Section 1: Market trends:



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AN OVERVIEW OF THE COCOA SECTOR IN VIETNAM

“FROM TRADE NEGOTIATIONS TO GLOBAL ADJUSTMENT’’ PROJECT

The “From Trade Negotiations to Global Adjustment” project is supported by the Dutch Directorate-General for Development Cooperation (DGIS), WWF’s Macroeconomic Programme Office (MPO), and the International Food and Agricultural Trade Policy Council (IPC).

The first draft of this report was written by the Forest Science Sub Institute of South Vietnam (FSSIV). Major authors were: Vuong Dinh Tuan, Ngo Duc Hiep, Pham The Dung, Tran Thanh Cao, Kieu Tuan Dat, Kieu Manh Ha,Do Tien Dung.

The report was edited by Richard McNally and Pham Minh Thao of WWF Vietnam

The final report was produced in October, 2005

Table of Contents

FIGURES AND TABLES 4

ABBREVIATIONS 5

EXECUTIVE SUMMARY 6

SECTION I: INTRODUCTION 9

Section ii: Market trends 10

2.1 INTERNATIONAL LEVEL 10

2.2 COCOA PRODUCTION IN VIETNAM 12

Section iii: Organisations involved in cocoa sector in Vietnam 19

3.1 GROUPS ALONG THE MARKET CHAIN 20

3.2 NATIONAL AGENCIES INVOLVED IN SUPPORTING THE COCOA SECTOR 23

3.3 MAJOR INTERNATIONAL PROJECTS SUPPORTING THE COCOA SECTOR 27

Section IV: Impact of Global Markets and Trade Liberalization on Cocoa Production 31

Section V: An Initial Assessment of Cocoa in Five Provinces 36

Section VI: Environmental Issues Associated with Cocoa Production 42

Section VII: Some major issues and recommendations 46

References 49

Annex I: Cocoa planting in Vietnam - basic information 50

ANNEX II: LIST OF INTERVIEWEES OF THE SURVEY IN FIVE PROVINCES 51

FIGURES AND TABLES

Figures

Figure 2.1 Distribution of world cocoa production, year 2002/2003

Figure 2.2 World cocoa production and consumption

Figure 2.3 Changes in the price of cocoa futures

Figure 2.4 Progress of cocoa production in Vietnam

Figure 3.1 Key players in the cocoa production chain in Vietnam

Tables

Table 2.1 Cocoa planting areas in different places in southern Vietnam

Table 3.1 Member list of the Coordinating Committee for Cocoa Development in Vietnam

Table 4.1 Key milestones in trade liberalization in Vietnam

Table 4.2 Tariff escalation in cocoa and products

Table 5.1 Progress of cocoa production in Binh Phuoc

Map

Map 1 Cocoa planting areas in Vietnam

ABBREVIATIONS

|ACRI |American Cocoa Research Institute |

|ACIAR |Australian Center for International Agriculture Research |

|AFTA |ASEAN Free Trade Agreement |

|APEC |Asia Pacific Economic Cooperation |

|ASEAN |The Association of Southeast Asian Nations |

|DARD |Department of Agricultural and Rural Development |

|DGIS |Dutch Directorate–General for Development Cooperation |

|EU |European Union | |

|GDP |Gross Domestic Product | |

|GOV |Government of Vietnam | |

|FAO |Food and Agriculture Organization of the United Nations |

|ICCO |International Cocoa Organization |

|IPC |International Food and Agricultural Trade Policy Council |

|MARD |Ministry of Agricultural and Rural Development |

|MPO |WWF Macroeconomics Programme Office |

|NLU |Nong Lam University |

|NIAAP |National Institute of Agricultural Planning and Projection |

|PSOM |Dutch Programme for Cooperation with Emerging Markets |

|SUCCESS Alliance |Sustainable Cocoa Enterprise Solutions for Smallholders Alliance Program |

|VICOFA |Vietnam Coffee and Cocoa Association |

|WB |World Bank | |

|WCF |World Cocoa Foundation | |

|WTO |World Trade Organization | |

|WWF |The World Wide Fund for Nature | |

EXECUTIVE SUMMARY

The economic reform policies (doi moi) starting in 1986 have been the catalyst for significant changes in Vietnam’s economic and business environment, which have brought about a greater openness and integration with international markets. Exports have significantly expanded with Vietnam becoming one of the world’s leading exporters of rice, coffee, and black pepper. Now it is exploring considerable potential for other agricultural commodities – such as cocoa.

The cocoa sector is expected to grow considerably in Vietnam; from a current production area of around 4,000 hectares (ha) to a target of more than 20,000 ha by 2010. The production and trade of cocoa could become a major source of income for many Vietnamese farmers. Vietnam is well suited to small-scale, shade-grown cocoa which can have positive impacts for biodiversity, if it is grown in the appropriate areas. But this sector will only bring important economic, social, and environmental benefits if it is developed in a sustainable fashion.

This report provides an overview of the current state of the cocoa sector in Vietnam and highlights a number of issues pertaining to its future success. It puts forward a number of initial recommendations to the key players involved in this sector in order to stimulate dialogue and discussion. This will help to shape the second phase of a joint WWF/IPC project, supported by the Dutch government, to promote a sustainable and prosperous cocoa sector in Vietnam.

