The Sustainable Cocoa Trade An Analysis of US Market and

Latin American Trade Prospects

EcoMercados Project El Centro de Inteligencia sobre Mercados Sostenibles (CIMS)

Centro Latinoamericano para la Competitividad y el Desarrollo Sostenible (CLACDS)

February 2005, Lora L. Menter

CONTENT MAP

1. Introduction 2. Cocoa Market: Demand

2.1. The US Market for Organic & Fair Trade Products 2.2. Cocoa Consumption Patterns 2.3. Factors Accelerating Market Growth 2.4. Marketing Synergy

3. Cocoa Market: Supply 3.1. Cocoa Production & World Trade 3.2. Consumer Demand Driving Trade 3.3. Cocoa Trade Channels

4. Sustainable Cocoa Markets: Dynamics & Growth 4.1. Niche Markets 4.2. Industry Initiatives 4.3. Conventional Cocoa Companies 4.4. A Hybrid Model

5. The Latin American Cocoa Trade 6. Certification Requirements 7. Major Obstacles 8. Future Outlook

APPENDIX INTERVIEW TRANSCRIPTS REFERENCE MATERIAL

1. Introduction

This report attempts to outline the sustainable cocoa market in terms of market supply and demand. It will focus on organic and Fair Trade certified cocoa products. Demand will be examined in terms of qualitative and quantitative consumption trends. Furthermore, the supply chain from producer to retail market will be fully analysed to help manage global environmental and social impact through certification and trade promotion. This report aims to help foster sustainable economies in Central American and help the region’s producers understand trade dynamics and where they can position their products to fit into the global cocoa system. Although this report focuses on the US market and trade of sustainable cocoa, the global nature of the cocoa trade forces slightly broader coverage.

2. Cocoa Market: Demand

2.1. The US Market for Organic & Fair Trade Products

The world organic market is booming, and the United States is no exception. The US market is nominally smaller than the European organic market, which is the largest organic market in the world. However, with growth rates of 15-20 percent expected in the coming years, the United States has the fastest growing organic market in the world.

1 As cited by the Organic Trade Association, the principal organic industry trade

association for North America, the value of the US organic market is expected to reach $30.7 billion by 2007.

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Organic are now available in the mainstream market to the average American shopper. Organic products can now be found in nearly 20,000 natural food stores as well as 73 percent of conventional grocery stores. In 2003, 44 percent of organic food sales was through conventional supermarkets or wholesale club stores. Another 47 percent was sold through independent natural food stores. The last nine percent was made up of direct sales through co-ops, foodservice, exports and farmers’ markets.”

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Many Americans are turning to organic products to be assured of the quality, safety source of their food supply, citing the increasing levels of pesticides and hormones used in food production. As reported in The 2002 Organic Consumer Trends Report, over 40 million households, or 39% of the population, report that they use organic products.

4 In 2003, organic products accounted for approximately 1-2 percent of total US

food sales." 5

The production of organic goods is also becoming highly profitable. It is estimated that consumers are willing to pay a 20% price premium for organic goods.

20 With the increase in consumer demand and their

willingness to pay a substantial organic premium, large diversified food companies have begun to buy into the organic industry. Companies like Kraft, General Mills, Nestle, and Heinz have all bought into the organic food market and now own a large percentage of the organic food industry. Other sustainable products are also reaping benefits from the growth in “responsible” food purchases. Aside from concerns of the health of their food supply, consumers cite an array of other concerns motivating their food purchases including the environmental protection and social equity. Organizations that produce other types of certified “sustainable” products, such as TransFair USA (Fair Trade) and the Rainforest Alliance, have also seen their market share rapidly grow in the last few years. In 2002, the sales on Fair Trade Products in the United States grew to $131 million, a 53% increase from the previous year. The Fair Trade Federation reports an expected 26% growth in the sales of fair trade products for 2004. The main areas of growth are expected to be cocoa, chocolate, coffee, and gift items. 2.2. Cocoa Consumption Patterns

Consumers of cocoa in the United States can be broken down into two types. The first type considers the

wholesale consumption of cocoa and chocolate. It contains chocolate product manufacturers, food service operators, and bulk good wholesalers. These are the consumers of cocoa on a broader scale, who directly link the United States to the international cocoa market.

The second type of consumer contains the average American shopper participating in the retail market. This

section will deal with the later form of consumption. It discusses the consumption trends of the American populace, who through the expression of consumer demand, influence the first type of consumer. The second type of cocoa consumers as well as the buyers & traders will be discussed in later in the report.

General Consumption Trends The production of chocolate consumes about 90% of the cocoa produced worldwide. The other 10% of

cocoa is used in the production of flavorings, beverages, and cosmetics. These products include baking cocoa, hot cocoa mix, baking mixes, packaged foods, and cocoa-butter based body care products. According to Global Exchange, a San Francisco-based fair trade organization, "America is the world's largest chocolate consumer. In 2000, the U.S. imported 729,000 tons of cocoa beans/processed products, ate 3.3 billion pounds of chocolate, and spent $13 billion on it."

Traditionally, American consumers have preferred a milk chocolate to the types of dark chocolate preferred

by Europeans. However, two factors are beginning to change general chocolate consumption patterns, with more Americans choosing dark over milk chocolate. First, recent nutritional studies have highlighted the health benefits of dark chocolate. Second, the future of the chocolate has been likened to that of wine or coffee, with people starting demand a higher quality product with specific differentiated attributes. Dark chocolate is generally considered a finer product than milk. Artisinal chocolate makers and connoisseurs are popping up all over the United States, especially in New York City.

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Organic & Fair Trade Cocoa Consumption The demand for a higher quality chocolate has promoted the production of sustainably produced chocolate,

another metric that allows for the differentiation of product attributes. Furthermore, cocoa is seen as a very suitable product for ethical trade. It is consumed in large quantities, has structured trade channels, and is processed into a luxury item that has a high perceived value and few substitutes. Coupled with the high growth rates in the organic sector and the increasing demand for quality chocolate, many organizations and companies have begun to promote and manufacture organic or Fair Trade chocolate products.

Although figures for the production and consumption or organic chocolate are few, producers are certain to

state the market is growing very quickly. The market for organic and fair-trade cocoa has been experiencing the same high growth rates as the organic sector as a whole. The Swiss Import Promotion Programme (SIPPO) has estimated that the world market for organic chocolate grew by 10-15% per annum from 2000-2003. Furthermore, they note that although the US market for organic chocolate is smaller is absolute terms than the European market, it is growing at a rate equal to or greater than the European market growth rate.

Candy Business magazine, a trade publication for the confectionary industry, states “Chocolate, which was

once considered a no-no in the organic industry because of its stimulants effects, is perhaps the fastest growing organic confection on the market.” They have also reported that organic candy sales increased by 30.66% from 1999 to 2000, growing from $5,825,238 in 1999 to $7,611,233 in 2000. Traditionally, chocolate accounts for about 50% of total confectionary sales (which includes gum and other non-chocolate confections).

