Economics of Cocoa,Profitability of Cocoa Farming in West Africa,What is the greatest threat to the cocoa supply?The R4D Context,Sustainable Tree Crops Development Alliance and Program,Synergies of the Partnership

1. Towards a Sustainable Cocoa
Economy:
Rural transformation of West
African cocoa communities –
how?
S. Weise
Sustainable Tree Crops Program
International Institute of Tropical Agriculture
September 15, 2008
Ibadan

2. Relative size of tree crop sectors in SSA
2.5
Billions
USD $ 2
1.5
1
0.5
0
s s o a a r t t
co coa citru l palm nut ang offeeapay te shewubbe eanuocado lanu
oi coco m c p ca r sh av ko
Commodity
(FAOSTAT 2004)

3. Economics of Cocoa
• Annual global production = 3.5 million tons
• Annual increase in demand = avg. 3% per year
• W. Africa supplies ca. 70% of world production
worth US$ 3.5 billion
• Ca. 2 million farms in W. Africa on ca. 5 million
ha of land
• Smallholder crop based on household labour
and with a size of 3 to 7 ha
• 50-70% of household income from cocoa

4. The Backdrop
Productivity Stagnation
1400
1200 Indonesia
4.3% Yield
1000
growth
yield (kg/ha)
800
600 West Africa
1.0% Yield
400 growth
200
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
YEAR

5. 1000
Cocoa Yields by Production Quartiles
900
Larger producers
800
have higher yields
700
yield (kg/ha)
600
1st quartile
2nd quartile
500
3rd quartile
400 4th quartile
300
200
100
0
Cameroon Ghana Nigeria Cote d'Ivoire All
country
Source 2000/2001 STCP Baseline Survey

6. frequency
le
ss
t
(-1 han
05 13
0
50
100
150
200
250
300
350
400
450
0, 00
(-7 -10
50 00
(-4 ,-7 ]
5 00
(-1 0,-4 ]
50 00
, ]
(1 -10
50 0]
Profitability
(4 ,20
50 0]
(7 ,50
(1 50, 0]
05 80
(1 0,1 0]
35 10
(1 0,1 0]
65 40
(1 0,1 0]
95 70
(2 0,2 0]
25 00
(2 0,2 0]
55 30
(2 0,2 0]
85 60
(3 0,2 0]
15 90
(3 0,3 0]
45 20
Source 2000/2001 STCP Baseline Survey (3 0,3 0]
75 50
Mean = $233 per household
(4 0,3 0]
Median = $33 per household
05 80
(4 0,4 0]
35 10
(4 0,4 0]
of Cocoa Farming in West Africa
65 40
net returns to investment & mgt (2001 USD$)
(4 0,4 0]
95 70
(5 0,5 0]
Proportion with negative returns= 44%
25 00
0, 0]
53
00
]

7. The Development Context
What is the greatest threat to the cocoa supply?
 Low income of cocoa farmers
Summary facts:
• Productivity has stagnated (1% over 10yrs)
• 50% of farmers with yields less than 300 kg/ha
• Majority of farmers sell a few bags of cocoa 3 to 4
times a year
• Largest 25% of farmers produce 2/3 of total
revenues
• Ca. 1/3 of farmers have a net negative return to
their investments in cocoa
• Youth want to get out (all of over 125 interviewed)

8. The R4D Context
So what is the fundamental research question?
 What is required to efficiently and effectively
increase the income of cocoa farmers and cocoa
communities?
 And how can this be done in an environmentally
and socially responsible manner, and ensuring
the competitiveness of the sector?
Need to prioritize research accordingly
Need to ensure research is development driven
Need to introduce innovations at different levels

9. Sustainable Tree Crops
Development Alliance
 Radiates from the core alliance formed in 1998
between Global Cocoa & Chocolate Industry /
Trade and USAID
 Supported a 3-year Regional Action Plan in 5
West African countries (2003-2006): Ghana,
Cameroon, Cote d‟Ivoire, Nigeria, (Guinea)
 With the intention to expand the original
Alliance to government agencies, development
groups and industry to increase the number of
beneficiaries and enhance future development