Recommendations:

- Promote the early completion of a set of certified cocoa varieties and quality standards for cocoa beans in Vietnam, and establish more nurseries to provide high-quality seedlings to growers.

- Promote systematic research on the environmental impacts of different production techniques and species mixes, as well as biological mechanisms to control pests and disease outbreak. This research would ensure that Vietnamese cocoa production leads to positive environmental and social impacts. Existing projects such as Success Alliance could offer potential models to follow.

- Ensure that cocoa growers and extension workers are provided with high-quality training in a number of areas, including cultivation practices, crop maintenance, post-harvest treatment, and insect pest control measures. They should be encouraged to adopt sustainable models of production that are appropriate for Vietnam.

- Establish a viable market system to provide farmers with a secure environment in which to sell their produce. It is critical that farmers are secure in the knowledge that they can access their respective markets. Multinational companies and donors have an important role to play in the implementation of risk management strategies that help secure the purchase of any good quality cocoa.

- Develop more coordinated and clear government planning on cocoa production, at both central and provincial levels. There also needs to be greater government support for the establishment of post-harvesting facilities in Vietnam.

- Further assess the impacts of tariff escalation on the emerging cocoa sector to see whether this could affect the development of a value-added cocoa industry in Vietnam. A better understanding of regional and global trends in terms of production, trade, and consumption and their impact on Vietnam would also help to improve the strategic planning of cocoa production in the country.

- The development of the cocoa sector in Vietnam needs multi-stakeholder involvement. The necessary investment and coordination would best come about through a public-private partnership of companies, donor agencies and the Vietnamese government and industry. An important aspect of this partnership should be that the various stakeholders realize mutual benefits. The Co-ordination Committee for Cocoa Development is critical in this process to ensure sustainable and prosperous development of the cocoa sector in Vietnam.

SECTION I: INTRODUCTION

Remarkable results in economic growth and poverty alleviation have been achieved through Vietnam’s economic reforms. The economy of Vietnam has reached a growth rate of 7% annually in the last decade, the second highest in the region. The percentage of poor households was reduced to 28% in 2002 from over 55% in 1993. Exports have expanded significantly with Vietnam becoming one of the world’s leading exporters in rice, coffee, and black pepper. Now it is exploring considerable potential for other agricultural commodities – such as cocoa.

In Vietnam, cocoa is becoming an increasingly important sector; although small at the moment it is expected to grow considerably. At this moment cocoa is grown on more than 4,000 hectares (ha) in several places in the Central Highlands and the Mekong Delta. There have been calls to more than quadruple the area for cocoa production by 2010. The production and trade of cocoa could create a major source of income for many Vietnamese farmers. However, it is also important that the lessons from coffee production – where overproduction led to price falls, lost livelihoods for many farmers, and environmental problems – are not repeated. There are many different models of cocoa production. Vietnam is well suited to small-scale, shade-grown cocoa which can have positive impacts for biodiversity, if it is grown in the appropriate areas.

This report gives an overview of the cocoa sector in Vietnam, looking at market trends, key players in the industry, potential risks and an initial assessment of the potential for cocoa in five provinces in Vietnam. It also puts forward a number of recommendations for stakeholder discussion, which will help to create the basis for phase II of this project.

Section ii: Market trends

2.1 INTERNATIONAL LEVEL

During the 1990s, world cocoa production increased 1 to 2 % per year, reaching 3.44 million tons in 2000. The latest information from the International Cocoa Organisation (ICCO) (August 25th, 2005) showed that net cocoa production in the world is some 3.16 million tons in 2004/05. According to the UN’s Food and Agriculture Organization (FAO-2002) there were nearly 7.5 million ha of cocoa planted worldwide in 2000. Côte d’Ivoire is the world’s largest producer with about 2.4 million ha, followed by Ghana with nearly 1.5 million ha. The other major producers by area can be seen in Figure 2.1. The last two decades saw rising production in South-East Asia, first in Malaysia, and later in Indonesia. Recently, the Asia/ Oceania region overtook Latin America to become the world’s second largest cocoa producer, after Africa. However, production has recently fallen in one of the biggest Asia producers – Malaysia - as farmers have replaced their cocoa plantations with oil palm.

Figure 2.1: Distribution of world cocoa production, year 2002/2003

(1,000 tons)

Source Gerkens Cacao BV, Masterfoods Veghel BV, Cargill Vietnam Ltd. PSOM04/VN/3 “Establishing a quality chain for Vietnamese cocoa” - Report at workshop in Ho Chi Minh City, March 2005

Meanwhile, consumption has increased at double the production pace, which has largely eliminated the vast cocoa stocks that had accumulated throughout the 1990s (see figure 2.2). The growing demand was in response to lower prices and increasing incomes in consuming countries. In 2000, the big cocoa importers were the Netherlands, the United States, Germany, France, and the United Kingdom, accounting for about half of all global imports. However, the first industrialized stage of processing and grinding of cocoa beans is dominated by this same group of five countries. Consequently, many imports, at least into the non-producer countries, also show up as exports (FAO 2002). With incomes set to increase, particularly in Asia, demand for cocoa is expected to continue to go up.

Figure 2.2: World cocoa production and consumption

Source Gerkens Cacao BV, Masterfoods Veghel BV, Cargill Vietnam Ltd. PSOM04/VN/3 “Establishing a quality chain for Vietnamese cocoa” - Report at workshop in Ho Chi Minh City, March 2005.

