorian small scale producers of cocoa: 1) Governmental

attention should increase 2) Producers to carry out direct sales (in order to easier succeed, form

FOs and seek assistance from NGOs) 3) Obtain certifications, and finally 4) Transfer quality

incentives to producer level. 1 Due to unforeseen occurrences, this group had to be eliminated. The study was carried out with the remaining two.

IV

Table of contents 1. Introduction…………………………………………………………………………………… 1

1.1 Global production systems……………………………………………………...………. 1

1.2 Purpose of the study including its objectives……………………………………........... 2

1.3 Limitations of the thesis…………………………………………………………………. 3

1.4 Chapter outline………………………………………………………………………...… 3

2. Background……………………………………………………………………………………. 4

2.1 Ecuadorian cocoa production…………………………………………………………… 4

2.2 Causes of change………………………………………………………………………..... 6

2.3 Profoundness of the problem……………………………………………………………. 9

3. Theory……………………………………………………………………………………...… 10

3.1 Commodity Chains……………………………………………………………………... 10

3.1.1 Commodity Chain Analysis (CCA)…………………………………………….…. 10 3.1.2 Global Value Chains (GVCs)……………………………………………………... 11 3.1.3 Global Commodity Chains (GCCs)……………………………………………….. 14

3.2 Organization and participation……………………………………………………...… 16 3.2.1 Organization and its obstacles………………….…………………………………. 16 3.2.2 Participation……………………………………………………………………..… 18

3.3 The role of NGOs……………………………………………………………………….. 19

3.4 Theoretical framework……………………………………………………………….… 21

4. Previous studies…………………………………………………………………………...… 25

4.1 Commodity chain studies in Ecuador…………………………………………………. 25

4.2 Studies of international cocoa trade……………………………………………..…….. 27

5.0 Method………………………………………………………………………………………. 29

5.1 Case studies……………………………………………………………………………... 29

5.2 Choice of research strategies……………………………………...…………………… 29

5.2.1 Abduction…………………………………………………………………….…… 30 5.2.2 Combining qualitative and quantitative research…………………………….…… 31

5.3 Choice of methods for data collection……………………………………………….… 31 5.3.1 Quantitative methods…………………………………………………..………….. 32

V

5.3.2 Qualitative methods……………………………………………………………..… 32

5.4 Choice of methods for analysis………………………………………………………… 33

5.4.1 Analysis of quantitative data……………………………………………………… 33 5.4.2 Analysis of qualitative data………………………………………………….……. 36

6. Analysis and discussions……………………………………………………………..……… 37

6.1 Research area and sample …………………………………………….………………. 37

6.1.1 Research area…………………………………………………………………...…. 37 6.1.2 Sample…………………………………………………………………………….. 38

6.2 How is the production and marketing of cocoa organized in Ecuador?..................... 44

6.2.1 The structure of the Ecuadorian cocoa market……………………………………. 45 6.2.2 Marketing chain participants……………………………………………...………. 47 6.2.3 Challenges within the commodity chain……………………..…………………… 50 6.2.4 Alternative marketing channels………………………………………………….... 53

6.3 What is the average price ($/qq) farmers participating in the different marketing channels receive for their cocoa?........................................................................ 59

6.3.1 Price setting mechanisms in the global cocoa market………………………..…… 59 6.3.2 Price setting mechanisms in the Ecuadorian domestic cocoa market……..……… 61 6.3.3 FOB prices of cocoa in grain……………………………………………………… 64 6.3.4 Average price received among Ecuadorian cocoa farmers………………………... 66 6.3.5 Price variations in correspondence to quality……………………………………... 70

6.4 How can the variation in producer prices be explained?.............................................. 73 6.4.1 Presentation of the independent variables included in the regression analyses…... 73 6.4.2 Which factors are influential to the price paid to the producers………………....... 78 6.4.3 Which factors are influential to the choice of marketing channel?.......................... 84 6.4.4 What are my major findings and how do they relate to the framework sketched out in Chapter 3?................................................................................................. 88

7.0 Conclusion and recommendations……………………………………………….………… 94

7.1 How is the production and marketing of cocoa organized in Ecuador?..................... 94

7.2 What is the average price ($/qq) offered to the producers within the

various marketing channels and how does this price correlate with the quality

of the cocoa purchased?......................................................................................................... 95

7.3 How can the variation in the producer prices be explained?....................................... 96

7.4 Recommendation of improvements to be carried out in order to enhance to

producer prices…………………………………………………………………………..…. 97

References………………………………………………………………………………...…… 100

VI

List of figures Figure 2.1 FOB prices cocoa in grain 2006…………………………………………….……. 5 Figure 2.2 The vicious circle within the Ecuadorian cocoa sector…………………...……… 6 Figure 2.3 National vs. international prices for cocoa in grain 2005 and 2006……………… 9 Figure 3.1 Four links in a simple value chain…………………………………….………… 11 Figure 3.2 Five global value chain governance types…………………………………….… 13 Figure 3.3 The Organization of Producer-driven Commodity Chains……………………… 15 Figure 3.4 The Organization of Buyer-driven Commodity Chains ………………….…….. 15 Figure 3.5 NGOs: diversity in the crowd…………………………………………………… 20 Figure 3.6 Framework for analysis of factors influencing choice of marketing channel and

price received among Ecuadorian small scale producers of cocoa……………… 22 Figure 5.1 The epistemological model of diagnostic reasoning………………………….… 30 Figure 6.1 Cocoa producing areas in Ecuador………………………………………...……. 38 Figure 6.2 Size of plantation in hectares………………………………………….………… 41 Figure 6.3 Global production of cocoa beans, in thousand tons……………………….…… 44 Figure 6.4 The conventional cocoa value chain………………………………………..…… 45 Figure 6.5 The national cocoa chain…………………………………………………...…… 46 Figure 6.6 Marketing chain participants………………………………………………….… 47 Figure 6.7 Adjusted version of the national cocoa chain…………………………………… 48 Figure 6.8 Influencing factors for choice of purchaser among my respondents……….…… 49 Figure 6.9 Central problem - low level of competitiveness in the chain of fine and

aromatic cocoa…………………………………………….…………………..… 51 Figure 6.10 The process of measurement and quality certification at Nestlé, Guayaquil…… 55 Figure 6.11 Cultivation- and post-harvest practices in the organization Unión y Progresso... 58 Figure 6.12 FAO Food Price Index…………………………………………………….......… 60 Figure 6.13 Average global cocoa prices ($/qq) 1998 – 2007…………………………..…… 60 Figure 6.14 Perception (in %) of prices to vary according to quality……………………...… 71 Figure 6.15 Level of satisfaction with price offered for the cocoa (in %)…………………… 71 Figure 6.16 Revised for analysis of factors influencing choice of marketing channel

and price received among Ecuadorian small scale producers of cocoa……….… 89 Figure 6.17 Open market structure in the Ecuadorian context…………………………….… 90 Figure 6.18 Collective sales to direct purchasers…………………………………………..… 90

VII

List of tables Table 6.1 Age, sex and geographical division of the respondents answering the survey...... 40 Table 6.2 List of interviewees……………………………………………………...……… 42 Table 6.3 UNOCACE associates and their levels of production………………………...… 56 Table 6.4 Ecuadorian reference prices FOB ($/qq) for cocoa in grain, 1998 – 2007……… 65 Table 6.5 Producer prices for cocoa in grain…………………………………………….… 67 Table 6.6 Producer shares of FOB prices 2003 – 2006………………………………….… 67 Table 6.7 Cocoa Prices 2007 – Average prices received among Ecuadorian cocoa

producers compared to the global stock exchange prices…..…………………… 69 Table 6.8 Measurements and explications of the independent variables applied in the

regressions…………….………………………………………………………… 79 Table 6.9 Multiple linear regression: Producer price……………………..……………..… 81 Table 6.10 Binary Logistic regression: Marketing channel…………………………….…… 85 List of appendices Appendix 1 ICCO forecast on global cocoa production and consumption……………………...i Appendix 2 The 3 botanic varieties of cocoa trees worldwide…………………………………ii Appendix 3 The 3 different stages of the harvest season………………………………………iv Appendix 4 Quality classification system of Ecuadorian cocoa……………………………….vi Appendix 5 Original questionnaire in Spanish………………………………………………..vii Appendix 6 English version of questionnaire………………………………………………...xvi Appendix 7 Total exportations of cocoa in grain 2003 – 2007…………………………...….xxv Appendix 8 Collinearity diagnostics – producer price………………………………………xxvi Appendix 9 Multiple linear regression – producer price (1st & 5th run)…………………...xxviii Appendix 10 Collinearity diagnostics – Marketing channel…………………………………..xxx Appendix 11 Binary logistic regression – Marketing channel (1st & 4th run)………………..xxxii

VIII

List of abbreviations ANECACAO Asociacíon Nacional de Exportadores de Cacao

(The Ecuadorian national association of cocoa exporters) CC Commodity Chain CCA Commodity Chain Analysis CORPEI Corporación de Promoción de Exportaciones y Inversiones Ecuadorian organ for the promotion of export and innovations) FFS Farmer Field School FO Farmer Organisation FOB Free On Board BCS BCS Öko-Garantie GmbH

(A Germany based international organic certifier and controlling agency)

FAO Food and Agriculture Organization of the United Nations GCC Global Commodity Chains GDP Gross Domestic Product GTZ Deutche Gesellschaft für Technische Zusammenarbeit (A Germany based international cooperation enterprise for sustainable development with worldwide operations) GVC Global Value Chain ha Hectares ICCO International Cocoa Organization ICE Intercontinental Exchange IICA Instituto Interamericano de Cooperación para la Agrícultura (Inter-American institute for agricultural cooperation) IMF International Monetary Fund

IX

INIAP Instituto Nacional Autónomo de Investigaciones Agropecuarias (The Ecuadorian national autonomous institute for agricultural research)

LA Latin America LCA Latent Content Analysis LDC Low Developed Country LIFFE London International Financial Futures Exchange MAG Ministerio de Agricultura, Ganadería, Acuacultura y Pesca (the Ecuadorian Ministry of Agriculture and Livestock) MCA Manifest Content Analysis MIC Ministerio de Industrias y Competitividad (the Ecuadorian Ministry of Industrialisation and Competitiveness) MNC Multi National Company MT Metric tons. Unit of measurement equivalent to 1000 kilograms NBR National Bureau of Economic Research NGO Non-Governmental Organisation NRI Natural Research Institute NYBOT New York Board of Trade PP Producer price qq Quintales. 1 quintal = 100 Spanish libras. Unit of measurement

equivalent to 45,36 kilograms TNC Trans National Company UDENOR Unión de Enxeñerías do Noroeste, S. A. Union of Engineers in the south-western part of South America) UNOCACE La Unión de Organizaciones Campesinas Cacaoteras del Ecuador

(Union of Ecuadorian cocoa producer organizations)

X

‘[Value] is adjusted… Not by any accurate measure, but

by the haggling and bargaining of the market, according

to that sort of rough equality which, though not exact, is

sufficient for carrying on the business of common life’

Adam Smith2

2 In The Wealth of Nations, book 1, chapter V.

XI

1. Introduction

1.1 Global production systems Increased globalization has made a variety of services offered in all corners of the world available

to the ‘global client’. The international trading pattern is frequently expanded through factors like

extended division of labour and global dispersion of production. A recent trend is outsourcing of

labour, which has been proved to be a very efficient way to conduct business. To comply with the

demands of a fastidious group of clients, improvements must be carried out continuously. The

high levels of expertise required in various fields have resulted in extended specialization. This

development of ‘knowledge clusters’ corresponds to Adam Smith’s ideas of an advanced

economy best to be achieved through specialization and detailed division of labour (Todaro and

Smith 2003). As a consequence, it is not longer sufficient for an industry to maintain an efficient

production in order to enter the global market and allow for sustained income growth. As well,

an overall understanding of the existing dynamics of the entire value chain is required to take

advantage of the new global production system (Kaplinsky and Morris 2002).

Unfortunately, it is still apparent that the appointment of winners cannot happen without losers.

Prebish and Singer presented in 1950 evidence for a tendency of relative prices of raw materials

(including agricultural products), when compared with the price of manufactured goods, to

experience a steady decline in the long term (Todaro and Smith 2003). As most production of

primary goods is located in Low Developed Countries (LDCs), their inhabitants tend to account

for the losers within the global trade pattern.

Tracing a global value chain of agricultural commodities reveals the ‘losers’ often to be found at

the very bottom; the farm level. This tendency being apparent in the world’s cocoa trade is

demonstrated by farmers struggling with low return of investments, despite the global cocoa

consumption3 is reaching new peaks annually (ICCO 2007a). Cocoa, being a buyer-driven

commodity whose value is set by the global produce exchange, is extremely vulnerable to price

fluctuation. When prices are low, it is easily observed within all levels of the value chain. But is

3 For further details, see ICCO forecast for global cocoa production and consumption in Appendix 1.

- 1 -

this the case as well when the prices are increasing? Or is some of the surplus likely to disappear

within the chain before reaching producer level? How can it else be explained that most

Ecuadorian farmers are living in poverty when the global market seems never to get enough of

the fine and aromatic cocoa of which Ecuador is the world’s leading producer?

1.2 Purpose of the study including its objectives Low agricultural output has been uttered by numerous (Ramírez 2006, 2007, Collinson and Leon

2000) to be the main explanation to the extended problem of poverty among actors operating at

the lower levels within the Ecuadorian cocoa sector. This is a well-documented and

acknowledged fact. The purpose of this study is to reveal whether there are any other

explanations to the existing poverty among Ecuadorian cocoa producers, with special attention

drawn to the price disbursed at farm level. With the goal set, I defined my main objective to be:

To calculate the producer price received by Ecuadorian small scale cocoa farmers, and

furthermore seek explanations for the variations I expect to reveal.

As I assume participation in alternative marketing channels to be of considerable importance to

the price received by the individual farmer, generating a general overview of the organization of

the national cocoa industry early in the research process will be crucial. Holding the motivation

of acquiring a profound understanding of both the design and structure of the commodity chain

constituted for the design of the first of my three sub-objectives:

Q1: How is the production and marketing of cocoa organized in Ecuador?

After having recognized its main components, my aim is to move all the way down to the very

bottom of the chain. Here I am to investigate the average price paid to producers participating in

the various marketing channels. In addition, I seek to reveal whether the price paid to the

producers is influenced by the quality of the product they offer.

Q2: What is the average price ($/qq) offered to the producers within the various marketing

channels and how does this price correlate with the quality of the cocoa purchased?

- 2 -

Expecting to find variations in the price offered to the producers within the different marketing

channels, I now seek to know why it is so. What characteristics do the farmers participating in the

commodity chain offering the highest/lowest prices inhabit, and how can they be differentiated

from the other cocoa producers?

Q3: How can the variation in the producer prices be explained?

In order to give an answer to the third sub-objective, the structural advantages as well as

disadvantages of each particular marketing chain must be given account for. Asking how come

farmers are better off participating in one commodity chain, may help reveal weaknesses or

limitations within the other chains, seen from the farmers’ perspective.

1.3 Limitations of the thesis As indicated in the previous section, the focus of this thesis is to trace the commodity chain of

Ecuadorian cocoa. Due to time constrains and vast amount of information in need to be gathered,

the limitation is set by the marketing of cocoa in grain. My sample will be gathered within the

region of Los Rios with the respondents selected randomly. Cocoa producers giving their answers

to my survey will constitute for the main sample, but additional information will be extracted

through semi-structured and observations of actors found at all level of the commodity chain.

1.4 Chapter outline The outline of the thesis will be as follows: With the purpose of providing the reader with basic

information of the functions, mechanisms and challenges within the Ecuadorian cocoa market, I

will in the following chapter (2) give a presentation of the national production system. Chapter 3

is used to present the theory, resulting in a framework to be applied in the analysis. For the reader

to obtain a better insight of the existing studies within the field, Chapter 4 will give account for

some of the previous research conducted. In Chapter 5 the methods applied in this study are

presented. Chapter 6 contain findings, analyses and discussions. With basis in the prior analyses,

I conclusions are drawn in Chapter 7.

- 3 -

2. Background

2.1 Ecuadorian cocoa production Ecuador is said to be the birthplace of cocoa (The Success Alliance 2007), and the country’s

history of cocoa cultivation can be traced back to the 17th century. Ecuador experienced a rapid

economic growth at the very start of the 20th century, with cocoa as the dominant export

commodity. When the Panama Canal opened in 1914, Ecuador was brought to the position as the

world’s main cocoa exporter, accounting for 20% of the global market (UN 1994). A historical

peak was reached in the years 1914 and 1916, when exports amounted for approximately $ 77

millions. In the latter period of the cocoa cycle (1926 – 1930), the structure of Ecuadorian exports

diversified, now accounting for coffee and rice as well. This transformation brought the shares of

cocoa exports to account for less than 50% of the total national exports (ibid). Despite the fact

that cocoa maintained the position as one of Ecuador’s most important export commodities

throughout big parts of the 20th century, the country’s share of the world’s total cocoa production

fell from 18% at the very start of the century, to 2% in 1945 (UNCTAD 1991).

Ecuador, producing the two types of cocoa; Nacional and CCN51, is world famous for its high

quality products. The variety Nacional, being a unique Ecuadorian product, has experienced a

widespread global demand for decades. Nacional, being the traditional variety cultivated for

centuries, does still dominate the national cocoa production, covering 95% of all the land areas

applied for cocoa production (SICA 2007a). Despite having its origin from the Forastero4 family

Nacional is considered being a fine and aromatic cocoa. Due to its characteristics, it has been

described as Pepa del Oro (‘Golden bean’) for decades. Its large sized seeds are developed by

light brown cotillions. The aroma of chocolate which is delicately accompanied by a floral

flavour characterizes its taste, is known as Arriba (ANECACAO 2007). The extraordinary

flavour is developed due to the quick fermentation5 of the cocoa seeds. In contrast to most other

types of cocoa which seeds in about six days, the Ecuadorian only needs three or four (Shared

interests 2007).

4 See Appendix 2 for further information about the different cocoa varieties. 5 See Appendix 3 for further information about the different stages of the harvest season.

- 4 -

CCN51 was introduced to Ecuador in the 1970s and is the only sort of cocoa produced in the

country not considered as fine and aromatic. Currently there exists more than 20 000 hectares

(ha) (out of total of 400 000) of this variety on a national level (SICA 2007a). CCN51 gives a

considerably higher yield than the Nacional, with an agricultural output exceeding 40 quintales

(qq) per hectare annually (compared to 5-6 qq/ha). The fine and aromatic cocoa produced in

Ecuador is exported under four different names; ASE, ASS, ASSS and ASSPS6 (ibid). These

varieties of Nacional are generally priced higher than CCN51 (demand dependent), something

which is illustrated in Figure 2.1 below.

556065707580859095

100105

Janu

ary

Februa

ry

March

April

MayJu

ne July

Augus

t

Septembe

r

Octobe

r

Novem

ber

Decem

ber

Month

US$

/qq

CCN51ASEASSASSSASSPS

N

t

r

b

t

6

Figure 2.1 FOB prices cocoa in grain 2006 Source: Based on data from ANECACAO (2007)

ote that the prices given in the Figure 2.1 is Free On Board (FOB) prices. Free on Board is a

erm implying both who holds the duty of the loading and shipping costs and at what time the

esponsibility of a good passes from the buyer to the seller. In the case of Ecuadorian cocoa, the

uyer tends both the duties and responsibilities pass over from the purchaser to the buyer when

he goods are loaded on board the vessel (most often) in Guayaquil.

See Appendix 4 for further information about the quality rankings.

- 5 -

2.2 Causes of change Cocoa Nacional has made Ecuador an important and demanded actor in the global cocoa market.

For several years, Ecuador produced more than 50% of the global share of fine and aromatic

cocoa and was considered the most important producer worldwide (ANECACAO 2007). Despite

prices being set higher for the variety Nacional, this does not compensate for the low agricultural

output extracted. The ripple effects of holding limited access to a valuable product have occurred

in two levels: 1) Farmers seeking short cuts cause frequent neglections within the post harvest

practices. 2) Middlemen, traders and exporters mixing together the two varieties. In 1994 the

International Cocoa Organization (ICCO) punished the fraud taking place by adjusting

Ecuadorian cocoa 25% down, now being considered a nation producing 75% fine and aromatic

cocoa (ibid).

Figure 2.2 The vicious circle within the Ecuadorian cocoa sector

In Figure 2.2 I have tried to

illustrate the vicious circle

currently appearing in

Ecuadorian cocoa sector.

Another link could have been

added in between the stages

Diminished yield and Lack of

satisfactory economic profit,

namely Extended mixture of

the two varieties. Despite

having great economical

impacts at farm level,

mixture most often take place above producer level and is therefore left out of the original model.

The results of farmers loosing interest can be identified both through their cultivation and post-

harvest practices. The most apparent tendencies to be tracked are poor planning and crop

management, lack of pruning and tree shaping, irregular tree spacing, no plasticizing and weed

control, fungal diseases and lack of sufficient fermentation of the cocoa beans (The Success

Alliance 2007). Low agricultural yield is, as earlier mentioned, considered the major cause for the

- 6 -

extended poverty among Ecuadorian cocoa producers and a range of studies and projects have

been carried out holding the aim of increase the agricultural output extracted. However, there are

factors above actor level which should be brought up, discussing influences for Ecuador

gradually to loose its position in the global cocoa market.

Rough and unpredictable weather conditions make farming in Ecuador a continuous struggle. The

country has been a victim of natural hazards as drought and floods over the years, most severe in

the years 1975, 1983, 1995 and 1998, as well as earthquakes (1987) and volcano eruptions (1999)

(ICG 2007). Secondly, unstable relations to their neighbouring countries have made Ecuador

suffer from lack of foreign investment initiatives. The Colombian guerrilla movements in the

north and brief wars with Peru in the south (1981, 1995) have contributed to undermine the

nation’s economic environment (ibid). Furthermore, the nation’s economy has suffered from

governmental mismanagement (rent-seeking and corruption) throughout the last decades. U.S.

Department of State utters Ecuador's political parties to “... have historically been small, loose

organizations that depend more on populist, often charismatic, leaders to retain support than on

programs or ideology” (U.S. Department of State 2007). Years of governmental mismanagement

has made the population loose faith in the political system, as there has been a tendency of

Ecuadorian politicians to prioritize western interest (as well as self interests) rather than the

national. As a consequence of natural disasters (among others El Niño) and a sharp decline in the

world’s petroleum prices, Ecuador experienced a major banking crisis and recession in 1999

(CIA 2007). As the real GDP contracted with more then 6% and the banking system collapsed,

Ecuador had no choice but to adopt U.S. dollars as a legal tender in 2000 (ibid).

During the decades of 1950s, ‘60s and ‘70s, import substitution policies were pursued in most

Latin American (LA) countries (Stiglitz & Charlton 2005). Despite experiencing a rapid growth

in their economies during the period, a turning point was met in the early 1980s when none of the

LA countries experienced much economic growth. A regional average of 6% growth during the

1970s felt to almost zero in the 80s. Professionals have argued against one another for the causes

of this stagnation. While the neo-liberal view, favoured by IMF and the World Bank, put the

blame on import substitution combined with an excessively degree of state intervention, an

alternative view has put more emphasis on Latin America’s open capital markets. This view

- 7 -

claims Latin America’s reliance on foreign direct investments and external flows of capital to be

the factor most influential for the area being so vulnerable of global economic shocks. The heavy

loans the LA nations undertook during the ‘70s enabled them, for some while, to avoid the global

recession which followed the oil price shock. Finally, the Latin American debt crisis became a

crude fact in the early 1980s, when the US Federal Reserve augmented the interest rates of these

loans to level unmanageable for most of the nations to handle (ibid).

According to a report from The Natural Resource Institute (NRI) Ecuadorian cocoa is marketed

without governmental interference, meaning local prices are calculated taking point of departure

in international prices and local supply and demand (Collinson and Leon 2000). This leads local

prices occasionally to move out-of-sympathy with the New York7 and London prices (where the

world’s cocoa exchange are situated) as they are determined by the demand from the nations own

cocoa processing industry and neighbouring countries (ibid). The report identifies other

hallmarks in the Ecuadorian cocoa sector to be lack of competition laws, absence of monopolies

and cartels, minimal governmental interference, low levels of vertical and horizontal integration

and finally no existence of barriers to entry (ibid). Figure 2.3, on the following page, illustrates

the divergence between national and international cocoa prices in 2005 and 2006.

Cocoa being a product highly vulnerable to price volatility has motivated many cocoa producing

countries to establish ways of protecting the farmers economically. Primarily, this is done by

setting fixed producer prices. Setting fixed producer prices does not only imply economic

security for the producers, but as well for the government. In addition to work as an incentive for

the expansion or contraction of production, a set price pattern makes the collection of general

revenue and taxation of the producers easier for the government (UNCTAD 1991). As pointed

out by Collinson and Leon (2000), not all cocoa producing countries experience governmental

interference. This is specially being the case within the countries in Latin America and in Asia

where the marketing of cocoa is left to the private producers, as the governmental agencies are

overseeing a variety of aspects (UNCTAD 1991).

7 Corresponding to the overall Ecuadorian practices, point of departure will primarily be taken in the NYBOT (New York Board of Trade) prices in this paper.

- 8 -

2005

0

10

20

30

40

50

60

70

80

US$/qq

January March May July September November

Month

NationalInternational

2006

0102030405060708090

100

US$/qq

January March May July September November

Month

NationalInternational

Figure 2.3 National vs. international prices for cocoa in grain 2005 and 2006 Source: Based on data from SICA (2007b & 2007c)

2.3 Profoundness of the problem Despite cocoa being one of Ecuador’s major agricultural export commodities, its earnings does

not account for a huge percentage of the country’s GDP. In 2004, cocoa accounted for 0,52% of

the national GDP (total $ 18 956 513 000) and 6,2 % of its agricultural share (total $

1 599 650 000) (SICA 2007d). The profoundness of the problem is rather the fact that 85 to 90

percent of the national cocoa industry is sustained by approximately 100 000 smallholders (The

Success Alliance 2007). Taking into account all the persons operating at the various levels of the

chain, the national cocoa sector employs about 800 000 Ecuadorians (Ecuadorcocoaarriba

2005a). As the official Ecuadorian unemployment rate is calculated to 9,8% (CIA 2007) and the

(unofficial) underemployment rate is by various voices claimed to be reaching as high as 47%, it

is crucial for the national economy to sustain the productivity within the sectors still contributing

with employment

- 9 -

3. Theory

Holding the motive of producing a theoretical framework to guide the further analysis, various

theories are introduced throughout this chapter. By gradually filling in pieces to the puzzle, the

final goal is to develop an overall theoretical basis contributing to ease the analysis of my third

research objective, factors influencing the prices received by Ecuadorian cocoa producers.

3.1 Commodity Chains In order to present the action taking place between actors operating at the various levels in the

Ecuadorian cocoa sector, and furthermore identify which impacts these interactions have on the

producer price received by the farmers located at the very bottom of the chain, theories concerned

with the functions of commodity chains (CCs) can contribute with beneficial information.

Different methodologies and theories have been developed in order to analyse commodity chains.

In this thesis the focus will be directed towards the most significant approaches found in

literature, Commodity Chain Analysis/French Filière (CCA), Global Value Chains (GVC) and

Global Commodity Chains (GCC). Assuming participation in alternative marketing channels to

be of great impact to the price received by the Ecuadorian cocoa producers, their structure and

agents (‘requirements of admission’) are important to reveal. Directing their focus towards the

different practices taking place within the single chain, each of the above listed commodity chain

approaches can make useful contributions to my research.