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Whereas organic and fair trade chocolate was once only sold in health food stores, it can now be found in

many mainstream supermarkets. In September 2003, United Natural Foods became the first national US distributor to offer Fair Trade certified cocoa powder throughout the United States. As the nation’s largest distributor of natural products, UNF opened up the door for the wide spread distribution and sale of fair trade cocoa products in retail markets.

Fair trade cocoa products have also expanded outside of specialty natural food stores, such as Whole

Foods. Many large, mainstream supermarket chains such as Shaw’s and Safeway now carry Fair Trade cocoa products such as Equal Exchange’s cocoa powder and hot cocoa mix. Equal Exchange introduced these two products in the fall of 2002. The sale of both of these products combined was expected to reach over USD 1 million by the beginning of 2004.

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Kevin Thompson, director of the La Siembra Cooperative, reports that his company has also experienced

this rapid market growth. As Canada’s largest supplier of organic and Fair Trade cocoa, La Siembra saw a

75 percent growth in sales in 2004. Furthermore, most major Canadian supermarkets began to carry their “Cocoa Camino” brand products.

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Within the cocoa industry, the progress and regulation of the certified coffee trade is seem as somewhat of a

leading indicator as to what will come for cocoa. From 2002 to 2003, TransFair USA reported a 91% increase in the number of pounds of Fair Trade certified coffee. The high popularity of fair is likely to pave the way for other fair trade products, such as cocoa. Currently, TransFair USA certifies 19 fair trade chocolate manufacturers in the United States.

2.3. Factors Accelerating Market Growth One of the most significant reasons for the rapid growth in organic cocoa sales is a shift in organic consumer

demographics. Today's organic consumers have broken past the hippy or health nut stereotypes traditionally associated with the organic consumer. With the introduction of the “everyday American” into the organic consumer’s profile, there has been a rapid increase in demand for snack foods and confections. The new consumers want all of their favorite foods without the dangerous chemicals and they will buy organic as long as they do not sacrifice taste.

Jon Alberon, a buyer for Trader Joe’s, stated that “Our customers want organics in a number of categories,

and it’s finally reaching categories that aren’t thought of as good for you, like candy.” This demand has allowed organic sugar, organic processing agents, and other formerly “unhealthy” products to become acceptable in the organic market.

This has meant a lot for the confectionary industry, paving the way for the introduction of quality organic

chocolate. “The acceptance of sugar has played a key role in improving the quality of products offered” says John Whinney of Organic Commodity Project, who states that his sales of organic chocolate grew from 100,000 lbs in 1995 to 3,000,000 pounds in 2000.

The variety of goods offered is rapidly expanding into all sectors of food, especially into packaged goods and

snack foods. This is important for cocoa producers because this market growth includes dessert products such as—many of which contain cocoa products such as cookies, dessert sauces, and baking mixes.

This expansion can also be seen for Fair Trade products. TransFair USA, the Fair Trade certification body

for the United States, is dramatically increasing the types of products it certifies. Beginning with just the certification of coffee products, the have expanded into cocoa and some fruits, with even more products on the way.

2.4. Marketing Synergy The combined synergies of the organic and Fair Trade movement have been significant. Although with

different principles, many consumers seem to lump together all “sustainable” certifications. Hence, the marketing efforts for a Fair Trade product have proved to also help the sales growth of organic products and visca versa.

Certification bodies have turned a portion of their operations towards the marketing of certified products. A

prime example of this is TransFair USA. Although creating guidelines for socially just production and operating as a certification agency, much of their operations are focused on the marketing of Fair Trade products.

More so, many companies that produce or sell sustainable products are greatly contributing to marketing

efforts of the sector. As stated by Naren Sonpal of Coffee-Tea-Etc., many small cocoa and chocolate companies do not have the sales volume to make a significant impact on the farmers. Instead, these companies see their role as consumer educators for a cause in which they believe. In the last decade, many small companies have had a profound effect on getting the message across, especially those with direct involvement in the retail market.

3. Cocoa Market: Supply

3.1. Cocoa Production & World Trade

According to the International Cocoa Organization (ICCO), 3,102,000 tonnes of cocoa beans were produced during the 2002/2003 season. Only a small fraction of cocoa beans grown are organic. (See Appendix 1 for breakdown by country) One significant volume estimate of organic bean production broken down by location was produced by SIPPO for 1999/2000 season. They estimated to have 11,380 tonnes of organic beans were produced, representing only 0.37% of total cocoa production. (See Appendix 2 for country breakdown of organic production). Adding fine flavoured cocoa into the product mix, other sources report that fair trade, organic, and fine-flavoured/specialty cocoa represents 2.6% of the cocoa market.

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Another market study estimates that Europe imported 14,000 tonnes of organic bean equivalents in 2003, then re-exporting 2000 tonnes of equivalents to the United States. Although this figure does not account for direct imports into the United States, European importers deal with most of organic cocoa bean processing and trading. Hence, this figure can be considered relevant for determining world organic cocoa production.

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In general, the market for organic cocoa is very strong. World stocks of organic cocoa are low, prices are high, and the production of organic products containing cocoa is increasing.

12 Hence, organic production

can be expected to steadily increase in the next few years. The Fairtrade Labelling Organization (FLO), the international umbrella organization for Fair Trade certification bodies, keeps close track of Fair Trade certified products. For this reason, good information is available on the supply and retail sales of certified products. In 2003, 2,643 tonnes of certified Fair Trade cocoa were sold throughout the world. This represented a 59.6% increase over the amount sold the previous year. In the same year, the United States sold 92.2 tonnes of certified cocoa, which represented a dramatic increase compared to the 2.1 tonnes sold the year before. (See Appendix 3 for Fair Trade Cocoa Sales Charts) Currently, the majority of organic cocoa is being produced in Latin America and the Caribbean, especially in the Dominican Republic. In the Dominican Republic, five exporters account for half of the world’s supply of organic cocoa. CONACADO is the largest of these organizations. Other important countries in the world market are Bolivia, Peru, Tanzania, and Madagascar. The supply of organic cocoa is opposite that of conventional cocoa, with Africa and Asia trailing Latin America and the Caribbean. West Africa is the largest source of conventional cocoa beans but due to established trade and growing policies further stagnated by political unrest, the area supplies a very small portion of the world’s organic or fine cocoa beans. Citing the growing demand for organic cocoa, several countries are reported to be in the process of converting to organic cocoa production. These countries include: Brazil, Cameroon, Cote d’Ivoire, Cuba, Ecuador, Ghana, Guyana, Haiti, Honduras, Indonesia, Panama, the Philippines, Sao Tomé, and Togo.