ICCO has estimated that a small increase in the volume of cocoa in recent years could not satisfy the increased demands of consumption, especially due to growth in the Asia-Pacific region. For example, China’s demand is expected to grow 5% annually. Therefore, prices are expected to continue to increase (see figure 2.3).

Figure 2.3: Changes in the price of cocoa futures

Source: Gerkens Cacao BV, Masterfoods Veghel BV, Cargill Vietnam Ltd.. PSOM04/VN/3 “Establishing a quality chain for Vietnamese cocoa” - Report at workshop in Ho Chi Minh City, March 2005.

2.2 COCOA PRODUCTION IN VIETNAM

Conditions for cocoa production

The genus Theobroma originated in South America. Theobroma has been divided into twenty-two species, of which T.cacao is the most widely known. Cocoa trees grow well on the belt from 200N to 200S of the equator. The natural habitat of the cocoa tree is evergreen rainforests. It responds well to relatively high temperatures with a maximum annual average temperature of 30-320C and a minimum average of 18-210C. Rainfall and temperature are the main environmental factors to affect not only optimal growth, but also create variations in the yield of cocoa. The rainfall required for successful growth should be well distributed through the year. An optimal annual rainfall level should be between 1,500mm to 2,000mm. Humidity is required as high as 70-80% during the daytime and almost 100% during night time. However, cocoa, on the other hand, is very sensitive to water logging. Therefore, the soil must possess both good drainage characteristics and water retention properties. The plant cannot tolerate a dry season which lasts more than three months with less than 100mm of rainfall per month. In addition, cocoa does not grow well in persistent strong wind, although it can grow in a wide variety of soil types with a pH value between 5.0-7.5.

In Vietnam, there are many places satisfying these requirements, especially around the Mekong Delta and the Central Highlands. Basic information about cocoa in Vietnam is presented in Annex I.

Present and potential size of Vietnam’s cocoa sector

Cocoa was first introduced into Vietnam by the French but has never reached the production levels which are commercially viable. In the 1960s, it was reintroduced by the Americans into the South of Vietnam (Dong Nai, Central Highlands and some places in the Mekong Delta). The ongoing war and insecurity in the countryside undermined the commercial viability of the infant cocoa industry in that period. During 1980s, the Vietnamese government tried to introduce cocoa again with support from several State-Owned Enterprises (SOEs). As part of this effort, thousands of farmers planted Theobroma cocoa throughout some dozen provinces ranging from Quang Ngai in central Vietnam to Can Tho in the Mekong Delta. Farmers succeeded in growing cocoa and producing fruit, but the SOEs were not able to establish buying and marketing systems. Without an available local buyer for their beans and no access to the international markets, most farmers quit cocoa, with the exception of a few who used the cocoa primarily for home consumption in such forms as cocoa wine[1].

More recently, cocoa cultivation in Vietnam has received strong and effective support from the government. An ambitious plan to produce 20,000 ha has been set up and is expected to yield over 1,500 kg of beans per hectare by 2010. Four regions which cover 28 provinces were selected to develop cocoa farms. In the southeast, the target provinces are Binh Phuoc, Dong Nai and Ba Ria-Vung Tau; in the highlands, Dak Lak, Dak Nong, Gia Lai, Kon Tum and Lam Dong; and in the Central region, Quang Ngai, Binh Dinh, Phu Yen, Khanh Hoa, Binh Thuan and Ninh Thuan. In the Mekong Delta, all 13 provinces have the potential to be involved in cocoa production. The government wants to ensure that cocoa development will not repeat the mistakes made with coffee during the period from 1998 to 2003, so it is trying to ensure that high-quality beans are produced. A number of institutes are involved in testing different varieties.

Some provincial authorities are encouraging expansion. Ben Tre has designed a master plan and provided a budget of 24 billion VND[2] to grow cocoa on some 10,000 ha in the province. They are looking for exporters, traders and other enterprise bodies to buy their products in the near future. The Dak Lak coffee company has converted portions of their unprofitable coffee farms to cocoa trees in the last three years. At present, some 500 ha of cocoa has been planted, of which 200 ha is at the harvesting stage.

It is estimated that at present cocoa is being grown on about 4,000 ha in different places in Mekong Delta and the Highlands. Table 2.1 lists the areas planted with cocoa through 2005, which is illustrated in Map 1. Figure 2.4 shows changes in area for cocoa production since 1997.

Table 2.1 Cocoa planting areas in different places in southern Vietnam

|Provinces |Area (ha) |

|Ben Tre |1,500.0 |

|Ba Ria-Vung Tau | 450.0 |

|Dak Lak |1,083.5 |

|Binh Phuoc | 268.0 |

|Tien Giang | 300.0 |

|Dong Nai | 50.0 |

|Binh Dinh | 100.0 |

|Lam Dong | 1.0 |

Cocoa in Vietnam is just at its infancy stage. Viable trading markets for cocoa have not been yet been established, although there is an existing demand from international buyers. Producers have expressed their eagerness to grow cocoa provided the buyer has a strong commitment to consume their products and there are legal purchasing contracts. The large international companies await producers who will provide them with sufficient quantities of good-quality cocoa beans, enough for them to establish buying agents.