3.1.1 Commodity Chain Analysis (CCA)

The Commodity Chain Analysis (CCA) was developed by the French Research Institution

(French Filière) dealing with local production systems and consumptions in the 1960’s in order to

achieve “… a neutral, value-free technique applied to analyze existing marketing chains for

agricultural commodities assessing how public policies, investments and institutions affect local

production systems”, and is composed of “… a quantitative analysis of inputs and outputs, prices

and value added along a commodity chain through agents accounts” (Tallec and Bockel 2005:3).

The term is used referring to a general group of economic agents, and their activities, making a

direct contribution to the determination of a final product. The chain of production includes all

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processes taking place from the transformation until delivery to the final market of one particular

agricultural product (ibid). The empirical research tradition has been dominant since the rise of

the filière analysis. Throughout its development the main objective has always been to map out

the abovementioned commodity flows and to identify the agents (typically done through the

design of flow-charts of commodities and transformations) (Raikes et al. 2000). Launched almost

half a century ago, the CCA has provided the basis for the development of the GVC and GCC

approaches. Due to their common origin, similarities are easily traced and differentiation can

sometimes be hard.

3.1.2 Global Value Chains (GVCs)

“In its most basic form, a value-added chain is the process by which technology is combined with

material and labor inputs, and then processed inputs are assembled, marketed, and distributed”

(Kogut quoted in Gereffi et al. 2005:79). Its purpose is to give account for the activities firms and

their workers go through when bringing a product or a service from its conception to its end use

(Global Value Chains Initiative 2007). In order to illustrate the process of bringing a product, or a

service, from its conception, throughout the different production stages until it reaches the final

consumers, and at the very last, to final disposal after it is used (Kaplinsky and Morris 2002), the

value chain has to include a full range of different activities. These activities include elements

such as design, production, marketing and distribution (Global Value Chains Initiative 2007).

The four fundamental steps included in a basic value chain, and their interlinkages, are illustrated

by Kaplinsky and Morris (2002) in Figure 3.1.

Design and product development

Production - Inward

logistics - Transforming - Inputs - Packaging - Etc.

Marketing Consumption / recycling

Figure 3.1: Four links in a simple value chain

Source: Kaplinsky and Morris (2002)

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Moving away from theory and into the real world, you are not likely to come across such a

simple structure within the value chain of any product or service (Kaplinsky and Morris 2002).

The reality is normally much more complex. One of the most apparent differences is the number

of linkages in the chain; there tend to be many more. Taking the complexity of the real world into

account makes it a comprehensive task to conduct research on global value chains. Examples of

areas you are dependent of obtaining sufficient knowledge about are job details, technologies,

standards, regulations, products, processes and markets valid for the specific product and the

region under investigation (Global Value Chains Initiative 2007).

To explain the binary view of how global production is to be organized - either through markets

or within transnational firms, Gereffi et al. (2005) address the issue of transaction costs. They

furthermore claim the global value chains to be found in different forms, as they display a range

of different characteristics and have a multiplicity of impacts on diverse communities. The issue

of governance is central in the global value chain approach, as “… a chain without governance

would just be a string of market relations” according to Humphrey and Schmitz (2001:2). With

information gathered from global case studies, Gereffi et al. (2005) are proposing a complete

typology of value chain governance, where the aim is to reveal five basic (analytical) varieties

within this process of administration (illustrated in Figure 3.2).

1. Markets represent the simplest form of GVC governance, as firms and individuals,

beyond exchanging goods and services with one another, do not interact in a large degree.

Partners can be switched frequently, as it does not involve huge costs for neither of the

parties involved.

2. Within the modular value chains, services are offered to a customer’s specification

(more of less detailed). Suppliers are the ones holding the entire responsibility for the

process technology, when offering such ‘turn-key services’. As a consequence of

suppliers tending to apply generic machinery to spread their investments within a broader

customer base, the transaction-specific investments are limited and the prices are switched

low.

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3. Relational value chains are built upon complex relationships between buyers and sellers,

frequently resulting in mutual dependence and a high level of assets specificity. The

relationship can either be based upon family or ethnic ties, reputation, social or spatial

proximity.

4. In the captive value chains small scale suppliers tend to be dependent on larger,

dominant buyers. These networks are often characterized by asymmetric power relations

with high degree of monitoring and control by the lead firm, as the suppliers are relying

on their cooperation.

5. Vertical integration is the characteristic of hierarchy, where the dominant form of

governance is managerial (top-down) control (Gereffi et al. 2005).

Figure 3.2 Five global value chain governance types

Source: Gereffi et al. (2005)

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3.1.3 Global Commodity Chains (GCCs)

While the Global Value Chains has its focus directed towards the value added to a product while

it moves upwards the chain, the GCC approach is more interested in revealing the processes

taking place between the different stages.

Despite being defined by Hopkins and Wallerstein already in 1986 as “… a network of labour

and production processes whose end result is a finished commodity” (Gereffi and Korzeniewicz

1994:2), the concept of Global Commodity Chains became first well-known after being

introduced to the literature by Gary Gereffi in the mid-1990’s, referring to GCCs as the whole

range of activities involved in the design, production and marketing of a product (ibid). The

global Commodity Chain has as its primary focus “… to analyse the international trading system

and the increasing economic integration of international production and marketing chains”

(Tallec and Bockel 2005:3). Hopkins and Wallerstein indicate its greatest virtue to be its

emphasis on the process (Gereffi and Korzeniewicz 1994). Originally the concept of GCC was

created to analyse the impact of globalization on industrial commodity chains. Moreover, GCCs

were to emphasize the embedded power relations in value chain analyses, by unveiling the

dominant party (parties) determining the overall characteristic of the chain. Gereffi and

Korzeniewicz apply the term network referring to the overall configuration of relations in the

network or its parts. By using these properties in their analyses of commodity chains, they claim

to include the ‘length’ of the chain and the ‘density’ of interactions in a particular segment, as

well as the ‘depth’ or number of levels occurring at different stages of a GCC (ibid).

The form for governance conducted in a GCC, Gereffi (1999) argues either to be producer- or

buyer driven. The producer-driven commodity chain he characterizes to contain huge firms

playing central roles in the coordination of the production networks. The archetypal actors are

technology- and capital intensive manufacturers, including the industry of cars, aircrafts and

other heavy machineries (ibid). One of the major differences between the producer- and buyer

driven commodity chains is the control being exercised by the administrative headquarters of

Transnational Companies (TNCs) in producer-driven production systems (Gereffi and

Korzeniewicz 1994). Figure 3.3 illustrates the structure of a simple producer-driven commodity

chain.

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Figure 3.3 The Organization of Producer-driven Commodity Chains

Source: Gereffi and Korzeniewicz (1994)

In Figure 3.4, illustrating a buyer-driven commodity chain, the arrows have increased in number

and changed direction. The number of actors is higher and there are made a distinction of whether

they are located in the foreign or domestic market. The relationship existing between the various

actors operating in this sort of chain, Gereffi and Korzeniewicz (1994) define either as primary or

secondary. In order to

illustrate the different

relationships they apply solid

(primary) and dashed

(secondary) arrows.

Figure 3.4 The Organization of Buyer-driven Commodity Chains

Source: Gereffi and Korzeniewicz (1994)

In contrast to the producer-

driven, the buyer-driven

commodity chains include

more labour intensive

industries, such as footwear,

toys and handicrafts (Gereffi 1999). In these kinds of industries there are the great merchants,

dealers and branded manufacturers who hold the leading parts in creating decentralised

production networks in a range of exporting nations. As the motivation factor is to keep the

production costs down, favourable locations are often found in developing countries (ibid). The

core company’s main task in a buyer-driven chain is to administer the production and trade

networks within the chain and additionally to make sure all the pieces of the business come

together as a integrated whole (Gereffi and Korzeniewicz 1994).

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3.2 Organization and participation As already mentioned, the national cocoa sector employs a rather large share (6%) of the

Ecuadorian population, accounting for about 13.9 millions inhabitants (CIA 2007). The 100 000

producers alone represent about 0,7% of the total population. Taking into account the national

underemployment rate (47%) and the age structure (62,7% being between 15 – 64 years), cocoa

farmers constitute for 2,2% of the working (fulltime) share of the population.

Despite being part of such a large occupational group, the Ecuadorian cocoa producers hold an

extreme limited market power. One of the explanations could be found in the structure of the

commodity chain in which the farmers participate; the individual producer being just one out of

numerous actors in the labour intensive buyer-driven commodity chain. Stimulating to collective

action and enhanced level of participation through the creation of Farmer Organizations (FOs)

could be one alternative way of breaking down the existing (hierarchical) power pattern within

the cocoa chain.

3.2.1 Organization and its obstacles

The occurrence of Farmer Organisations in developing countries (both at local and higher levels),

became for real triggered in the 1980’s and 1990’s. FOs ought to fulfill numerous roles and

functions. Denis Pesche (2002) has identified the major ones to be; 1) provide services to their

members (technical or economic), 2) represent the interests of both their members and the other

farmers situated in the area, and 3) be involved in local development by providing different sorts

of social investments. Furthermore, Pesche makes a division between the internal and the external

work done by the FOs. While the internal work takes basis in the strengthening of their functions

and fulfilling the needs of their members, the external work is primarily focused on extending

their networks (external partners) and to achieve overall recognition of their work (ibid).

With basis in his wide experiences working with farmer organizations in Ecuador and several

other countries in Latin America, Anthony Bebbington (1991) utters FOs being able to help

strengthen the market power among agriculturalists holding scarce resources. Collective sales are

often mentioned as one of the major benefits of being part of a larger union. Not only are prices

often set higher when larger quantities are purchased, also competition is likely to be reduced

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when the farmers collaborate rather than compete. Finally, Bebbington utters farmers being easier

detected by the other participants within the chain to be of crucial importance when combating

the existing power structures in the general commodity chain.

According to Bebbington (1991), FOs can furthermore, by actively adapt and disseminate

agricultural technologies in programs they themselves control and administer, contribute to build

sustainable livelihood for the rural poor. In addition, farmer organizations can act as a ‘user

constituency’ for the rural poor, pressuring public sector and non-governmental agricultural

agencies to orient their work to the needs of the rural poor. Lastly, farmer organizations is

claimed by Bebbington to act as an ‘interface’ between the research and extension worlds of

development agencies and the livelihood conditions of the resource poor farmer population (ibid).

With the current recognition of the benefits attached to the creation of farmer organization, how

come the phenomena are not better splayed on a global scale? The Norwegian sociologist, author

and politician Gudmund Hernes (1975) lists five circumstances, under which the possibilities for

people organizing are reduced. The first obstacle in order to organize, Hernes claims to be the

possible deprivation of freedom of speech and organization among the citizens within a nation.

The second obstacle he identifies to involve costs. Namely, that the ones with the highest

advantages of joining such an organization are in some cases unable of handling the costs of

establishment, something often resulting in insufficient representation of interests. In his third

point, Hernes emphasizes the problem of solidarity. He claims the possibilities for organization to

be reduced when the actors with common interest within one field, are affected in different

degrees of resolutions made within other fields. His fourth point is touching upon more concrete

barriers. Even though actors have democratic freedom and permanent interests which are shared

with others, they can meet problems in terms of organization due to physical barriers (i.e. large

distances, poor infrastructure, etc.). In his final point, Hernes underlines despite overcoming all

the abovementioned factors, actors can still meet difficulties in the case of organization due to

their personal terms of action. The problem of free riders is to be found within the field of

organization as well as most other places in the society. When the services offered by an

organization are not limited only to its members, but to all members of the society, it is difficult

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to encourage organizational commitment (ibid). Despite being presented more than 30 years ago,

the problematic brought up by Hernes do still prevail, especially within the context of LDCs.

3.2.2 Participation

Holding the common goal of increased development for the global poor, the importance of

participation is commonly agreed. Organizing farmers is one way to encourage involvement, and

the history provides us with numerous evidences of the close connection existing between NGOs,

FOs and the level of participation.

The era of aid and development was up to the late 1970’s dominated by top-down approaches,

concerned by implementing western ideas and knowledge rather than to encourage participation.

Throughout history agricultural projects have tended to be (at least to some degree) participatory,

as farmers often have been included in discussions about their challenges and needs. Anyhow, it

is not until recently that the necessity of more formal participation has been recognized within

most disciplines, including the agricultural (Oakley et al. 1991). A common understanding does

now exist among most professionals, namely that in order to better ensure the success of a project

farmers’ participation has to be developed more formally (ibid).

In addition to recognize how to best ensure an agricultural project’s efficiency and effectiveness,

Oakley et al. (1991:26) address a range of benefits that can be gained from formal participation of

farmers. In areas containing low level of farmers with access and active contact with agricultural

services, formal participation can make the farmers (or clients) more visible and thereby

contribute to increase the coverage and extension of such services (individual farmers easier

ignored or ‘failed to see’). Furthermore, formal participation of farmers can help breaking down

the inherent resistance to change often apparent in farming communities, and as well assist dispel

any mistrust of external ideas by ensuring the farmers that their ideas will be taken into

consideration and built into the objectives of any given projects. By formal participation it is

easier to guarantee the needs of the farmers to be covered rather than only depend of the ideas of

the outside professionals. Finally, formal participation can make contributions to ensure projects

to benefit the groups of smaller and more marginal farmers, not only the ones better off (ibid).

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3.3 The role of NGOs NGOs, or non-governmental organizations, have experienced a steady increase of their activities

throughout the twentieth century, with a particular acceleration within the last couple of decades.

A recent estimate has claimed it to be between fifteen and twenty five thousand NGOs operating

on a global scale (Eade 2000). The primary geopolitical focus is concentrated on the ‘Third

World’ of former European colonies and the ‘Second World” of former (and some still

remaining) communist states (DeMars 2005). Their activities cover a spectre of issues, “…from

feeding famine victims and protecting endangered species, to eliminating nuclear weapons and

AIDS, to democratizing Russia and the Arab world” (ibid:1). Farrington, Bebbington et al.

(1993) claim NGOs to constitute for a promising, but not yet firmly established ‘third sector’.

Hence, it is a sector which is contrasting itself from the practices of both the public (state) and

private (for-profit), due to its frequent interaction with both.

But what is to be included in the expression NGO? All organizations without any governmental

interference, as the name implies? Bebbington, Thiele et al. (1993) claim the term NGOs to

traditionally been applied describing both national and international organizations, based either in

North or South. Clark is being criticized by Farrington, Bebbington et al. (1993) to be all

inclusive when applying the term. Despite distinguishing between the six categories relief and

welfare agencies, technical innovation organizations, public service contractors, popular

development organizations, grassroots development organizations and advocacy groups and

networks, Clark consider them all as NGOs. These classifications made by Clark do not make

any sense according to Farrington, Bebbington et al, claiming they are not being able to

distinguish the work by Oxfam with the work of a local neighbourhood organization when

applying his system. Instead they are presenting their own figure (3.5), where classifications in

accordance to location, scale ownership, orientation, approach and operational dimensions are

made (ibid).

Having the complexity of the term presented, I will throughout the remaining parts of the thesis

refer to NGOs as organizations giving support to grassroots organizations, rather than themselves

being one.

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Figure 3.5 NGOs: diversity in the crowd Source: Farrington, Bebbington et al. (1993)

By holding on to a belief of future changes not being foremost dependent on intellectual

breakthroughs, a big share of the NGO workers are committed to the idea of making a practical

contribution in order to create a better world. By this action-oriented approach they contrast

themselves to academics who concentrate their efforts on reflections, analyses and criticism

(Eade 2000). On a global level “… many NGOs saw [and still see] themselves as a ‘missing link’

not simply to develop participatory methods, but, equally importantly, to empower the rural poor

to contribute to technical change from their own resources, and to articulate demands on

government services more effectively” (Farrington, Bebbington et al. 1993: xvii).

Past state performance, including its economical and political impacts, is according to Farrington,

Bebbington et al. (1993) the factor most apparent to generate the interest of NGOs. Economic

concerns have been raised on the basis of inefficiencies as the outcome of state interventions in

the economy. Additionally, political concerns occur due to the belief of the state to govern on the

basis of own interests, rather than responding to the need of the society as a whole (ibid). Other

common strategies among NGOs are; 1) to work both with and within government structures in

order to influence policy and systems, 2) operational expansions, 3) national and international

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lobbying and advocacy, and finally 4) to strength the organization of the poor (including

networking and federations) (Eade 2000).

The last point by Eade is of particular interest conducting research at farm level. As mentioned

earlier in this chapter, farmers who organize enhance their chances of breaking out of the

traditional power structure within a commodity chain. Their odds are further strengthened if their

FO receives support from a NGO, as these organizations often constitute a part of an extended

network of partners not only holding agricultural knowledge and technology/equipment, but as

well political influence and economic resources. Being intercepted by a NGO can be vital for the

prosperity among individual farmers or an independent FO. By strengthening the producers in

certain areas or within specific organizations, Bebbington (1991) claims the appearance of NGOs

is likely cause power asymmetries at the producer level.

3.4 Theoretical framework One of the aims of this study (Q3) is to reveal the structure of three different types of marketing

channels within the Ecuadorian cocoa sector; the open market, direct purchases and contractors

with Multinational Companies (MNCs), and furthermore give account for the impacts

participation in each and every has on the price paid to the producers. Before initiate the process

of analysis, it is essential to give account for the factors expected to most influential for the

individual producer’s access to/choice of marketing channel. To be better equipped to analyze

this process, a framework for analysis of factors influencing choice of marketing channel and

price received among Ecuadorian small scale producers of cocoa was developed (Figure 3.6).

The framework, which aim is to give an answer to the third sub-objective, is principally build up

on three assumptions. The first is, as already indicated, choice of marketing channel to affect the

producer prices. The second assumption is, farmers with organizational commitment being more

likely to gain access to alternative8 marketing channels. And finally, external contributors to

accelerate contact between the different actors in the commodity chain; in this case enhance the

chances of a FO to be included in an alternative marketing channel.

8 By alternative marketing channel I indicate alternatives to the open market structure.

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Figure 3.6 Framework for analysis of factors influencing choice of marketing channel and price received among Ecuadorian small scale producers of cocoa

With basis in the five types of global value chain governance sketched out by Gereffi et al.

(2005) in Figure 3.2, I wanted to see if this was a system I came to recognize in the Ecuadorian

context. Furthermore, I aspired to investigate whether there are factors holding the force to brake

with the power asymmetry Gereffi is describing to be at its lowest in the open market and is

escalating until it reaches the hierarchical structure of an integrated firm. The measurement

applied to calculate the power asymmetries is the average price the participants in the various

marketing chains receive for their cocoa.

Applying abduction9 as my research strategy allowed me to develop the framework through

combining theory extracted from previous studies with my own field experiences. The above

listed assumptions, as well as the other variables presented in the framework, are all selected on

9 Abduction will be further described in Chapter 5.

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basis of first and secondary information and experiences of which determinants to be influential

to the price setting mechanisms within the Ecuadorian cocoa sector.

The uncertainties were many in the initial part of the research process as I neither held much

knowledge about the global, nor the Ecuadorian cocoa sector before start writing this thesis. Not

knowing exactly ‘where to start searching’ resulted in a rather comprehensive questionnaire10.

The survey was divided into five subsections, each one constituting for what I considered to be of

overall importance in revealing the differences in producer prices.

The first sequence of my questionnaire, cocoa production, was included with the intention to

reveal whether cultivation practices had any impacts on the price received by the farmer. As

already mentioned, there have been conducted a range of studies demonstrating insufficient effort

at producer level to cause low agricultural output (Ramírez 2006, 2007, Collinson and Leon

2000, etc). My motivation was to test whether the agricultural efforts had any impacts on the

price offered the farmers as well (through enhanced quality of the product). The second

subsection is marketing. Taking basis in the commodity chain theory presented earlier in this

chapter, I sought to identify the economical impacts of the individual producer’s sales practices.

Motivated to unveil the advantages obtained by producers participating in different kinds of

marketing channels, special attention was given to the five types of value chain governance

Gereffi et al. (2005) describe in Figure 3.2. Questions concerning national structures/policy

constitute the third part. This group of question was included into the questionnaire to

demonstrate the effects of Collinson and Leon (2000) claiming Ecuadorian cocoa to be marketed

without governmental interference. The matter of organization is the concern of the fourth

subsection, organization and participation theories providing the basis. Here I aspired to figure

out whether the motivation factors and outcome of joining an organization among my selection of

respondents being organized could be compared to the ones listed by Pesche (2000) and

Bebbington et al. (1991). Simultaneously I sought to disclose if it was possible to draw parallels

betweens the ideas presented Hernes (1975) and the motivations for not joining organizations

among the unorganized share of my respondents. In the last subsection, the respondents of my

questionnaire were asked to give account for their background information. These questions

10 See Appendix 5 and 6 for outline of the questionnaires (Spanish and English version)

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worked as control variables, controlling whether any personal characteristics could cause impacts

on the producer price.

In the selection of which questions from my survey to transform into independent variables in the

framework, two considerations were done. First, I drew advantage of the experiences gained

through conducting interviews and observations. Additionally, I got the questionnaires reviewed

by professionals within the Ecuadorian cocoa sector, expressing their opinions of the covered

issues. The hypotheses developed in this process (presented in Chapter 6), became later on the

independent variables presented in Figure 3.6.

The yellow dashed arrows at the very left side of the framework are included in order to illustrate

the assumed relationship between the independent variables. Unveiling the relationships between

these variables will be a task too comprehensive to include in this study, and they will therefore

not be given any further attention.

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4. Previous studies There exist a range of studies with their attention drawn towards agricultural commodity trade.

While some narrow down their focus to concentrate on one particular link within the commodity

chain, others hold motive of mapping the entire chain, including its function and its stakeholders.

These latter kinds of studies can either trace the chain upwards, with point of departure in farm

level, or downwards, with a finish product as their starting point. The amount of studies covering

the same aspects of cocoa trade, within the similar conditions as in my research area in Ecuador,

is however smaller. The absence of identical studies causes a wider range of studies to be referred

to in this chapter. Some of the research looks at trade and marketing of cocoa in West African

countries, while other is conducted in Ecuador, concentrating on various aspects within the

national cocoa sector. Unfortunately, I am a little bit too early in getting my hands on a study

currently carried out by the ICCO11 in Ecuador (among several countries), analysing the value

chain in cocoa producing countries

4.1 Commodity chain studies in Ecuador Pilar A. Jano (2007), conducting a study of the marketing chain of Ecuadorian cocoa for her

Master degree at Virginia Polytechnic Institute and State University in 2007, brings up the very

important issue of incentives to produce quality, in form of price premiums, not to be transmitted

efficiently along the marketing chain all the way down to farm level. Among the range of themes

she covers in her thesis, a specific attention directed towards the role of the middlemen is to be

found. Jano concludes with intermediaries to be weak on transaction transparency, creating

transaction costs impediments and reducing the transmission of price incentives to the farmers,

with particular respect to incentives to produce high quality cocoa. Additionally, the author

advertises for the national standards to approve the cocoa exports (INEN norms) to be modified,

resulting in exporters being more demanding with respect to quality from the wholesalers who

will transmit these requirements to the local middlemen and finally to the producers.

Conducting a study of the economic viability of ethical cocoa trading in Ecuador, Chris Collinson

and Marcelo Leon (2000) take point of departure in Agroexportadora Maquita, an alternative 11 For further project description, see http://www.icco.org/projects/projects1.aspx?id=z2p2766

- 25 -

trade organization operating in Ecuador. The aim of their study is to find out how current ethical

trade practitioners operate in the forest products context and whether the trade brings incremental

benefits to forest dependent people. They conclude with Maquita’s business performance to be

impressive, as Ecuador provides a difficult environment in which to conduct business with a

national marketing system not restricting competition. Due to its remarkable commercial

performance, the organization has managed to deliver substantial economic benefits to its target

smallholder cocoa producers. Thereby the authors stress the importance of organization and

collective sales to be carried out in order to enhance the income level of Ecuadorian cocoa

farmers. Certifications (Fair Trade, Rain Forest friendly, Organic, etc) contributing to increase

the value of their product are difficultly achieved for individual farmers. Easier access to

certifications is one of a whole range of factors contributing to an enhanced likelihood of

increased income for smallholders joining organizational activities.

Anthony Bebbington (1991) is covering the issue of farmer organizations in Ecuador. In addition

to bring up three main functions of farmer organizations (already referred to in the theory

chapter), Bebbington claims Ecuadorian FOs to be formally organized at several levels. Moving

away from the basic stage constituting for a household or kin group, FO’s are found at

community-, parish- and county level. While the lower level groups primarily perform an

interfacing function, the active research and extension function, in addition to the constituency

role, are more likely to be performed among the higher level groups. Another point made by

Bebbington is the interference of NGOs. Despite bringing a range of advantages to the FOs

‘gaining their support’, external contributions by NGOs are likely stimulate competitiveness

between communities and thereby weaken the inter-community collaboration.

Being presented as a study of the structure and dynamics of the Ecuadorian cocoa chain, the

technical document set out by Pedro Ramírez (2006) for Ecuadorcocoaarriba12 gives a thorough

account for the different mechanics and actors in the global cocoa market. Loaded with frequent

statistics and illustrations, the paper is designed as a general ‘cocoa guide’. The document

provides the reader with useful and well arranged information, especially in its last chapter,

12 A collaboration between the German international cooperation enterprise GTZ and the Ecuadorian innovation and exportation organ CORPEI

- 26 -

presenting the visions and goal for how the chains should develop towards 2010. The formulation

of these goals can be interpreted as solution to current problems or challenges within the sector.

Some of them Ramírez identifies to be: 1) Renovate and create new plantations in order to obtain

larger volumes 2) Ensure better quality of the cocoa exported by strengthen the national quality

control system, forbid exportation of products with poor quality and create agreement within all

levels of the chain in order award (economically) high quality cocoa 3) Create new and

strengthen existing farmer organizations to encourage collective commercialization.

CORPEI (2006) is the author of Ecuador Exporta, a magazine presenting various issues

concerned with innovations and market dynamics. In December 2006 the entire edition was

dedicated to the topic of how to establish a competitive strategy of the chain of fine and aromatic

cocoa in Ecuador, with various key figures in the Latin American cocoa industry making their

contribution. The conclusion of where to direct the attention after having the different viewpoint

presented, was narrowed down to include four core areas: 1) Enter new markets 2) Increased

quality of the cocoa 3) Provide technical assistance 4) Extended commercialization. Based upon

the background of the contributors in this debate, these four areas are where the LA ‘cocoa elite’

identifies the recent, most severe challenges in Ecuadorian cocoa sector to be located, and where

future improvements must be carried out.

4.2 Studies of international cocoa trade With an aim to investigate the effects of domestic policies on exportable primary commodities,

W. Asenso Okyere (1989) applies the case of cocoa in Ghana. In the paper he argues it is not only

international market problems, but additionally the misguided and conflicting economic policies

of LDCs which are responsible for the economic challenges faced by these nations. In order to

illustrate his point, Okyere illuminate the strong connection between LDCs domestic economic

policies and the well-being of their export sector. In the conclusion, the author explains the

improvements in the Ghanaian cocoa sector and the nation’s economy to be caused by the

country’s careful examination and adjustment of its domestic economic prices, rather than

improvements in international terms of trade or dramatic changes in the consumer demand for

cocoa.