3.2. Consumer Demand Driving Trade Traditionally, cocoa beans have been traded as an undifferentiated product on a commodity market. However, a new trend has begun to emerge in cocoa consumption: the consumer demand for a differentiated cocoa product. The specific attributes of differentiation can be broken into two categories: product and process attributes. Product attributes include specific quality and taste metrics as well as region of production (varietals). Process attributes include methods of production such as the organic and fair trade certification programs. Hence, the commodity market is beginning to shift ever so slightly to reflect the individual bean attributes that consumers are beginning to demand. A good example of this is the ratio of cocoa butter to powder that is being used for production in Europe. Consumers demand for a higher quality chocolate product has increased; usually people want darker chocolate with a higher cocoa content. Hence, the European has begun to handle less butter and more powder. (See Appendix 4)

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The ultimate result of this demand for differentiation is up for debate—will international cocoa trade continue to be based on large quantities of a very homogenized product or will it begin to trade cocoa based on these varied attributes? An argument for the differentiation of the cocoa commodities market can be seen in the involvement of a few large cocoa trading houses in the trade of organic and sustainably produced cocoa. For example, ED&F Man Cocoa, one of the largest cocoa trading houses, has just set up Corigins, an internal company to deal with organic, fair trade, and sustainable cocoa and sugar. Corigins is a joint effort between ED&F man and EcoTrade, a sustainable international trader of cocoa. EcoTrade has worked with clients such as ADM Cocoa, ScharffenBerger Chocolate, Guittard Chocolate, OCG Cacao (France), and Mitsubishi Corporation. The operation of EcoTrade, now Corigins, serves as a prominent leading indicator regarding the direction of the market towards diversification.

3.3. Cocoa Trade Channels

Producers Conventional cocoa growers are usually larger operations that are able to develop supply relationships directly with an exporter or multinational firm. However, organic and fair-trade cocoa producers are usually small growers who lack the resources to market their product. These small growers are subject to more steps in the cocoa trade channel, greatly diminishing their bargaining power and margins. In the past decade, many of these small producers have begun to organize into cooperatives. Through this consolidation, they are able to sell their product without a local buyer directly to an exporter or importer depending on their level of integration. On example of this preferred marketing chain is Agroexportadora Maquita, a cocoa cooperative affiliated with one of Ecuador’s largest faith-based organizations. Maquita has organized over 1,020 growers and serves as the groups exporter and marketing arm. Although the majority of producers are part of a fair-trade system, almost all of Maquita’s cocoa is sold on the conventional market. Even though their cocoa does not always receive a fair trade premium, Maquita has increased their margins by exporting their product directly to chocolate manufacturers in Europe. By not having to first sell product to domestic buyers, they gain an export price that is 8-15% higher than the standard market price for conventional cocoa, usually averaging US$ 217 more per tonne of cocoa sold. (See Appendix 5 for a diagram of Maquita’s Trade Channel).

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A few cooperatives are even experimenting with processing the cocoa themselves and selling the processed materials to manufacturers at much higher margins. International Buyers & Traders Over the last 2 decades, there has been a shift in the structure of the conventional cocoa trade channel. Originally, most of the world’s cocoa supply passed from the hands of a local exporter to a national importer through large trading houses in London and New York. However, this use of independent local traders and importers has been made largely obsolete through the vertical integration of multinational cocoa processors. These multinational firms have begun to expand control over the supply chain from transportation and exportation to cocoa processing and marketing. They have begun to create informal partnerships with specific producer groups in order to expand control over supply chain, better regulate quality of beans, and to guarantee consistent supply. If carried out properly, this integration could mean greater margins for cocoa producers. By eliminating the local exporter, you eliminate the middleman and can better protect the price farmers get paid for their products. Historically, in areas with low barriers to entry for these buyers or traders, farmers have been subject to tight markets and low profit margins. This is especially true for organic cocoa, where specialty cocoa traders have a minimal role and most cocoa is sold through the hands of the agent of a specific producer cooperative.

Processors Cocoa processing involves transforming the cocoa bean to cocoa liquor, butter, or powder. The term for converting the cocoa nib to cocoa liquor is referred to as “grinding” and the processors who perform this process are referred to as “grinders”. Furthermore, many cocoa statistics and trade information is formulated based on the mass of these “grindings”, more of a representative final product than the cocoa bean. Based on average FOB prices, the value added from the bean to the liquor is approximately 30%. This is an important fact when considering the business possibilities for producer cooperatives and local traders in export countries to capture a greater percentage of the cocoa value chain.

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Four multinational cocoa processors control 40% of cocoa grinding: Archer Daniels Midland (ADM), Barry Callebaut, Cargill (Gerkens Cocoa), and the German Hosta Group. All of these companies are involved in the trading, processing, and transportation of cocoa. Some, especially Barry Callebaut, are also involved in chocolate manufacturing as well. An example of the global reach of an integrated cocoa trader can be seen with another large trading company, ECOM Cocoa, which is a subsidiary ECOM Agroindustrial Corporation. As states on their website, “At ECOM Cocoa we are continually expanding and increasing our global presence. Our operations, which are involved in the trading, processing, shipping, and delivery of cocoa products, as well as the financing of local farmers, participate at all levels of the industry.” They have cocoa operations in the United States, Mexico, Brazil, Switzerland, Singapore, Indonesia and the Ivory Coast, and cocoa processing plants in Malaysia and Mexico.

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Two-thirds of all cocoa ground is processed in the Northern hemisphere, the largest grinders being the Netherlands (15.2% of world supply) and the United States (15% of world supply). Others include Germany (7%), UK (5.9%), and France (4.2%). The rest of cocoa is ground in key cocoa producing countries, mostly in facilities owned by a multinational processor. The leading country is Cote d’Ivoire (8%), others being Brazil (6.9%) and Malaysia (3.5%). With the lowering or trade barriers in addition to low labor costs, multinationals have begun to open up processing plants in producer countries in an effort to reduce costs. There are no certified processors of organic or fair trade cocoa in the United States. For now, the vast majority of organic and fair trade product is processed in Europe with some processing occurring in producer countries. The major European companies involved in the processing of fair trade cocoa are as follows:

Daarnhouwer & Co. BV (Holland): This commodity trading company has been involved with fair-trade cocoa since 1991. They handle 70-80% of all fair trade cocoa imported to western Europe (according to an estimate from 2000). Although now part of a multinational company, the company has retained some autonomy and continues to have a good reputation for their cocoa, coffee, dried fruits, and tree nuts. Dutch Cocoa BV (Holland): This processing firm has been dealing with fair trade cocoa since 1991. They have compact and flexible processing capabilities that allow them to run small batches of specialty product. The company is estimated to process over 70% of all fair trade cocoa (2000 estimate). They remain an independent company.

There are a few producers of organic cocoa that have begun to process their own product. La Confederación Nacional de Cacaocultores Dominicanos (CONACADO) is one such organization. Located in the Dominican Republic, CONOCADO is a producer cooperative is made up of 150 small producer groups, all together uniting 9000 producers. They are leaders in the production and exportation of organic, biodynamic, and fair trade cacao. Furthermore, they also process their cocoa in certified plants within the Dominican Republic, directly selling cocoa liquor, powder, and butter to chocolate manufacturers or other interested parties.