Figure 2.4 Progress in cocoa production in Vietnam

Source: Gerkens Cacao BV, Masterfoods Veghel BV, Cargill Vietnam Ltd.. PSOM04/VN/3 “Establishing a quality chain for Vietnamese cocoa” - Report at workshop in Ho Chi Minh City, March 2005

Though Vietnamese cocoa production is just at an early stage, almost all cocoa products are being shipped to Europe, America and China. At present China is the biggest importer of Vietnam’s cocoa[3]. Vietnam’s cocoa is deemed to be of generally good quality. Evidence from Indonesia - the world’s third-largest cocoa supplier - indicates that a high volume of inferior cocoa products will not bring desired benefits to growers even if there is a great demand for cocoa beans.

Presently, several of the world’s largest cocoa importers are dependent on cocoa products from West Africa and Indonesia. A reduction of cocoa exports from these countries over the last several years due to political instability and pest outbreaks has generated an unstable growth and supply for them. Also, inferior cocoa products from Indonesia have not always satisfied the demands of international cocoa companies. Recent demand for cocoa, however, is increasing by 2.0 to 4.0% annually, especially in the Asia-Pacific region. This means that some of the larger international players in the cocoa sector are looking for new stable supplies of good-quality cocoa.

At this point in time, there is still scope to develop and position Vietnam as a quality producer of high-quality fermented cocoa rather than a bulk producer of unfermented low-quality cocoa like Indonesia. This is also a unique opportunity to set a high standard for post-harvest treatment and establish a quality control system in the supply chain. It is essential that proper farming and post-harvest treatment practices gain common acceptance before production expands and inferior practices are adopted.

Some strategic partners are keen to assist Vietnam in becoming a reliable supplier of good-quality fermented cocoa beans by firmly establishing an effective model for producing quality beans with full accountability from farmers to exporters. Both the project promoters and the Vietnamese government consider it important to ensure that Vietnam does not go down the poor-quality route as with coffee.[4]

In order to achieve high-quality cocoa productivity, a package of techniques for the crop needs to be provided to growers from the outset. There is a need to provide necessary techniques in cocoa cultivation, crop management, post harvesting treatment, and most important, measures for quality control to growers. Farmers could easily take up and apply these new techniques with high efficiency.

Prior to 2000, the small volume of cocoa produced was insufficient to encourage exporters to establish processing plants. Recent developments have meant that cocoa production has reached a sufficient volume to encourage more plants in Vietnam. The establishment of such plants, in turn, helps to motivate small-scale enterprises and collecting channels.

Map 1: Cocoa planting areas in Vietnam

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Section iii: Organisations involved in cocoa sector in Vietnam

Like other tree crops in Vietnam, the cocoa sector has many different organizations involved. Based on sustainable cocoa production principles, an investment in Vietnam’s cocoa sub-sector would be justified by addressing the needs of various stakeholders. This investment and coordination would best come about through a public-private partnership of companies, donor agencies, and the Vietnamese government and industry. An important aspect of this partnership should be that the various stakeholders realize mutual benefits. The stakeholders and their respective benefits are summarized as follows:

1. Farmers need to make a profit from cocoa that is produced at a level of inputs that farmers are willing and able to provide. In doing this, they require improved agricultural and environmental management skills.

2. The end users (industry) require a new source of quality fermented cocoa beans produced efficiently and in a sustainable manner.

3. The government of Vietnam expects that cocoa will diversify the country’s agricultural portfolio, thereby reducing its economy’s exposure to a particular sub-sector and also earning more hard currency for the country.

4. Foreign donors expect cocoa production to help alleviate poverty among farmers through sustainable and efficient production in an environmentally friendly manner. (Alliance, 2003)

These stakeholders could also be divided into the following groups:

- Key players in the market chain: these include the growers (owner of the cocoa garden), buyers (small collectors, buying stalls/shops and buying agents), cocoa processors/chocolate manufacturers and exporters.

- National groups supporting cocoa development: administrative bodies from central to local levels; research institutions, universities, companies for agricultural services; professional associations.

- International projects and companies

Each of these groups will be discussed in turn in the following section.

3.1 GROUPS ALONG THE MARKET CHAIN

The key group involved in the production and export of cocoa are illustrated in Figure 3.1.

Figure 3.1: Key players in the cocoa production chain in Vietnam

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Cocoa growers

Cocoa growers are either farmers or enterprises (both state owned and private). Production scale normally depends on the production materials and capital owned by the grower. Cultivation land areas used by the farmers tend to be small. Cocoa production in Vietnam is generally small-scale plots under the shade of larger trees.

For many growers, especially poor farmers, the Government has provided support, such as loans to allow them to plant cocoa, particularly in order to switch from poor-quality coffee. In recent years, a cocoa producing movement has developed in several provinces such as Dak Lak, Dong Nai, Ba Ria-Vung Tau, Ben Tre and Binh Phuoc. In such movements, farmers themselves invest to grow their crop. This mode of self-investment places a basic foundation for cocoa development in the future.