- 27 -

In a working paper for National Bureau of Economic Research (NBR), Christopher L. Gilbert

and Panos Varangis (2003) take point of departure in West African cocoa producers in

illustrating the effects of liberalization of the tropical agricultural markets. As a consequence of

the liberalization, which major objective was farmers to obtain a higher share of the FOB price,

cocoa producers do now face global, rather than domestic prices. The motivation for the study

conducted by Gilbert and Varangis was to identify what impacts this new trade pattern, caused by

an increased globalization, has caused on producer level. The authors argue producers currently

to get a higher share of a lower price, as lower world prices are the outcome of a downward shift

of the aggregated supply curve, in conjunction with inelastic demand. In other words, the farmers

belonging to the liberalized African markets can in general not be claimed for being better or

worse off.

Ghana provides as well the basis for Niels Fold’s (2002) studies stressing the importance of

spatial sub-systems of the global cocoa chain. According to Fold, the structural patterns and

relationships in two given sub-systems, the regional trading-sorting-grinding complex in the

Zaanstreek, Amsterdam and the national cocoa bean supply system in Ghana, suggest that the

dynamic of ‘bi-polar’ buyer-driven chains is best comprehended in terms of various types of

containment strategies of the lead firm. In the type of bi-polar chain Fold claims the cocoa chain

to be, the major markets are slow-growing and far-reaching mergers and acquisitions are

extremely costly. These characteristics make containment the key for understanding the dynamics

of the chain. In the understanding of the word containment, Fold includes “…company strategies

constantly defend and try to improve positions in the global market by creating competition

among suppliers upstream and expanding the portfolio of customers and sales outlets

downstream” (ibid: 246). Like Gilbert and Varangis, Fold brings up the theme of liberalization

and privatization of domestic trade, by stating the former focus on market prices now to have

been accompanied by a concern for global supply stability. The reason for this concern is the

impacts declined income among smallholders may have on the global supply of cocoa. The

producers are likely to put less effort in the cultivation practices if they feel they are not awarded

properly for their labour input.

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5. Method

“Sometimes we find a case, and sometimes a case finds us. In both instances, selection combines

purpose and serendipity” (Hay 2000:41).

5.1 Case studies The phrase by Iain Hay introducing this chapter does in a large degree reflect the circumstances

which took place in my own process of picking a case to investigate. My aim, or purpose, was to

conduct a case study concerned with agricultural commodity trade in Latin America, a

coincident, or call it serendipity, made it cocoa trade in Ecuador.

A case study Yin (1993:3) defines as a “... method of choice when the phenomenon under study is

not readily distinguishable from its context”. Sine I was to compare the average price received by

cocoa producers participating in various marketing channels, it became crucial to locate a

geographical area where these kinds of farmers were to be found, producing and selling their

cocoa under conditions as similar as possible. To give account for the circumstances giving the

producers access to one of the given marketing channels, a framework for comparative case study

was applied. The application of such a comparison, Charles C. Ragin states “... provides a basis

for making statements about empirical regularities and for evaluating and interpreting cases

relative to substantive and theoretical criteria” (1989:1).

5.2 Choice of research strategies

5.2.1 Abduction

The 20th century’s philosophers of science have generally drawn distinctions between the logic of

discovery and the logic of justification. With the aim of unifying these two perspectives and

providing some design insights for future ones, the new abstraction paradigm of abduction was

introduced (Magnani 2001).

- 29 -

Figure 5.1 The epistemological model of diagnostic reasoning Source: Magnani (2001:23)

Abduction explains effects. It is reasoning

from effect to cause or reason. Declaring

theory both to guide and to be the

outcome of research, abduction must be

placed somewhere in between the

disciplines of deduction and induction.

Daniel W. Bromley (2006:217) claims

abduction to be ”… inferring the

existence of a fact quite different from

anything observed, from which, according

to known laws, something observed would

necessarily result”. By this he recognize a

third way of knowing, and thereby

contrasts himself from other scientists

who he claims to be unaware of this fact,

as they are imagining “… induction and

deduction [to] constitute (and exhaust) our

ways of fixing beliefs” (ibid: 23). Bromley

furthermore argues abduction to provide

valuable insights and prospects to

researchers, or others, deeply interested in discovering the reason for the occurrence of particular

events. To better illustrate the distinctions (and connections) between induction, deduction and

abduction, Magnani (2001) developed an epistemological model of scientific theory (Figure 5.1),

demonstrating abduction to take use of both observed and expected data in creating hypotheses.

5.2.2 Combining qualitative and quantitative research

The recent increase in the application of multi-strategy research can be interpreted as an outcome

of the criticism directed towards both the quantitative and the qualitative research strategies. As

have been argued by Sayer (1992 quoted in Hay 2000:39-40), that “… each method helps us

answer different research questions, employs different research methods, has different

limitations, and ensures rigour differently”. By combining quantitative and qualitative data, the

- 30 -

researcher is able to take advantage of the qualities from both types (and thereby prevent some of

the limitations held by each) and additionally, he or she can benefit from the possible synergies

between the two.

5.2.3 Validity and reliability

By claiming “Communicating qualitative research is as much about how we know, as it is about

what we know” Iain Hay (2000:180) underlines the importance of transparency in the research

process, including the matters of validity and reliability. Validity, defined by Bryman (2004:545)

as “… a concern with the integrity of the conclusions that are generated from a piece of

research”, can be categorized as external or internal. While the external is concerned with the

possibility of generalization across social settings, the internal examines the correlation between

the observations done by the researcher and the theoretical ideas and concepts developed (ibid).

By applying methods which provides you with more than one technique to measure a concept,

the confidence in your findings is likely to be enhanced (Webb et al. (1966) referred to in

Bryman 2004). In this study a triangulation is constituted by combining the use of questionnaires

with in-depth interviews and independent simple observations, enabling me to cross-check the

obtained results from one research method with another. Reliability, asking to what degree the

measurements of a concept are stable, is of particular concern within the area of quantitative

research. As it is impossible to freeze or copy a social setting, the criterion of reliability is more

difficult to meet in qualitative research (Bryman 2004). Reliability is closely connected to

replication, asking whether the results of a study are possible to repeat or not. A way for the

researcher to ensure the trustworthiness represented by reliability and replication is through

transparency, by detailed descriptions of his or her procedures during the investigation. It is

easier for a researcher to create trust among his readers by being conscious (and consistent) of the

importance of reliability from the very start of the investigation process.

5.3 Choice of methods for data collection The information gathered to this study was extracted in two different ways; through quantitative

and qualitative research strategies. The purpose behind combining the two strategies was the

quantitative data collection to assist guide the direction of the further qualitative research.

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Holding a limited number of contacts in the area in which I was to carry out the fieldwork, the

respondents for both research strategies had to be picked through the application of snowball

sampling. Snowball sampling is identified by the researcher first to establish contact with a small

group of people, and further uses these contacts to find further participants for his or hers

research (Bryman 2004). In this case, this initial group of people was key figures (above farm

level) within the marketing channels I was to investigate.

5.3.1 Quantitative methods

To extract quantitative information from the producers, questionnaires primarily made up of

closed questions were distributed. The motivation for using this technique was surveys being a

great way to gather standardised and comparable information easily applied in data analyses, and

additionally being able to collect a rather large quantity of data within a short period of time.

Expecting the level of illiteracy to be high among my respondents, I designed most questions to

contain alternatives to be ticked out. Reading the questions out loud and encouraging the

respondents to help each other if written comments or explanations where requested, enabled me

to gather information from groups of respondents simultaneously (which was crucial for me as I

was to collect all the data myself). The questionnaires were commented and adjusted by one of

my contacts in the Ecuadorian cocoa sector and pre-tested by a group of farmers before applied

for further the data collection.

5.3.2 Qualitative methods

The part of my fieldwork involving qualitative research was based upon semi-structured

interviews and observations. In addition to interview a selection farmers, the purpose of my

qualitative data collection was to extract information from actors above farm level. Carrying out

interviews at producer level, point of departure was taken in the questions listed in the

abovementioned questionnaire. In order to transform the questionnaire to a semi-structured

interview guide the original questions were made more open. By eliminating the alternatives

given in the questionnaire I allowed my respondents to answer on their own terms and to come

up with unexpected responses.

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When conducting interviews with purchasers, NGO workers and other key figures within the

cocoa sector, I applied loosely designed interview guides based on few, but very wide questions.

When collecting this ‘additional information’ I took full advantage of the flexibility of the semi-

structured interviewing. I made continuous adjustment in between and during interviews in order

to extract information as useful as possible.

When entering the ‘unfamiliar’ role as an interview object, the respondents are likely forget,

oversee or avoid certain facts, with or without purpose of doing so. In order to achieve a general

overview and better understanding of information hard to extract from interviews I applied

simple observation. Bryman (2004:544) defines this research method as “… the passive and

unobtrusive observation of behaviour”. By doing so, I got the possibility to discover ‘everyday’

events and practices with my own eyes, trying not to interrupt the surroundings with my

appearance.

5.4 Choice of methods for analysis Having conducted a multiple-strategy research, including the collection of both quantitative and

qualitative data, different methods and equipments are needed in order to analysis the results.

5.4.1 Analysis of quantitative data

The quantitative data collection was carried out to reveal tendencies apparent among my selection

of respondents, as well as to develop a solid and clearly set out basis for the further analysis

throughout the commodity chain. To examine, identify and explain connections between the

gathered quantitative information different techniques in SPSS and MiniTab were applied. My

theoretical framework containing two different stages in need to undergo quantitative analyses

implied two distinct regressions to be conducted. In the first regression analysis marketing

channel was appointed to be the dependent variable, in the other, producer price. The two

dependent variables being differently shaped created a need for two different types of analyses to

be applied running the regressions. Marketing channel being a categorical variable with the

alternatives open market and direct purchase, requested the application of binary logistic

regression. Producer price being an ordinal variable enabled me to run a linear regression in

SPSS in order to both measure and draw relationships between the variables.

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Multiple regression

As multivariate analysis enables the researcher to augment the numbers of variables applied, it is

claimed to cause a better coverage and a more complete presentation of the overall picture of the

specific research area (Midtbø 2007). Running a multiple regression does as well result in

augmented precision, and thereby enhanced credibility. This is achieved by exclusion of

distorting influences from the other independent variables, as these are held constant while the

effect of one particular variable is measured (Midtbø 2007, Lewis-Beck 1980).

The purpose of conducting a regression analysis is to identify the relationship between the

dependent variable Y and the explanatory variable X (Hagen 2003). The procedure of performing

a multiple regression is a straightforward extension of a bivariate (Lewis-Beck 1980), but where

the latter is only concerned with identifying a relationship between two variables, a multivariate

analysis ”entails the simultaneous analysis of three or more variables” (Bryman 2004:235). As

“… few phenomena are products of a single cause” Lewis-Beck (1980:47) argues for the

dependent variable to be fuller explained with the application of multiple regression.

In simple linear regression, the outcome variable Y is predicted using a straight line/equation

(Field 2005). In an elementary three-variable case is Y to be determined by X1 and X2, plus the

error term e. Y = Dependent / result variable X = Explanatory / independent variable(s) a = Constant b = Parameter for explanatory / independent variable(s) k = Number of explanatory variables e = Error term Subscript = Explanatory variables

Y = a0 + b1X1 + b2X2 + b3X3 … bkXk + e

Working with a dependent variable which is categorical requires the application of logistic

regression. The reason this is the relatively high probability for the assumption to be violated

when a dichotomous outcome variable is applied in a linear regression. Logistic regression is

characterized by Andy Field (2005) as a multiple regression applying a dependent variable which

is a categorical dichotomy and predictor variables being either continuous or categorical. In other

words, logistic regression identifies to what degree the various independent variables have any

impacts of whether the dependent variable inhabit one out of two different characteristics. The

equation for a multiple predictor version is written:

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P (Y) = Probability for Y to occur

e = The base of natural logarithms

b0 = Constant x1 = Predictor variable b1 = Coefficient

P (Y) = _______________1_________________ _ (0 + b1x1 + b2x2 + … + bnxn + εi) 1 + e

Studying the equation a multiple regression equation can be identified at the bottom line. Despite

the similarities between the two analyses, we cannot apply linear regression directly into a

situation in which the outcome variable is dichotomous. The reason for this is the

abovementioned assumption of the relationship between the variables in a linear regression to be

linear in order for the model to be valid.

Multicollinearity

Multicollinearity, meaning “… a situation in which two or more variables are very closely

linearly related” (Field 2005:738), might affect the parameters of a regression model. Perfect

multicollinearity occurs when one of the independent variables is perfectly correlated with

another independent variable or linear combination of other independent variables (Lewis-Beck

1980). According to the Swedish professor of mathematics Rolf Sundberg (2002:365), “The

‘collinearity problem’ refers to the fact that in a multiple regression with collinearity, least

squares regressions are unstable or not even uniquely defined, have highly inflated variances,

and are impossible to interpret individually”.

With the following multiple regression model: Y = a0 + b1X1 + b2X2 + e,

a perfect multicollinearity would be present if: X2 = c0 + c1X1

as X2 is the perfect linear function of X1 (Lewis-Beck 1980).

Sundberg (2002) argues that there are two frequent causes for collinearity. He claims the first to

take place when the independent variables represent the composition of a sample so they sum up

(or very near) to a 100%. The second cause occurs in the application of a measuring instrument

meant to register a large set of variables (often automatic) is exposed to a limited sample (i.e. due

to cost or time reasons). A perfect multicollinearity will cause a breakdown of the entire analysis

(Midtbø 2007). But although a high level of multicollinearity will make it hard to separate the

individual effects, its occurrence does not necessary cause harm to a prediction. The most

- 35 -

important consideration to take when collinearity is detected is to find out whether it is inherent

in the studied data set, or if it is generated by design (Sundberg 2002).

5.4.2 Analysis of qualitative data

The purpose of my qualitative data collection was not only to fill in the gaps from the

quantitative research, but as well to conduct a further and deeper investigation moving upwards

in the commodity chain and seek to talk to key persons within the Ecuadorian cocoa sector.

Content analysis

In order to seek meaning from the data, researchers analyse the information extracted during

interviews. A content analysis can either be carried out searching for manifest or latent content

(Hay 2000). While a Manifest Content Analysis (MCA) is used in order to evaluate the visible,

surface content of a document, the Latent Content Analysis (LCA) is applied to search the

document for certain themes. The document, often being an interview transcript, is thereby

searched for different words (expressing feelings, etc) in a MCA, and for a specific matter in a

LCA (ibid). A range of definitions are set out in order to cover the purpose of a content analysis,

in most of the suggestions the qualities objectivity and being systematic are referred to. This is as

well apparent in the definition drawn by Holsti in 1969, claiming content analysis to be “… any

technique for making interferences by objectively and systematically identifying specified

characteristics of messages” (quoted in Bryman 2004:182).

Narrative analysis

To get a better understanding of the interviewees’ perception of certain events or circumstances,

the application of a narrative analysis can be useful. According to Bryman (2004:412) “Narrative

analysis is a term that covers quite a wide variety of approaches that are concerned with the

search for and analysis of the stories that people employ to understand their lives and the world

around them”. In other words, it is not what really happened which is focused on, but rather to

create an understanding of how the respondent makes sense of it. In my case, asking the

producers about the dynamics of the commodity chain will not necessarily provide me with the

correct answers, but I will get an idea of how the farmers comprehend the different mechanisms -

an opinion which can be even more interesting.

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6. Analysis and discussions

Before presenting the analysis I will give a brief description of the research area and my sample.

The three following sections (6.2 – 6.4) will be dedicated to the analysis of my sub-objectives,

one by one being presented within each sub-chapter. Section 6.2 will be a rather comprehensive

chapter, giving account for the organization of the production and marketing of cocoa in Ecuador.

In Section 6.3 the producer prices received by the farmers participating in different marketing

channels are presented and compared to price statistics published by ANECACAO and the

Ecuadorian Ministry of Agriculture and Livestock (MAG). Finally, section 6.4 explains the

various factors causing variations in the producer price among the participants in the various

marketing channels.

6.1 Research area and sample

6.1.1 Research area

According to the last Censo Agropecuario (national agricultural survey), realized in 2000,

243 059 hectares of single cultivated cocoa and 190 919 hectares of associated cocoa cultivation

exist in Ecuador (SICA 2007d). The province of Los Rios account for 24,1% of the nation’s

single cocoa production, while Guayas account for 21,8%, Manabí 21,63%, Esmeraldas 10,09%

and El Oro 7,62%. The left out share (14,76%) is cultivated in the remaining provinces of the

inter-Andean alley and in the Amazon (ibid).

As mentioned in the Chapter 5, my goal was to accomplish a study of cocoa producers

participating in open markets, contractors with MNCs and direct purchases. The occurrence of

these three groups of farmers became therefore crucial in my selection of research site. Having

located several provinces where participants in the three marketing channels were apparent, the

final decision fell on Los Rios. Choosing Los Rios was not done only on the basis of holding the

county’s biggest share of single-cocoa producers, but as well its geographic position was a

contributing factor for this choice. Being located halfway between the capital Quito and the

location of Ecuador’s most important port, Guayaquil, made transportation in between the three

sites relatively fast and uncomplicated (see illustration in Figure 6.1).

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Quevedo and the county of Los Rios

Machala and the county of El Oro

Guayaquil

Quito

Figure 6.1 Cocoa producing areas in Ecuador Source: SICA (2007e)

I was provided with two valuable joint venture partners, since I succeeded to establish contact

with the Swiss MNC Nestlé and the North-American NGO ACDI/VOCA. As they both operated

and held a network of farmers situated in the area close to Quevedo, the city was picked to be my

main base during the field work. In addition to the three abovementioned locations, a field trip to

the country of El Oro was arranged in collaboration with Nestlé. The reason for this was to

conduct an interview with the organic certifier BCS ÖKO-Garantie located in Machala, as well as

meet with individual farmers having managed to get their cocoa plantations certified without any

organizational commitment.

6.1.2 Sample

The initial part of the snowball sampling process was both hard and time consuming. Despite

using a lot of time and effort in Norway trying to establish contacts, my network within the

national cocoa sector was rather small when arriving Ecuador. Before departure, internet searches

and e-mail correspondences constituted for the main part of the sampling process. After arriving

Ecuador I could act more directly, making phone calls and looking up the desired contacts at their

offices. One of the most challenging parts in the process of creating a network (both before and

- 38 -

during my fieldwork) was to deal with aspects like frequent delays and cancellation of meetings,

unreliability and disclaims of liability. These ‘cultural differences’ resulted in many

disappointments, schedules being revised over and over again and lot of waiting and uncertainty.

The importance and utility of networking are increasingly being acknowledged on a global scale,

and this was something I certainly got to experience during my fieldwork. When reaching

through to key figures in ACDI/VOCA and Nestlé (which came to be my most important partners

both during and after my stay), getting access to farmer organizations, as well as other actors in

the sector became a lot easier. Additionally, this cooperation, especially with ACDI/VOCA,

became crucial for reaching out to the producers, as they, due to lack of registration and mapping,

were hard to track without holding local knowledge.

After spending three months in Ecuador I had managed to collect 96 questionnaire responses and

conducted about 50 interviews with various actors placed at all levels within the national

commodity chain (including unskilled and professionals, both directly and indirectly involved in

the process of commercialization). Unfortunately the intended group of contractors with MNCs

had to be eliminated. This happened due to two reasons. First I came to experience that Nestlé

encouraged and stimulated to direct purchase without signing supply contracts with the farmers.

As the farmers did not have any obligations to Nestlé and where free to sell their cocoa to various

purchasers (which they did when they were offered higher prices), the differences to the farmers

selling their cocoa at the open market vanished. Secondly, the strategy of Nestlé to increase the

amount of cocoa being purchased directly from the farmers was a brand new project and the

producers involved were still very few. Hence, it would have been hard to gather responses from

a sufficient amount of farmers. Despite the difficulties, I did accomplish the cooperation with

Nestlé. My contacts within the corporation provided me with valuable information about the

purchasing practices carried out by the company and the Ecuadorian cocoa sector in general.

Furthermore, holding a vast network, my contacts helped me get in touch with a range of actors

within the sector. Additionally, I was enabled to conduct interviews with some of the farmers

recently being included in the project of direct purchase, learning about their experiences so far.

- 39 -

Selecting the sample for my questionnaires

The respondents for my questionnaires were selected through snowball sampling and were

located in five geographical areas. With the exception of Guayas (where the recently mentioned

Nestlé ‘contractors were found), all locations were situated within one hour drive from Quevedo.

Table 6.1 Age, sex and geographical division of the respondents answering the survey

RESERVA BUENA FE /INDEPENDENCIA

LOLA GANGOTENA

PASAJE GUAYAS Age group

Male Female Male Female Male Female Male Female Male Female

SUM

< 20 0 0 1 1 5 1 0 2 0 0 10

21 – 30 0 0 5 1 0 0 2 0 0 0 8

31 – 40 0 0 3 0 2 0 3 0 3 0 11

41 – 50 4 1 4 1 8 0 7 1 2 0 28

51 – 60 2 0 9 1 1 0 4 4 0 0 21

> 60 2 0 2 1 1 0 2 0 0 0 8

Blanc 0 3 2 5 0 10

SUM 8 1 24 5 17 1 18 7 5 0 96

According to Pedro Ramírez (2006) the average Ecuadorian small scale cocoa producer is a

grown up man spending all his days working in the field. Table 6.1 presenting my quantitative

sample corresponds fairly well with this statement, as 80% of the respondents were men, and

57% were placed within the ‘grown up’ age groups 41 – 50 and 51 - 60.

ICCO claims cocoa to be predominantly a smallholder crop as 90% of the world’s cocoa

originates from farms below 5 hectares (ICCO 2007d). This tendency of small scale production

to be prevailing was apparent among my respondents as well, 71% of the farmers holding

plantations less than ten hectares. The entire land distribution among the farmers answering my

questionnaires is illustrated by blue columns in Figure 6.2 at the next page.

During the data collection I came to realize having applied an unsuitable measurement for the

alternatives to be ticked out for the question concerning size of plantation. The Ecuadorian

Ministry of Agriculture and Livestock applies the measurement of cocoa plantations to be small-

(< 10 ha), medium- (11 – 50 ha) or large (>50 ha) sized (SICA 2007a). Being focused on getting

my respondents to fit into these categories, I defined the alternatives which were to be ticked out

- 40 -

too wide. Since I had cocoa producers representing the three lower categories when test-driving

the questionnaires, I did not realize I was using improper alternatives before it was too late. The

consequence of my misjudgement is easily spotted in Figure 6.2, as about all of the respondents

are found in the three lower categories. According to numbers from INIAP, the average size of a

cocoa plantation within the county of Los Rios is 4,27 hectares (Enriquéz 2004).

0102030405060708090

.> 10 .11 - 20 .21 - 30 .31 - 40 .41 - 50 .< 50

Size of plantations (ha)

My respondentsNational average

Figure 6.2 Size of plantation in hectares

The Ecuadorian Ministry of Agriculture and Livestock makes a division between mono-croppers

and multi-croppers when publishing statistics concerned with size of the cocoa plantations (SICA

2007a). Among the 58 466 mono-cropping units found in the Ecuador, MAG claims 50% to be

small scale producers, meaning cultivation 1 – 10 hectares of land, 17 % to cultivate up to 20

hectares, 20% to cultivate up to 50 hectares, and the reminding to cultivate more than 50 hectares

of land. Among the multi-croppers, 49% cultivate 1-10 hectares, 20,35% cultivate up to 20

hectares, 20,66% cultivate up to 50 hectares, while the reminding are production units cultivating

more than 50 hectares of land (ibid). Approximating these data, the percentages 50 – 20 – 20

(6,67 – 6,67 – 6,67) – 10 can be added into Figure 6.2 (violet columns). Comparing the two sets

of columns it is easily observed my respondents to hold less land than the national average.

Selecting the sample for my interviews

In addition to distribute the questionnaires, I conducted a range of semi-structured interviews.

The interviews were done actors operating within all levels of the commodity chain and gave me

an overall picture of the Ecuadorian cocoa sector.

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Type of respondents: Number of interviewees:

Cocoa producers 13 Intermediaries 12 Exporters 6 Others 19

Table 6.2 List of interviewees

The first group of interviewees illustrated in Table 6.2 is the cocoa producers. Conducting

interviews in addition to distribute the survey, I was allowed to go more thoroughly into issues of

interest. Collaborating with ACDI/VOCA enabled me to participate in various FFS (Farmer Field

School) ceremonies and FO meetings. In addition to get to observe the practices of such

gatherings, I saved a lot of time distributing my questionnaires to several farmers within the same

location. I interviewed two of three farmers at each geographical location in which questionnaires

were mass distributed. When I participated in the meetings of farmer organization, the leader of

the organization was always interviewed. Additionally one or two interview objects were selected

randomly. As well as to meet with cocoa producers collectively, I carried out various individual

visits. The interviewees I visited at their homes were selected through snowball sampling (one of

my respondents was actually the nephew of the owner of the hotel where I stayed). The way the

interviews were conducted depended a lot on the situation. While I sat down with some farmers,

others wanted to show me their plantation. Conducting interviews during transect walks enabled

the respondents to better illustrate issues being brought up. As well, this technique allowed better

answers to be given, as the respondents found themselves in safe and familiar surroundings

during the interview.

The actors placed between producer and exporter level are normally referred to as intermediaries

or middlemen. These are actors in the value chain earning their living by purchasing cocoa, either

from producers or intermediaries placed below them in the chain, and conduct resale to actors

inhabiting a position higher up in the chain. There are two groups of intermediaries; the ones who

hold a physical location where the sales take place, and the ones who do not. The ones without

any physical location are often the ones operating in the most deserted areas, conducting sales

- 42 -

with cocoa producers without access to markets or transportation opportunities. In remote areas

the competition among the intermediaries is normally scarce. If there are several middlemen

operating within the same area, they try to attract clients with fringe benefits like lending services

and advanced payments. The second group of intermediaries are the ones holding fixed locations.

Being physically established in an environment where competition is likely to be apparent, makes

these middlemen operate in a distinct way than the first mentioned group. The middlemen were

often hard to track and unwilling to talk. While some interviews were conducted within the

duration of a purchase or a sale, others were carried out more profoundly. Anyhow, after

spending quite some days tracing middlemen, I managed to collect the needed information in

order to move one step upward the commodity chain.

The third group of interviewees is the exporters. They tend to be located in core areas for

commercialization of cocoa (in Guayaquil or in the ‘capital’ of highly productive cocoa

producing regions), and are directing their sales primarily towards foreign buyers. Most of the

exporters are associated through ANECACAO (2007), which lists 35 different purchasers to be

connected through the association. I got to conduct interviews with representatives from 6 of

these exporters, three located in Quevedo (Manobanda, Martinetti and Quevexport), the

remaining in Guayaquil (Nestlé, Transmar (Colonial) and UNOCACE). The reason for selecting

these exporters was I traced them to be destinations for the cocoa being cultivated by my

respondents.

‘Others’ constitute the fourth and final group of respondents of my interviews. I addition to

conduct interviews with actors directly involved in the production and commercialisation of

cocoa, I did as well talk to a range of other key figures in the Ecuadorian cocoa sector. Some of

them, like the ones representing ANECACAO and the Ministry of Agriculture and Livestock

were early targeted, while others caught my interest first after being mentioned by other

respondents (INIAP, GTZ, BCS, etc). After having been exposed to a range of personal opinions

conducting interviews within the value chain of cocoa, these respondents13, holding more general

viewpoints, were useful in order to avoid getting too narrow minded.