The processing of cocoa in producer countries by local or producer organizations provides the opportunity for these countries to capture more of the cocoa value chain. CONACADO is perhaps the best example of a cocoa producer organization capturing value from the cocoa trade value chain for their producers and country.

However, many chocolate manufacturers are quick to point out that cocoa processed in producer countries often lacks quality and consistency, creating a frustrating sourcing relationship and an unusable product. Jon Stocking, owner of the Endangered Species Chocolate Company, faces this problem. Although he wishes to have a direct sourcing relationship with a producer group that can provide him with a processed cocoa product, he cannot find a business to meet his high quality standards. Hence, he is forced to buy his products through a variety of sources, all of which continue to be processed in Europe. However, the processing of cocoa in producer countries has the potential to smooth and optimise the logistics of the worldwide cocoa trade. This is especially true for the organic cocoa trade. The lack of sustainable cocoa processors in the United States forces all sustainable cocoa to flow through European processors, creating a production bottleneck and inefficient transportation networks. In general, Latin America and Asia locally process a larger percentage of their cocoa crops than Africa. The main reason for this is that African processing capability is generally regarded as low-quality compared to that of North America, Europe, or other cocoa producing regions who process domestically. This is beginning to change as multinationals buy and set up processing facilities within Africa and elsewhere. Kevin Thompson of the La Siembra Cocoa Cooperative is quick to point out the inefficiencies in this system. Located in Canada, La Seimbra is one of the largest suppliers of organic and Fair Trade cocoa in North America. They source cocoa directly from farms in the Dominican Republic and Paraguay. Their beans are first sent to Holland to be processed and then part of their product is sent to Switzerland to be manufactured into chocolate bars. All of these products are then sent back over the ocean to be distributed throughout North America. He says that one of the most frustrating issues in the logistics of La Siembra’s supply chain is this lack of a cocoa processor in the United States that is fair trade and organic certified.

At this point, manufacturers and buyers of organic cocoa products in the United States are waiting for the market to develop in one of two ways. La Siembra hopes for a processor in the United States to start working with fair trade and organic cocoa. He believes that in the next few years there will be enough demand for product in North America that a processor who currently works with conventional product will become certified and switch to full time sustainable cocoa processing. Meanwhile, John stocking is continuing his search for a producer who can also provide him with sufficient volumes of a quality product. Manufacturers Just like the cocoa processing industry, the conventional chocolate manufacturing industry is controlled by a small number of multinational firms. Six manufacturers account for 50% of world chocolate sales. They are: Nestlé, Mars, Philip Morris/Kraft, Cadbury, Ferrero, and Hershey. All of these companies manufacture products for the retail market and are vertically integrated from trading and processing through manufacturing and marketing in the retail market. Combined with the four major processors listed above, these ten companies control over 70% of the world’s processing capabilities. None of these companies has a certified sustainable cocoa product on the market in Europe or the United States. Furthermore, although they are all involved in sustainability initiatives, none of them have reported plans to launch such a product in the near future. As stated above, several cocoa processors are also involved in the manufacturing of chocolate for wholesale. For organic chocolate, two of these companies are:

Barry Callebaut (Switzerland, US): Their organic products are all produced in Europe. They are considered the major manufacturer of organic chocolate in the world. They sell bulk chocolate products to food service users or manufacturers. Debelis (Belgium, US): Debelis has one manufacturing plant in the United States that produces organic chocolate for wholesale and foodservice use.

Two prominent companies that manufacture (not process) fair trade and organic chocolate are:

Chocolat Bernrain (Switzerland): This company is a chocolate manufacturer that produces conventional, organic, and fair trade chocolate. They produce the “Mascao” brand of fair trade chocolate, but specialize in private label products. Their involvement in fair trade cocoa predates a standardized labelling system and they have been certified to produce organic chocolate since 1999. They produce over 200 tonnes of fair-trade chocolate each year. Weinrich & Co. GMBH (Germany): A chocolate manufacturer producing both organic and fair trade products. Produces “Vivani” brand organic chocolate.

However, the term “manufacturer” also refers to a handful of small to medium sized companies that buy chocolate from a larger chocolate manufacturer such as Barry Callebaut. These companies produce the majority of organic and fair trade chocolate products sold on the retail market. Two such manufacturers are Dagoba Organic Chocolate and the Endangered Species Chocolate Company. This group also includes artisinal chocolate shops.

Large private-label manufacturers (sometimes referred to as “chocolatiers”) in Europe produce most other brands of organic and Fair Trade chocolate products. For example, “Art Bars”, an organic and Fair Trade product produced by Ithaca Fine Chocolates are manufactured and packaged by Bernrain, a Swiss chocolatier. The owner of Ithaca Fine Chocolates, Erika Fowler-Decatur, knows what cooperatives her cocoa and sugar come from, but she does none of the sourcing or production herself. All of this is left up to Bernrain and their constituents.

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It is generally thought that profitability of producing Fair Trade chocolate is less than or equal to the profitability of producing conventional chocolate. Specifics of the fair trade market, such as lack of scale and certification requirements, require higher incremental costs. These extra costs substantially decrease profit margins. Hence, producing fair trade chocolate for the sake of straight profit is not yet completely viable.

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US Buyers & Traders

This section will deal with how the United States cocoa demand is linked to the world cocoa supply. Most imported cocoa goes from processing firms to wholesalers/commodity traders and then to the organic food trade/retail market.

The majority of processed cocoa imports are handled by organic commodity traders such as Tradin Organics (Europe based with US offices) and Global Organics (US based). The majority of manufactured chocolate product that comes into the United States is either by these commodity traders, bought directly from the European manufacturer, or is purchased from an integrated processing/manufacturing company such as Debelis or Barry Callebaut that handles an organic product. The US does not have the capacity to process significant amounts of Fair Trade and organic cocoa. For this reason, a majority of these products must first flow through Europe to be processed before reaching the United States. This processing is either (1) part of an integrated cocoa firm that will sell organic cocoa to ingredient suppliers and the like or (2) an outsourced processing by companies like Tradin who also buy beans. Some processing is also done at origin. Countries such as Bolivia, Peru, and the Dominican Republic have certified plants.

