Sunday 28 October 2012

A bag full of cocoa

One of the mysteries to me of the cocoa industry is the supply chain, and today we were able to meet a ‘middle trader’ in Kota Agung. There are local traders; these are guys who buy straight from the farmers, often buying one or two sacks at a time, use a motorbike to transport the sacks. They sell on to the middle traders. The middle traders buy from local traders but will also buy from farmers direct, if the farmers bring the beans to the warehouse. The middle traders check the quality of the beans, dry them more if needed, remove much of the rubbish and attempt to ‘grade’ them – by size. They then sell them on the export traders. At each stage of this chain, each agent is attempting to make a living obviously, and they all seem to be using the London Terminal Market price as a reference point. So as the farmer is getting a high proportion this means that the intermediaries are squeezed a little – so to ensure their own viability they need to deal with high volumes of cocoa fairly fast to ensure income. 
So our visit gave me a view into this stage. We turned up at a large warehouse, lined with large sacks of cocoa and coffee. It was the middle of the day – so very hot under the high tin roof, but made even hotter by a huge wood fuelled drier at the back of the shed – on the left in the picture above. On the right and in the centre are two huge blue machines used to grade (by size) beans – either cocoa or coffee – the trader deals in both. All the cocoa beans were unfermented – the trader didn’t deal with fermented at all – no supply and no demand. If fermented beans come in they would probably get mixed in with the unfermented.

If beans come in from local traders or farmers that are really poor quality they would bring the price down. It turns out the that the sacks piled up were not full of cocoa beans – but waste from the cleaning and grading process, which the trader sells on as animal feed. Nothing thrown away if possible.

So, given that we were in a warehouse of beans and this was a trader, I felt compelled to buy some beans. A small sample was sorted for me – carefully weighed to 2kg and the IR40,000 transaction undertaken. Lovely Sumatran, unfermented beans

A small word on the economics of this. The London Terminal Market price is the price of beans on the portside in London; this price has more to do with the price of cocoa as a commodity than the price of production of cocoa, or indeed any aspect of quality of flavour – so although it sounds great when people say that Indonesian farmers get 80% or so of the LTM price for their beans, in fact it bears little relation to how much of their work has gone into producing the beans. And as Indonesian smallholders tend to be growing low grade chocolate, and don’t ferment it – the industry imposes a reduction for this poorer quality that they term FAQ – Fair Average Quality price.

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