13 A complete list of correspondences and interviews conducted is found in the Reference chapter, in the very end of the thesis

- 43 -

6.2 How is the production and marketing of cocoa organized in Ecuador?

According to the Food and Agriculture Organization of the United Nations (FAO), cocoa beans

happened to be Ecuador’s 2nd biggest agricultural export commodity in 2004, contributing with a

total value of $ 102 364 000 (FAO 2007a). The same year, Ecuador was ranked as the world’s

eight biggest cocoa beans exporter (FAO 2007b), with a total production of 111 000 Metric tons

(MT) (Ecuadorcocoaarriba 2005a). As mentioned in Chapter 2, the Ecuadorian cocoa sector has

undergone numerous difficulties over the last decades. Despite being faced with substantial

challenges, the country has managed to maintain its position among the world’s ten largest

producers of cocoa beans. Figure 6.3 illustrates the Ecuadorian market share compared to its

closest competitors in the global production of cocoa in grain over the last 15 years.

Figure 6.3 Global production of cocoa beans, in thousand tons Source: UNCTAD (2007c)

Directing the attention towards marketing and production of cocoa in grain, writing this thesis

should not understate the importance of holding an awareness of the impacts export of semi-

elaborated cocoa have on the national economy. All four cocoa elaborates processed in Ecuador

were in 2004 ranked among the 20 largest agricultural export commodities. Numbers from FAO

(2007a) reveal cocoa butter, constituting for a total value of $ 23 803 000, was ranked as number

9, cocoa past number 15 ($ 10 041 000), and cocoa powder and cake number 18 ($ 9 076 000).

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The same year, 60% of the cocoa produced in Ecuador was exported in grain, 35% was converted

into raw material to be applied in both the production of chocolate and semi-elaborates, while 5%

has the national art and craft sector as its destination (Ecuadorcocoaarriba 2005a).

6.2.1 The structure of the Ecuadorian cocoa market

With point of departure in the conventional cocoa value chain14 illustrated in Figure 6.4, David

Phillips and Anne Tallontire (2007) give their support to the ideas presented by Kaplinsky and

Morris (2002) in Chapter 3, claiming reality to be much more complex than the four basic steps

characterising a simple value chain. Asserting the complex pattern found in Figure 6.4 to be

apparent in the global conventional cocoa sector, Phillips and Tallontire argue for the need of

sustainable purchasing practices to be integrated into the criteria and culture of the ‘mainstream’

cocoa buyer. If such practices are implemented, benefits are not longer only to be gained by

farmers operating in niche

market supply chains.

Figure 6.4 The conventional cocoa value chain Source: Phillips and Tallontire (2007)

Phillips and Tallontire

(2007:2) describe the

conventional cocoa value

chain to be “[a highly

complex system] …

consisting of various actors

including local collectors,

various intermediary

traders and wholesalers,

exporters, brokers, cocoa

processors, and chocolate

manufactures. Therefore, in

the course of converting

14 Phillips and Tallontire (2007) create a dichotomy by separating the conventional cocoa value chain from the niche market supply chains.

- 45 -

cocoa beans the raw material will be traded several times, with value different stages, at each of

which a margin is taken”.

The complex pattern described by Phillips and Tallontire is easily observed within the

Ecuadorian context. In order to get a general overview of the national cocoa sector, Figure 6.5

forms a solid foundation. The flowchart is based on an illustration made by Ecuadorcocoaarriba

(2005a), where the four different stages of production, commercialization, processing and

consumption are given colour codes. In this research, the major attention has been given to the

agents found in the green and yellow coloured sections, concerned with production and

commercialization of cocoa. However, it is important to take notice of one of the agents within

the stage of processing, the ones who carry out the quality certification. In Ecuador, this task is

carried out by the national association of cocoa exporters, ANECACAO. The national requisites

of not letting any cocoa pass the boarders without being approved for certain requirements, make

ANECACAO inhabit one of the most powerful roles within the Ecuadorian cocoa sector.

Figure 6.5 The national cocoa chain Source: Ecuadorcocoaarriba (2005a) Translated by author

Lack of official national censuses complicates the mapping of the cocoa sector and makes it hard

to give definite accounts for the division of labour. Anyhow, certain common denominators are to

be found. Most authors operate with the number of national cocoa producers to be around

100 000, the number of middlemen to be approximately 1000 and ANECACAO (2007) lists at

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their webpage the number of associate exporters to be 35. In addition, Eugenia Quingaísa (2007)

claims in a FAO/IICA document the number of producer organizations to be around 50,

involving about 3500 Ecuadorian families. Other actors appearing in the commodity chain are the

ones involved in the industry of elaborate and semi-elaborate products, providers of supplies and

various kinds of external contributing institutions. The latter contributors Quingaísa divides into

public and private actors. While universities, municipalities, provincial councils, INIAP (the

Ecuadorian national autonomous institute for agricultural research) constitute for some of the

public actors, the private are represented among others by NGOs, certifiers, controllers, CORPEI

and ANECACAO (ibid).

6.2.2 Marketing chain participants

Giving account for the construction of a value chain, the FAO

professionals Fabien Tallec and Louis Bockel (2007) bring up the

issue of the economic agent. They apply the term agent describing

“… a basic unit in the economy, who undertakes an activity and

makes decisions autonomously” (ibid:6). This agent, Tallec and

Bockel claim to consist of a physical person or a legal entity. A

typical value chain flowchart (cf. Figure 6.4 and 6.5) is composed

by boxes representing the economic territory a single agent

constitutes for. In addition, the flows, meaning the transfer of

goods, services or founds, occurring between the agents are

typically illustrated by arrows.

Figure 6.6 Marketing chain participants Source: Collinson and Leon (2000)

In order to obtain a better understanding of the interactions taking

place within and in between the different levels of the Ecuadorian

cocoa chain, it is necessary to recognize the actors operating at its

different levels. Collinson and Leon (2000) have made an illustration of the various participants

within a conventional marketing chain, claiming all cocoa exported from Ecuador to be handled

(if not by all) at least by some of these (Figure 6.6). What Ecuadorcocoaarriba characterizes by

the generic term intermediaries in Figure 6.5, is here given four different names, correlating to

the type of area in which the middlemen operate. According to the ideas presented by Collinson

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and Leon, the framework by Ecuadorcocoaariba should have been illustrated like in Figure 6.7.

Here the one link originally constituting for intermediary level has been replaced by the four

types of middlemen described by Collinson and Leon.

Figure 6.7 Adjusted version of the national cocoa chain Source: Ecuadorcocoaarriba (2005a) and Collinson and Leon (2000)

Location (distance from the market), quantity and organizational commitment are all factors

frequently being mentioned to influence the distance the cocoa is transmitted before reaching its

end use, and were taken into considerable consideration conducting the study. The number of

sales taking place before the cocoa reaches the exporters depends a lot on the location of the

plantation in which it is grown. The further away from the market, the more likely it is for the

cocoa to undergo various purchases. As well, quantity sold is influential. Large scale cocoa

producers do often pass by the middlemen-stage, selling their cocoa directly to the exporters.

Another element which will be discussed later on in this chapter is how organization can

contribute to eliminate some of these steps.

Since the foundation for commercialization of cocoa often is laid at the producer level

(characteristics of the farm, product, producer, etc), the initial start of the research process had to

reveal which factors to be of the highest importance for the very first sales to take place. Picking

out four factors I assumed to be of particular importance for farmers when they where to sell their

cocoa, I asked the respondents of my questionnaires to rank the level of importance of

accessibility to the purchasers, price offered, quantities bought and reliability when selling their

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cocoa. The results documented in Figure 6.8 demonstrate access to be of moderate to high

importance for the vast majority of the respondents, while a larger disagreement is observed

within the remaining three groupings. Price is of very high importance to a large share of the

respondents, while the ones ranking it to be of less significance substantiate this choice claiming

“all intermediaries to pay the same”.

05

1015202530354045

1 2 3 4 5

Level of importance (1=Very low, 5=Very high)

AccessPriceQuantityReliability

Figure 6.8 Influencing factors for choice of purchaser among my respondents (given in percent)

Collinson and Leon (2000) claim farmers situated in remote areas and holding limited quantities

of cocoa to sell, to possess a limited marketing power as the buyers are scarce. The absence of

competition among the middlemen is likely to be the reason for the cocoa producers to hold the

assumption of all of them to offer the same price. Some of the intermediaries I interviewed did

admit making agreements with one another in order to avoid competition to force the prices

down. The reason for some of my respondents to give different rankings to the questions

concerning access and price is most likely due to a lack of understanding of the strong link

between market access and price offered for the products.

Based on my overall field experiences, the outcome of the question concerning quantities bought

came quite surprising. With the present global demand for Ecuadorian cocoa, the farmers should

not hold any concerns of quantities bought by the purchasers. Most likely an uncertainty around

the formulation of the question has been apparent, as 88.2 % of the same group of respondents

answered they always got to sell all of their cocoa at the first try.

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The respondents seem to disagree strongly about the fourth and final matter concerning the

importance of reliability. Tendencies unveiled in the interviews were my respondents either to

hold a very strong and close relationship to their purchaser, or not holding anyone at all. Limited

or none relationship to the purchaser was apparent among farmers hunting the best price for their

cocoa. These farmers did not belong to the group of the poorest respondents and could afford

await sales when prices were low. A closer relationship to the purchaser was found among the

producers holding limited access to capital. For this group of farmers a close connection with a

purchaser offering lending services was of higher importance than the price offered for their

cocoa. According to the answers given in the questionnaire, 41,8% of the respondents had always

worked with the same purchaser. Another consideration is whether the producers have the

possibility to change purchaser. Among my respondents, as many as 45,6% answered they did

not hold this opportunity (due to both limited access and other commitments/obligations).

6.2.3 Challenges within the commodity chain

As illustrated earlier in this chapter, the global, as well as the Ecuadorian, commodity chain of

cocoa is very complex. With an extensive number of actors involved in the process of

commercialization, it is hard to generate proper revenue for the actors found at the very bottom of

the chain. Some of the authors making contributions to this matter are Collinson and Leon

(2000), Ramírez (2006, 2007) and Jano (2007). All bring up causes and effects at producer level

of the traditional marketing chain of cocoa in Ecuador being very comprehensive.

A range of explanations to the recent problems within the Ecuadorian cocoa sector were

presented in Chapter 2. Despite some of these problems are being more profound than others,

they do all impact the low level of competitiveness apparent in the commercialization of

Ecuadorian cocoa. Pedro Ramírez (2007) has listed what he defines to be the most central

problems within the national cocoa sector into five different categories (Figure 6.9). The first

grouping broaches the matter of low agricultural output. Conducting interviews with exporters, as

well as other key persons within the Ecuadorian sector I came to experience an overall

disappointment of the insufficient governmental assistance and founding related to action taking

place at farm level. My respondents felt they were left with an unfair and hopeless task, as they

claimed the state to leave all the responsibility to the individual actors. From several sources,

- 50 -

including employees at the research station, I got confirmed that INIAP, holding the task of

carrying out the national agricultural research, suffers from a severe lack of founds, making it

almost impossible to conduct the required research to combat the challenges of low agricultural

output. In the quantitative data collection I asked the producers about their comprehension of the

government. 73 out of 89 answered ‘No’ to the question of whether the national authorities

contributed with sufficient effort to the cocoa sector. Asking why this was the case, one

interviewee replied: “By ignoring us, they can pretend we do not exist”.

The second group Ramírez identifies to touch upon the problem of mixtures of cocoa varieties,

causing decreased quality of the products exported from the country. I came to experience two

obvious reasons for this extended trend. First of all, lack of satisfactory earnings tempts

intermediaries and traders to increase their income by ‘diluting’ the higher valued quality cocoa.

Secondly, as Ramírez states, there is a lack of a solid quality system throughout the chain,

something which makes ‘cheating’ easy. As I gained trust among my informants, I was provided

with quite a few examples of corruption and frauds taking place within the sector. Apparently,

this happened quite openly, without the national authorities making any efforts to prevent it.

Figure 6.9 Central problem - low level of competitiveness in the chain of fine and aromatic cocoa Source: Ramírez (2007). Translated by author

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The third problem defined by Ramírez is weak market links. Absence of cooperation was a

frequently given answer by actors placed at all levels when they were asked to identify

weaknesses in the current chain design. In addition to the absence of governmental initiatives, I

found this lack of collaboration to be caused by distrust among the actors. The creation of

ANECACAO in 1987 was a private attempt to unify the exporters of cocoa and ease the process

of sell and purchase Ecuadorian cocoa. However, the extended mixtures resulting in ICCO in

1994 to degrade Ecuadorian cocoa only to be 75% fine and aromatic made many of the exporters

lose faith in the practices exercised by ANECACAO15. Due to mistrust, several of my

respondents at exporter level saw few, if any, advantages being associated through ANECACAO.

In order to combat the problem of weak market links, a recent private initiative to associate the

producers was approved by the ministerial agreement August 15th 2007 (CONCACAO 2007).

The aim of CONCACAO is contribute to enhance the economic development of Ecuadorian

small scale producers of fine and aromatic cocoa. 6000 Ecuadorian cocoa farmers, holding

20 000 hectares of land, were associated through the organization in August 2007 (ibid). The

intention is to make the producers more accessible to potential buyers. A problem raised by

several of my respondents was buyers and sellers not to connect with each other due to lack of

registrations and overall weak internal and external market links.

The fourth factor referred to by Ramírez touches upon weak support services. In the

questionnaire I asked the producers whether they received or had access to information about

commercialization or national laws and regulations (legal framework). The results revealed 29 %

to have access to the former, 14,7% to the latter. Asking from whom they received this

information, the most frequent answers were from the buyers, the media or others. Furthermore, I

asked whether the respondents held any kind of membership in national agricultural

organizations. Not a single producer did. After a time I came to realize the total absence of such

organizations at national level (with the exception of the recent initiative of CONCACAO).

15 During my stay, the air was thick with rumors of ICCO soon to execute a further degradation of Ecuadorian cocoa to only be 40% fine and aromatic. So far, this has not happened.

- 52 -

The fifth and final grouping designed by Ramírez, weak institutionalization for the development

of the chain, holds many similarities with the already discussed third group. Absence of

organization and cooperation makes it challenging to carry out collective actions. Despite

accomplishments of individual initiatives, lack of overall management prevents others (and the

initiative takers themselves) to gain benefits from these actions. A typical example was farmers

creating FOs not providing them with any benefits, as the organization was not adapted into any

networks, marketing channels or other kind of support systems.

The complexity and the various dysfunctions apparent in the national commodity chain have

caused a recent tendency of both producers and purchasers of cocoa to search for alternative

trading patterns. The result of these trends gaining terrain is the construction of new and

alternative chains, eliminating some of the steps and practices in the original commodity chain.

6.2.4 Alternative marketing channels

Despite attempts to develop alternative marketing channels, the open market structure does still

prevail in the Ecuadorian cocoa sector. Conducting this study, one of my aims was to investigate

how alternative marketing channels operated and what benefits producers and buyers gained from

their participation. Establishing contact with Nestlé and UNOCACE provided me with useful

information about the motives of MNCs and niche organizations conducting direct purchases.

Multinational companies – Nestlé experience

Nestlé, at their own homepage declaring themselves the world’s foremost Nutrition, Health and

Wellness Company (Nestlé 2008a), has managed to erect a tremendous market share world wide.

This is especially evident within the Latin American context, where 79% of the entire population

bought a Nestlé product in 2004. The percentage valid for Ecuador was as high as 90 (Nestlé

2006). Being among the world’s most well-known trademarks, Nestlé is often being mentioned in

the same sentence as brands like Nike, Cocoa Cola and McDonalds. Like most celebrities, the

company is a popular target of criticism. Being in the constant searchlight of the media, it is

important for Nestlé frequently to demonstrate to the world the company holding a corporate

social responsibility. The company claims to fully support the United Nations Global Compact’s

- 53 -

10 principles on human rights, labour, the environment and corruption, having incorporated all of

them in the latest edition of Nestlé Corporate Business Principles (Nestlé 2006).

In order to maintain the social responsibility within the Ecuadorian cocoa sector, Nestlé states at

their national homepage: “The vision of Nestlé Ecuador is to bypass the phase of the company

only to be a buyer and rather transform into being an allied who contributes to increase the

quality and quantity of the production of fine and aromatic cocoa” (Nestlé 2008b). In order to

fulfil this vision, Nestlé recently implemented a strategy favouring direct purchases. According to

my main contact within the company, Frank Blacio, about 10% of the cocoa bought by Nestlé

Ecuador in 2007 happened through direct purchases from the producers. Within 2010 his goal is

to enhance this percentage to 25–30 %.

Being among the world’s largest multinational companies, holding tremendous resources to

develop new technologies, clones, etc, Nestlé still has to deal with many of the same problems as

the other actors within the Ecuadorian cocoa sector. One of the most apparent challenges is the

already mentioned issue of weak market links. Blacio claims most of the cocoa to have

undergone at least three or four purchases before reaching their Centro de acopio (‘trade centre’)

in Guayaquil. This extended use of middlemen makes the exporters appear very distant to the

farmers, and visa versa. In order to get in touch with the farmers, Nestlé has created a co-

operation with ACDI/VOCA. ACDI/VOCA does not only establish contact between the

producers and Nestlé, but as well assists transportation and grouping of the farmers (perform

collective sales). The support Nestlé receives from ACDI/VOCA corresponds with a current

tendency of increased collaboration between NGOs and the private sector. As being stated by

Farrington, Bebbington et al. (1993:169) “… while many NGOs may have been critical of market

‘penetration’ and capitalist development in the past, their increasing interaction with commercial

interests suggests that their approach is changing away from a simple critique of capitalism

towards efforts to increase the capacity of NGOs themselves and of the rural poor to use the

marketplace as a resource”.

In order to sell their cocoa to Nestlé farmers have to bring their cocoa to the Centro de acopio

and fulfil the minimum quota of 10 quintales. A third requirement is to hold a bank account, as

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the company does not carry out any payments in cash16. As these requirements could be quite

comprehensive tasks for the individual producer to fulfil, I asked some of my interviewees why

they bothered doing so. From the answers I received, the most frequent arguments were: 1) price,

2) reliability, 3) correct/fair measurement, and finally 4) correct/fair qualification of the cocoa

(see Figure 6.10). Most of my respondents had somehow experienced being exploited by

middlemen. Therefore, getting the opportunity to sell their cocoa to an institution operating under

just conditions gave inspiration and motivation. “At Nestlé we are treated like equal partners”

was argued by one of my respondents appreciating the cooperation.

Figure 6.10 The process of measurement and quality certification at Nestlé, Guayaquil

“Continued economic growth is the clearest path to poverty alleviation” is being claimed by

Felipe Larraín in The Nestlé Concept of Corporate Responsibility – as implemented in Latin

America (Nestlé 2006:9). But “…decreasing the intervention of middlemen” (Nestlé 2008b) does

not only involve benefits for the producers. Frank Blacio admits direct purchases to be a win-win

situation for both parts. First of all, Nestlé gets the opportunity to ensure the quality of the cocoa

being purchased. By eliminating the middleman-stage they avoid mixtures of varieties and

qualities and by awarding the producer they are more likely to be provided with high-quality

products in the future. In addition, Nestlé can pay a lower price than buying the product from an

intermediary. By eliminating three or four purchases, in which a margin is taken by the single

intermediary, the producer will still receive a higher price for his product.

16 Bank transfers are carried out both in self interest and in interest of the purchasers. Nestlé enhance their credibility and avoids corruption and the purchasers avoid getting robbed.

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Niche organization – UNOCACE experience

Holding the objective of trigger production and improve quality of Ecuadorian cocoa,

UNOCACE (La Unión de Organizaciones Campesinas Cacaoteras del Ecuador) was created

February 2nd 1999 (Ecuadorcocoaarriba 2005b). The organization consists of 12 FOs within the

counties of Los Rios, Guayas, El Oro, Bolívar and Cañar (UNOCACE 2007). In order to

accomplish its goal of enhanced welfare of its associate members (Ecuadorcocoaarriba 2005b),

UNOCACE initiated the process of organic certifications in 2002 (UNOCACE 2007). Today all

member organizations hold certifications through ECOCERT (ibid) and UNOCACE has become

a single-organic exporter of cocoa. Table 6.3 illustrates the FOs associated through UNOCACE

and their production levels.

Table 6.3 UNOCACE associates and their levels of production

Production area (ha) Production (qq) Name of the community Beneficiaries (families) Conventional Organic Conventional Organic

Aso. Buena Suerte 50 - 480 - 1584 Aso. El Deseo 62 - 257 - 850 Aso. 2 de mayo 22 - 80 - 265 Aso. Tomas Arboleda Flores 18 - 127 - 420 Aso. Villanueva 17 - 89 - 295 Aso. Voluntad de Dios 19 - 133 - 440 Aso. La Cruz 25 - 181 - 600 Aso. Unión y Progreso 84 - 730 - 2400 Aso. El Rosario 23 - 186 - 620 Aso. Leonera 11 - 68 - 225 Aso. San José de Tambo 102 - 1278 - 4220 Aso. El Progreso 39 - 476 - 1570

TOTAL 472 - 4085 - 13489

Source: Ecuadorcocoaarriba (2008). Translated by author

One of the major reasons for UNOCACE initiating the process of organic certifications was a

visit from the French confectionary KAOKA in 2000. In order to become an allied of KAOKA,

producing organic chocolate products, UNOCACE had to reorganize the production practises of

their associated farmers. KAOKA, claiming eating their cocoa is a pleasure for both body and

soul, operates under the two principles respect for the environment and its bio-diversity, and

respect for human dignity (KAOKA 2008). To fulfil these objectives, KAOKA favours long-term

commitment, close partnership with the cocoa producers and a strategy of sustainable

development.

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The manager of UNOCACE, Freddy Cabello stresses the importance of the single FO not to be a

KAOKA-, but a UNOCACE member. Two set of contracts are negotiated. As UNOCACE is the

agent responsible for providing KAOKA with cocoa, one separate long-term contract is settled

between the two agencies. During these negotiations the guidelines for the operational

management are sketched out. On the basis of the abovementioned guidelines, a second contract

is made on annual basis between UNOCACE and the single associate organization.

UNOCACE provides their associates with a range of services. A considerable price

augmentation, both due to the organic certifications and the ethical guidelines of KAOKA, seem

to be the one valued most among the farmers I spoke to. Certifying the land, not the product,

enables farmers holding additional cash-crops to market these as organic as well. In order to

maintain good production practices, UNOCACE provides the members with technical assistance

and seedlings to a reduced price. Improved health effects due to consumption of organic products

and avoidance chemicals are other benefits UNOCACE (2007) lists of being an associate.

A final benefit being an associate is the social fund managed by UNOCACE. A fixed share from

each purchase ($ 0,20/qq) is set aside to comprise a social security to the single FO and its

members. In order to withdraw money from the fund, the FO must apply to UNOCACE. Most

often the applications are related to associates suffering from diseases, making them unable to

earn for a living. But the organizations can apply for money to increase the well-being of the

society.

UNOCACE is recently experiencing a demand for cocoa stronger than what they are able to

fulfil. Freddy Cabello states their goal for 2008 to be operating 10 000 hectares of land. In order

to get new associates UNOCACE receives applications from FOs, as well as conducting active

searches themselves. One of the major challenges expanding their activities Cabello claims to be

weak national market links and lack of information. As it is hard for UNOCACE to reach out to

the various FOs, informing about their services, the producers are not aware of their existence.

One of the organizations which did succeed in establishing a cooperation with UNOCACE is

Unión y Progresso. The FO is located in Moradores de Pasaje, about one hour drive south of

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Quevedo. Collecting data of cocoa producers taking part in direct purchases, its members

functioned as my main source of information. Unión y Progresso was founded as early as in 1991

and became a UNOCACE associate in 1997. In 2002 they went through the certification process

and became producers of organic cocoa. The organization holds now 84 members, who are

provided with a range of benefits. Through the social found of UNOCACE, they had been able to

carry out improvements in the road connection, as well as the water and sewage system. For the

last few years they had been holding on to a dream of creating their very own micro enterprise,

believing a chocolate factory could contribute with increase income to their associates.

Figure 6.11 Cultivation- and post-harvest practices in the organization Unión y Progresso

To enhance the quality of their cocoa, the organization has build centres both for cultivation of

seedlings and post-harvest practices (Centro de acopio). By buying the cocoa unfermented from

its associates, Unión y Progresso controls the fermentation and drying of the cocoa beans. The

subscription fees paid by the members ($ 50 entrance fee, $ 1 a month) are used to cover the

salaries of the employees managing the two centres, as well as other running expenses. To handle

the post-harvest practices collectively, like is done by Unión y Progresso, is recommended in a

cocoa producer guide written by Claudia Radi and Pedro Ramírez as a collaboration between

MAG, UDENOR (Unión de Enxeñerías do Noroeste, S. A.), CORPEI and GTZ. By the

application of homogenous post-harvest operations, the authors claim organizations to better

fulfil the requirements of the markets and to easier gain trust among the clients (Radi and

Ramírez 2006). Furthermore, Radi and Ramírez state organizations to be more likely to receive

support from clients holding the aim of extending the use such kinds of post-harvest practices.

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6.3 What is the average price ($/qq) farmers participating in the different

marketing channels receive for their cocoa?

In this chapter I will give account for the price received among Ecuadorian cocoa producers

participating in the different marketing channels. To see whether my sample is representative

within a national context I will compare the numbers extracted from my quantitative data

collection with national statistics published by the Ministry of Agriculture and ANECACAO. In

order to demonstrate whether the typical Ecuadorian cocoa producer receives a ‘fair’ share of the

export price, I will, in addition to the average producer prices, present the FOB statistics for

Ecuadorian cocoa in grain over the last year. The purpose of carrying out these analyses is to

identify the economical impacts for cocoa producers participating in one particular marketing

chain in preference to another. Before proceed with the price analysis, I will give the reader a

brief introduction to the price setting mechanisms both in the international and national cocoa

market.

6.3.1 Price setting mechanisms in the global cocoa market

The global cocoa prices, given in US dollars ($) or British Pound (£) per metric ton17 (MT), are

set by New York Board of Trade (NYBOT) and London International Financial Futures

Exchange (LIFFE). In addition to these two actors, the ICCO calculates its own daily prices for

cocoa in grain. The ICCO estimate is conducted with point of departure in the average of the

quotations of the coming three months of trading on LIFFE and, in order to future the U.S. at the

time of London close, the American financial company ICE (Intercontinental Exchange) (ICCO

2008a). The exchange prices are valid for conventional cocoa and work as a basis when

premiums for varieties or quality are to be added. After having been provided with a sample of

the cocoa, the premiums are defined in an agreement between purchaser and buyer in each single

sale (with point of departure in more or less fixed percentages).