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Breakdown of Procurement Options for US Firms Buying Organic/Fair Trade Cocoa Products: A US firm buying cocoa products (powder, butter, liquor, cake) can either:

a) Buy from an organic commodity trader (Tradin USA or Global Organics) b) Buy from a European cocoa processor that is either a part of an integrated multinational firm (Barry

Callebaut, ED&F Man) or independent and buys beans from other traders (Dutch Cocoa) c) Source the beans yourself and have them processed in Europe (La Siembra) d) Buy beans that are processed at origin by a producer cooperative (CONACADO)

A US chocolate manufacturer that buys covertures (chocolate, not cocoa) can either:

a) Buy from an organic commodity trader (Tradin USA or Global Organics) b) Buy from a manufacturer in Europe that works with sustainable cocoa (Bernrain) c) Buy from a manufacturer in the US (Debelis, Barry Callebaut- only organic) d) Source the beans yourself and have them processed and manufactured in Europe (La Siembra’s

Cocoa Camino chocolate bars)

For a listing of The Key Players in the US Cocoa Market, see Appendix 6. 4. Market Prices

4.1. Conventional Cocoa

In general, the market for conventional cocoa is unstable. The 1970’s faced supply shortages, extremely low

stocks (the volume of cocoa beans or grindings kept as buffer stock in warehouses), and prices went through the roof. The 1980’s saw the opposite—cocoa bean production stabilized and grew while prices crashed to an all time low at the end of the decade. The 1990’s encountered supply shortages but as stocks were kept very high, prices did not react in accordance with changes in production levels.

However, the improvement of information technology and transportation networks has played a major role in

market stabilization during the last ten to fifteen years. Hence, prices are more consistent and stocks can be kept at much lower levels than before. However, the cyclical fluctuations of the market are still its largest drawback. Political turmoil and weather conditions play an enormous role in this price instability. Organizations such as the International Cocoa Organization (ICCO) work closely with both production and consumption variables to try and smooth these boom and bust cycles.

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The ICCO daily spot price is the average of the three nearest futures markets on the New York Coffee,

Sugar and Cocoa Exchange (CSCE) and the London International Financial Futures and Options Exchange (LIFFE). See Appendix 7 for the chart highlighting the yearly average of ICCO daily bean prices for the last few years.

4.2. Organic Cocoa There is no fixed price premium for organic cocoa; it is subject to market fluctuations. Organic premiums fell

sharply in 2001 to 100 – 200 per tonne above conventional cocoa prices. Premium began to recover in 2003, reaching 200 – 300 USD/tonne at the end of the year. Another source stated that the price for organic cocoa fluctuated between 1300 and 1500 USD/tonne (FOB port of origin) during the 2001 season.

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For many exporters, a 200 USD/tonne premium is the minimum at which they can support organic

production. 11

Furthermore, if the grower is not part of a well-organized farmer cooperative or cannot find an appropriate buyer for his product, he is forced to suffer a loss and sell his product at conventional market prices.

There is little chance that organic premiums will rise in the near future due to a surplus of production

capacity in the Dominican Republic. This premium will continue to remain at current levels unless the Dominican Republic “manages” the market or until the market demand for organic cocoa increases past the point of current supply.

“In view of the persistent expectations of expansion of the market for organic cocoa, a shortage in supply was feared, especially after the hurricane George that hit the Dominican Republic, the world largest producer of organic cocoa. Therefore some of the larger operators in the organic cocoa market saw the market opportunity, and bought considerable quantities in the 1999–2000 season to ensure availability. Still, the market is yet waiting for the boom to happen and the organic cocoa harvest of 2000–2001 is waiting in the warehouses to be sold, causing a downward pressure on the price for organic beans. There are only very few traders that deal in larger volumes and also they see themselves cornered now that supply is largely covering current demand. The result is that – if at all – organic cocoa is bought at conventional market prices or just slightly above the New York level, as producers do not see keeping the cocoa in store

as an alternative. Only producers with large capital reserves can afford to do so. These large producers have only recently converted to organic production, as it seemed to be a market opportunity.” 19

As discussed by the United Nations Food & Agriculture Organization’s study entitled “Opportunities for

Developing Countries in the Production and Export of Organic Horticultural Products”, it is very difficult to find statistical data for organic markets. The market is made up of a small number of traders who are hesitant to divulge price or volume information. There is little transparency. Data collection and management by NGO’s and other organizations is also less than optimal. Hopefully, transparency with increased competition as well as market coordination will bring about better market statistics.

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4.3. Fair Trade Cocoa Unlike organic cocoa, there is a fixed price premium for fair trade cocoa set by international coordinating and certifying agencies, all members of the Fair Trade Labelling Organization (FLO). The price premium for Fair Trade cocoa is set at 150 USD per tonne. There is an absolute minimum price for Fair Trade certified cocoa set at 1750 USD. Hence, if the market price for conventional cocoa rises above 1600 USD/tonne, the price per tonne for Fair Trade cocoa becomes the market price for conventional cocoa plus an additional 150 USD Fair Trade price premium.

21 If cocoa is also organic, an additional 200 USD fixed price premium will be

added (1950 USD/tonne minimum price). Hence, farmer’s producing organic cocoa can only be guaranteed a fixed price premium is the cocoa is also Fair Trade certified. However, as explained in the paper “Economic Viability of Ethical Cocoa Trade in Ecuador”, the prices of processed fair trade cocoa products are tied to the conventional market. The report states:

“Although cocoa liquor yields a ratio of butter to powder that is on average equal to the ratio of fair-trade demand for the two products, instances frequently occur when demand and supply are out of balance. Given that Dutch Cocoa [the largest processor of fair trade cocoa] does not hold inventory of fair-trade butter and powder, the price the company charges for fair-trade product has to reflect the price that the counterpart product receives on the conventional market. For instance, if Dutch Cocoa has an order for fair-trade cocoa butter, yet cannot find a fair-trade buyer for the powder, the price that is charged for the butter has to be weighted upwards in order that the company covers the cost of purchasing the relatively expensive fair-trade cocoa beans. This situation is made worse when the price of conventional cocoa, and hence the price of conventional cocoa powder, are as low as those currently prevailing in the conventional market. Dutch Cocoa often finds difficulty in explaining to customers why

low conventional cocoa prices should drive fair-trade cocoa product prices upwards.“14

5. Sustainable Cocoa Markets: Dynamics & Growth

5.1. Niche Markets The market for sustainably produced cocoa is rapidly expanding in both scope and scale. At first, a few small, value-based firms traded organic and Fair Trade cocoa. These companies had to either work directly with the producer or one of the few European cocoa processors involved in the business. Then, as demand increased, the number of agents carrying sustainable cocoa products increased. Not only were there a few more European processors and manufacturers in the mix, but also organic cocoa and chocolate products were beginning to be handled by organic ingredient suppliers in Europe and the United States. At this point, the sales and trade of organic and Fair Trade cocoa was contained in a small, niche market. The cocoa was traded on a separate, differentiated product market that was very small and producer-oriented. Organic and fair trade cocoa was not traded through conventional cocoa trading channels. Conventional traders and chocolate manufacturers were not to interested in dealing with the product. A company that typifies this alternative trade channel is La Siembra Cocoa Cooperative, based in Ontario, Canada. They are an organization that deals only with organic and Fair Trade cocoa and cocoa products. They buy their beans directly from select producer cooperatives, have the beans processed in Europe and

then sent to North America for distribution. Currently, La Siembra is the largest importer of organic cocoa in the Canada. They do not deal with any conventional cocoa trading houses. 5.2. Industry Initiatives However, recently this involvement of conventional cocoa trade players in the sustainable cocoa market has begun to change. The demand for sustainable cocoa has grown on many levels. Consumers are requesting retail products while other stakeholder are requesting the industry to addresses environmental and labor issues. Spurred on originally by bad press regarding labor issues in Africa and then by state-issued organic regulations, the cocoa industry and trade associations have begun to organize broad human rights and sustainability initiatives.

