Ecuador Responding To The Global Cocoa Price Decline—Interview With Iván Ontaneda Of Eco-Kakao

In the hope that the hunger for a good, fair and accessible chocolate is a viable option for everyone in the medium to long term, one can not help focusing on the general conditions of the cocoa market. If ever there is a cocoa producer country that better represents technical and economic strategy as a long history of good management facing constant external challenges, such as climate changes and economic instabilities, that is Ecuador. The small but resilient South American nation sided by the Pacific is in perpetual planning to sustain the economy and quality of its unique cocoa, especially in light of the recent drop in cocoa prices in the global commodity market.

Aligned with the latest statements of Juan Pablo Zúñiga, President of ANECACAO (Asociación Nacional de Exportadores de Cacao e Industrializados del Ecuador), the CEO of the 20-year cocoa exporting company Eco-Kakao—and former President of ANECACAO—Iván Ontaneda kindly offered his availability to provide a detailed analysis of the cocoa market situation.

Special thanks to Monica Lainez Rivera for providing the excerpt of an interview previously published in a major Ecuadorian newspaper and translating the original text from Spanish to English.

 

During the last months, the international price of cocoa was around $3,300 per metric ton, but now it has fallen to around $2,000. How does this situation affect Ecuadorian cocoa farmers?

The cocoa industry, the agro-productive chain, is in a big crisis that goes beyond the cold numbers. This crisis is due to an excess of the world cocoa production. Côte d’Ivoire and Ghana, the two largest producing countries, have a surplus of 300,000 tons of cocoa put on the market between 2016 and 2017. To this overstock of supplies, we have to add the decline in the consumption of chocolate in Europe, the United States and Asia in the last four years. All producers put our sights and hopes in China, with substantial investments. However, the global economic situation caused a fall in the chocolate demand. Due to the surplus, the cocoa is getting damage in the producers’ warehouses. There is no one to sell.

Why did the chocolate consumption decrease?

It did because of the global economic situation, and chocolate is not a primary product. If one previously bought three tablets a week, they now buy just one; and the one who buys one no longer does.
This happens on a global scale…
This is the beginning of the crisis, added the drama that the small producers in the country have. A few days ago, I visited Napo, Sucumbíos, Manabí, and there are serious problems. One is with producers in farms of four hectares and producing five quintals per hectare. An average producer of such characteristics nowadays receives $50 per quintal. Seven months earlier, he received up to $130 for that same product; we are talking about a very high fall in the producer’s income. This revenue does not meet their needs.

Can cocoa prices be controlled?

A country like Ecuador and its cocoa sector cannot be exposed to these externalities. It is important to clarify that either the government or the producer do not handle the price of cocoa, it is an external variable that is controlled based on supply and demand on the New York Stock Exchange, because cocoa is a commodity such as gold, oil, coffee, etc. When there is a variable that the producer does not manage, he has to identify a variable that he can manage and thus find an opportunity. This price crisis must be an alert to be taken in mind. We have to protect ourselves, this fall in prices has taken us uncovered and the most affected is the producer.

Is the situation of other producing countries similar at a national level?

Of the 500,000 hectares planted in Ecuador, small producers represent 90%. That means that most producers are in the above-mentioned situation, becoming insolvent producers who cannot subsist. Added to this is the winter season that affects plantations in two ways: rain excess and humidity that creates a diseased atmosphere affecting the productivity of cocoa plants. If a tree produces 80 pods, now with the rain the majority is lost; and the pods that resist unfavorable weather conditions have to be sold at lower prices; thus, they have no income to care for their plantations. Something we have to do to get out of this situation and get indicators’ improvement.

What are the plans or strategies to change this situation?

Ecuador has a low cocoa productivity, about five and six quintals per hectare. Therefore, what the producer can do is to increase the productivity of small farmers, that is the responsibility of the private and public sectors. So it is necessary the integration of public-private strategies, we need to put together a long-term joint agenda, which the goal of overcoming production levels with private companies, public sector and non-governmental organizations alliances. Raise of production indicators are complemented by credit banking. If production doubles or triples, the price variable is not going to be so important, competitiveness is, by offering higher prices to those producers who offer better quality cocoa.

Is there a program that already works on this?

At Eco-Kakao we have been working for five years with Blommer Chocolate Company – USA, in a sustainability program with small producers in order to improve their farms and production. We have a pilot plan in which we work with about 4,000 farmers in the Ecuadorian Amazon. At first, through field schools, we give them training on agricultural tasks to improve their production. Our second objective is to improve quality through better post-harvest processes because of the global market demands. In addition, we guarantee good prices, so that the producer instead of receiving $50 per hectare, he receives $90. These programs work whenever supply and demand are guaranteed. We look for others to join in these alliances, so they can contribute and improve the quality of life of our producers. We work with small producers who feel cared by us, the key for the industry is to approach the producer and go together with him.

 
While exporters, associations and governments are doing their best to cope with the cocoa price crisis, a concrete and effective help as consumers remains to make many more people aware of the existence of critical situations for cacao as the primary chocolate ingredient. A powerful action we can exercise to improve the demand on the cocoa market is straight and twofold: remembering to buy more good chocolate, while disseminating the verb about good cocoa.