17 In order to get the price per quintal (which is the measurement primarily applied in this thesis), the metric ton must be divided with 22.046

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Figure 6.12 FAO Food Price Index Source: FAO (2008a)

Cocoa prices are extremely vulnerable to fluctuations. The most common cause for price

variations is the size of the global cocoa flow. The worldwide supply is affected by climatic

conditions (to which most cocoa providing nations are vulnerable), occurrence of pests/diseases

and the current business environments within the different cocoa producing countries (wars,

labour conflicts, etc). Supply concerns are of a particular significance in consideration to the state

of the world’s key provider of cocoa, the Ivory

Coast, which has undergone frequent conflicts over

the last years. Additionally, with the purpose of

increasing the global prices, strikes have been

arranged by cocoa farmers holding back their cocoa

beans in order to impact the global volume. But as

these strikes rarely are long-lasting, they seldom

have any impact on the global prices (IHT 2006).

Last year a tremendous increase occurred at the

FAO Food Price Index (illustrated in Figure 6.12).

The 23% high rise in the global food prices

experienced between 2006 and 2007 was claimed to

be the cause of a tight supply and demand situation

within various sectors (FAO 2008a). The price augmentation was as well apparent on the cocoa

market, as the yields were impacted by the weather phenomena El Niño causing unfavourable

weather conditions worldwide (ICCO 2006a). The fluctuation within the global cocoa sector is

easily observed in Figure 6.13, demonstrating the prices to rise with more than $ 20/qq in 2007.

0102030405060708090

100

Average1998

Average1999

Average2000

Average2001

Average2002

Average2003

Average2004

Average2005

Average2006

Average2007

Figure 6.13 Average global cocoa prices ($/qq) 1998 – 2007

Source: FAO (2008b), ICCO (2008b)

- 60 -

In addition to illustrate last year’s advance in prices, Figure 6.13 demonstrates the occurrence of

another remarkable price oscillation within the latest decade, taking place in 1998/99. One

explanation to this dramatic descent has been the changes in industry stock-holding behaviour,

while another blames the decline in demand among cocoa processors and chocolate companies

for physical stocks, due to the highly concentrated industry structure enabled by further

consolidation in the cocoa trade and the cocoa processing industries (ICCO 2006a). Additionally,

more efficient stock management was carried out as a result of the development within the filed

of bulk transportation, information technology and communications. The turning point was first

reached three years after, in 2001, when the cocoa/chocolate industry came to recognize the

prospects of the sharply reduced global stocks-to-grinding ratio, caused by the significant descent

in global cocoa stocks. This decline was caused by lower yields, as the cocoa producers,

experiencing reduced income due to the falling prices, reduced their agricultural inputs. Other

influencing aspects were short-terms technical and speculative factors, in addition to an attempted

coup in Ivory Coast, September 19th, 2002. Anyhow, the ascent in the global cocoa prices for the

2001/02 season is principally explained as a response to the deterioration of the fundamental

supply-demand situation normally taking place within this market (ibid).

6.3.2 Price setting mechanisms in the Ecuadorian domestic cocoa market

Giving account for the price setting mechanisms within the boarders of Ecuador, three concerns

have to be taken into a specific consideration. First of all, it is the calculation of the price offered

to the global client (exported out of the country). Secondly, it is the price offered to the national

client (by the exporters). And finally it is the price offered to the producer (by the

trader/intermediary).

First to come is the export prices. All export prices in Ecuador are free on board prices. With

point of departure in the price valid at the global stock exchange markets, the FOB prices are set

by negotiations between the buyer and purchaser. FOB prices, as already described in Chapter 2,

imply all costs to be covered by the purchaser until the goods are loaded onboard the vessel. In

the Ecuadorian case, an inspection fee paid to ANECACAO is to be included in these costs. A

charge equivalent to 0,32% of the total FOB cost is the price the exporter must pay in order to

achieve the licence which allows the cocoa to leave the boarders of the country. Another

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expression for these kinds of expenses is ‘exporter share’, a term in which ICCO (2006c)

includes all the functions involved in getting the cocoa ready for shipment and loaded onboard

the ship.

The price of the cocoa is determined by first and foremost two different factors, the variety and

the quality18. Often the exporters know which type of quality the buyer is looking for, just

looking at his origin. According to one of my sources in Nestlé the finest cocoa is normally

exported to Europe (Switzerland, France and Spain) and Japan, where the demand for dark and

luxurious chocolate is high. Buyers from United States do often prefer something ‘in-between’,

while the cocoa with the lowest quality is normally exported to the Latin American countries.

Despite the FOB prices are being set through negotiations in each particular sale, Ecuador

operates with minimum reference prices FOB for cocoa. The method for stipulation of minimum

reference prices FOB for exportation of cocoa in grain and elaborates, Inés Hidalgo at the

Ministry of Industrialisation and Competitiveness (MIC) explains to be given in Law 79,

Regulation 743 and the Executive edicts 1720ª and 887. It is the Management of External Trade

Policies within the Sub-secretary of Trade and Innovations (part of the MIC), which is

responsible to carry out these calculations. As point of departure they use the prices for cocoa at

stipulated by the financial market data and news service provider REUTERS at the produce

exchange in New York (NYBOT).

The second set of prices to be estimated is the ones offered to the national client. By this term I

indicate the price offered by the exporters to the ones who come to sell their cocoa at the Centro

de acopio. There are no set rules for these calculations, but in order to attract clients the exporters

need to offer competitive prices. Frank Blacio shared with me the two rules of thumb applied by

Nestlé when calculating the prices they are to offer. First of all, point of departure must be taken

in the current NYBOT price. Secondly, it is important to be aware of the local price. Despite not

using the same reward system as when the cocoa is exported abroad, high quality is rewarded.

The size of the premium depends on the international demand for high quality cocoa (but seldom

more than 2 or 3 dollars per quintal). According to Blacio, it is easily observed if another exporter

18 Qualification table listed in Appendix 4

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close by offers a better price than Nestlé; no one will show up offering to sell their cocoa. As the

intermediaries always seem to keep track of the prices offered within the area, they are the one

the exporters communicates with when they need to know the prices offered by their

competitors. Blacio underlines market penetration through rivals undercutting each other’s prices

seldom occurs. If it is not a severe shortness of cocoa, exporters tend to cooperate, offering more

or less the same prices.

The third and final concern is the mechanisms regulating the price offered the producers. In this

case the middlemen or the traders need to take more or less the same considerations as the

exporters, but instead of the NYBOT prices, they take point of departure in the prices paid by the

exporter, or the person placed above him within the value chain. The second consideration is the

price offered by other buyers of cocoa operating in the same area. Like the exporters, the

purchasers are as well cooperating when setting the prices. According to one of my respondents

the middlemen, in order to avoid competition, often separate the area in which they operate into

individual zones in addition to agree on the prices they are to offer the producers (something

which explains why nearly half of my respondents claim not to hold the possibility to change

purchaser). My respondents claim Nacional averagely to be valued $ 5/qq higher than CCN51

when purchased below exporter level, quality is seldom rewarded.

The profit gained by the single purchaser depends a lot on the length of the value chain. During

my research I got to hear two statements concerning the augmentation of the cocoa prices

throughout the value chain. The first tendency was cocoa to averagely increase $ 10/qq in value

from being purchased from the farmer until it reaches the exporter, while the second was each

‘link’ or actor operating between producer- and exporter level to averagely take a margin of

$ 2/qq. For the two statements to correspond with each other, Ecuadorian cocoa normally

undergoes five purchases before reaching the exporters. Due to the complexity of the channels

through which the cocoa is transported to the port, ICCO (2006c) favours the application of the

term ‘traders share’ to involve the share taken by the sum of functions involved in the process of

transporting the cocoa from the farm all the way to the exporter at the port.

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6.3.3 FOB prices of cocoa in grain

The ICCO is currently conducting a very similar study to mine in a range of cocoa producing

countries (including Ecuador), where they state “…the ultimate objective of the analysis of the

value chains is to improve insight into the net income derived by farmers and other stakeholders

from cocoa cultivation and trade, and to enhance knowledge of the use of resources in cocoa

production, trade and exporting” (ICCO 2006b). As part of the preparation for this project a

meeting was held in London June 2006 and there was set out some standards of how to best

calculate the shares (of the total value of the beans) received by the different market participants

within the value chain. First of all ICCO asserts the total value need to be established. The best

parameter is to apply FOB price for cocoa in grain during a recent period of heavy trading (ICCO

2006c).

Despite reading through a range of previous studies where similar price comparisons have been

made, I decided to take basis in the standards set by the ICCO in order to calculate the price

received by the ‘average’ Ecuadorian cocoa producer. With a desire to conduct a price analysis,

not only valid for the period of time I spent conducting my fieldwork, but within a more extended

time span, I looked up the reference prices of Ecuadorian cocoa in grain over the last ten years at

the databases of ANECACAO and SICA. As I did not succeed encountering a place where all

this information was gathered together, tracing the prices for all cocoa varieties over the last 10

years was a quite comprehensive task.

The results from my reference price research are listed in Table 6.4 at the following page. The

reason for only having listed recent reference prices of CCN51 is due to a total absence of

information regarding this variety before 2005. Despite CCN51 being introduced to the country

in the 1970s, the general manger of ANECACAO, Pablo Vega Garcia, explains the lack of

registration of reference prices as a consequence of the variety still being rather novel in Ecuador.

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Table 6.4 Ecuadorian reference prices FOB ($/qq) for cocoa in grain, 1998 - 2007 Trinitario Nacional Blue = CCN51 → ASE

Green = ASE → ASS Red = ASE → ASSS Pink = ASE → ASSPS

CCN51 ASE ASS ASSS ASSPS

Average price 82,74 109,49 116,61 119,89 125,91 Average premium + 26,75

32,3% + 33,87 + 37,15 +43,17 2007 Average

premium + 7,12 6,5%

+ 10,40 9,5%

+ 16,42 15,0%

Average price 62,30 70,48 75,06 77,18 81,05 Average premium + 8,18

13,1% +12,76 +14,87 + 18,75 2006

Average premium + 4,58

6,5% + 6,70

9,5% + 10,57

15,0% Average price 59,66 63,12 67,22 69,11 72,59

Average premium + 3,63

6,1% + 7,74 + 9,64 + 13,13 2005 Average

premium + 4,10 6,5%

+ 5,99 9,5%

+ 9,47 15,0%

Average price N.A. 63,37 67,49 69,39 72,86 Average premium

2004 Average premium + 4,12

6,5% + 6,02

9,5% 9,49

15,0% Average price N.A. 74,51 79,36 81,59 85,69

Average premium

2003 Average premium + 4,85

6,5% + 7,08

9,5% + 11,18

15,0% Average price N.A. 71,56 76,17 78,32 82,27

Average premium

2002 Average premium + 4,61

6,4% + 6,76

9,4% + 10,71

15,0% Average price N.A. 42,82 45,60 46,89 49,24

Average premium

2001 Average premium + 2,78

6,5% + 4,07

9,5% + 6,42

15,0% Average price N.A. 32,59 34,67 35,69 37,48

Average premium

2000 Average premium + 2,08

6,4% + 3,10

9,5% + 4,89

15,0% Average price N.A. 43,38 46,19 47,50 49,55

Average premium

1999 Average premium + 2,81

6,5% + 4,12

9,5% + 6,17

14,2% Average price N.A. 66,85 71,20 73,21 76,88

Average premium

1998 Average premium + 4,35

6,5% + 6,36

9,5% + 10,03

15,0% Source: Data from ANECACAO (2007) and SICA (2007f and 2007g)

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In addition to demonstrate the reference prices (FOB) for CCN51 and the four varieties of cocoa

Nacional within the last decade (written in bold letters), Table 6.4 illustrates the price

augmentation between the five cocoa qualities. The blue percentage expresses the increase in

price between CCN51 and ASE (the lowest quality of Nacional), the green the difference

between ASE and ASS, the red the difference between ASE and ASSS, and the pink the

difference between ASE and ASSPS (the highest quality of Nacional). Calculating these

percentages a fixed pattern of price augmentations in between the varieties of Nacional was

revealed (6,5% – 9,5% and 15%). Disregard slight divergences in 1999 and 2002, the price

differences between the four sub-categories of Nacional have been calculated using the same

percentages the last ten years. Since I had asked a number of persons within the Ecuadorian

cocoa sector whether such a pricing system existed, without getting any confirmations to this

suspicion, this discovery came quite surprisingly.

6.3.4 Average price received among Ecuadorian cocoa farmers

In order to calculate the share received by the farmers, ICCO suggests taking point of departure

in average ex-farm prices which correspond to the period of time for which the FOB prices were

calculated (ICCO 2006c). These prices I extracted in two different modes. The first way was

through my survey, where I formulated a question to ask for the average price received by the

respondent19 for his/hers cocoa in 2007. Secondly I searched for statistics concerning producer

prices at ANECACAO and the Ministry of Agriculture.

Table 6.5 is composed by monthly averages of price paid to producer for conventional and

organic cocoa within the time span 2003 to 2006. The annual averages of the monthly estimates

are marked bold at the bottom of the table, and these will provide the basis for the average prices

received by the producers within the given period of time. As I was only provided with

information concerning producer prices for both conventional and organic cocoa within the

period of time 2003 – 2006 from MAG, it is within this period of time the comparisons based

upon second-hand information take place.

19 In this comparison I operate with only two groups of respondents. The answers extracted from the ‘contractors’ with MNCs have been incorporated to the groups of producers connected to the open market structure.

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Table 6.5 Producer prices for cocoa in grain

ECUADOR: PRODUCER PRICES FOR COCOA IN GRAIN

US$/qq

CONVENTIONAL ORGANIC

Month/year 2003 2004 2005 2006 2003 2004 2005 2006

January 80 57 63 61 94 70 73 73

February 85 54 64 66 97 68 75 73

March 76 51 71 64 90 66 79 72

April 74 48 68 65 86 65 74 72

May 65 47 62 67 80 63 70 76

June 53 46 59 69 66 63 69 80

July 55 52 60 79 70 65 67 85

August 55 60 58 79 66 73 66 87

September 59 53 55 79 73 73 69 88

October 50 50 60 79 66 68 67 89

November 51 58 57 83 65 70 67 93

December 55 58 61 95 68 75 70 104

Average 63 53 62 74 77 68 71 83

Source- Gremios de productores -UNOCACE - ANECACAO/MAG.

Elaboration: DPDA/MAG-EVR.

Source: SICA (2007h) Translated by author

To make the comparison between FOB and producer prices more obvious I have created Table

6.6. The idea is to demonstrate the share out of the total value received by the average Ecuadorian

cocoa producer on the basis of the data extracted from Table 6.4 and 6.5.

Table 6.6 Producer shares of FOB prices 2003 - 2006

Average price paid to

producers

Average FOB price paid

to exporters (ASS)

Share of FOB price

received by producers.

2003 63,00 79,36 79,4%

2004 53,00 67,49 78,5%

2005 62,00 67,22 92,2%

2006 74,00 75,06 98,6%

Source: Data from ANECACAO (2007), SICA (2007f, 2007g, 2007h)

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Some factors must be considered when studying the numbers exposed in the table. First of all,

basis is taken in the FOB price for the variety ASS of cocoa Nacional. The reason for applying

ASS as an average is that this variety accounted for 61.1% of the cocoa in grain exported from

Ecuador in 200620 (ANECACAO 2007). Compared to the other varieties exported the same year,

their percentages were CCN51 0.8%, ASE 19.2%, ASSS 18.8% (ibid). Taking these values into

account ASS is a proper measurement representing (approximately) the average price received

among most exporters.

Secondly, even though it is the Ministry of Agriculture (in collaboration with ANECACAO)

which is the source of the producer prices, it is difficult to guarantee the validity of these

numbers. Price fluctuations affected by factors as distance from the market, proper road

connections, access to transportation, number of middlemen operating in the area, etc are

frequently observed. There are many links to pass from producer- to export level. The producer

price shares (especially valid for 2005 and 2006) seem disproportionate high and could indicate

incorrect data has been applied. Carrying out my own data collection allowed me to test the

reliability in the figures published by ANECACAO for the 2007 harvest season. The results are

illustrated in Table 6.7 on the following page.

Statistics published at the webpage of ANECACAO (2007) illustrates the average stock exchange

price for cocoa in grain to be $ 87,77/qq in 2007 (c.f. Table 6.7). As this is the basis price to

which awards are to be added, my findings from Table 6.4 suggest a 6,5% high premium in need

to be included in order to get the average ASS price. With point of departure in these perceptions,

the ASS estimate is calculated to be $ 93,48/qq. As the price of organic cocoa is estimated

through negotiations between the buyer and the purchaser (the same way as the different varieties

of Nacional), there does not exist any statistics of the FOB prices for organic cocoa. ICCO

(2006d) states there are no fixed premiums for organic cocoa (without fair-trade certification)

since the cocoa is being a subject to market fluctuations. The organizations furthermore claims

organic cocoa to have been prized between $ 100 and 300/MT higher than conventional cocoa

over the last years (corresponds to $ 4,5 to13,6/qq). In the current Ecuadorian context both

producers and purchaser I interviewed said an average additional premium of approximately $

20 A full overview over the total exportations (in metric tons and USD) is given in Appendix 7

- 68 -

15/qq21 was paid for organic cocoa. As well, UNOCACE (2007) advertises for producers to

receive a premium of $ 10 to 15/qq for organic certified cocoa in their information folder.

Creating a foundation for the global stock exchange price of organic cocoa I have done simply by

adding a $ 15/qq to the original price. However, it is important to take notice of the reason for

calculating this estimate is to illustrate the approximate share received by the organic producers.

Table 6.7 Cocoa Prices 2007 – Average prices received among Ecuadorian cocoa producers compared

to the global stock exchange prices

Average price

($/qq)

Diff. stock price

($/qq)

In %

Global stock exchange

(ASS estimate)

((Organic estimate))

87,77

(93,48)

(102,77)

ANECACAO

(ASS estimate)

87,0722 - 0,70

-( 6,41)

99,2%

(93,1%)

All respondents

(ASS estimate)

89,82 + 2,05

(- 3,66)

102,3%

(96,1%)

DIRECT PURCHASE

Organic producers

(ASS estimate)

((Organic estimate))

104,40

+ 16,63

(+ 10,92)

((+1,63))

118,9%

(111,7%)

((101,6%))

OPEN MARKET

Non-organic prod.

(ASS estimate)

82,9823

- 4,79

(- 10,50)

94,5%

(88,8%)

Source: Data from ANECACAO (2008) and own research

21 My sample of organic producers not selling their cocoa to the open market, but directly to KAOKA must be taken into consideration when studying the divergence of $ 21,42/qq between the price received by the two groups of respondents. 22 As this average is an estimate from January until September 2007 it can cause some irregularities. I allowed my self to apply this data as I started conducting my fieldwork late October 2007. In addition, I took point of departure in the average global stock prices for the same period of time. So, if apparent at all, the difference should be minimal. 23 The average price received by the 5 farmers representing Nestlé was $ 87,60/qq

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ANECACAO (2007) claiming the average price received among Ecuadorian cocoa producers in

2007 to be $ 87,07/qq is an estimate slightly lower than my own. After making a calculation of

the 94 responses (2 blanc) I collected from my survey, the average price among my entire group

of respondents became $ 89,82/qq. Taking into consideration 30 of my respondents being

certified as organic producers, this amount need to be adjusted. Disregard the responses given by

the group of farmers holding organic certifications reveal a new annual average of $ 82,98/qq for

my sample of open market participants. This new average is 4,7% lower than the price

ANECACAO utters the average Ecuadorian cocoa producer to have received in 2007, and

constitute for 88,8% of the estimated FOB price for ASS. For the respondents conducting direct

sales (organic) the average price is $ 104,40/qq constituting for 101,6% of the estimated FOB

price for organic cocoa.

Despite some variation, all the estimates illustrate a significant rise in the price share received by

the Ecuadorian cocoa producers to have occurred during the last few years. According to ICCO,

Ecuadorian cocoa producers received an average price for their cocoa constituting for about 80%

of the global stock price in 2001 (ICCO 2003). The same year, Nigerian farmers were the ones

who received the highest share (96%) and the farmers from the Ivory Coast who received the

smallest (52%). Making a retrospect to Table 6.6, the ICCO estimates correspond closely to the

findings valid for the years 2002 and 2003. The current positive trend in the producer price share

received by Ecuadorian cocoa farmers is being confirmed by Pablo Vega Garcia in

ANECACAO. He claims Ecuadorian cocoa producers to receive the world’s highest share for

their products. Bringing up the problem of extended poverty among the farmers, Vega Garcia

argues this not to be caused by the prices paid to the producers, but rather the low agricultural

output.

6.3.5 Price variations in correspondence to quality

To reveal whether variations in quality had any impacts on the price received by the producers

became a difficult task as I, during my field work, came to realize the quality reward system was

only applied at the exporter level. In the test-drive of my questionnaire I had listed the four

different export qualities of Nacional (ASE, ASS, ASSS, ASSPS) and asked under which

category the cocoa cultivated at the farm was sold. Coming to learn these measurements were not

- 70 -

applied purchasing cocoa at producer level and the farmers not holding any idea of the

requirements used within the different categories (many did not realize a reward system even

existed), the question had to be eliminated. What I did get an answer to was the farmer’s own

perceptions whether the price was affected by the quality of the cocoa, and whether they were

satisfied with the price paid for their cocoa. The answers are given in Figure 6.14 and 6.15.

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

1 2 3 4 5 Blanc

Quality to cause variations in price offered (1=Very high degree, 2=Very low degree)

ReservaIndependencia / Buena FeLola GangotenaPasajeGuayas

Figure 6.14 Perception (in %) of prices to vary according to quality

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

1 2 3 4 5 Blanc

Level of satisfaction (1=very high, 5=Very low)

ReservaIndependencia / Buena FeLola GangotenaPasajeGuayas

Figure 6.15 Level of satisfaction with price offered for the cocoa (in %)

The mint coloured columns illustrate the results from the share of my respondents who is

practicing direct purchase of organic cocoa. As we can see from the figures, they are the ones

with the biggest share of respondents claiming prices in a very high degree to vary according to

quality, as well as holding a very high level of satisfaction with the price paid for their cocoa.

Despite tracing some disagreement, the majority of respondents selling their cocoa on the open

market are found in the groups claiming in a moderate to very low degree the prices to be

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affected by the quality of the cocoa and hold moderate to very low level of satisfaction with the

price offered for their cocoa.

As we already know, the farmers located in Pasaje are receiving a much higher price for their

cocoa than the other respondents. The results from Figure 6.14 and 6.15 could be interpreted as

when cocoa producers feel they are sufficiently rewarded for their agricultural effort, the quality

of the cocoa is likely to enhance. This is a view supported by Pilar A. Jano (2007) who states

transmission of quality incentives, with especial attention to high quality cocoa, down to

producer level, is crucial in order to enhance the level of competitiveness of the Ecuadorian

cocoa sector.

In the following chapter I am to investigate which factors are being influential to the price

received by the producers found in the different marketing channels running regression analyses.

Despite not having any variables demonstrating quality, characteristics or actions directly

connected to cultivation practices could be interpreted as likely to enhance the quality of the

cocoa being purchased.

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6.4 How can the variation in producer prices be explained?

In the previous chapter we observed a significant variation between the prices received by the

producers connected to the open market and the ones involved in direct purchases. In this section

the aim is to substantiate the assumption of choice of marketing channel to cause impacts on the

producer price level. Additionally, to reveal whether there are any other variables affecting the

price received by the cocoa producers. In order to do such an examination, statistical analyses

based on the framework presented in Figure 3.6 was carried out. The process of analysis involved

two stages. In the first, causes for the variations in producer price are to be analyzed. In the

second, I try to demonstrate factors influencing choice of marketing channel. After a presentation

of the variables applied in the regressions, the results extracted from the two analyses are

presented in section 6.4.2 and 6.4.3.

6.4.1 Presentation of the independent variables included in the regression analyses

The five subsections of my questionnaires were, as already explained in Chapter 3, transformed

into five groupings of independent variables in the Framework for analysis of factors influencing

choice of marketing channel and price received among Ecuadorian small scale producers of

cocoa (Figure 3.6). Chapter 6.3 demonstrated marketing channel to be important to the producer

price level. But how big is the importance of marketing channel? And are there as any additional

factors influencing the price variations? On basis of the below listed descriptions of the

independent variables24 applied in the regression, hypotheses of with factors to influence the

price received by the producers (positively or negatively) were developed. These will be

presented later on in this chapter.

A: Personal characteristics

A1 Sex

When describing the characteristics of my sample in the beginning of Chapter 6, I referred to

Pedro Ramírez (2006) claiming the Ecuadorian cocoa sector to be male dominated. According to

Ramírez it is in a large degree the man who administers and decides which cultivation- and 24 The presentation of the independent variables is done in the same order as in the framework (Figure 3.6).

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production practices the family is to follow, while the women first gets to play a more active role

first when it comes to commercialization and decisions upon the economic resources of the

family (ibid). As most of my questionnaires were distributed during farmer trainings, meetings

and ceremonies, female responses25 became an indicator on their agricultural involvement

(Women = 0, Men = 1, in the regression).

A2 Age

Figure 2.2, illustrating the vicious circle within the Ecuadorian cocoa sector, demonstrates how

lack of economic profit can cause reduced agricultural effort. Experiencing such kind of

disappointment over a long period of time would be likely to make cocoa producers loose their

motivation and quit seeking for new and alternative ways to enhance their profits. Hence, age

distribution26 can indicate which respondents still to hold inspiration.

A3 Off-farm activities (labour)

Cocoa has two annual harvest seasons. In the time span within these two labour intensive periods,

some farmers choose to work outside the farm. Off-farm labour is principally done in order to

earn an additional income. But in some cases, farmers holding diverse crops help each other out

during the different harvest periods. Just above half of the respondents of my questionnaire

(52,9%) answered to be involved in off-farm labour.

A4 Gone through agricultural training

Access to agricultural training does often imply access to institutions reaching out to the farmers,

meaning cocoa producers having access to better information, knowledge, technology, etc.

Anyhow, farmers feeling they are in a situation where knew skills are not needed may reject

joining such initiatives. Agricultural trainings are likely to enhance both marketing skills and

cultivation practices of their participants. Conducting my research in an area implemented in the

action plan of ACDI/VOCA, as many as 82,9% of my respondents had participated in

agricultural training.

25 Sexual distribution of my respondents is listed in Table 6.1 26 Age distribution of my respondents is listed in Table 6.1

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B: Organizational commitment

B1 Active membership in any organizations

The creation of farmer organization and societies is being favoured by international NGOs

worldwide, claiming it is a way to empower the rural people in LDCs. Providing technical and

economic services to their members and working as door openers in terms of improving

production practices and create/strengthening market links are arguments favouring the positive

effect membership in organizations can have on the price receive for their cocoa. Among the 50

FOs operating in the Ecuadorian context (Quingaísa 2007), I got to interview members from

three, constituting for 58,9% of my respondents.

C: Farm characteristics

C1 Geographical location

Geographical location can cause huge impacts on the producer price. One of the reasons is

distance to the market, where more purchasers are located. Another reason is NGOs and other

contributors to pick certain areas where they concentrate their activities. Being located in an area

closer to the market or which (even better) is intercepted by an external contributor could supply

the individual producer with a range of benefits (cf. Eade 2000). My selection of cocoa producers

was collected from five geographical locations. As all of them (except from the five Nestlé

‘contractors’) were situated close to Quevedo, the difference in market distance was not very

prominent.

C2 Size

According to numbers from INIAP, only 13,2% of the Ecuadorian cocoa producers

(monoculture) holds more than 50 hectares of land27 (Enriquéz 2004). These numbers reveal the

majority of the cocoa no longer to be cultivated in the large plantations which dominated during

colonial time, but rather is held by smallholders (ibid).

