Madagascan Cocoa

Industry leaders are calling the current surge in demand for dark gold “chocolate fever”. The consumer trend to dark, rich chocolate, high in cocoa content and with strong natural flavour has sent the chocolate industry off in search of high-end, single origin cocoa sources from all parts of the world. Some varieties of cocoa have seen an 800% increase in price in the last two years with traders paying 10 times the market price for specialty cocoa beans, and the fine chocolate market is expected to reach $1.62bn in 2008.

Like tea, wine and coffee, the qualities of cocoa beans are in fact also set to a significant degree on the farm where they are grown, resulting in distinctive taste profile and flavours. This is true in spite of significant downstream processing to produce the end products in the confectionery market. The beans are distinguishable by the soil, local environmental attributes and the careful handling they receive by growers, and depend in large degree not only on the tree type or species, but precisely where and how they are grown and tended. Like most mature markets, segmentation and differentiation, as well as traceability, have become more and more valuable in the last decade.

While quality certainly matters, other characteristics that have begun to draw attention are the origin of the cocoa, traceability of cocoa bean production, organic and fair-trade certification, health attributes, and environmental sustainability. The retailing advances for single origin chocolates are notable and offer potential benefits for producers who can create appropriate international marketing partnerships.

Worldwide sales of chocolate in 2007 were valued at around $80bn, while revenues from cocoa beans were less than $5bn, showing that producing countries together are receiving only around 6% of the retail value, a ratio of 16:1. The ratio of beans (cocoa) to retail (chocolate) is even greater for gourmet and other differentiated chocolate products. Currently, integrated grinding and manufacturing companies are able, due to market dominance, to capture the intangible value of fine cocoa in the chocolate product.

Around 60% of growers in Madagascar produce cocoa on small family farms of about 2-10 hectares. Data suggests that these cocoa producers are receiving between $0.10 and $0.16 per kilogram for their cocoa beans.

Where the distinctiveness of origin is significant, a part of this brand value can potentially be shared between the distributor and the supplier in the place of origin. Around 8 producing countries have managed to establish their reputations as single origin suppliers, in line with the recent trend towards single origin chocolate. Madagascar is one. As a low volume, specialty cocoa producer, Madagascar is in favourable position to raise its export income from cocoa through applying a careful business strategy to optimise earnings on the total volume available. An approach might build on the exclusivity of the product in a framework that benefits all formal stakeholders. That is, even though cocoa is, conventionally speaking a traditional ‘commodity’, it could make sense to remove it from this categorisation.

This might be achieved through better product marketing and messaging and proactive support in the retail environment to build the presence of unique brands, such as Malagasy Chocolate. A survey of chocolate retail pricing shows that, while Malagasy Chocolate is currently achieving retail prices above premium chocolate, it is still some 30% below the average price for single origin chocolate.

Experts believe that strategic partnership and low-cost marketing campaigns can be implemented to make up the 30% gap and, through some adjustment to margins, export income could be raised from about $6m p.a. to about $15-25m p.a.

Value chain analysis will be available here shortly.

Reference materials will be available here shortly.