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Knocking on Coffee’s Door: Cocoa’s Case as a Coffee Farm Alternative

2016-04-22 Comments Off on Knocking on Coffee’s Door: Cocoa’s Case as a Coffee Farm Alternative
Cocoa farmer Rubén Darío, Jinotega, Nicaragua. Photo courtesy of Ingemann Fine Cocoa.

Cacao farmer Rubén Darío, Jinotega, Nicaragua. Photo courtesy of Ingemann Fine Cocoa.

In previous Coffeelands posts we have written about the importance of diversifying smallholder coffee farms as a hedge against falling coffee prices, low coffee productivity resulting from disease (such as coffee leaf rust) and other factors. Diversification into other crops such as nuts, plantains and fruit, among others, also helps to ensure that a farmer is generating income at multiple times during the year, not just at the time of the coffee harvest.

What we are seeing more and more of in coffee produced under 1,000 meters in Central America, as well as in other coffee growing regions, is the rise of cacao as complement to, and sometimes replacement of, coffee farm systems. This is particularly true in areas hard hit by coffee leaf rust where farmers have to decide whether it is worth making the large and long-term investment in coffee once again.

I recently met up with Lars Saquero Møller, General Manager of Ingemann Fine Cocoa based in Nicaragua, to discuss this phenomenon.  Lars is well placed to discuss this issue as his company is working hard to make Nicaragua one of the leading producers of fine flavored cocoa in the region (cacao refers to the bean that comes from the tree, cocoa is what the bean is called once processed). I first met Lars back in 2010 when his company was focusing on buying and exporting organic honey from Nicaragua (which they still do). At that time, he was working with coffee farmers to produce honey, both as a way to diversify their income and as a way to promote improved coffee production via increased bee pollination activity on the farm. Now Lars also believes that cacao represents a viable and attractive solution to lower altitude coffee farmers under the increasing threat of climate change.

Below my conversation with Lars.

HA:  How did you start working in cacao in Nicaragua?

LM:  We didn’t actually start out in cocoa production, we started as beekeepers! We set up our company in Nicaragua in 2007 with the help of the Danish government under the Danida B2B Program, and since then we have expanded our operations steadily. In 2012 we acquired the company Xoco, also established in 2007, but working in cocoa with a truly innovative model. Currently we provide over 1,200 farmers with access to a stable market, and we are considered Nicaragua’s anchor firm in the honey sector. In cocoa we are pushing very hard to put Nicaragua squarely on the international cocoa map and so far the acceptance is good, although it is slower than we would like!

Working in Nicaragua is not always easy as it is still one of the poorest in the region, but the country is rich in terms of its people and nature and as entrepreneurs we believe firmly in the future of the country.

HA:  Can you tell us about your business model and how you work with smallholder farmers?

LM:  Our model is inclusive and the objective is to be able to offer everything a producer needs (except for financing, although some of trees have been sold with internal company financing).

In honey, we sell equipment and hives, we can train people in our government approved Beekeeping Academy, and we provide producers with access to market through our 13 sourcing centers in different parts of the country.

In cacao, we have an extensive program for genetic material selection and production; we can supply grafted plants as well as seedlings and we offer technical assistance with proven protocols and agronomic practices as well as small farmer business training at our government approved Cocoa Academy. We train farmers on the use of cacao-specific inputs and training in post-harvest practices. If farmers sign a long-term contract with us (10 to 20 years), then we also provide them with a guaranteed market for that period of time along with the technical assistance already mentioned. The idea is sort of a “one-stop-shopping” concept.

We are a business and the bottom line is always a priority for us, but we also believe that it is smart for our business to create true win-win relationships with farmers and other actors. Through that process we can do a lot of good for a lot of people.

HA:  I understand that Ingemann has started working with coffee farmers and helping them to transition into cacao, especially farmers at a relatively low altitude (under 1,000 meters).  Could you tell us why you think it’s important for these farmers to diversify into cacao?