27 Land distribution among my respondents is given in Figure 6.2

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C3 Other cash-crops cultivated

According to Enriquéz (2004), among the 96 829 Ecuadorian cocoa producing units, 38 361

(39,6 %) hold other crops than cocoa. The crop most frequently cultivated together with cocoa is

coffee, the second is bananas. Due to a various ecological benefits (i.e. protection of the plant and

its fruits) INIAP favours cocoa to be grown in the shadow of higher threes (ibid). Another benefit

by multi-cropping is, holding a variety of crops can assist extensions of your market connections

and furthermore attract intermediaries buying several kinds of crops. Among the respondents

answering my questionnaire, the share holding additional cash crops was 87,5%.

C4 Use of external labour force

Cocoa can be kept in two different ways; either you can pay attention to the plantation throughout

the year, or only in the harvest season. According to the Success Alliance (2007) the major

challenge at producer level is absence of practices like pruning, three shaping, protection against

fungal diseases and irregular three spacing. 69,3% of my respondents claimed they applied

external labour force.

D: Cocoa production

D1 Type of cocoa cultivated

Looking at Ecuadorian reference prices FOB in Table 6.4 reveals an award system with

significant differences between the prices paid for CCN51 and the four varieties of Nacional.

This tendency is as well apparent at producer level, my respondents claiming the difference

between the two sorts of cocoa averagely is $ 5 in favour of Nacional. Being the fine and

aromatic cocoa cultivated in Ecuador for centuries, Nacional does as well hold an advantage in

terms of obtaining certifications as organic, rain forest friendly, etc as the traditional cultivation

practices are maintained by most producers. Among my respondents 84,3% were producers of

Nacional, 8,3% of CCN51 and7,2 % cultivated both varieties.

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D2 Annual yield

Annual yield can provide us with an indication of how much effort a cocoa producer put into his

cultivation practices. Anyhow, different sorts of cocoa cultivated is a more likely explanation

when huge yield differences are observed within a sample of farmers. Results from my

quantitative data collection revealed 35,7% of my respondents to rank type of cocoa cultivated as

the factor influencing their agricultural output the most. CCN51 is a high yielding breed, being

able to extract outputs eight times as high as with the cultivation of Nacional (SICA 2007a). Both

varieties hold a potential of obtaining much higher yields than what is achieved by the average

Ecuadorian cocoa producers. Within my sample of cocoa producers, the difference in annual

yield was not as significant as expected, the yield of the CCN51 producers (15,9 qq/year) only

being 19,5% higher than the Nacional producers (13,3 qq/year).

D3 Use of fertilizer / pesticides

Use of fertilizer / pesticides gives us an indicator of two different factors. The first is whether the

farmer produces organic products. Despite not holding any, farmers not applying fertilizer or

pesticides are more likely to obtain certifications. Secondly, it is a good indicator of which sort of

cocoa being cultivated. Receiving a lower premium for the cocoa, it is important for the farmers

cultivating CCN51 to maximize their yields. This fact explains why the application of fertilizer

and pesticides is more splayed among this group of producers. This tendency was confirmed by

the results of my questionnaires. Within the share of respondents cultivating Nacional, 16,9%

applied fertilizer or/and pesticides. The percentage valid for the producers of CCN51 was 53,3.

E: Access to information

E1 Access to information about market opportunities

Access to information about market opportunities28 could be crucial for cocoa producers seeking

alternative ways to market and sell their cocoa. The absence of a national organ organizing all

Ecuadorian cocoa producers, leaves the farmers themselves with the responsibility to get in touch

with institutions offering such kind of information. As being confirmed by Freddy Cabello in

28 Percentage of respondents with access to information about market opportunities is given in Chapter 6.2.3

- 77 -

UNOCACE and Frank Blacio in Nestlé, there exist a vast number of purchasers seeking

producers from whom they can buy the cocoa directly.

E2 Access to information about the legal framework

Like the variable concerning access to information about market opportunities, this variable is

affected by the lack of a national organization of cocoa producers. Holding access to this kind of

information the cocoa producers can be enlightened with rules like standards for cocoa

qualification and certification which can contribute to increase the quality of their products and

thereby enhance their chances of achieving a higher price.

F: Marketing channel

F1 Choice of marketing channel

With foundation in Figure 3.2, Gereffi et al. (2005) present a complete typology of value chain

governance. They claim the power asymmetry between the sellers and purchasers to be

determined by which type of value chain they participate. Despite power relations are likely to

affect the wage level of the actors within a marketing channel, also its design is influential.

Gereffi and Korzeniewicz (1994) stress the importance of including the three elements when

analysing global commodity chains; 1) length of the chain, 2) density of the interactions, and 3)

depth, meaning number of levels within the various stages of a GCC. The conventional cocoa

value chain is described by both Kaplinsky and Morris (2002) and Phillips and Tallontire (2007)

to be highly complex and extensive. Ecuador is no exception. Alternative marketing channels

enhance the likelihood of the farmers to bypass some of the actors operating in the conventional

chain (Open market = 0, direct purchase = 1, in the regression).

6.4.2 Which factors are influential to the price paid to the producers?

In order to create the framework presented in Figure 3.6, a set of hypotheses (Table 6.8) was, as

already mentioned earlier in this chapter, developed throughout the research process. The aim of

this section is to test the validity of the hypotheses by running a multiple regression containing

the variables in the framework.

- 78 -

Measurements Expectations

A1

-

Q 46. Nominal

binary variable

[Sex] As there exists a general assumption of women in LDCs to be better safeguard the natural

environment, female contribution might enhance both quantity and quality of the cocoa (thereby

contribute to higher prices achieved). The respondent being a man I therefore assume to have

negative effects on the producer price (pp).

A2

(-)

Q 47. Ordinal

binary variable [Age] Assume to see young producers not to have inherited the faint-heartedness of their forefathers

together with the farm. Therefore I expect increased age to affect the pp negatively.

A3

(+)

Q 51. Nominal

binary variable

[Off-farm activities] As we have come to understand enhanced quality not to be rewarded in the

Ecuadorian cocoa sector, I believe creating new networks through off-farm activities to be of higher

importance than increased / improved yield through farm activities

A4

(+)

Q25. Nominal

binary variable.

[Gone through agr. training] There are a range of benefits connected to joining agricultural trainings.

As the targeted participants for such activities often the poorest, I expect this variable only to

demonstrate a slight positive effect on pp.

B1

(+)

Q 30. Nominal

binary variable.

[Active membership in org.] Farmers participating actively in organizations gain a range of benefits.

One of them I assume to be economical and the producer prices will be affected positively.

C1

(+/-)

Nominal binary

(dummy) variable

[Geographical location] Geographical location, being a determinant of factors like distance to the

market and adaption by external contributors, I assume to cause great impacts to the produce price

received (both positive and negative, depending on the particular location)

C2

(+)

Q 49. Ordinal

binary variable

[Size] The bigger the better? In this case my assumption is not very strong, but I believe large scale

producers are likely to get better paid due to increased volumes of cocoa.

C3

(-)

Q 50. Nominal

binary variable

[Other cash-crops cultivated] For me the tendency of coca plantations to be thinned out by other

cash-crops indicates the farmer is loosing interest in cocoa cultivations. Hence, I assume cash crops to

cause a negative effect on pp.

C4

(+)

Q 3. Nominal

binary variable

[Use of external labour force] Additional labour force is often applied during harvest season and

does not necessarily indicate improved quality of the product. Anyhow, I assume the variable to cause

a slight positive effect on the producer prices.

D1

(+)

Q 1. Nominal

binary (dummy)

variable

[Type of cocoa cultivated] Being the cocoa highest valued in the national, as well as the global cocoa

market, Nacional is likely to cause positive impacts on the producer price.

D2

(-)

Q2. Ordinal

continuous

variable

[Annual yield] As high yields often indicate cultivation of the lower valued variety CCN51, it would be

likely for annual yields to correspond negatively with producer prices.

D3

(-)

Q4. Nominal

binary variable

[Use of fertilizers/pesticides] Fertilizers and pesticides to a larger degree be applied on the lower

valued variety CCN51 indicates this variable is likely to affect the producer prices negatively.

E1

(+)

Q 21. Nominal

binary variable

[Access to info. market opportunities] Getting in touch with direct purchasers and thereby eliminate

several steps in the value chain may cause major upheavals for cocoa producers. This connection I

assume easier to be established by producers holding access to information about market

opportunities, and will cause positive impacts to the pp.

E2

(+)

Q 23. Nominal

binary variable

[Access to info. legal framework] Since the quality reward system most often does not reach the

farmers, I assume access to information of the legal framework only to cause slight positive variations

in the price received by the producers.

F1

(+)

Nominal binary

variable

[Choice of marketing channel] The most splayed motivation for both purchasers and producers of

cocoa to seek alternative marketing channels is to increase the price paid to the producers. This I

expect to be revealed in the regression, affecting the producer price positively.

Table 6.8 Measurements and explications of the independent variables applied in the regressions

- 79 -

General findings

Before demonstrating which factors to be influential to the producer price, I ran a

multicollinearity test to ensure the variables applied in the regression where not too closely

related. The result for this test29 demonstrated none of the variables to hold a Variance Inflation

Factor (VIF) value greater than 10, the average VIF not to be substantially greater than 1 (1,594),

and finally neither of the variables to hold a tolerance level below 0,2, which is, according to

Andy Field (2005), beneficial in order to avoid the model being biased (at the VIF indicates

whether a predictor has a strong linear relationship with other predictor(s)). The Condition Index

is 25,448, but as neither of the eigenvalues in the table is significantly larger than the others there

is no probability for the uncentred cross-products matrix to be ill-conditioned30.

In order to measure the impacts the selected variables have on the producer price, a multiple

linear regression analysis was run in SPSS. With all 15 independent variables included, the

regression has an R-Sq (adj) of 0,702, which implies the outcome variable to be predicted

successfully (c.f. Table 6.931). At this step, Cultivation of Nacional is significant with a P-value at

< 0,05 confidence level (negative) and Participation in which marketing Channel at < 0,01

(positive). To test the stability of these results, the variables holding the highest P-value are

eliminated one by one. When excluding the first variable with the lowest significance,

Cultivation of Nacional looses its significance, while Participation in agricultural training gains

significance at < 0,1 confidence level and Age group at < 0,05 (both negative). Participation in

which marketing channel is significant at a < 0,01 level (positive) throughout the elimination

process. Excluding another insignificant variable, the same three variables are significant, but

Participation in agricultural training has augmented up to a < 0,05 confidence level. The further

elimination of a third insignificant variable gives the same results. When a fourth is excluded

from the regression, Participation in agricultural training increases up to a < 0,01 confidence

level.

29 See Appendix 8 for all results of the Collinearity test 30 The reason for already have extracted Geographical location, which would have caused Collinearity, from my set of variables is because I ran the Binary logistic regression before the multiple regression analysis. The problems concerned this variable will be discussed later on. 31 See Appendix 9 for all results of Multiple linear regression

- 80 -

Independent variables:

Sex

Age group

Off-farm activities

A: P

erso

nal c

hara

cter

istic

s

Participation in agricultural training

B:

Org

aniz

atio

nal

com

mitm

ent

Active membership in any organizations

Size

Other cash-crops cultivated

C: F

arm

ch

arac

teris

tics

Use of external labour force

CCN51 cultivated

Nacional cultivated

Average yield / year

D: C

ocoa

pro

duct

ion

Use of fertilizer / pesticides

Receive info. market opportunities

E: A

cces

s to

in

form

atio

n

Receive info. legal framework

F:M

arke

ting

chan

nel

Participation in which marketing channel

All observations The least

significant variable excluded

The two least significant

variables excluded

The three least significant

variables excluded

The four least significant

variables excluded

R-Sq (adj) =0. 702 R-Sq (adj) = 0.545 R-Sq (adj) =0. 547 R-Sq (adj) =0. 559 R-Sq (adj) = 0.581

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and confi. Level

1,340 ,600 -4,075 ,247 -4,102 ,239 -3,960 ,236 -

4,247 ,176

-,772 ,191 -1,671 0,41 _ ** -1,698 ,039 - ** -1,661 ,032 - ** -

1,593 ,030 - **

-,554 ,752 -2,336 ,341 -1,686 ,489 -1,728 ,453 -

1,540 ,484

-2,233 ,417 -6,042 ,079 _ * -7,789 ,019 - ** -7,812 0,11 - ** -

7,773 ,010 - ***

-2,496 ,363 -,086 ,980 X X X X X X X X X

,479 ,618 1,178 ,377 1,772 ,173 1,809 ,140 1,734 ,145

-2,559 ,294 -2,134 ,533 -2,274 ,507 -1,805 ,570 -

1,338 ,647

-2,248 ,270 -1,855 ,518 -2,724 ,318 -2,504 ,333 -

2,442 ,323

-4,577 ,283 -4,543 ,455 -5,074 ,396 -4,776 ,402 -

4,313 ,430

-7,320 ,028 - ** -7,264 ,122 -7,435 ,116 -6,978 ,119 -

6,984 ,110

-,016 ,814 X X X X X X X X X X X X

-2,313 ,287 -,1046 ,728 -1,572 ,603 X X X X X X

2,282 ,380 1,976 ,569 1,772 ,588 1,269 ,664 X X X

-1,386 ,600 -2,677 ,451 -3,161 ,376 -3,155 ,349 -

2,551 ,408

23,629 ,000 + *** 25,436 ,000 +

*** 25,64

5 ,000 + *** 25,832 ,000 + *** 25,25

4 ,000 + ***

Table 6.9 Multiple linear regression: Producer price *** = P-value < 0,01, ** = P-value < 0,05, * = P-value < 0,1

- 81 -

Producer price

The dependent variable Producer price constitute what the respondent answering my

questionnaires listed to be the average price received for their cocoa in the 2007 harvest season.

Price calculations done in the previous chapter revealed the average price received for their cocoa

among the producers in the open market structure was $ 82,98/qq, while the producers

conducting direct sales received $ 104,40/qq for their cocoa.

A: Personal characteristics

Neither of the variables within the first factor group, personal characteristics, is significant in the

first step of the regression, but changes occur when the least significant variable (Yield) is

removed. Both Age group and Participation in Agricultural training become significant (< 0,05

and < 0,10 confidence level). Age group corresponding negatively with Producer price could

indicate younger producers to put more effort into their agricultural activities, like it was assumed

in my hypothesis. As well, Participation in agricultural training to be negatively correlated was

not expected, but could, as earlier indicated, have been affected by these kinds of activities

principally to be directed towards the poorest group of cocoa producers.

B: Organizational commitment

Being one of the variables in my ‘Holy Trinity’ (Organization, Marketing channel, Producer

price), Active membership in any organizations to be the second variable eliminated from the

regression analysis due to its low level of significance did not correspond to my expectations.

Luckily, I had come to recognize its importance through my qualitative research, and did

therefore search for explanations for its lack of significance in the regression analysis.

Distributing the questionnaire in three different FOs, whereby only one had managed to break

with the open market structure and sell their cocoa directly, is the reason for Producer prices not

to be affected by the variable. Not being able to illustrate the group of farmers receiving the

highest price for their cocoa all to be organized. This illustrates Active membership in any

organizations not to be equivalent to receiving a higher Producer price, but to enhance the

chances of being adapted into an alternative marketing channel offering higher prices.

- 82 -

C: Farm characteristics

The third factor group, farm characteristics, does not hold any significant variables in any of the

regressions. This falsifies all my hypotheses of attention given to farm activities to have impacts

on the price received by the producers. Neither Size, Other cash-crops cultivated nor Use of

external labour force seem to have any impacts on the price the producer receive for his or hers

cocoa.

D: Cocoa production

Nacional cultivated holds a < 0,05 confidence level (negative) in the first regression, where all

the variables are included. When Annual yield is removed as the least significant variable,

Nacional looses its significance. Throughout the regression it remains stable just above < 0.1

level. As I expected the variable to hold a positive, rather than a negative effect on Producer

price, the results given in the questionnaire was studied closer. As was the case with Active

membership in any organizations, Nacional is actually being cultivated among the respondents

receiving the highest price for their cocoa. As the variety is being cultivated by most farmers in

Ecuador, the poorest share of my respondents affects the outcome of the regression model

negatively.

E: Access to information

Neither Access to information about the legal framework nor Access to information about market

opportunities has any significance to the Producer price.

F: Participation in which marketing channel

While the impact of the other variables, due to their instability, was a somehow hard to interpret,

this was not the case with the final variable, Participation in which marketing channel. The

results from the multiple regression analysis leave us with no doubt. This is the variable causing

the greatest impacts on the Producer price. Producers conducting direct purchases (1 value in the

variable) are positively correlated to Producer price at < 0,01 level throughout the elimination of

insignificant variables. This is a result which supports the view of various professionals claiming

the best way to enhance producer prices is to eliminate some of the steps in the conventional

cocoa chain (c.f. Phillips and Tallontire 2007, Collinson and Leon 2000).

- 83 -

6.4.3 Which factors are influential to the choice of marketing channel?

Marketing channel to hold significance to the price offered producers of Ecuadorian cocoa has

been confirmed both through a price analysis in Chapter 3 and the multiple regression analysis

earlier in this chapter. As well, this discovery makes interesting the factors influencing the

individual producer’s access to a marketing channel where direct sales can be carried out. To help

reveal variables holding significance to choice of marketing channel, a binary logistic regression

was run in MiniTab.

General findings

Also in this case I performed a multicollinearity test32. Neither this time did any of the variables

hold a VIF value greater than 10, the average VIF was not substantially greater than 1 (1,933),

and none of the variables held a tolerance level below 0,2. The Condition Index is 27,354, but as

well in this case neither of the eigenvalues was much larger than the others.

Despite having tested for Collinearity, problems occurred when I was to run the binary logistic

regression. The entire regression collapsed, and I found the reason to be a perfect correlation

between the dummy variables for Geographical location and the dependent variable. After a

consultation with the UMB statistician Ellen Sandberg, we agreed on running the regression

without the problematic variable. However, the reason for the break down is a remarkable

finding. The marketing channel, in which the producers have the chance to participate, is to a

large degree predetermined by the geographical location.

After having excluded the variable Geographical location, the binary logistic regression was

carried out. Table 6.1033 demonstrates the original set of data to have a Hosmer Lemeshow P-

value of 0,413, indicating the model being appropriate. Accepting P-values a 10% confidence

level, Age group (positive), Use of fertilizer / pesticides (negative) and Receive information about

the legal framework (positive) is significant. In order to test its stability, the model was run four

times, excluding the variables holding the lowest significance one at the time. The variables

32 See Appendix 10 for all results of the Collinearity test 33 See Appendix 11 for all results of Binary logistic regression

- 84 -

Independent variables:

Sex (Man)

Age group

Off-farm activities

A: P

erso

nal c

hara

cter

istic

s

Participation in agricultural training

B:

Org

ani

zati

onal

co

mm

itm ent

Active membership in any organizations

Size

Other cash-crops cultivated

C: F

arm

cha

ract

eris

tics

Use of external labour force

CCN51 cultivated

Nacional cultivated

Average yield / year

D: C

ocoa

pro

duct

ion

Use of fertilizer / pesticides

Receive info. market opportunities

E: A

cces

s to

in

form

atio

n

Receive info. legal framework

MARKETING CHANNEL

Binary Logistic regression (Logit)

Binary Logistic regression (Logit). The least significant variable

excluded

Binary Logistic regression (Logit). The two least significant variables

excluded

Binary Logistic regression (Logit). The three least significant

variables excluded

Hosmer-L. 0,413 Hosmer_l. 0,424 Hosmer-L. 0.252 Hosmer-L. 0,443

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

Reg. coeff:

P-value:

Dir. and conf. level

-0,009 0,496 -0,009 0,487 -0,005 0,046 - ** -0,005 0,052 - *

0,003 0,055 + * 0,003 0,055 + * 0,003 0,042 + ** 0,003 0,045 + **

0,008 0,542 0,008 0,535 0,004 0,025 + ** 0,004 0,019 + **

-0,006 0,653 0,006 0,649 X X X X X X

-0,004 0,753 X X X X X X X X X

0,001 0,470 0,001 0,467 0,001 0,515 X X X

0,002 0,202 -0,002 0,201 -0,003 0,117 -0,002 0,147

0,001 0,288 0,001 0,279 0,001 0,226 0,001 0,244

-,919 0,244 -1,923 0,244 -1,861 0,255 -1,866 0,250

-,780 0,498 -0,803 0,486 -0,839 0,464 -0,943 0,397

-0,002 0,303 -0,002 0,308 -0,001 0,376 -0,001 0,434

-1,926 0,072 - * -1,301 0,072 - * -0,301 0,071 - * -1,303 0,067 - *

0,002 0,243 0,002 0,238 0,002 0,180 0,002 0,172

1,299 0,071 + * 1,306 0,070 + * 1,301 0,071 + * 1,303 0,067 + *

Table 6.10 Binary Logistic regression: Marketing channel *** = P-value < 0,01, ** = P-value < 0,05, * = P-value < 0,1

- 85 -

holding significance initially remained at the same confidence level when one variable was

excluded. In the third run Age group augmented its confidence level to < 0,05, as well as Sex (<

0,05, negative) and Off-farm activities (< 0.05, positive) came to be significant. In the fourth and

final run, the three variables holding significance originally still remained significant (Use of

fertilizer / pesticides and Receive information about the legal framework at < 0,10 level, Age

group at < 0,05 level), as well as the additional variables Sex (< 0,10) and Off-farm activities (<

0,05).

A: Personal characteristics

Within the first factor group, Age group, is significant (< 0.10) and has a positive regression

coefficient. Its significance augments (<0.05 level, third run) and remains positive throughout the

process of eliminating the most outlying observations. Increased age to be positively correlated

with the dependent variable was somehow a bit surprising, as I expected younger producers to

hold more initiative and motivation in order to break with the open market structures. But we

should keep in mind the result from the multiple regression, revealing age to be negatively

correlated with price. Young producers to obtain the highest prices within the open market

structure may prevent them from searching alternative marketing channels.

Two additional variables, Sex (< 0.05, negative) and Off-farm activities (< 0.05 positive) become

significant in the third step of the regression, when the two least significant variables are

excluded. While the significance of Sex drops down to a < 0.1 level in the final step of the

regression, Off-farm activities remain stable. Off-farm activities I assumed to have effects on the

producer price, due to the producers interactions and networking outside the farm. The

assumption failed regarding the producer prices, but could be an explanation to the relationship

between Off-farm activities and Marketing channel. Being a female to correspond positively to

alternative marketing channels is a positive trend, as their involvement could contribute to

combat the traditional patter of sex roles often found in LDCs.

B: Organizational commitment

As well as in the case of Producer price, Active membership in any organization being the least

significant variable in the first step of the regression, not causing any impacts on participation in

- 86 -

alternative marketing channels came as a huge surprise, and was about to destroy my entire idea

of how the selected variables were connected. What is not illustrated in the regression analysis is

all the respondents participating in alternative marketing channels were organized. Bias occurs

due to the vast amount of organized farmers who participate in the open market structure. Hence,

despite enhancing your chances for being adopted within an alternative marketing channel,

organizational activity is not being equivalent to break out of the open market structure.

Unión y Progresso, the only organization which had succeeded establishing contact with a direct

purchaser, was older than the other organizations I visited. This could indicate organizations

being well-established and mature easier to be traced by direct purchasers looking for contacts.

According to Freddy Cabello in UNOCACE, contact is established with the organization both-

way; through active searches for FOs and application from the FOs. According to the current

leader in Unión y Progresso, the organization had been in touch with various NGOs before

getting in touch with UNOCACE. It was through these workers the connection was made with

UNOCACE.

C: Farm characteristics

Table 6.10 does not demonstrate any variables to be significant in the third factor group.

However, this is after having excluded the variable Geographical location. The reason for

Geographical location to have a perfect correspondence with Marketing channel was all my

respondents conducting directs sales were located within one geographical location. This

occurrence could indicate the most important determinant for farmers to be targeted by direct

purchasers is their place of residence.

D: Cocoa production

Within the factor group Cocoa production we find the second significant variable in the

regression analysis (when all variables are included). Use of fertilizer/pesticides holds a stable

negatively significance at < 0,10 level throughout the regression, as well when least significant

variables are being removed. The traditional agriculture without any use of fertilizers and

pesticides (which still is dominant in Ecuadorian cocoa cultivation) could seem to enhance your

chances of getting access in an alternative marketing channel. Purchasers holding a social

- 87 -

commitment, like KAOKA, often wish to market their products with certain sorts of

certifications. The avoidance of fertilizers and pesticides could be a prerequisite for establishing

contact with certain buyers, as the organic certification still is the one most commonly applied.

E: Access to information

In the final factor group we find the third and final significant variable influencing choice of

marketing channel, Access to information about the legal framework. The variable has a positive

regression coefficient and remains significant throughout the elimination process of insignificant

observations. During my fieldwork I came to learn that while information of market opportunities

were possible to extract from various actors (NGO workers, intermediaries, etc) in most areas, it

was harder to access information about the legal framework. This variable being positively

correlated to alternative marketing channels can indicate cocoa producers willing to go through a

bit of struggle in order to reach their goals, as well enhance their chances of getting in touch with

purchasers operating outside the open market structure.

6.4.4 What are my major findings and how do they relate to the framework sketched out in

Chapter 3?

The framework listed in Figure 3.6 was principally designed on three assumptions: 1) choice of

marketing channel to affect producer prices 2) farmers with organizational commitment to be

more likely to gain access to break with the open market structure, and 3) external contributors to

accelerate the contact between the various actors in the commodity chain (producer – purchaser).

After running the regressions, my main finding is the strong connection between marketing

channel and the price received by Ecuadorian cocoa producers. Despite some other factors were

demonstrated to cause impacts on the price received, they did not hold the same significance as

Participation in which marketing channel.

A second finding of interest was identified when searching for factors influencing a producer’s

possibility to participate in alternative marketing channel. The dummy variables Geographical

location broke down my regression analysis due to a complete correspondence with Marketing

channel. The explanation for this was that all producers carrying out direct purchases were

located within one geographical area.

- 88 -

Figure 6.16 Revised framework for analysis of factors influencing choice of marketing channel and price received among Ecuadorian small scale producers of cocoa

The further variables holding significance both to Marketing channel and Producer price are

illustrated in Figure 6.16. The independent variables are coloured pink or blue in order to indicate

to which dependent variable they are significant. The revised framework illustrates all my factor

groups except one to influence either Marketing channel or Producer price.

According to the five types of global value chain governance designed by Gereffi et al. (2005) in

Chapter 3, the open market structure constitute for the value chain where the power asymmetry

among the actors are at the lowest, increasing as we move towards the integrated firm. Trying to

fit my selection of marketing channels into this pattern, the open market was naturally placed at

the very left of Figure 3.2. The intended group of contractors with Nestlé would have been placed

at the very right, within the hierarchical structure of an integrated firm. But where in Gereffi et

al.’s model could I fit in the last group of producers carrying out direct purchases?

- 89 -

Gereffi et al. (2005) argue the power asymmetry to be at

the lowest in the open market structure, but is this as well

valid in the case of labour intensive, buyer-driven

commodity chains? From my point of view the producers

holding a position outside the open market structure inhabit

a greater market power than the ones who remain. As I

illustrate in Figure 6.17, despite the existence of a variety

of buyers or customers in the Ecuadorian open market

structure, most producers only have access to one or two.