10. Sustainable Tree Crops
Program
INNOVATION PLATFORM that brings together
public and private partners with a common
interest:
 Promoting production and marketing of quality
tree crops
 Improving market access and income for
smallholder producers
 Creating systems that are environmentally
friendly, socially responsible and economically
sustainable
 Tree crops as an engine of rural development

11. Synergies of the Partnership
Public Sector
Country and regional understanding, deep
knowledge of development and networks of
expertise, financing capacity
Private Sector
Market discipline, integrated technologies, specific
knowledge of industry, skills and experience to
better design market focused activities
Farmer Organizations
Ensure that priority needs of the farmers are
addressed, willing to contribute directly as
benefits become evident

12. Pilot Phase 2003-2006:
“making knowledge and
technologies work”

14. Introduced Innovations
• Regional approach to cocoa production,
marketing and research
• National networks and strategic alliances
allowing for communication between regional
and national partners and across stakeholders
• Farmer organizations linking production with the
supply chain, and providing a conduit for the
transfer of knowledge and technologies
• Linking social messages with technical ones
(child labour and HIV/AIDS)
• Participatory approaches building the skills of
farmers, e.g. Field Schools and Field Research

15. Farmer Field Schools „03-‟05
• Farmer training curriculum
on cocoa integrated crop,
pest & quality management,
child labour sensitization
• Trainers from extension
services and farmer
organizations together
• >150 trainers in 4 countries,
>13,000 farmers in FFS,
>26,000 farmers associated

16. FFS 2003 Graduates
• Cameroon: 41% greater Change in Revenue
yields; 20% lower fungicide US$ 317
use
• Nigeria: 17% greater yields
and 12% lower fungicide use
when farmers transmit
knowledge to sharecroppers;
younger farmers also perform
better US$ 440
• Ghana: 15% greater yields
• Cote d‟Ivoire: 25% greater US$ 36
yields US$ 92
(area, price, yield,
labour, agrochem)

17. FFS 2004 Graduates
Decision-making Skills:
• 59% of graduates make
observations before making
management decisions
Social Capital:
• 77% transfer skills
Empowerment:
• 41% appreciate benefits of
group learning/work
Change in Attitude:
• “Before I used to neglect my
work, now I take it seriously”

18. Farmer Organizations
• Systematic approach to
strengthening farmer
organizations (SOCODEVI)
• 15 large farmer coops
linked to over 31,000
farmers in 4 countries
• Improved market access,
information, confidence,
and transparency
• Farmers receiving 5-15%
better prices and improving
quality

19. Group Learning & Sales
Cameroon Cote d‟Ivoire
Yield increase (kg/ha) 72 40
Price individual ($/kg) 1.03 0.60
Price collective ($/kg) 1.18 0.63
Gross revenues control ($) 654 511
Gross revenues less costs w/
FFS & group sales ($) 1,015 631
Increase in cocoa income ($) 361 120
55% 23%

20. Social Issues: Child Labour
• Family household main
labour source, including
children
• Ca. 1% of HH employ
adolescent migrants
• Child slavery and trafficking
in cocoa are uncommon
• Children can be exposed to
hazardous tasks on farms
• The more children work, the
less likely they go to school

21. FFS 2003 Graduates
For every 1000 farmers sensitized on child labor in
FFS will result in the voluntary removal of 210 children
from hazardous work on cocoa farms (Ghana)

22. Identifying Opportunities
Market systems:
 Market power exerted by exporters in RCI
leading to 9-20% lower farmgate prices
 A guaranteed minimum „Fair Trade‟ price
applied across the sector would result in market
imbalances and wasted resources.
 Decoupled payments in the form of communal
goods least distorting vs. price supports
 Regulated weights and standards (ca. 10% loss)
 Responsiveness to quality and pricing

23. Identifying Opportunities
Rural Credit Markets:
 In Cameroon & Nigeria, access to credits
resulted in >20% purchased inputs leading to
>5% output
 In Cameroon, the benefit to cost ratio is between
5-6 for fungicide application
 In Cote d‟Ivoire, the benefit to cost ratio is
between 5-6 for fertilizer application
 Financing of cocoa sales by cooperatives