Post –harvesting treatment

The quality of cocoa beans is greatly dependent on the post-harvest treatment. A fermentation process that does not follow the necessary technical requirements can produce low-quality beans and not satisfy the requirements of quality standards. Post-harvesting treatment can take place at two different scales. At the smaller scale, the processor carries out the job manually on a small quantity of 20 kg per batch, while at the larger scale the processor can ferment up to several hundred kilograms of beans. Smaller-scale fermentation is usually applied to newly planted farms and areas where the infrastructure is not well developed and/or where cocoa volume is rather small. These can be found in Dong Nai, Binh Phuoc and areas more recently developed for cocoa. A better scheme of fermentation applied to a higher volume of beans can be seen in Ben Tre, Dak Lak and Ba Ria-Vung Tau provinces where facilities of the fermentation units are better equipped. The development of post-harvesting treatment as well as cocoa processing units is very important for the future development of the cocoa industry in Vietnam.

Buyers

Buyers can be grouped into three categories depending on their capacity. There are small-scale collectors who go out to collect the beans from house-to-house on their motorcycles. Small collectors are indispensable forces in the remote areas, where access is difficult. These collectors buy all kinds of agro-products from farmers and resell them to the bigger shops. In more remote areas, such as South Cat Tien village, Tan Phu district of Dong Nai province, the farmers had to stop producing cocoa as they were unable to get the beans to the market as there were no such buyers. In turn, small-scale collectors sell cocoa either to buying stalls/shops or companies’ agents.

The second group set up buying stalls or buying shops in villages. These people obtain information on prices regularly and make a bridge between small collectors and companies. In a period of falling prices, they may hold onto the products for some time and sell them when the price rebounds. They are rarely seen in larger towns, as farmers can sell directly to a company. Buying stalls/shops are independent units.

The final category are buying agents who acts as representatives for a certain company. In Dak Lak, Ben Tre, and Ba Ria Vung Tau active buying agents are Cargill, Dak Man, and ED&F Man. Olam Ltd. is active in Binh Phuoc. Buying companies may also carry out processing activities. This group has sufficient influence to establish buying rates. Usually, they buy a large volume from their agencies. Given the currently low quantity of cocoa in Vietnam, this group remains small. Some of the large buying companies who have arrangements with cocoa farms plan to construct warehouses at the producing sites in order to preserve the beans.

Cocoa processing companies/chocolate manufacturers

Cocoa is used to produce a variety of products such as chocolates, candies, ice cream, soft drinks, etc. The establishment of additional cocoa processing plants in Vietnam is important to maximize the value from the crop. More processing plants being established implies that a greater volume of beans can be processed, which will help alleviate farmer concerns over the guaranteed sale of their crops.

At present, the cocoa producing industry of Vietnam has not been strongly developed. Cocoa beans are normally fermented by growers and bought by buyers mainly for exportation. In 1987, a project on cocoa development was funded in Quang Ngai province by the former Soviet Union. This project included an establishment of a cocoa processing company. Many provinces in central Vietnam participated. Unfortunately, when the cocoa had just reached the harvesting stage in the early 1990s, the Soviet Union collapsed and was not able to further finance the project.

There are only two companies, Vinamilk and Agricultural Product Exporting Company of Tan Binh District, grinding cocoa beans and manufacturing chocolates and other products. Grand Place Complex and Puratos are two Belgium companies manufacturing semi-chocolate products in Vietnam. Bien Hoa Confectionery Cooperation, Hai Ha Kotobuki and Hai Chau Confectionary Company are producing chocolate in the market.

Exporters

Exporters play an important role to introduce Vietnam’s cocoa to the international market. There is a potential for the greater export of cocoa from Vietnam. In a meeting on ‘Quality management of Vietnamese cocoa’ recently held in Ho Chi Minh City, local enterprises and exporters stated that there is presently a stable price and market for cocoa beans.

3.2 NATIONAL AGENCIES INVOLVED IN SUPPORTING THE COCOA SECTOR

The Ministry of Agriculture and Rural Development (MARD) is the chief Ministry in charge of agricultural development in Vietnam. As highlighted earlier, they have recognized cocoa as an important crop and introduced a plan to increase considerably cocoa production across Vietnam.

Wary of some of the problems that came about with the rapid development of the coffee sector, the Government does not want a repeat in the cocoa sector. As a response, the Coordinating Committee for Cocoa Development was established in March, 2005. This committee consists of 16 members, as listed in table 3.1. These represent key departments and organizations that will be needed to enable Vietnam to become a major cocoa bean producer. They also act to provide consultancy to MARD on different aspects of cocoa production as well as necessary measures for cocoa development. The committee has already proposed several suggestions to the government, including providing cocoa farmers with low-interest loans and constructing irrigation systems. Also, they urge that a master plan for land-use and integrated guidelines for cocoa development should be issued.

Table 3.1. Member list of the Coordinating Committee for Cocoa Development in Vietnam

| | |

|National Center for Agricultural Extension |Institute for Vegetation Oil research |

|Department of Agriculture (MARD) |Nong Lam University in Ho Chi Minh City |

|International Cooperation Department of MARD |Vietnam Coffee and Cacao Association |

|Department of Science & Technology of MARD |Vietnam Farmers’ Association |

|Tay Nguyen Institute for Agro-forestry science |Ministry of Science and Technology |

|Institute for Agricultural Science and Technology |DARD of Ben Tre, Binh Phuoc and |

|of VN |Dak Lak |

|Institute for Agricultural Science and Technology |Domestic and Foreign Companies (Cargill, Masterfoods) |

|of South VN |International Organizations |

|Forest Science Sub-Institute of South Vietnam | |

Other relevant Ministries and their equivalent provincial bodies involved in the development and export of cocoa include: the Ministry of Planning and Investment, the Ministry of Science and Technology, and the Ministry of Trade and Export. Each of the Ministries has equivalent department who they work through at the provincial level. For example, the Department of Agriculture and Rural Development (DARD) is the provincial arm of MARD.