The major food industry initiative regarding sustainability is The Sustainable Agriculture Industry (SAI) Platform. The SAI Platform is “a platform created by the food industry to actively support the development of and to communicate worldwide about sustainable agriculture involving the different stakeholders of the food chain.”

22 The founding members of the intiative were Nestlé (major cocoa buyer and manufacturer), Groupe

Danone, and Unilevel. Other members include Ecom (cocoa commodity firm), Dole, and Kraft . The SAI platform is general in its purpose, not attaching it activitied to any particular certification system. However, it is promising to have major industries with such leverage organizing around these issues.

More specifically related to the cocoa trade is the World Cocoa Foundation’s (WCF) Sustainable Cocoa

Program. The program focuses on environmentally sustainable growing practices. Much like other industry initiatives, the organization is hesitant to attach itself to a confining term such as “organic” and leaves its defining terminology vague. However, the WCF has initiated promising projects with such organizations as CATIE in Costa Rica. Although involvement is varied, members of the WCF include ADM Cocoa, Cargill, Hershey’s, Starbucks, Callebaut, Mars, and Nestlé.

5.3. Conventional Cocoa Companies As stated by Chris Wille, Chief of Sustainable Agriculture for the Rainforest Alliance, "In the middle are

increasing stirrings by mainstream cocoa companies (and large niche players) to find their own best response to the increased consumer interest and market pressures.“ Most mainstream companies see the sustainable cocoa market as both an opportunity and a potential liability. They see current sustainability concerns as a very touchy subject that must be dealt with very carefully.

For now, most companies have joined industry-led sustainability forums and stated good intentions in their

Corporate Social Responsibility (CSR) Reports. 23

They have participated in such events as Starbuck’s Roundtable Discussion on the Cocoa Industry that occurred in December 2004. This event pulled together industry stakeholders to address the cocoa industry and its supply chain, focusing specifically on how Starbuck’s and other companies might be involved in the sustainable cocoa supply chain. It was hosted by Business for Social Responsibility (BSR). (Summary Report Attached)

Most large chocolate companies do not have plans to roll out an organic or Fair Trade chocolate product in

the near future. For these large companies, the reality of market capitalism must be dealt with. Large companies, such as Mars, Hershey, Cadbury or Nestlé, will want a piece of the sustainable cocoa market once it becomes profitable for them. Supply quantities must be large enough to meet high-volume production. Costs must make sense. Enough consumers must understand and believe why they are buying organic in order to make the market viable on a large scale. Much like coffee, the merge of large companies and sustainable products will come with time.

As stated in SIPPO’s market report Organic Coffee, Cocoa and Tea

19, “The reluctance of the big companies

and supermarkets to introduce organic chocolate is still rather an issue of availability than of price, although price is used as an argument. Whereas the availability of African organic cocoa stays way behind demand, the technical skill of smaller chocolate manufacturers proves that very good chocolate can be made from beans that used to be rejected by the conventional chocolate industry. The range of the retail price for chocolate – also for organic – is set by the supermarkets before even the raw material is bought or cost calculations can be made. Producers are therefore forced to deliver organic certified cocoa at prices that are way below realistic cost of production and certification.”

Still, we are seeing some large, conventional cocoa companies buying organic beans. As highlighted by Kevin Thompson of La Siembra, the majority of large companies buying organic crops to increase the quality of existing products. Generally, they are not buying them to market them as a differentiated product under their national brands. They tend to leverage their size and buying power to purchase very high quality product, such as organic beans, for a low price.

5.4. A Hybrid Model However, as the market for sustainable cocoa products increased, large companies are becoming

increasingly interested . Over the next few years, the industry is likely to see the diversification and growth of cocoa trade channels. Much like occurred in the coffee industry, the conventional commodities market might have to change and handle a differentiated product including varietals, single-origin beans, or organic products.

Furthermore, large cocoa trading houses will most likely become involved in the sustainable cocoa trade.

The solidification of a sustainable cocoa supply chain is a necessary step in the creating a consistent supply necessary for large-scale production and consumption.

There is currently one company that serves as a perfect leading indicator for this promising market

transformation. In January 2005, ED&F Man, the commodities trading house the works heavily with cocoa and sugar, combined with EcoTrade, a sustainable cocoa trader to form an internal company under ED&F Man’s corporate umbrella. This new, hybrid venture is called Corigins and will deal with the trade and supply of sustainable cocoa and sugar. This is an exciting and inventive business idea that combines the value-based foundation of the niche market with the robust trade channels and financial backing of a large trading house.

24

In order to truly mobilize the production and trade of sustainable cocoa, market demand for sustainable

cocoa must continue to increase, producers must organize themselves for consistent production and efficient export, current niche players must grow, and more ventures such as Corigins must be successfully formed. Another critical step for the cocoa industry in the United States is to develop internal processing and manufacturing capabilities for organic and Fair Trade chocolate.

6. The Latin American Cocoa Trade

In terms of traditional cocoa production, Latin America is at a disadvantage. As stated in SIPPO’s market report on organic cocoa, “The large additional volumes suddenly entering the market have the consequence that especially Latin American small farmers’ organizations, for whom organic production was a viable alternative, loose their market access completely, as it is just easier and cheaper to buy from larger producers. Latin American cocoa is not the mainstream quality that is used for the production of an “ordinary” chocolate, as this is generally made from West-African quality. “

25

However, Latin America has a large presence in the production or organic and Fair Trade cocoa. The region has

the opportunity to be the world’s foremost provider of quality sustainable cocoa. There are a few key reasons for this bright future.

First, Latin America has a long-standing tradition of organic agriculture. “Organic farming is practiced in

approximately 100 countries throughout the world, with more than 24 million hectares (59 million acres) now under organic management. Latin America has approximately 5.8 million hectares (14.3 million acres) under organic management.”

26 27

Second, quality organic and Fair Trade production tends to occur on small farms. Hence, one of the main

reasons why Latin America cannot compete in the conventional cocoa trade is the same reason it can flourish in the organic cocoa trade—the region’s cocoa is grown by small farmers organized into producer cooperatives. The vast majority of Fair Trade certified cocoa cooperatives are located in Latin America & the Caribbean. (See Appendix 8 for a breakdown of cooperative locations)

Third, a majority of the world’s organic cocoa is already coming from this region. Three key producers of organic cocoa in the region include: APPTA (Asociación de Pequeños Productores de Talamanca) in Costa Rica, CONACADO (Confederacion Nacional de Cacaocultores Dominicanos) in the Dominican Republic, El Ceibo Cooperative in Bolivia, and Cocabo (Cooperativa de Servicios Múltiples de Cacao Bocatoreña) in Panama.