LM:  I don’t think there is any doubt that we are seeing new trends in the way that weather behaves. For producers working in lower altitudes this is critical as their costs are increasing, their yields are decreasing and they are becoming gradually more vulnerable to plant diseases such as leaf rust. This is critical as the situation regarding climate will probably only get worse over time. We see cacao as the optimal substitution for these producers as it allows them to keep working on the same land and using many of the same facilities that they already have for coffee. And if they transition gradually into cacao by intercropping with coffee then this can make for a cost effective shift from one crop to the other.

However, it is not only farmers producing in low altitudes that should worry. Consider this: let’s say that the current altitude for high quality coffee is 900 meters, and we know that 100 meters of altitude is approximately 0.5 degrees Celsius and that the temperature is going to increase by 2 degrees in some areas– this means that production of high quality coffee could move up the mountain by 400 meters to 1,300 meters. What are the producers going to do with land that is no longer apt for quality coffee?

The challenge with cacao is that it requires a 4-5 year investment until it starts giving back. That said, once established, cacao trees will produce for 30 to 50 years. This means that it’s probably best for producers to start the transition out of coffee while they still have an income from their current crop. If they only start the transition when their coffee no longer offers any profitability, then they are in for some very lean years until the cacao matures and becomes profitable.

Unfortunately, it is my perception that many coffee producers have not fully accepted this threat to their way of life, and only very few are showing a sense of urgency. More producers need to take this challenge seriously.

We try to be an active player on this issue. For example, we have just signed a four-year R&D project co-financed with the Inter-American Development Bank (IDB) that focuses on creating the necessary knowledge to implement improved farming practices for adaptation and mitigation to climate changes for honey and cacao producers in Nicaragua. Something has to be done, and quickly, because these fluctuations in climate that we are experiencing could very well be the new normal.

HA:  What do you see as the biggest challenges for smallholder farmers who want to transition into cacao and what is your company doing to support them? 

LM:  I see two main challenges:

The first one is traditionalism. Many of the producers have coffee in their DNA, it’s what they have been doing in their families for generations. They have a hard time imagining focusing on a new crop that they don’t know much about and this limits their ability to change and adapt.

The second challenge is financing, which is a recurring problem. Many small producers are not credit worthy according to the traditional lending system- this makes it that much harder for farmers to consider transitioning to another crop since it would require an investment of money that they don’t have.

We are trying to promote the establishment of a transition (coffee to cacao) fund specifically aimed at these farmers- there would be some risk involved for the financier, but we can mitigate some of those risks with training and the promotion of quality genetics, not to mention long-term sales contracts!  If we wait for the more traditional finance mechanisms to invest in these farmers (requiring, for example, guarantees such as land titles), then I don’t think that we’ll make as much progress transitioning lower altitude coffee farmers to cacao as we believe is needed.  I would love to see some pilot finance projects that test out this idea in order to encourage others to invest in this area.

HA:  Some actors in the coffee industry might view coffee farms diversifying into or completely transitioning to cacao as a threat to their supply chains. How would you answer this concern? 

LM:  I understand the concern, however, for the producers, I don’t see a way around this transition due to the general changes we are seeing in the climate. I would imagine that some of these challenges could be mitigated through investments in coffee R&D and programs to implement these new technologies on the farm. However, this will require a very large investment on the coffee side for it to happen, and how long will that take? Can coffee farmers wait?

HA:  Now that you have experience working in the cocoa fine flavor sector, where do you see this portion of the cocoa sector moving in the future?  What could cocoa supply chain actors learn from the specialty coffee industry, for example?

LM:  I think that chocolate is moving in the same direction that wine, beer and coffee have over the last 10-20 years: from a more generic product into segments that respond to the demands of an increasingly discerning consumers who understand and care about the particular characteristics of the product. Beer used to be Budweiser, now it is all about which local microbrewery and why. Customers now pay a premium for quality coffee – based not just on flavor but also the way it is produced and where and by whom.

Chocolate is on the same path although as a sector we are only in the very early stages of the process. Chocolate shouldn’t be perceived as candy but as a more complex experience sold at a higher price. There will always be room and demand for low percentage chocolate candy, but chocolate can be so much more and consumer awareness is growing.

HA:  Thank you Lars.

.- Hugh Aprile