Groups providing agricultural service

Groups involved in agricultural service activities provide the necessary agronomical materials required for cocoa production, of which planting materials are the most important. Presently, there is a lack of reliable sources to supply cocoa seedlings for growing; there are only a small number of nurseries. Therefore, the price of a seedling is quite high. Several seedling suppliers are Nong Lam University, Tay Nguyen Research Institute for Agriculture and Forestry, Quang Ngai Centre for Seed Testing, Binh Dinh company for tea-coffee-cocoa, and Nguyen Loc ADICO. Seedling suppliers are under strict control to avoid supplying poor planting materials to farmers. These suppliers are required to use seed varieties agreed by MARD. Other agronomical materials such as fertilizers and pesticides are provided to the farmer at the beginning of the growing season. Farmers are to pay this back at the end of the season.

The National Centre for Agricultural Services acts as a bridge to connect growers to MARD. They implement whatever is required by MARD on cocoa production in different target provinces. In addition, they act as consultants to MARD on policy issues and provide solutions to eliminate risks which have been experienced with other crops like coffee and black pepper. In Vietnam, there is also a network of extension workers established throughout the country. These people are actively involved in transferring technologies to the farmers. In villages, they are gathered as extension clubs to assist themselves in production.

MARD also provides funds to support cocoa farmers at the establishing stage through the centre. At present, poor farmers receive 100% of financial support from the government for cocoa production, while the other farmers receive from 50 to 60% of the initial investment. The local authorities, DARD and the provincial centers for agricultural services are organizing training programmes to provide techniques for cultivation, crop maintenance and post-harvest treatments. Such techniques aim to help farmers to be able to produce good-quality beans.

Research organizations

There are a limited number of research organisations involved in cocoa research. They are Tay Nguyen University for Agriculture and Forestry; Nong Lam University; and the Forest Science Sub-Institute of South Vietnam. Research institutions and universities are responsibility for variety selection to select suitable high-yielding and high-quality cocoa for growers. Testing of introduced elites of cocoa to find promising lines for further proliferation in Vietnam is one of their priorities. Testing results need to be documented for national evaluation and registration. So far, there are more than 20 promising lines of cocoa that have been selected from different research stations. However, there continues to be slow progress on the acceptance of certain high-quality cocoa varieties. A recent meeting in September, 2005 regarding quality management indicated that at present there is no cocoa variety that has been officially certified. This continues to create uncertainty among the farmers.

Commercial departments and buying companies are making plans to establish quality requirements for cocoa before setting up buying channels across the growing areas. These organizations are not only carrying out research but also providing technical assistance to farmers on cocoa production.

Professional associations

Cocoa farmers can participate in two professional associations: the Farmer Association and the Coffee-Cocoa Association. These are social bodies established to help protect the rights of their members in terms of the production and transaction of their products. They also propose relevant policies to the government. The Farmer Association is organized from central to grassroots levels. Farmer association units can make guarantees to help their members to get loans from banks with a low rate of interest. Local cocoa clubs, cooperatives, seed multiplication groups, processing groups and groups for technical services have also been formed. Through these bodies, information regarding prices can be obtained. The cooperatives of growers also help to bargain prices with buyers. The Coffee-Cocoa Association provides information regarding trading their products and helps with marketing the products on domestic and international markets.

3.3 MAJOR INTERNATIONAL PROJECTS SUPPORTING THE COCOA SECTOR

International cooperation on cocoa development in Vietnam, both through private industry and formal development assistance, has accomplished much in assisting Vietnam to become a source of high-quality cocoa beans. Efforts and achievements of this cooperation can be summarized as follows:

- Bringing a much broader experience and vision to the development of Vietnam’s cocoa sector: for example, introducing sustainable cropping systems and high-quality fermentation processes

- Bringing consumers and producers closer; in particular, the North American and European industry. This involvement has assured the Vietnamese partner, whether policy maker or grower, that Vietnam’s beans will have a market outlet. By having the end user involved in this activity from the beginning, the needs and requirements of the market are well integrated into the development activity

- Sending scientists and practitioners from around the world to work directly with Vietnamese counterparts to evaluate and adopt where appropriate the best planting materials and cultivation methods available in Vietnam

- Establishing public-private cooperation between the Vietnamese Government, donor countries, and the local and global cocoa trade

- Providing much-needed public investment to the cocoa sector in the form of international development funding (USDA, USAID, Dutch Government) and private funding from US industry and European commodity trading enterprises

Some of the major international projects that have supported cocoa in Vietnam are listed below.

The Cocoa Development Program

This was the first foreign cooperation in cocoa (starting in 1998), which aimed to assist MARD and farmers to develop a sustainable and commercially strong cocoa sector in Vietnam. The program was between Nong Lam University (NLU) in Ho Chi Minh City, the World Cocoa Foundation (WCF), previously called the American Cocoa Research Institute (ACRI), and GTZ of Germany, and was called the WCF-GTZ-NLU Cocoa Development Program.