This design corresponds more to what Gereffi et al.

describe as a captive value chain, than the open market

pattern. Independent farmers located in remote areas, which

is operated by only a few intermediaries do not hold a great

bargaining power. Hence I consider perfect competition in

the open market structure to be an absolute condition for

Gereffi et al’s ideas of market power. In the Ecuadorian

cocoa sector there are no barriers of entry, the actors above

producer level are numerous, and the cocoa undergo

various purchases before reaching the exporters. Therefore

I would argue an inefficient and extended path of

transactions to be of a higher relevance than market power

when discussing the price paid to the producers. An

efficient open-market structure could have validated the

model of Gereffi et al.

Figure 6.17 Open market structure in the Ecuadorian context

As mentioned in a previous section, I could not fit the

producers involved in direct purchases into Gereffi et al’s

model. Could it be claimed that producers carrying out

direct sales, like Unión y Progresso, still are part of the

open-market structure, only in a more cost-effective way?

If so is the case, Figure 3.2 should have been redesigned, Figure 6.18 Collective sales to direct purchasers

- 90 -

making room for alternative purchases to take place within the open market as well. Figure 6.18

is an attempt to describe the process of sale which took place among my respondents being

involved in direct purchases. The dashed circle is to illustrate the sales to happen collectively.

The customer is not taking part of the extended intermediary-structure which is illustrated in

Figure 6.17.

My research illustrating the advantages gained by being adopted in an alternative market

structure makes it important to identify ways cocoa producers can break with the traditional open

markets structure. The results from my findings reveal Geographical location, Active

membership in any organizations and access to the assistance from External contributors to be of

high relevance in order to get in touch with a direct purchaser. As commented earlier in the

chapter, organizational activity is neither equivalent to getting access to an alternative marketing

channel, nor to receive a higher price for the cocoa, but it enhances the chances for both

incidences to take place. What I identified as the key for a FO to get in touch with a direct

purchaser was to get assistance from an External contributor (NGO). As NGOs often target

certain areas for action, Geographic location becomes a central matter. In other words,

organizations per se are not the most important matter, but rather where they are located.

All three organizations I worked with had (to various degrees) been in touch with external

contributors, but only one had succeeded in getting in touch with a direct purchaser. One of the

explanations for this occurrence could be corresponding to Bebbington’s (1991) ideas of NGOs

to operate within specific areas and Unión y Progresso to be incorporated due to its physical

location. Another explanation could be concerned with the establishment of the organization.

Unión y Progresso was founded already in 1991, but did not become a UNOCACE member until

1997. As well as the two other organizations, which were both less than 3 years, Unión y

Progresso once was in the phase of establishment. As one of my interviewees within the

organization uttered “We have spent years in the game of commercialization. We have fallen. We

have been defeated as well”. Another claimed “We are moving forward”. There are no doubt

that the organization had not been where it is today without the contribution from UNOCACE.

The NGO has provided the FO with both a direct purchaser, KAOKA, and organic certifications,

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which according to my analyzes has contributed to the producers to receive a price $ 21,42/qq

higher than the average among my remaining respondents.

Increased price seems to be the biggest motivation factor for producers to organize. When I asked

the members of Unión y Progresso in the questionnaire what to be the biggest impact on their

market activities after joining the organization, 91,6% answered Higher prices offered. Among

the other organized respondents, not yet having experienced the same economic benefits as the

members of Unión y Progresso, the most answered alternatives were Higher prices offered

(47,5%) and Access to new markets (36,9%). When I asked them whether they had experienced

any increase in the market price, they answered they had not, but were expecting it to come.

Giving answer to the question of non-market related advantages being member of a FO, 57,1% of

all the organized respondents answered the major advantage was Access to training/information.

Listing the benefits of being organized, it is interesting to reveal why some cocoa producers

choose to stay unorganized. The unorganized respondents of my questionnaire saw the benefits of

being organized, 54,4% claimed Access to bigger markets to be the major advantage.

Furthermore 34,5% answered the reason for not being organized was No access. Taking into

consideration 37,9% ticked out Other, many furthermore commented “No hay” (“There are

none”), the vast majority of the unorganized share of my respondents claimed lack of possibility

to enter as the main cause for not being organized. This finding can easily be interpreted as

supportive to what Gudmund Hernes (1975) lists as his forth obstacle to organization, physical

barriers. After further investigation I found out it was not only distance which excluded these

respondents from organizational activities, but as well what Hernes describes as a problem of

solidarity. What I came to learn during my stay was namely FOs to be created within one

community and not being available for anybody else to enter.

The way I interpret my findings is organizational activities and contributions by external actors to

inhabit the power to break with the traditional governance pattern described by Gereffi et al.

(2005). This view is supported by Anthony Bebbington (1991), uttering FOs to increase the

market power of farmers with limited resources. The UNOCACE – Unión y Progresso

experience is a perfect example of how NGOs can strengthen the organization of the poor (c.f.

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Eade 2000), and how the producers through carrying out direct sales have experienced a

decreased power asymmetry compared to being a participant in the open market structure.

If we chose to stress the complexity of the chain structure in the Ecuadorian open market, rather

than underlining the importance of market power, it is crucial to eliminate as many actors as

possible in order to enhance the price received by the producers. (c.f. Phillips and Tallontire

2007). As in the case with market power, NGOs can assist farmer organizations in this process by

establishing contacts, to whom they can conduct direct sales.

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7.0 Conclusion and recommendations

Based on the analyses carried out in Chapter 6, I will in this chapter present a conclusion to my

main objective of this thesis; To calculate the producer price received by Ecuadorian small scale

cocoa farmers, and furthermore seek explanations for the variations I expect to reveal. In order

to do so, I will in each of the next sections give account for the conclusions to my three sub-

objectives. In the very last section of this thesis, I will present alternative ways to increase the

price received by Ecuadorian cocoa farmers

7.1 How is the production and marketing of cocoa organized in Ecuador? The first sub-objective was designed to offer a better insight of the structure of the Ecuadorian

cocoa producing sector. The way I chose to approach the question of how production and

marketing of cocoa to be organized in Ecuador was through theories concerned with commodity

chains, their functions and participants.

We have come to learn that cocoa is a buyer-driven commodity, and the conventional cocoa

value chain is highly complex and labour intensive. Ecuador, holding a national system which

does not restrict competition, is no an exception. Despite of some recent attempts to create

alternative market channels, the open market structure still prevails in the Ecuadorian cocoa

sector. Often the cocoa undergoes four of five purchases before reaching the exporters. Lack of

official national censuses forces us to trust secondary sources stating the Ecuadorian cocoa sector

to employ approximately 100 000 producers, 1000 intermediaries and 35 exporters. Taking into

account all the personnel involved in the steps of production, commercialization and processing,

the national cocoa sector employs 800 000 Ecuadorians.

Lack of sufficient agricultural output of the high valued cocoa variety Nacional has resulted in

frauds frequently to take place in the sector. Extended mixtures of varieties and qualities have

made ‘the golden bean’ loose its value. After ICCO decided to degrade Ecuadorian cocoa to 75%

fine and aromatic in 1994, many have come to worry about the future prospects of the sector. The

actors found at the very bottom of the commodity chain, the producers, are the biggest victims in

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the present system. Middlemen reign the market. They avoid competition by creating individual

zones and through internal price arrangements. In order to combat the fraud taking place in the

process of commercialization, a demand for better control mechanisms and presence of the

national authorities in a sector being ignored for the recent decades has been uttered.

7.2 What is the average price ($/qq) offered to the producers within the various

marketing channels and how does this price correlate with the quality of the

cocoa purchased? The aim of the second sub-objective was to identify the differences in producer prices among

farmers participating in the open market structure and farmers conducting direct sales. In order to

place my findings in a national context, an analysis calculating the producer price share was

conducted with point of departure in data concerned with producer- and FOB prices for cocoa in

grain, published by the Ministry of Agriculture and Livestock and ANECACAO.

Being forced to eliminate one of my alternative marketing channels, contractors with MNCs, my

price comparison was carried out between producers belonging to the open market structure and

producer carrying out direct sales. The price difference between the two groups of producers

answering my questionnaire was astonishing. While the producers participating in the open

market received an average price for their cocoa of $ 82,98/qq, the producers conducting direct

sales received $ 104,40/qq. ANECACAO (2007) claims the Ecuadorian cocoa producer in 2007

to averagely receive $ 87,07/qq for his or hers cocoa. These numbers indicate the share of my

respondents participating in the open market structure to receive a price considerable below the

national average. The huge difference in price received by the two groups of producers ($

21,42/qq) I discovered to have two explanations; the producers subordinated a direct purchaser

held certifications for their cocoa being organic, as well as the purchaser operated under a

purpose of safeguard human dignity, as well as the environment and its biodiversity.

The focus on quality was the second target for investigation within this sub-objective. During my

research I came to learn the emphasis on high quality products to be of considerable difference

within the two marketing channels. Asking whether quality had impacts on the price level

revealed this to be more apparent among the producers breaking with the open market structure.

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Their contract with the purchaser is dependent on the quality of the product. On the other hand,

within the open market structure the quality incentives are not transferred down to the producer

level. While cocoa Nacional is exported from Ecuador under four different categories indicating

the quality (the highest quality priced 15% higher than the lowest), the farmer does not gain any

benefit from producing high quality cocoa. Ecuador does still experience a huge demand for their

high quality cocoa. A vicious circle of decreased quality due to lack of economic rewards is

currently taking place in the Ecuadorian cocoa sector. Many have come to realize a need for the

quality of Ecuadorian cocoa to increase drastically. If this not happen, the international demand

will diminish significantly in the years to come.

7.3 How can the variation in the producer prices be explained? The second sub-objective revealed a significant difference in the prices received by the two

groups of producers participating in different marketing channels. In order to better understand

the price gap, this section is dedicated to identify which factors to cause the price variations.

A multiple linear regression analysis was carried out to demonstrate the factors holding impacts

to the producer price. The results from the regression revealed Age group, Participation in

agricultural training and Nacional cultivated all to have negative impacts on the price level. The

most convincing result was anyhow the impacts of Marketing channel. Participation in direct

purchases was significant at a < 0,01 confidence level, holding a positive correlation to producer

prices. Despite not being demonstrated in the regression analyses, some other factors were

identified as influential to the producer prices through information extracted from interviews and

observations: 1) Active membership in farmer organizations. Despite not being a determinant for

increased prices, the chances are enhanced of being traced by a direct purchaser being organized.

2) Get assistance from external contributors (NGOs). Due to lack of a national support system,

neither farmer organizations nor individual producers know how to establish contact with

purchasers directly. 3) Obtaining certifications. Despite most Ecuadorian cocoa is cultivated

organic, the minority hold the certification which can contribute to rise the price received

significantly.

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The assumption of choice of marketing channel to be the factor most likely to cause variation in

the producer prices was verified. Therefore, a binary logistic regression was carried out to reveal

which factors to influence producers to participate in the various marketing channels. The factor

holding the highest level of significance was Geographical location, demonstrating producers

located within certain areas to be targeted by direct purchasers. As well, the results from the

regression revealed Age group and Access to information about the legal framework to be

positively correlated to alternative marketing channels, while use of fertilizer/pesticides held a

negative correlation.

Producers to get insufficient paid for their cocoa could be claimed to be a matter of market

structure, rather than market power. The complexity of the conventional cocoa chain causes many

actors to obtain a limited margin. Rather than being focused on increasing the market power of

Ecuadorian cocoa producers, the emphasis could be to eliminate some of the actors in the

traditional value chain. NGOs do an extremely important job in strengthening the market links,

establishing contact between farmer organizations and direct purchasers.

7.4 Recommendation of improvements to be carried out in order to enhance to

producer prices On the basis of my findings and previously published studies, I have listed four factors which I

find to be of specific importance in order to increase the Ecuadorian producer prices of cocoa.

1. Governmental attention should increase

Numerous authors have uttered lack of sufficient governmental attention to be the core of the

recent problems within the Ecuadorian cocoa sector. Insufficient agricultural output has led to

increased mixtures of cocoa holding different qualities. Due to inadequate control mechanisms,

the international market is frequently provided with ‘diluted’ Ecuadorian cocoa. In order to

prevent a ruin of the national cocoa sector, the state is obliged to pay it more attention. Specific

consideration must be directed towards the areas of control mechanisms and market regulations.

The recent system, not restricting competition, leaves the cocoa producers in an extremely

unfortunate market position.

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2. Producers to carry out direct sales

The abovementioned lack of sufficient governmental attention has resulted in a market dominated

by the intermediaries. Before reaching the exporter, Ecuadorian cocoa often bypass four or five

intermediaries, who each take a margin. Simple math should do in calculating the producers to

increase their revenue by carrying out direct sales themselves. The absence of national farmer

organizations and distribution of general information makes it difficult for individual producers

to break out of the open market structure. The results of my studies revealed external

contributors, like NGOS operating at a national/international level, to inhabit an extremely

important role in strengthening the market links in the Ecuadorian cocoa sector. In order to get in

touch with a NGO, often targeting specific areas of action, it is important for the farmers to be

‘visible’. One of the major tasks of larger NGOs is to strengthen the existing farmer

organizations. Hence, the first step for farmers, seeking to break with the open market structure,

is to organize. Once being target by a NGO, the cocoa producers get better access to information

and assistance of how to strengthen their market power.

3. Obtain certifications

The resent global focus on environmental consciousness and ethical trade has increased the

demand for products holding certifications like Fair Trade, Rainforest Friendly, Organic, etc.

Most Ecuadorian cocoa is cultivated applying organic practices, but very few farmers hold

organic certifications. Obtaining a certificate is likely to cause a solid increase in the price paid to

the producers, as exporters of certificated commodities often are obliged to pay a minimum price.

The easiest way for Ecuadorian cocoa producers to achieve a certificate is through a FO seeking

assistance from a NGO. Certifications are given to individual independent producers as well, but

my experience was the process to be rather comprehensive and complicated.

4. Transfer quality incentives to producer level

Today Ecuadorian cocoa is not categorized in terms of quality of the beans before it reaches the

exporter level. The producers not achieving any economic reward for good cultivation- and

harvesting practices does not stimulate to maintenance of deliverance of high quality products.

For Ecuador to maintain its position as one of the world’s leading producers of fine and aromatic

cocoa, the country is dependent of the actions taking place at farm level to be sustainable. The

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low yielding breed Nacional, which dominate the national cocoa industry, is prized considerably

higher than regular cocoa in the international market. Farmers taking part in this reward system

are more likely to intensify and improve their farm activities. Hence, the national cocoa industry

will have larger volumes of higher quality cocoa to provide the international market.

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a) Handling the harvest. [online]: http://www.worldcocoafoundation.org/tree-to-table/handling-the-harvest.asp, accessed 2007/10/17

b) After the harvest. [online]: http://www.worldcocoafoundation.org/tree-to-table/after-the-harvest.asp, accessed 2007/10/17

Yin R. K. (1993). Application of Case Study Research. Sage Publications, Newbury Park

- 106 -

Overview of institutions from which I gained new insight through personal communication / correspondence ACDI/VOCA GUAYAQUIL: Iven Ose, Jaime Freire + additional staff

ACDI/VOCA QUEVEDO: Jose Garcia + Estefanny Calero + additional staff

ANECACAO: Pablo Vega Garcia

ARAZA ECUADOR: Alvaro Aristizobal

BCS-ÖKO: Armando Bonifaz

GTZ/CORPEI: Sergio Pino

INIAP: Alfonso Vasco

MAG: Edgar Vera

MIC: Inés Hidalgo

MANOBANDA: Various staff

MARTINETTI: Various staff

NESTLE AGRISON: Frank Blacio + additional staff

NESTLE COLLO: Various staff

NESTLE FABRICA SUR: Henry Gabrilla + Mark Resink

QUEVEXPORT: Various staff

TRANSMAR (COLONIAL): Patricio Espinoza

UNOCACE: Freddy Cabello

- 107 -

Appendix 1: ICCO forecast on global cocoa production and consumption

The diagrams from ICCO demonstrate an expected augmentation in both the global production

and demand of cocoa for the coming years.

Source: ICCO (2007a)

i

Appendix 2: The 3 botanic varieties of cocoa trees worldwide

There are three factors causing the major impact on the taste developed from the cocoa beans; 1)

the botanic origin 2) the environmental conditions within the production area and 3) the post

harvesting conditions (ANECACAO 2007). You can find three different botanic varieties of

cocoa trees worldwide, the Criollo, Forestero and Trinitario:

1. Criollo Criollo, producing fine and flavoured beans, was frequently cultivated and dominated the

market until the 18th century (ICCO 2007b). In the era before the colonization, Criollo was

cultivated in Central America, some islands in the Pacific, in Indonesia and Sri Lanka

(ANECACAO 2007). In recent times, the Criollo tree has most frequently been grown in the

Caribbean, Venezuela, Papua New Guinea, the West Indies, Sri Lanka, East Timor and Java

(UNCTAD 2007a). The ICCO claims it to be few (if any at all) pure Criollo trees remaining

today, meaning the ones being cultivated in the abovementioned nations are modern varieties

of the traditional species (ICCO 2007b). The characterization of Criollo, is its small to

medium sized beans with bright coloured cotillions which present a delicate aroma of

chocolate accompanied by a light nutty taste (ANECACAO 2007).

2. Forastero Forastero is the most common cocoa tree, accounting for about 90% of the cocoa beans

produced on a global scale (UNCTAD 2007a). This type of cocoa is cultivated in Asia and

Africa, as well as in the Amazonian basin (ANECACAO 2007). Forastero is found both in

wild, semi-wild and cultivated forms, whereby the population called Amelonado is the most

frequently grown by cocoa farmers worldwide. Amelonado comes in different varieties,

including Comom in Brazil, West African Amelonado in Africa, Cacao Nacional in Ecuador

and Matina in Costa Rica and Mexico (ICCO 2007b). The Forastero produces small to

medium sized beans with dark brown coloured cotillions and have a strong aroma of

chocolate with a bitter taste (ANECACAO 2007).

ii

3. Trinitario Trinitario is the third and final variety of cocoa trees. This variety is actually a hybrid of the

two abovementioned cocoa populations, although being considered part of the Forasteros

(ICCO 2007b). The Trinitario is recognized for its medium to large sized kernels with brown

or reddish cotillions, which develops an additional taste to the chocolate aroma, often

described as fruity (ANECACAO 2007). Trinitario was, as the name implicate, first

cultivated in Trinidad, so to be spread to Venezuela, followed by Ecuador, Cameroon, Samoa,

Sri Lanka, Java and New Guinea (ICCO 2007b). Now the variety is mainly cultivated in

Trinidad, Jamaica, Colombia and Costa Rica (ANECACAO 2007)

iii

Appendix 3: The 3 different stages of the harvest season Cocoa producers go through three different stages in the harvest season before they bag the beans

for delivery. These stages include harvesting, fermentation and drying of the cocoa beans. Two

harvests are usually made annually, although cocoa mature all through the year. These two

harvests are termed mid- and main-crop, whereby the latter most frequently are bigger than the

former (UNCTAD 2007b). The annual timing of the two harvest periods depends on the

geographical position of the cocoa producer, although extreme weather changes can disturb this

pattern, resulting in annual fluctuations (WCF 2007a).

Harvesting The cocoa beans are to be found inside the pods. During harvest the ripe pods need to be picked

in order to extract the seeds. At this stage the seeds are wet and cream coloured, and the pods are

kept for between seven and ten days after harvested before opened to start the process of

fermentation (ICCO 2007c).

Fermentation Although the process of fermentation can be carried out in several different ways, the basic

principle is to extract the seeds from the pods and furthermore collect them into piles or in gather

them in boxes “… to allow micro-organisms to develop and initiate the fermentation of the pulp

surrounding the beans” (ICCO 2007c). The duration of the fermentation depends on the variety

of cocoa applied, but normally it takes somewhere between three and nine days (WCF 2007b).

The chemical reactions occurring during the fermentation is crucial for the beans to develop both

the colour and the taste of chocolate (ICCO 2007c), as the raw and bitter taste of the cocoa is

removed when the sugar contained in the beans is converted to (lactic and acetic) acid (WCF

2007b).

iv

Drying After the fermentation, the cocoa holds a high level of humidity (up to 60%). In order to decrease

this level (down to a preferred 7,5%), the beans need to be dried (ICCO 2007c). This can either

take place naturally (on trays or mats out in the sun) or artificially (with the use of solar dryers)

(WCF 2007b). During the drying process, it is crucial to be aware of the temperature (never to

exceed 65°C). In order to prevent affecting the flavour negatively, the beans should neither be

dried too quickly nor too slowly (ICCO 2007c).

v

Appendix 4: Quality classification system of Ecuadorian cocoa

The varieties of cocoa Nacional are being exported from Ecuador under four different names,

ASE, ASS, ASSS, ASSPS (in ascending order). The cocoa gets its qualification in terms of

weight (100 beans), fermentation, level of violet, slaty and mould and number of defect beans in

a sample of 500 grams. The fifth variety listed in the table, ASSN, is seldom applied in the

present ranking system. Despite not being ranked into different qualities, CCN51 is as well listed

in the table. The measurements listed constitute for the preferred export quality of this variety.

COCOA ARRIBA REQUIREMENTS UNIT A.S.S.P.S. A.S.S.S. A.S.S. A.S.S.N. A.S.E. CCN51

Weight of 100 beans G 135-140 130-135 120-125 110-115 105-110 135-140

Good fermentation (minimum) % 75 65 60 44 26 65***

Quick fermentation (minimum)

% 10 10 5 10 27 11

TOTAL

FERMENTED (minimum)

% 85 75 65 54 63 76

Violet (maximum) % 10 15 21 25 25 18 Slaty (doughy)

(maximum) % 4 9 12 18 18 5

Mould (maximum) % 1 1 2 3 4 1

TOTAL (analysis of 100 beans) % 100 100 100 100 100 100

Defects (maximum)

(analysis of 500 grams)

% 0 0 1 3 4*** 1

A.S.S.P.S. Arriba Superior Summer Plantación Selecta A.S.S.S. Arriba Superior Summer Selecta A.S.S. Arriba Superior Selecta A.S.S.N. Arriba Superior Navidad A.S.E. Arriba Superior Época * Coloration brown violet ** Allowance of the presence of dross just for the variety A.S.E. *** The coloration varies between brown and brown-violet

Source: Enríquez (2004). Translated by author.

vi

Appendix 5: Original questionnaire in Spanish I distributed three different version of this questionnaire. The reason for presenting the

questionnaire directed towards contractors with Nestlé in the appendix is this being the complete

version where questions directed towards both organized and unorganized farmers are included.

In the other versions one of the parts is extracted, depending on the respondent was organized or

not. (NB! Questions are displaced due to this comment. See English version for correct outline)

Cuestionario – productores con convenio de Nestlé Fecha:___/___ 200__ Ubicación de la plantación: _________________________ Nota: Toda la información reunida de este cuestionario está tratada confidencialmente con totalmente anonimato de los cuestionados. El propósito es de reunir información sobre la producción de cacao en la provincia de Los Rios. Si no esta escrito otra cosa, por favor dé solamente una respuesta a cada pregunta. Al final de cada sección hay espacio para escribir comentarios adicionales. Por favor, utiliza los datos validos de la temorada de cosecha 2006 – 2007 dando las respuestas. ¡Muchas gracias por su colaboración! Producción de cacao Si cultiva más de un tipo de cacao, por favor dé las respuestas validas del tipo más importante. Al final de la sección hay espacio para escribir comentarios adicionales.

1. Cacao cultivado: CCN51 Nacional Los dos

2. Rendimiento promedio anual (qq/ha):___________________________________ 3. Uso de mano de obra externa Sí No 4. Uso de fertilizante / pesticidas: Fertilizante Pesticidas

Los dos Ninguna (orgánico)

vii

5. Nivel de satisfacción del rendimiento agrícola: (Por favor, traze un círculo alrededor del número que corresponde a su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja 6. ¿Cuál de los factores siguientes es lo más influyente de su rendimiento agrícola?

Prácticas de cultivación Prácticas después de la cosecha Calidad de tierra/plantas Tipo de cacao cultivado Otro ___________

7. Comentarios adicionales _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Marketing Si tiene más de un cliente de su cacao, por favor dé las respuestas del comprador principal. Al final de la sección hay espacio para escribir comentarios adicionales (de los otros compradores).

8. ¿Qué cantidad promedio de cacao vende anualmente a Nestlé (qq)? __________________________________________________________________

9. ¿A qué precio promedio vende su cacao (US$/qq)?_________________________ 10. ¿Cómo arregla la venta?

Usted hace contacto con Nestlé Nestlé hace contacto con Usted Otro _______________

11. Nivel de satisfacción de la relación que tiene con Nestlé:

(Por favor, traze un círculo alrededor del número que corresponde de su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja 12. ¿Siempre ha trabajado con Nestlé? Sí No

viii

¿Por qué / por qué no? ________________________________________________________________________________________________________________________________________________

13. ¿Qué nivel de importancia tienen las alternativas siguientes de su elección de comprador?

(Por favor, en cada alternativa trace un círculo alrededor del número que corresponde a su respuesta) Acceso: 1 2 3 4 5

Precio: 1 2 3 4 5 Cantidad comprada: 1 2 3 4 5 Compromiso: 1 2 3 4 5

Importancia muy alta Importancia muy baja 14. Nivel de satisfacción de los precios ofrecido por su cacao:

(Por favor, traze un círculo alrededor del número que corresponde a su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja 15. ¿El nivel de los precios ofrecidos por su cacao varia según la calidad?

(Por favor, traze un círculo alrededor del número que corresponde a su respuesta)

1 2 3 4 5 Mucho Poco

16. ¿Siempre vende todo el cacao? Sí No

Si, no, ¿qué hace con el cacao qué queda? Lo vende a otros compradores Lo guarda Lo consume Lo desecha Otro______________________________

17. ¿Usted cree que pudo haber vendido a precios más altos si hubiera vendido el cacao a

otros compradores? Sí No

ix

18. ¿Tiene la posibilidad de cambiar a un otro comprador? Sí No

Si tiene - ¿por qué no cambia? __________________________________________________________________ __________________________________________________________________ Si no tiene - ¿por qué no tiene la posibilidad? __________________________________________________________________ __________________________________________________________________

19. Comentarios adicionales __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Estructura / política nacional

20. ¿Piensa qué las autoridades nacionales contribuyen con esfuerzos suficientes al sector cacaotero?

Sí No ¿Por qué / por qué no?

____________________________________________________________________________________________________________________________________

21. ¿Recibe alguna información sobre las oportunidades de comercialización que existen en la

provincia? Sí No

¿Si recibe, de quien recibe esta información? Nestlé ANECACAO Las autoridades nacionales Vecinos / productores Los medios de comunicación Otro _________________

22. Nivel de satisfacción de la información sobre las oportunidades de comercialización de

las cuales tiene acceso (Por favor, traze un círculo alrededor del número que corresponde de su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja

x

23. ¿Recibe alguna información sobre las leyes nacionales que tratan del sector cacaotero? Sí No

Si recibe, de quien recibe esta información?

Nestlé ANECACAO Las autoridades nacionales Vecinos / productores Los medios de comunicación Otro ___________________________________________________________

24. Nivel de satisfacción de la información sobre las leyes nacionales que tratan sobre el

sector cacaotero de las cuales tiene acceso (Por favor, traze un círculo alrededor del número que corresponde de su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja 25. ¿Ha asistido a algún tipo de capacitación agrícola?