The region also plays a large role in the production of tropical Fair Trade products. In a 2003 study published by

the Fair Trade Federation, Central America (including the Caribbean) was listed as the second most important fair trade producer region for North America, producing near 22 percent of the value purchases made by Fair trade Federation members in 2002. South America was third with 16 percent.

28

However, there is still much work to be done. Many producers are unorganized. Others would like to convert to

organic but do not know how. Furthermore, consistency, quality, and cost of supply are all large problems. John Stocking of the Endangered Species Chocolate Company has had many problems trying to source cocoa suppliers in Costa Rica. His company buys 1 million pounds of chocolate each year, his main suppliers being from Costa Rica and the Dominican Republic. Although he would like to produce chocolate made with only organic cocoa, he is unable to find a consistent supply that fills his volume requirements while meeting his quality standards. Hence, he must diversity if purchases and buy a conventional, Fair Trade, and organic beans from a variety of suppliers. He is currently looking for a supplier of an organic, processed cocoa product (cocoa liquor, butter, or cocoa) in Costa Rica. He has received samples from many sources but he stated that all samples were of disappointing quality. Not only was the quality of processing very low, the processors did not take much care when shipping the product. One sample was shipped with ice that melted on the samples, which had been wrapped in paper.

7. Certification Requirements

Much of the information regarding certification requirements is available on the websites of the specific certifying bodies. For the best explanation of certification requirements, please see the following web pages.

Organic Certification

- International Federation of Organic Agriculture Movements (organizes all certification bodies): www.ifoam.org

“Latin American producers need to be re-certified by a European company to enter the European market. Most export products in Latin America are certified by American or European companies anyway, because the buyer requires the certification. OCIA (Organic Crop Improvement Association) and FVO (Farm Verified Organic) from USA and Naturland, OEKO Garantie, Ecocert and IMO Control from Europe are very active in the area. There are, however, some national certification bodies in the continent, like Argencert and OIA (Argentina), Instituto Biodinamico (Brazil) and Bolicert (Bolivia) – all IFOAM Accredited, and Biolatina (Perú and others). Other working agencies are Ecológica from Costa Rica, Bio Nica from Nicaragua, Maya Cert from Guatemala and CertiMex from México. Chile has Proa and Uruguay has Urucert and SCPB (Sociedad de Consumidores de Productos Biológicos). Costa Rica has protected national standards for organic agriculture; Paraguay and Chile are working on their development, and Argentina's national law and its standards date back to 1992. The region is beginning to discuss Social Criteria for Standards. In October 2001, representatives from many countries got together in the “1st IFOAM Seminar on Social Responsibility in Organic Agriculture”, in Cochabamba, Bolivia, to discuss the details of Social Standards and Codes of Conduct.” (from The World of Organic Agriculture 2003 – Statistics and Future Prospects) Fair Trade Certification - TransFair USA: For cocoa Fair Trade certification (within the United States): www.transfairusa.org/content/certification/cocoa_program.php - FairTrade Labeling Organization (FLO): For cocoa Fair Trade certification (outside of the United States): www.fairtrade.net/sites/standards/set.html Rainforest Alliance Certification - Rainforest Alliance: www.rainforest-alliance.org

Biodynamic Certification - Demeter USA: For biodynamic certification (within the United States): www.demeter-usa.org/site - Demeter International: For biodynamic certification (outside of the United States): www. demeter.net

8. Major Obstacles

There are many obstacles facing an organic cocoa producer who wished to meet the needs of a rigorous international market. Although many of issues apply to both the European and American market, cocoa importers and producers in the US who are using or wish to use organic cocoa also face a few unique challenges. The foremost challenge is the absences of a processor for organic fair trade cocoa in the US--a logistical nightmare for US cocoa suppliers chocolate manufacturers. As reported by FiBL, the ten major obstacles for the import of organic cocoa into the EU are reported by European importers include:

19

1. Quality of the Products: Improve quality of fermentation, avoid humid stocks, improve selection of

beans 2. Availability& Continuity of Supply: Diversity of production places and sources

European producers require a fine quality of bean. For the most part, consistent quality does not exist for organic cocoa. With the high risk of crop destruction due to natural disasters, consistent production volume is a significant concern. If supply could expand, fluctuations in production volume and quality could be smoothed out.

3. Price: Production shall meet demand, avoid fluctuations 4. Logistics: Improve transport in local ports

The organization of producers is a main bottleneck in the efficient production of cocoa. With increased grower coordination or the introduction of producer organizations, farmers could consolidate marketing and transportation efforts as well as leverage bargaining power for better export prices. Furthermore, they might be able to shorten the cocoa supply chain by eliminating the need to a middleman or domestic buyer for their product, allowing them to capture more of the profit margin.

5. Distribution: Large retailers should enter the market 6. Reliability of the Partners: Improve marketing and communication 7. Quality of Organic Certification: Set up local certification systems, improve certification trust and

quality 8. Authorities in Country of Origin: Reduce bureaucracy and paper workload

“No Latin American government provides direct subsidies or economic aid for organic production. However, some countries do offer indirect support. In Mexico, for example, the Social Development Secretary is supportive. Costa Rica supplies official funding for organic research and teaching, while in Argentina and Chile export agencies help producers attend international fairs and print product catalogues. Peru has recently developed an official National Commission of Organic Products. In general, though, the organic movement in Latin America has grown through its own efforts, aided by seed funding from international aid agencies, particularly from Germany, the Netherlands and Switzerland, for extension and association building.” 1

9. Authorities in Europe: Reduce bureaucracy and paper workload 10. Label Organizations in Europe: Harmonization and mutual recognition of standards and certificates

International organic standards need to be synchronized to increase the flexibility of exporters as well as uniformity or product for importers. International equivalent standards would prevent redundant certifications and also decrease the need for government administration. With varying label and certification schemes for each country, producers must complete an enormous amount of work for each country in which they will sell their product.

29

In some cases, varying organic standards have created loopholes in the system. For example, the time a farm needs to be in transition before its products can be labelled organic varies in different certification regimens. In

Switzerland, this required transition time is longer than in the EU. Hence, the same product could be sold in the EU as organic while not meeting organic requirements in Switzerland. To take advantage of this loophole, some Swiss companies have begun to divert imports through the EU.

9. Future Outlook

The future of the sustainable cocoa market is bright. Consumers are increasingly concerned about the safety of their food supply along with other environmental and social issues. They are beginning to truly grasp the meaning of “organic” and “Fair Trade” and are mobilizing their consumer power to demand such products on the marketplace. Also, it is becoming increasingly profitable to operate as a producer or manufacturer of such products. A large opportunity exists in the sustainable cocoa market for Latin American producers. Not only in the export of cocoa, but also in the processing of beans at the point of origin to produce an “added-value” product with higher profit margins. However, many evolutionary changes must take place in order for the continued growth of a successful market. The trade channels for sustainable cocoa must be smoother and optimized to allow for increased volumes of a differentiated product. This may happen by the involvement of large cocoa trading houses or multinationals in the sustainable trade (like Corigins) or the further development of organic commodity traders (Global Organics). Either way, sustainable cocoa products must find a suitable place within or alongside conventional cocoa trade channels. Furthermore, In order to handle the growing demand for sustainable cocoa in the US as well as address issues of trade logistics, the capacity to process and manufacture cocoa product in the US must be increased. In producer countries, issues of supply consistency and quality must be addressed. If value added processing is taking place, the quality of a processed product must be increased to meet the standards and needs of a gourmet market. Domestic and international organizations must continue to help producers convert to sustainable production as well as organize into effective producer organizations.