At the conclusion of its five years of activities, the Program reported that it had “established techniques, procedures and systems for planting cocoa at all levels . . . This package of technology and expertise is now available to all those who want to cultivate and farm cocoa productively and efficiently in Vietnam.” (MET/UAF, 2002) Through this cooperation, Vietnam had established its capacity to expand quality cocoa planting materials and production systems know-how to its farmers.

SUCCESS Alliance

In mid-2003, the US Department of Agriculture, through its Food for Progress program, funded the three-year Sustainable Cocoa Enterprise Solutions for Smallholders (SUCCESS) Alliance program in Vietnam. The SUCCESS Alliance is a public-private partnership consisting of US government donors; the World Cocoa Foundation, which is an industry organization dedicated to provide low-cost training on sustainable cocoa farming to farmers; Mars Inc., one of the world’s largest chocolate manufacturers; and ACDI/VOCA, an international development non-profit corporation.

In Vietnam, the Alliance seeks to “increase the incomes of smallholder farmers … through the introduction of sustainable, diversified cocoa based agroforestry systems.” Subsequent to this grant, the US Agency for International Development (USAID) contributed approximately $800,000 to the SUCCESS Alliance, primarily to help establish marketing channels and improve the quality of fermented cocoa beans in Vietnam. Information from SUCCESS Alliance indicates that the number of farmers participating in the project has increased from 2,077 in 2004 to 8,000 in 2005 and is expected to reach 16,917 in 2006 (SUCCESS Alliance, 6-9-2005). SUCCESS Alliance is expected to continue until approximately March 2007.

Establishing a quality chain for Vietnamese cocoa

This project is implemented under the Dutch Programme for Cooperation with Emerging Markets (PSOM) and is funded by the Dutch Ministry of Foreign Affairs, starting in 2004. The project consortium comprises applicant Gerkens Cacao BV, recipient Cargill Vietnam Ltd., and project partners Masterfoods Vegel BV and Advance Consulting VOF.

The project is aimed at pioneering a quality-oriented supply chain of Vietnamese cocoa. This will be achieved by means of accelerating the rate of cocoa development by providing a buying signal to a developing cocoa market along with the dissemination of information, training, and technical assistance to farmers.

The pilot project locations are Dak Lak and Ben Tre provinces, where around 400 model farms are being involved. Two local buying stations and storage facilities were established in the pilot areas. The smallholder producers benefit from the premium high-quality fermented cocoa. The project also creates a strategic and physical link between Vietnam, as a high-quality bean supplier, and the Netherlands as a cocoa processing country.

Involvement of international companies

One of the SUCCESS Alliance’s project partners is Tien Giang province. A programme has been developed to grow cocoa on 1,000ha in nine villages of Go Cong Tay and Cho Gao. ED &F Man supports the program by representing the market to farmers. The company also sponsored farmers to plant seedlings in Ben Tre and Ba Ria–Vung Tau in 2002-2003. At present, the company buys cocoa beans from three provinces: Dak Lak, Tien Giang and Ben Tre.

In Binh Phuoc, OLAM Ltd. plans to sign legal contracts to buy fermented beans for export. A contract to supply five containers of fermented beans per year has been signed between Ben Tre and several foreign exporters.

Cargill has also asked for permission to set up a buying site in Ben Tre. The company plans to establish three fermentation pilots at An Phuoc, An Khanh and Phu Duc villages of Chau Thanh district. Both groups also have agreements to buy cocoa produced in Dak Lak province. Cargill enters into purchasing contracts with a number of local enterprises, while Dak Man has a memorandum of understanding with DARD to buy cocoa products from 10,000 ha in the province.

Section IV: Impact of Global Markets and Trade Liberalization on Cocoa Production

The economic reform policies (doi moi) starting in 1986 have been the catalyst for significant changes in Vietnam’s economic and business environment, which have brought about a greater openness and integration with international markets. The greater integration of the Vietnamese economy into world markets is highlighted by the fact that the ratio of exports to GDP nearly doubled in less than one decade - from 24.9 percent in 1994 to 47.5 percent in 2002. Foreign trade is now larger than GDP, i.e. the ratio of exports plus imports to GDP increased from 60.7 percent in 1994 to 103.6 percent in 2002 (WB, 2003). It is expected that the Vietnamese economy will continue to experience considerable growth as it opens up further.

Trade reform has been an integral part of transforming the national economy from being centrally planned to being more open and market-oriented. Key events in the trade liberalization process are shown in table 4.1. Trade reform is characterized by a number of government actions ranging from reducing and phasing out numerous tariffs to eliminating import-export licenses. Domestic businesses from all sectors are now allowed to directly enter international markets.