Sí No ¿Sí ha asistido, quien le invitó? ________________________________________

Nivel de satisfacción de la información de la capacitación agrícola (Por favor, traze un círculo alrededor del número que corresponde a su respuesta)

1 2 3 4 5

Satisfacción muy alta Satisfacción muy baja

26. Nivel de satisfacción del trabajo de ANECACAO (Por favor, traze un círculo alrededor del número que corresponde a su respuesta)

1 2 3 4 5 Satisfacción muy alta Satisfacción muy baja

27. Cuál es el nivel del impacto en sus actividades agrícolas debido a las actividades de

ANECACAO (Por favor, traze un círculo alrededor del número que corresponde de su respuesta)

1 2 3 4 5 Muy grandes Muy bajos

xi

28. Comentarios adicionales ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Organización

29. ¿Está asociado a algunas organizaciones agrícolas, uniones de agricultores, etc? Sí No

¿Si está, cuál(es)? ___________________________________________________

¿Qué tipo de ayuda le ofrecen a Usted? (Por favor, seleccione uno o más alternativas) Acceso tecnológico (semillas, fertilizantes, maquinaria, etc.) Capacitación Relación de Negocios Información Otro ___________________________________

Nota. Por actividades de las organizaciones/cooperativas. Me referiré de aquí en adelante como miembros activos de una organización de agricultura o cooperativa que ofrece información, capacitación, tecnología, negociación, etc (ONGs por ejemplo). A estos miembros. Si usted participa en más de una organización de agricultura, por favor llene con las respuestas que correspondan. Para comentarios adicionales de su actividad en organizaciones pueden ser escritas al final de la sección.

30. ¿Usted participa activamente en organizaciones/cooperativas, como se indica arriba? Sí No

Si su respuesta es si en la pregunta anterior, por favor continúe con la parte a) Si su respuesta es no, por favor continúe con la parte b) a) Para productores organizados

31. ¿A cuál organización / cooperativa pertenece?

32. ¿Por cuánto tiempo ha sido socio de esta organización / cooperativa?

< 1 año 1 – 3 años 4 – 6 años 7 – 9 años > 9 años

xii

33. ¿Como encontró a la organización / cooperativa?

En medios de comunicación Ellos lo buscaron a Usted Usted los buscó a ellos Vecinos / productores Otro ___________________________________________________________

34. ¿Cuáles son las ventajas principales de participar en organizaciones o cooperativas?

Acceso a capacitación/información Acceso a tecnología Solidaridad Posibilidad de dar experiencias Otro______________________________

35. Nivel de mejora en las actividades agrícolas durante su participación (Por favor, trace un

círculo alrededor del número que corresponde con su respuesta) 1 2 3 4 5 Mejora muy alta Mejora muy baja 36. ¿Cuáles son los mayores impactos de las ventas del cacao durante su participación?

Precios más altos Venta de cantidades más grandes Acceso a nuevos mercados Más fácil hacer negociaciones Otro _____

37. ¿La organización / cooperativas ha contribuido a aumentar su nivel de conocimiento de

sus derechos y las leyes nacionales que tratan del sector cacaotero? (Por favor, trace un círculo alrededor del número que corresponde con su respuesta)

1 2 3 4 5 Contribución alta Contribución baja 38. Tiene satisfacción del trabajo de la organización / cooperativa.

Sí No 39. Comentarios adicionales

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

xiii

b) Para productores no-organizados

40. ¿Por qué no participa en ninguna organización o cooperativas?

No tiene acceso Precios altos No tiene interés No tiene tiempo Otro _________________________________________

41. ¿Antes ha participado en alguna organización o cooperativa?

Sí No

42. ¿Cuáles son las ventajas principales de participar en organizaciones o cooperativas? Acceso de capacitación/información Acceso a tecnología Solidaridad Access de mercados mayores Otro____________________________

43. ¿Cuáles son las desventajas principales de participar en organizaciones o cooperativas?

Ningun No reciben el conocimiento apropiado Utiliza mucho tiempo Líderes dominantes Otro ___________

44. ¿Conoce algunos organizaciones o cooperativas en la provincia?

Sí No ¿Si conoce, cuáles son? ______________________________________________

45. Comentarios adicionales ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

xiv

Información de origen

46. Sexo: Masculino Femenino 47. Edad: < 20 21-30 31-40

41-50 51-60 > 60

48. Numero de personas que permanecen en la plantación: 1-2 3-4 5-6 7-8 9-10 > 10

49. Tamaño de plantación (ha): 0-10 11-20 21-30

31-40 41-50 > 50 50. ¿Vende otro tipo de cultivo? Sí No

51. ¿Tiene trabajos fuera de la plantación? Sí No

52. Salario promedio anual ($): ____________________________________

xv

Appendix 6: English version of questionnaire

Questionnaire – contractors with Nestlé Date: ___/___-200__ Localization of the farm: ___________________________ Note: All the information given in this questionnaire will be treated anonymously, for the purpose of extracting general information of the cocoa cultivation within the area. If nothing else is mentioned, please give only one answer to each question. If you find some of the questions difficult to answer, or want to make additional comments, please use the bottom of each section. Please take point of departure in the 2006-2007 harvest seasons when answering the questions.

In advance, thank you so much for your cooperation! Cocoa production If you cultivate more than one sort of cocoa, please fill in the answers valid for your main crop. Additional comments on your other crops can be given at the bottom of the section.

1. Cocoa cultivated: CCN51 Nacional Both

2. Average annual yield (qq/ha): _________________________________________ 3. Use of external labor force: Yes No 4. Use of fertilizers/pesticides: Fertilizer Pesticides

Both None (Organic)

5. To what degree are you satisfied with the agricultural output extracted? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5

Very high satisfaction Very low satisfaction

6. Which one of the following factors do you believe are the one influencing your agricultural output the most?

Pre-harvest practices Post-harvest practices Soil/tree stock quality Sort of cocoa cultivated Other __________

xvi

7. Additional comments ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Marketing If you have more than one buyer of your cocoa, please fill in the answers valid for your main purchaser. Additional comments on your other purchasers can be given at the bottom of the section.

8. How many qq of cocoa do you annually deliver to Nestlé? __________________

9. To what price do you averagely sell your cocoa (US$/qq)? __________________ 10. How do you arrange the sale?

You contact Nestlé Nestlé contacts you Other __________________________________________________________

11. In what degree are you satisfied with your relationship to Nestlé?

(Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 Very high satisfaction Very low satisfaction 12. Have you always cooperated with Nestlé? Yes No

Why / why not? ________________________________________________________________________________________________________________________________________________

xvii

13. In what degree have the following alternatives had any impact for your choice of purchaser? (For each alternative please make a circle around the number that corresponds with your opinion)

Accessibility: 1 2 3 4 5 Price offered: 1 2 3 4 5 Quantities bought: 1 2 3 4 5 Reliability: 1 2 3 4 5 Very high degree Very low degree

14. To what degree are you satisfied with the price offered for your cocoa? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 Very high satisfaction Very low satisfaction

15. To what degree does the price vary in terms of quality of the cocoa?

(Please make a circle around the number that corresponds with your answer)

1 2 3 4 5

Very much Very little

16. Do you always get to sell all of your cocoa? Yes No

If not, what do you do with the remaining part? Sell it to other purchasers Store it Consume it Waste it Other __________________________________

17. Do you think you could have obtained a better price selling your cocoa to another

purchaser? Yes No

xviii

18. Do you have the possibility to switch to another purchaser? Yes No

If yes – Why don’t you switch to another? ________________________________________________________________________ ________________________________________________________________________ If no – Why don’t you have this possibility? ________________________________________________________________________ ________________________________________________________________________

19. Additional comments ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

National structures/policy

20. Do you think the national authorities are contributing with sufficient efforts to the cocoa sector? Yes No

Why / why not? ________________________________________________________________________________________________________________________________________________

21. Do you receive any information about the market opportunities which consist in the

region? Yes No

If so, from whom do you receive this information? Nestlé ANECACAO The national authorities Neighbors / other farmers Media Other ________________

22. In what degree are you satisfied with the information about market opportunities you have

access to? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 High degree Low degree

xix

23. Do you receive any information about the national legal framework touching upon cocoa production? Yes No

If so, from whom do you receive this information? Nestlé ANECACAO The national authorities Neighbors / other farmers Media Other ________________

24. In what degree are you satisfied with the information about the national legal framework

touching upon cocoa production you have access to? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 High degree Low degree

25. Have you ever attended any kind of agricultural training? Yes No

If yes, by whom have you been invited? _________________________________

How satisfied were you with the knowledge obtained in these trainings? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 Very high satisfaction Very low satisfaction

26. How satisfied are you with the work done by ANECACAO?

(Please make a circle around the number that corresponds with your answer) 1 2 3 4 5

Very high satisfaction Very low satisfaction

27. Have the activities of ANECACAO had any impacts on your agricultural activities? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 In a high degree In a low degree

xx

28. Additional comments ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Organization

29. Do you hold membership in any agricultural organizations, farmers unions, etc? Yes No

If yes, which one(s)? ________________________________________________

What kind of assistance / information do they offer you? (Please mark several alternatives if you are offered more than one service) Access to technology (such as seeds, fertilizers, machinery) Training Trade relations Information Other __________

Please note, by organizational activities/cooperatives I will from now on refer to active membership in an agricultural organization or cooperative offering information, training, technology, trade relations, etc to its members. If you participate in more than one agricultural organization, please fill in the answers valid for the one you feel the most committed to. Additional comments on your organizational activities can be given at the bottom of the section.

30. Do you participate in any organizational activities/cooperatives like the ones indicated above?

Yes No

If you answered yes on the question above, please continue with part a). If your answer was no, please continue with part b). a) For producers participating in organizational activities

31. To what organization/cooperative do you belong?

32. For how long time have you been a member of this organization/cooperative?

< 1 year 1 – 3 years 4 – 6 years 7 – 9 years > 9 years

xxi

33. How did you get in touch with the organization/cooperative? Through media They looked you up You looked them up Through neighbors/others Other __________________________________

34. What are the major benefits belonging to an organization/cooperative?

Access to training/information Access to technology Solidarity Feed back opportunities Other_____________________________

35. To what degree have your farm activities improved after joining the

organization/cooperative? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 In a high degree No change 36. What are the major impacts on your market activities belonging to an

organization/cooperative? Higher prices offered Larger quantities sold Access to new markets Better bargaining position Others__________

37. To what degree has the organization/cooperative contributed to increase your awareness about you rights and the national legal framework? (Please make a circle around the number that corresponds with your answer)

1 2 3 4 5 In a high degree In a low degree

38. Are you satisfied with the overall performance of the organization?

Yes No

39. Additional comments ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

xxii

b) For producers not participating in any organizational activities

40. Why do you not participate in any organizational activities/cooperatives? No access High costs No interests No time Other ________________________________________

41. Have you ever participated in any kind of organizational activities/cooperatives? Yes No

42. What do you think are the major advantages participating in such

organizations/cooperatives? Access to training/information Access to technology Solidarity Better market access Other_____________________________

43. What do you think are the major disadvantages participating in such

organizations/cooperatives? None Time consuming Not appropriate knowledge Leader dominated Other___________________________________

44. Do you know of any agricultural organizations/cooperatives which are located in the

area? Yes No

If so, which one(s)? _________________________________________________

45. Additional comments ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

xxiii

Background information

46. Sex: Male Female 47. Age: < 20 21-30 31-40

41-50 51-60 > 60

48. Household size: 1-2 3-4 5-6 7-8 9-10 > 10

49. Farm size (hectares): 0-10 11-20 21-30

31-40 41-50 > 50 50. Other cash-crops cultivated: Yes No

51. Off-farm labor: Yes No

52. Average income per year ($): ____________________________________

xxiv

Appendix 7: Total exportations of cocoa in grain 2003 - 2007

The table published by ANECACAO demonstrates the value ($ FOB) and volume (MT) of

Ecuadorian exports of cocoa in grain within the time span 2003 and 2007.

xxv

Appendix 8: Collinearity diagnostics – producer price

xxvi

Coe

ffici

entsa

96,0

885,

686

16,8

98,0

0084

,620

107,

555

,634

2,45

6,0

21,2

58,7

98-4

,320

5,58

7,2

50,0

39,0

19,7

951,

257

-,846

,578

-,119

-1,4

64,1

50-2

,011

,319

,044

-,218

-,106

,800

1,25

0-,4

541,

745

-,022

-,260

,796

-3,9

743,

065

-,002

-,040

-,019

,753

1,32

8

-1,9

572,

717

-,061

-,720

,475

-7,4

373,

523

,075

-,109

-,052

,728

1,37

3

-3,1

972,

643

-,152

-1,2

10,2

33-8

,528

2,13

3,4

64-,1

81-,0

88,3

333,

003

,288

,939

,025

,307

,760

-1,6

052,

182

-,236

,047

,022

,781

1,28

0

-2,2

252,

393

-,077

-,930

,358

-7,0

522,

602

,142

-,140

-,067

,760

1,31

6

-1,6

631,

941

-,071

-,857

,396

-5,5

772,

252

-,152

-,130

-,062

,758

1,31

9

-4,8

502,

298

-,176

-2,1

11,0

41-9

,484

-,216

-,103

-,306

-,153

,757

1,32

0-,0

22,0

69-,0

27-,3

16,7

54-,1

60,1

17-,3

56-,0

48-,0

23,6

961,

437

-2,0

892,

139

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,334

-6,4

022,

225

-,175

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1,46

8

2,00

62,

564

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,782

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-3,1

647,

176

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,118

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,499

2,00

3

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742,

601

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203,

471

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1,41

0

24,2

082,

898

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(Con

stan

t)S

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ge g

roup

Off

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e m

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any

orga

niza

tions

Siz

e of

the

plan

tatio

n O

ther

cas

h cr

ops

culti

vate

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se o

f ext

erna

l lab

orfo

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Nac

iona

l cul

tivat

edA

vera

ge y

ield

/ ye

arU

se o

f fer

tiliz

er /

pers

ticid

esR

ecei

ve in

fo a

bout

com

mer

cial

izat

ion

Rec

eive

info

abo

ut la

wan

d rig

hts

Mar

ketin

g ch

anne

l

Mod

el1

BSt

d. E

rror

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tand

ardi

zed

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ffici

ents

Beta

Sta

ndar

dize

dC

oeffi

cien

tst

Sig

.Lo

wer

Bou

ndU

pper

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nd5%

Con

fiden

ce In

terv

al fo

r Zero

-ord

erP

artia

lP

art

Cor

rela

tions

Tole

ranc

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FC

ollin

earit

y S

tatis

tics

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ende

nt V

aria

ble:

Ave

rage

pric

e re

ceiv

ed ($

/qq)

a.

xxvii

Col

linea

rity

Dia

gnos

tics

a

9,44

41,

000

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

,00

1,37

82,

618

,00

,00

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1,22

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783

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3,65

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0,0

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1,0

0,0

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0,0

0,2

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388

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4,47

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0,0

0,0

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0,0

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203

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8,10

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139,

154

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1,5

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0,0

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1525

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,28

,02

,05

,03

,02

,07

,01

,22

,03

,10

,00

,01

,04

Dim

ens

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Mod

1ig

enva

luCon

ditio

nIn

dexC

onst

antS

exge

gro

uOff

farm

activ

ities

artic

ipat

ioag

ricul

tur

train

ing

Activ

em

embe

rshi

in a

nyga

niza

tioniz

e of

thpl

anta

tion

(ha)

Oth

er c

ascr

ops

culti

vate

dUse

of

exte

rnal

abor

forcN

acio

naul

tivat

e dAver

age

eld

/ ye a

Use

of

ferti

lizer

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stic

idesR

ecei

venf

o ab

ouom

mer

cal

izat

ionec

eive

inf

abou

t law

san

d rig

htsM

arke

ting

chan

nel

Var

ianc

e P

ropo

rtion

s

Dep

ende

nt V

aria

ble:

Ave

rage

pric

e re

ceiv

ed ($

/qq)

a.

Appendix 9: Multiple linear regression – producer price (1st & 5th run)

xxviii

Mod

el S

umm

aryb

,884

a,7

81,7

025,

741

,781

9,97

015

42,0

001,

477

Mod

el1

RR

Squ

are

Adj

uste

dR

Squ

are

Std

. Erro

r of

the

Est

imat

eR

Squ

are

Cha

nge

F C

hang

edf

1df

2Si

g. F

Cha

nge

Cha

nge

Sta

tistic

sD

urbi

n-W

atso

n

Pred

icto

rs: (

Con

stan

t), M

arke

ting

chan

nel,

Off

farm

act

iviti

es, U

se o

f ext

erna

l lab

or fo

rce,

CC

N51

cul

tivat

ed, S

ex,

right

s, O

ther

cas

h cr

ops

culti

vate

d, S

ize

of th

e pl

anta

tion

(ha)

, Age

gro

up, A

vera

ge y

ield

/ ye

ar, P

artic

ipat

ion

in a

gric

ultu

rafe

rtiliz

er /

pers

ticid

es, R

ecei

ve in

fo a

bout

com

mer

cial

izat

ion,

Nac

iona

l cul

tivat

ed, A

ctiv

e m

embe

rshi

p in

any

a.

Rec

eive

info

abo

ut la

ws

and

l tra

inin

g, U

se o

f o

rgan

izat

ions

Dep

ende

nt V

aria

ble:

Ave

rage

pric

e re

ceiv

ed ($

/qq)

b.

Coe

ffici

entsa

97,9

135,

917

16,5

47,0

0085

,972

109,

855

1,34

02,

536

,044

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-3,7

776,

458

,250

,081

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1,34

6-,7

72,5

81-,1

08-1

,329

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-1,9

44,4

00,0

44-,2

01-,0

96,7

891,

268

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1,74

4-,0

26-,3

18,7

52-4

,073

2,96

5-,0

02-,0

49-,0

23,7

511,

332

-2,2

332,

723

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-,820

,417

-7,7

293,

263

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1,38

5

-2,4

962,

715

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-7,9

752,

984

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,314

3,18

2

,479

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442,

403

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1,32

5

-2,5

592,

408

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-1,0

63,2

94-7

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2,30

1,1

42-,1

62-,0

77,7

471,

338

-2,2

482,

010

-,096

-1,1

18,2

70-6

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1,80

9-,1

52-,1

70-,0

81,7

041,

421

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774,

208

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88,2

83-1

3,06

93,

915

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,346

2,89

0-7

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3,22

7-,2

65-2

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-13,

832

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2,61

5-,0

16,0

69-,0

21-,2

37,8

14-,1

55,1

22-,3

56-,0

37-,0

17,6

921,

445

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132,

144

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79,2

87-6

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2,01

4-,1

75-,1

64-,0

78,6

751,

482

2,28

22,

571

,091

,888

,380

-2,9

067,

469

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,136

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2,02

2

-1,3

862,

620

-,046

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-6,6

733,

901

-,019

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,696

1,43

6

23,6

292,

940

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8,03

6,0

0017

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29,5

63,8

44,7

78,5

81,3

782,

646

(Con

stan

t)S

exA

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roup

Off

farm

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plan

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crop

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ltiva

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of e

xter

nal l

abor

forc

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eive

info

abo

ut la

ws

and

right

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arke

ting

chan

nel

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el1

BS

td. E

rror

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a

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ndar

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onfid

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rage

pric

e re

ceiv

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a.

xxix

Coe

ffici

entsa

08,0

236,

764

15,9

70,0

0094

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121,

573

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473,

097

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0,45

21,

957

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1-1

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1,15

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94-,0

56,7

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302

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732,

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3,58

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1

1,73

41,

172

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594,

484

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5

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422,

450

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502,

465

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1,22

6

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135,

432

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194

6,56

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872,

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637

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060

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25,2

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640

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artic

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plan

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ther

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h cr

ops

culti

vate

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forc

eC

CN

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iona

l cul

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ve in

fo a

boan

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e1

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td. E

rror

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ents

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a

tand

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nppe

r Bou

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rval

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rela

tions

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linea

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tistic

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pric

e re

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a.

Mod

el S

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817,

899

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111

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002,

074

Dur

bin-

Wat

son

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el1

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Squ

are

Adj

uste

dR

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are

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r of

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Squ

are

Cha

nge

F C

hang

edf

1df

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ig. F

Cha

nge

Cha

nge

Sta

tistic

s

Pre

dict

ors:

(Con

stan

t), M

arke

ting

chan

nel,

Nac

iona

l cul

tivat

ed, R

ecei

ve in

fo a

bout

law

s an

d rig

hts,

Oth

er c

ash

crop

s cu

ltiva

ted

of e

xter

nal l

abor

forc

e, S

ize

of th

e pl

anta

tion

(ha)

, Sex

, Off

farm

act

iviti

es, P

artic

ipat

ion

in a

gric

ultu

ral t

rain

ing,

CC

N51

ca.

, A

ge g

roup

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ultiv

ated

Dep

ende

nt V

aria

ble:

Ave

rage

pric

e re

ceiv

ed ($

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b.

Appendix 10: Collinearity diagnostics – Marketing channel

xxx

Coe

ffici

entsa

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any

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tion

La R

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va,

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km

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n Lo

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e of

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n (h

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ther

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h cr

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vate

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s

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el1

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rror

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ardi

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ents

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ound

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Con

fiden

ce In

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al fo

r BZe

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earit

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tatis

tics

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ende

nt V

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Mar

ketin

g ch

anne

la.

xxxi

Col

linea

rity

Dia

gnos

tics

a

9,93

01,

000

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Appendix 11: Binary logistic regression – Marketing channel (1st & 4th run) ————— 25.04.2008 13:17:56 ———————————————————— Welcome to Minitab, press F1 for help. Retrieving project from file: '\\student01\home\st\marteha\Marte\Master thesis\Minitab.MPJ' Binary Logistic Regression: Mrk.chan; Antall versus Sex; Age; ... Link Function: Logit Response Information Variable Value Count Mrk.chan Event 29 Non-event 67 Antall Total 96 Logistic Regression Table Odds 95% CI Predictor Coef SE Coef Z P Ratio Lower Upper Constant -0,465789 1,10819 -0,42 0,674 Sex -0,0087600 0,0128811 -0,68 0,496 0,99 0,97 1,02 Age 0,0032041 0,0016717 1,92 0,055 1,00 1,00 1,01 Offarm 0,0077827 0,0127706 0,61 0,542 1,01 0,98 1,03 Ag.train -0,0057796 0,0128371 -0,45 0,653 0,99 0,97 1,02 Act.memb -0,0035658 0,0113258 -0,31 0,753 1,00 0,97 1,02 Size.pl 0,0010166 0,0014063 0,72 0,470 1,00 1,00 1,00 Cashcrop -0,0024845 0,0019459 -1,28 0,202 1,00 0,99 1,00 Ex.labor 0,0012585 0,0011845 1,06 0,288 1,00 1,00 1,00 CCN51 -1,91935 1,64598 -1,17 0,244 0,15 0,01 3,69 Nacional -0,780430 1,15183 -0,68 0,498 0,46 0,05 4,38 Yield -0,0017770 0,0017255 -1,03 0,303 1,00 0,99 1,00 Fer.pest -1,29453 0,718794 -1,80 0,072 0,27 0,07 1,12 Res.com 0,0015816 0,0013547 1,17 0,243 1,00 1,00 1,00 Res.law 1,29931 0,718767 1,81 0,071 3,67 0,90 15,00 Log-Likelihood = -38,107 Test that all slopes are zero: G = 41,410, DF = 14, P-Value = 0,000 Goodness-of-Fit Tests Method Chi-Square DF P Pearson 79,8886 80 0,482 Deviance 76,2132 80 0,599 Hosmer-Lemeshow 8,2167 8 0,413

xxxii

Table of Observed and Expected Frequencies: (See Hosmer-Lemeshow Test for the Pearson Chi-Square Statistic) Group Value 1 2 3 4 5 6 7 8 9 10 Total Event Obs 0 0 2 0 3 1 4 3 6 10 29 Exp 0,0 0,5 0,8 2,0 2,2 2,0 2,2 3,4 5,9 9,9 Non-event Obs 9 10 7 10 7 8 6 6 4 0 67 Exp 9,0 9,5 8,2 8,0 7,8 7,0 7,8 5,6 4,1 0,1 Total 9 10 9 10 10 9 10 9 10 10 96 Measures of Association: (Between the Response Variable and Predicted Probabilities) Pairs Number Percent Summary Measures Concordant 1615 83,1 Somers' D 0,70 Discordant 263 13,5 Goodman-Kruskal Gamma 0,72 Ties 65 3,3 Kendall's Tau-a 0,30 Total 1943 100,0 Delta Chi-Square versus P

xxxiii

Binary Logistic Regression: Mrk.chan; Antall versus Sex; Age; ... Link Function: Logit Response Information Variable Value Count Mrk.chan Event 29 Non-event 67 Antall Total 96 Logistic Regression Table Odds 95% CI Predictor Coef SE Coef Z P Ratio Lower Upper Constant -0,372626 1,06641 -0,35 0,727 Sex -0,0050411 0,0025967 -1,94 0,052 0,99 0,99 1,00 Age 0,0031327 0,0015629 2,00 0,045 1,00 1,00 1,01 Offarm 0,0037343 0,0015984 2,34 0,019 1,00 1,00 1,01 Cashcrop -0,0025258 0,0017431 -1,45 0,147 1,00 0,99 1,00 Ex.labor 0,0013616 0,0011683 1,17 0,244 1,00 1,00 1,00 CCN51 -1,86626 1,62144 -1,15 0,250 0,15 0,01 3,71 Nacional -0,943045 1,11351 -0,85 0,397 0,39 0,04 3,45 Yield -0,0011175 0,0014289 -0,78 0,434 1,00 1,00 1,00 Fer.pest -1,30313 0,712484 -1,83 0,067 0,27 0,07 1,10 Res.com 0,0017601 0,0012891 1,37 0,172 1,00 1,00 1,00 Res.law 1,30338 0,712517 1,83 0,067 3,68 0,91 14,88 Log-Likelihood = -39,389 Test that all slopes are zero: G = 38,846, DF = 11, P-Value = 0,000 Goodness-of-Fit Tests Method Chi-Square DF P Pearson 88,4512 83 0,321 Deviance 78,7770 83 0,611 Hosmer-Lemeshow 7,8986 8 0,443

xxxiv

Table of Observed and Expected Frequencies: (See Hosmer-Lemeshow Test for the Pearson Chi-Square Statistic) Group Value 1 2 3 4 5 6 7 8 9 10 Total Event Obs 0 1 1 0 2 2 4 2 8 9 29 Exp 0,1 0,6 0,9 2,1 2,1 1,9 2,1 3,4 6,3 9,5 Non-event Obs 9 9 8 10 8 7 6 7 2 1 67 Exp 8,9 9,4 8,1 7,9 7,9 7,1 7,9 5,6 3,7 0,5 Total 9 10 9 10 10 9 10 9 10 10 96 Measures of Association: (Between the Response Variable and Predicted Probabilities) Pairs Number Percent Summary Measures Concordant 1613 83,0 Somers' D 0,71 Discordant 236 12,1 Goodman-Kruskal Gamma 0,74 Ties 94 4,8 Kendall's Tau-a 0,30 Total 1943 100,0 Delta Chi-Square versus P

xxxv