APPENDIX

Appendix 1:

World Production of Cocoa Beans (2002/2004)

COUNTRY

ANNUAL

PRODUCTION

(tonnes)

PERCENTAGE

AFRICA 2,158,000 69.6%

Cameroon 140,000 4.5%

Cote d'Ivoire 1,320,000 42.6%

Ghana 497,000 16.0%

Nigeria 165,000 5.3%

Others 36,000 1.2%

AMERICAS 416,000 13.4%

Brazil 163,000 5.3%

Colombia 38,000 1.2%

Dominican Republic 45,000 1.5%

Ecuador 85,000 2.7%

Mexico 35,000 1.1%

Peru 14,000 0.5%

Venezuela 15,000 0.5%

Others 21,000 0.7%

ASIA 528,000 17.0%

Indonesia 425,000 13.7%

Malaysia 40,000 1.3%

WORLD TOTAL 3,102,000 100.0%

Source: ICCO Annual Report for 2002/2003

Appendix 2:

Production of Certified Organic Cocoa Beans by Country, 99/00 (in tonnes)

COUNTRY ANNUAL PRODUCTION PROJECT/COMMENTS

AFRICA 2800

Madagascar 1200 Acro Ocean Indien - quantity not confirmed

Tanzania 1000 Biolands/Kyela Co-op Union (EPOPA)

Uganda 600

Bundibugyo (EPOPA) + Rwenzori - reported

to be suspended due to regional conflict

AMERICAS 8030

Belize 30 TCGA

Bolivia 600 El Ceibo (336 Co-ops)

Costa Rica 200 APPTA

Dominican Republic 6000 CONCADO, YACAO

Mexico 300 Several Small Groups

Nicaragua 300 La Campesina, CACAONICA

Panama 500 COCABO

Peru 100 USAID project

ASIA 550

Fiji 50 Estimate

Vanuatu 500 Estimate

TOTAL 11380 Estimate

Source: SIPPO

Appendix 3:

YEAR VOLUME % CHANGE

1997 708.2 -

1998 818.1 15.50%

1999 921.4 12.60%

2000 1,152.60 25.10%

2001 1,452.70 26.00%

2002 1,656.20 13.80%

2003 2,643.40 59.60%

Source: FLO International (February 2004)

FT Cocoa Sales Volume, 1997-2003 (tonnes)

COUNTRY 2002 2003 % CHANGE

Austria 76.7 94 22.6

Belgium 2.9 61 2,003.40

Canada 42.7 54 26.5

Denmark 13 13 0

Finland 6.5 9 38.5

France 32.6 227 596.3

Germany 339.4 343 1.1

Great Britain 550.6 903 64

Ireland 5.7

Italy 162.8 346 112.5

Luxembourg 17.1 21 22.8

Netherlands 105.9 147 38.8

Norway 0.4 0.5 25

Sweden 49.7 52 4.6

Switzerland 253.8 275 8.4

USA 2.1 92.2 4,290.50TOTAL 1,656.20 2,643.40 59.6

Source: FLO International (February 2004)

Sales volumes of FLO Cocoa (tonnes)

Appendix 4:

Source: ED&F Man Cocoa Report No. 371

Appendix 5:

Maquita's Preferential Trading Channel Compared with the Conventional Trade

Source: Collinson & Leon, Natural Resources Institute (NRI)

Appendix 6:

The United States Sustainable Cocoa Trade: The Major Players

CHOCOLATE MANUFACTURERS – WHOLESALE Debelis Chocolate Corp. (only organic) Bob Guidish, Sales Director info@debelis.net 5000 70th Ave Kenosha, WI 262-656-8322 www.debelis.net Barry Callebaut (only organic) Bruno Casabon, Director of Sales 1500 Suckle Highway Pennsauken, NJ (1 of 3 sites) 856-663-2260 www.barry-callebaut.com

CHOCOLATE MANUFACTURERS – RETAIL

Dagoba Organic Chocolates Frederick Schilling, Founder alchemist@dagobachocolate.com PO Box 5330 Central Point, OR 541-664-9030 www.dagobachocolate.com Endangered Species Chocolate Co.

Jon Stocking jon@chocolatebar.com Talent, OR 541-535-2170 www.chocolatebar.com COCOA SUPPLIERS – WHOLESALE

Ciranda Inc. Hans Friese, President Hudson, WI 715-386-1737 www.ciranda.com Corigins (ED&F Man/EcoTrade) John Kehoe, Director jkehoe@corigins.com 2867 West Trade Avenue Miami, FL 33133 305-648-1000 www.corigins.com www.ecotradeonline.com

Global Organics, Ltd. Dave Alexander, President dave@global-organics.com PO Box 272 Arlington, MA 781-648-8844 www.global-organics.com La Siembra Cooperative (Canada) Kevin Thompson, Director info@lasiembra.com 4 Florence St, Suite 210 Ottawa, Ontario, Canada 613-235-6122 www.lasiembra.com Tradin Organics USA Christine Brown, Director tradinusa@tradinorganic.com 109 Ponemah Rd #6 Amherst, NH 603-249-1120 www.tradinorganic.com

OTHER KEY CONTACTS

World Cocoa Foundation Bill Guyton, President bill.guyton@worldcocoa.org 8320 Old Courthouse Road, Suite 300 Vienna, VA 703-790-5012 www.worldcocoafoundation.org ECOM Agroindustrial Corporation, Ltd. Pablo Esteve (knows global cocoa mkt) New York, NY 212-219-1190 www.ecomtrading.com

Appendix 7:

Conventional Cocoa Prices - ICCO Daily Price

ICCO DAILY1996-98

AVERAGE1999 2000 2001 2002 2003 2004

2004-2003 %

CHANGE

US$/tonne 1583 1140 888 1089 1778 1769 1535 87%

USc/lb 72 52 40 49 80 80 69 87%

Source: ICCO, November 2004

Appendix 8:

CENTRAL AMERICA 3

Costa Rica 1

Nicaragua 1

Belize 1

CARIBBEAN 2

Dom. Republic 1

Haiti 1

SOUTH AMERICA 4

Bolivia 1

Peru 3

AFRICA 2

Cameroon 1

Ivory Coast 1

Ghana 1TOTAL 12

Source: FLO, March 04

Number of Fair Trade Cocoa

Cooperatives

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