Although starting from a small base, demand for organic cocoa is on the rise and growing at “a very strong pace,” according to an upcoming report by Future Market Insights (FMI) to be published later this year. Mintel data shows organic chocolate-based confectionery launches in Europe increased from 7% in 2010 to 11% in 2015, indicating that manufacturers do see this as a category worth investing in.
But the FMI report also predicts that the supply side faces "strong challenges" if it is to meet this demand.
The shortage in organic cocoa supply is being fuelled by a number of factors, the first being smaller yields. Farmers who use agrochemical pesticides and fertilisers can expect to harvest around 0.7-1.5 metric tonnes (MT) per hectare with good farm management, whereas an organic farm will typically yield 300-500 kg of cocoa beans per hectare.
But regulatory constraints that come with organic certification also act as a significant barrier. Malarkodi Mahendran, senior food and beverage consultant at FMI, told FoodNavigator: “Significant legislative changes over the past few years has made it relatively difficult for small producers to meet prerequisites. Procedure to secure import permit in these countries is also complex, while import permits are valid only for defined period, and need to be periodically renewed.”
Farmers also need to pay to go organic. The average certification fee at farm level for cocoa and all other types of products is 3% of farm turnover, she said.
“The cost of compliance to organic standards includes the fee to be paid by the farmer organisation/exporter to the certification body and indirect costs to comply with organic requirements. The total fee can be composed of an initial application fee and an annual certification fee (on a fixed basis or in proportion to sales).”
Debt and poverty
Incentives are needed then for more farmers to make the switch to organic.
Yet according to Sako Warren, secretary general of the International Cocoa Farmers Organisation (ICCFO), it is precisely these incentives that are missing.
The body, whose members include around 600,000 farmers across the globe, says for smallholder growers in Western Africa and other cocoa-producing countries, switching to organic farming often means being locked into debt and a cycle of poverty.
“They have to invest lots of money [to convert to organic cultivation] and get loans – many even loan from the buyers. This is a normal practice in Western Africa but I can’t name names. Farmers need to get a better price for their cocoa and need to get materials for free or cheaper so they can make a profit,” he said.
“The [organic] certification process has helped to bring more farmers into poverty than to rescue them. We have proof that the farmers are told ‘When you produce organic cocoa you are able to sell everything you produce at a premium’ but this is not the reality.”
The margins are already small, even for non-organic cocoa growers. Research by campaign group Make Chocolate Fair found cocoa farmers received 16% of the price of a chocolate bar in 1980 – today the gain is just 6%.
Meanwhile for Mahendran, a joint approach from various stakeholders is required to bridge the supply-demand gap.
“The need of the hour is proper education to increase crop yield and government organisations taking initiatives to incentivise farmers, which will cover productivity shortfall incurred from not using agrochemicals.”
No organic without Fairtrade?
According to FMI data, the bulk of organic cocoa production is concentrated in Latin America, with the Dominican Republic accounting for 70% of global organic cocoa supply, followed by Peru, Ecuador and Mexico which together make up around 20% of global production. So how have these countries managed to dominate the organic market share?
Mahendran says it is because they have been able to use money raised through guaranteed Fairtrade International premiums to invest in organic conversion.
“They joined Fairtrade first and worked on building their businesses, and once they reached certain levels on organisational developments, they converted to organic production. In this case, they use Fairtrade premium funds to invest in the infrastructure and fees needed for organic certification,” said Mahendran.
Fairtrade International has a minimum price of $2,000 (€1794) per MT ($2,300 - €2063 - per MT for organic cocoa beans) and the Fairtrade premium stays at $200 (€179) per MT, even if the New York Exchange price exceeds $2,000 per MT.
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Food Vision takes place in Cannes 2 – 4 March 2016. Click here to book your place now.