24. Identifying Opportunities
Production Research:
 IPM of black pod disease using biocontrol
agents
 Use of pheromones to manage capsids
 Rational pesticide use – farmer field research
 Integrated soil fertility management
 Genetic characterization and diversity of cocoa
germplasm collections, breeding material, and
plantings in farmers‟ fields

26. Identifying Opportunities
Diversification:
 Cocoa agroforests: Biodiversity, environmental
services, local and scientific knowledge,
management
 In Cameroon and Nigeria, on avg. non-timber
forest products contributed 15-20% of gross
revenue of a cocoa farm
 Access to market a significant limiting factor
 Lack of timber rights: timber being cut and sold
at a fraction of the value
 Limited technical knowledge of complex systems

27. Looking Forward
• Scale up the successful
innovations
• Develop necessary tools
and institutional linkages
• Align with national and
regional development
efforts
• Fill innovation gaps, e.g.
intensification,diversification
financing systems,
institutional arrangements

28. Phase II 2007-2011:
“contributing to rural income
and structural transformation
in cocoa communities”

29. Rural Transformation
Agricultural transformation is the process by
which individual farms shift from highly
diversified, subsistence-oriented production
towards more specialized production,
oriented towards the market.
The process involves a greater reliance on input
and output delivery (marketing) systems and
increased integration of agriculture with other
sectors of the domestic, regional and
international economies.

30. Strategic Element 1
Productivity Growth (intensification):
• Integration of production innovations
(improved planting material, IPM, soil fertility mgt,
replanting-regeneration, quality management,
labour saving, service providers, financing)
• Lowers costs of production
• Maintains/increases competitiveness and market
share
 Prices decline
 Sector revenues usually decline (inelastic)
 Early adopters innovate, increase income, &
get bigger

31. Strategic Element 2
Market Efficiency:
• Integration of marketing innovations
(competitive markets, market information,
collective marketing, organized farmers,
quality management and responsiveness,
value-addition, financing)
• Lowers costs of marketing
 Increases farmer prices (if market is freely
competitive)
 Lowers consumer prices

32. Strategic Element 3
Non-Adopters:
• Non-competitive producers exit sector
• Meet the needs of these farmers through
diversification
(alternative income generation options: cocoa
agroforests, other crops, rural enterprises)
 Pro-active policies to facilitate transition

33. Relative share of Cocoa and Non-Cocoa Value in
the $13 billion Cocoa Belt Rural Agricultural
Economy of West Africa
other
industrial
vegetables, crops, $0.3
$0.9
cocoa, $1.5
Cocoa accounts for
fruits, $1.8 approximately 12%
of the farm gate
value in the cocoa
belt of West Africa
(versus 65% for
staple crops).
Cocoa accounts for
staple crops, 2/3rds of the cocoa
$8.5 household income.

34. Strategic Element 4
Policy Environment:
• Policies & institutions to ensure competitiveness
and allow efficient producers to grow
(public & private services, e.g. extension, credit,
inputs; knowledge and skills development;
incentive systems, e.g. land tenure)
• Policy & institutions to increase marketing
efficiency (regulatory framework, e.g. standards;
infra-structure)
• Policies & institutions to find alternative income
options
 Policies to facilitate transformational process

36. Modus Operandi
 R4D: Research is required along the full stretch of
the research and development continuum
 Innovation packages: Need to develop, validate
and scale up innovation packages that
integrate: technical-institutional-financial
aspects (FIT-solutions)
 Policy reform: Innovation packages need to be
accompanied by institutional and policy reform
 Local capacity: Strengthening of capacity along the
full value chain critical for success
 Innovation platform: Public or private sector alone
can not make this happen
 Public-private partnerships

37. Modus Operandi
Agent of change: STCP/IITA are playing a
criticial role by contributing to and fostering a
process of change
 to contribute to the agricultural transformation
of the cocoa belt leading to rural income growth
and a sustainable cocoa economy that is
environmentally & socially responsible

38. THANK YOU
STCP team:
Blaise, Chris, Denis, Isaac, Jim, Jonas,
Mac, Mario, Mike, Richard, Sonii, Yapo
Core support by:
World Cocoa Foundation and the global
cocoa industry
United States Agency for International
Development
Governments/Agencies of Cameroon,
Cote d’Ivoire, Ghana, Nigeria, Liberia