Jamaican cocoa farmers ink supply deal with Hershey
Published:Friday | March 11, 2011 | 12:00 AM
Avia Collinder, Business Writer
American chocolate company Hershey has signed on as a buyer of Jamaican cocoa for production of high-end brand Scharffen Berger, made by subsidiary Artisan Confections Company, with the first shipment due by midyear.
The supply contract landed by Jamaica Cocoa Farmers' Association (JCFA), a group of private growers, is one of the first under a new push by the association and the broader sector to diversify their narrow market for the commodity, which is dominated by France and three other European countries.
Samples were sent off last year for testing to a number of potential buyers, and JCFA Operations Manager Lorenzo Buckley said the association is also in negotiations with other companies in France, Belgium, United States and Japan.
The Hershey deal is inclusive of technical assistance to farmers, said Buckley, who declined to discuss the volume of beans to be supplied and value of the deal, saying such disclosures are normally made with the consent of its partners.
"Hershey wishes to work with farmers directly and provide technical assistance in developing the cocoa farmers capacity to ferment and dry their cocoa beans to maximise the farm-gate returns," he told the Financial Gleaner.
The partnership was sealed September 2010, with the first batch of supplies to be delivered by mid-2011, said Buckley.
Steven Watson, head of the Coffee Industry Board, confirmed that this would be a new geographic market for Jamaica and that no United States (US) corporate entity currently buys local cocoa. The crop has always been sold in Europe which pays the best prices, Watson said.
Hershey Company manufactures in the US and sells to 90 countries, racking up annual revenue of US$5 billion. Its products are distributed in Jamaica by the Wisynco Group, including Hershey's, Mauna Loa, Reese's, York, Almond Joy, Jolly Ranchers, Twizzlers and Kisses, but not the Scharffen Berger brand.
The Ministry of Agriculture and Fisheries estimates that Jamaican cocoa, which ranks among the world's best in quality, has a guaranteed market for at least 1,500 tonnes annually, but said that in the last five years, the highest level of production was 768 tonnes, in 2007.
Half of Jamaica's cocoa production is shipped to France to be made into premium chocolate, with the rest distributed through a broker that sells the beans to Italian, Swiss and Belgian companies.
Buckley said the price of cocoa has been improving steadily over the last five years. The commodity is now selling within a band of US$3,600 to US$3,700 (J$310,000 to J$318,000) per metric tonne. The farm-gate price paid to local growers by the Cocoa Board is now at J$1,460 per 10-kilogramme box of cocoa beans or J$14,600 per metric tonne. At current prices, this is equivalent to less than five per cent of what the commodity fetches from overseas buyers.
"It has proven to be recession proof," Buckley said, due to a confluence of increased demand and diminishing or stagnant global supply, linked to political turmoil in the Ivory Coast, which is the largest producer of cocoa.
Demand, he said, is fuelled by growing awareness of the health benefits of dark chocolate, or chocolate with a high percentage of cocoa, as well as the emergence of the China and India as growing consumer markets.
And, there is "newly found appreciation of high-end chocolate in the USA with the increasing trend of boutique chocolate shops, and the placement of medicinal cocoa in pharmacies in Europe," the JCFA executive said.
The Hershey contract was initiated by Marketing and Agriculture for Jamaican Improved Competitiveness (MAJIC), a USAID-funded programme established in January 2010, which has been helping the JCFA build capacity in production and marketing.
MAJIC provided grant funding for strategic and business plans; a JCFA secretariat; four cocoa processing facilities - including fermentation bins and solar dryer equipment; training for 82 association members in fermenting and drying techniques; and drafting standard operating procedures for post-harvest processing facilities.
MAJIC's first report for year ended December 2010 said a failure to grant a cocoa dealer's licence to the JCFA was creating uncertainty in the sector.
Buckley said last week that JCFA is expected to receive its licence from regulator, the Cocoa Industry Board - which is currently the only entity engaged in the exporting of beans - before midyear when its first shipment to Hershey is due.
"Getting the licence will empower the farmers as they will directly be able to formalise purchase agreements; and will result in increasing the farm-gate prices and thus significantly improve the lives of cocoa farmers," he said.
Karryl Aitcheson, coordinator of MAJIC, says that with a licence, the JCFA will be able to process and sell cocoa, to any buyer, not just the Cocoa Board.
The JCFA was founded in May 2008 and now has some 700 members, a number that Buckley expects to reach 1,200 by yearend - still a fraction of the 11,000 cocoa farmers spread nationally.
In 2009, the value of primary output from the sector was J$200 million - then the equivalent of about US$2.2 million - comprised mainly of exports valuing US$1.8 million.
In fiscal year 2009-10, some 548 metric tonnes of dry cocoa beans were exported. The volumes have fallen dramatically in the current fiscal year, with just 100 tonnes traded between April 2010 and February 2011. The low output has been blamed on the drought.