Table 4.1 Key milestones in trade liberalization in Vietnam

|1988 |Contracts regime in agricultural production introduced |

| |Dual price system terminated |

| |Central government monopoly on foreign trade terminated |

|1991 |Private sector allowed to engage in international trade |

|1992 |Vietnam-EU agreement signed to pave the way for garment exports to the EU market, as well as lowering import |

| |tariffs on EU products |

|1995 |Separate export license requirements for each shipment cancelled |

| |Vietnam joins ASEAN's free trading agreement (AFTA), a regional economic cooperation and free trade zone |

|1996 |Vietnam involved in Asia-EU Forum |

|1997 |Export quota system decentralized and relaxed |

|1998 |Vietnam becomes a member of Asia Pacific Economic Cooperation (APEC). Various bilateral trade agreements |

| |negotiated and signed. Vietnam obtains most favored nation status in a trade agreement with Japan. |

| |Foreign-invested enterprises allowed to export unlicensed goods |

|1999 |Trade Law passed (legalizing import-export rights of businesses in all sectors) |

| |Right to export and import more liberalized (conditions for import-export of private companies and |

| |foreign-invested enterprises relaxed). |

|2000 |Vietnam signs US bilateral trade agreements |

|2001 |Vietnam agrees to eliminate most quantitative restrictions in foreign trade, as stipulated in the Poverty |

| |Reduction Support Credit (PRSC) signed with the WB |

|Present |WTO negotiation underway with the goal of gaining WTO accession by the end of 2005 |

To facilitate exports, Vietnam has signed bilateral trade agreements with over 80 countries and territories. Vietnam is also party to a number of multilateral agreements including the ASEAN Free Trade Area (AFTA). Among the major export producing sectors, agriculture and aquaculture have experienced a particularly high growth rate. Export earnings from agricultural commodities have made up 40 percent of Vietnam’s export earnings (GSO, WB 2002). Vietnam has quickly become one of the top exporters of agricultural commodities such as rice, coffee, pepper and shrimp. There is no reason cocoa could not follow suit once the sector reaches a higher level of maturity.

Cocoa production is very export oriented, and improved market access for Vietnam to world cocoa markets could bolster competitiveness and productivity in the sector as well as garner increased foreign investment. As highlighted by the growing number of international players in the cocoa sector in Vietnam, it is clear they have an important role to play in the development of the sector.

The EU in particular, has a vested interest in further decreasing the barriers to trade with Vietnam for cocoa. As Vietnam’s largest trading partner and the world’s dominant consumer of cocoa, the European market is clearly in a position to benefit. In the wake of the recent crisis and continued volatility in the coffee sector, a number of international companies hope that Vietnam can become an emerging grower and exporter of good-quality cocoa beans.

For the most part, cocoa-exporting countries have liberalized their cocoa industries; world prices are minimally distorted by domestic support or subsidies and determined largely by market forces (see table 4.2). Market access is the primary issue for cocoa. For Vietnam, market access is a double-edged sword. On one hand, preferential market access in the EU, which has benefited Vietnam, has been an issue of contention in the WTO. On the other hand, Vietnam stands to make large gains from the elimination of high import tariffs in other developing countries. The emerging middle class in China, for example, is developing a taste for chocolate and will present a large potential market as it expands further. However, given the infancy of the sector and the fact that most agricultural sectors in Vietnam have flourished without membership in the WTO, accession is likely to have a minimal impact at this point in time.

One area which could impact is non-tariff measures such as sanitary and phytosanitary requirements and technical barriers to trade under the WTO, which may also act as protectionist measures against trade. These measures will come under increasing scrutiny as developed countries begin to impose more environmental regulations and assessments on imports and importing country practices, such as the EU’s Sustainability Impact Assessments (SIA) on its least-developed trading partners. However, any shortcoming in quality can be corrected through careful training programs.

Tariff escalation in agricultural markets is another major factor for cocoa-exporting countries. This is mainly a phenomenon in developed countries, where the tariff on a processed product is higher than for its primary form. Tariff escalation denies many developing countries the benefits from exporting higher and value-added processing of agricultural products and is one of the important market access issues being addressed in the current WTO negotiations on agriculture. There is some debate as to how much tariff escalation will influence the emerging Vietnamese cocoa sector, but the tariff levels depicted in the table below clearly indicate that they warrant some attention.

Table 4.2 Tariff escalation in cocoa and products

|Tariff escalation in cocoa and products |

|  |

|Average tariffs |

| |

| |

| |

|Processing |

|chain |

|Australia |

|Canada |

|European |

|Union |

|Japan |

|United |

|States |

| |

|  |

|Percent |

| |

| |

| |

|Cocoa beans |

|1 |

|0 |

|0 |

|0 |

|0 |

| |

|Cocoa paste |

|0 |

|0 |

|10 |

|8 |

|0 |

| |

|Cocoa butter |

|0 |

|0 |

|8 |

|0 |

|0 |

| |

|Cocoa powder |

|9 |

|6 |

|27 |

|19 |

|16 |

| |

|Chocolate and products |

|17 |

|57 |

|18 |

|21 |

|15 |

| |

Source: Agricultural Market Access Database (AMAD) and International Bilateral Agricultural Trade Database (IBAT).

Clearly, the low tariffs on the lower-valued products such as beans and paste will allow Vietnam to export these goods freely. The fact that the processing sector is not so developed in Vietnam implies that the larger tariffs on the higher-valued products will have little impact on Vietnamese exports in this sector. However, in order for Vietnam to maximize the value from its cocoa crops, it needs to engage in processing. It is not clear whether tariff escalation is actually hindering the development of a processing sector. The fact that cocoa is new to Vietnam and volumes are still relatively low to warrant processing, would seem to imply that this not having any present impact on the amount produced. However, this could become an issue in the future.

Section V: An Initial Assessment of Cocoa in Five Provinces

A survey using “Rapid Rural Appraisal (RRA)” methods was carried out by FSSIV with the aim of studying the current situation of cocoa production in five different provinces in the South: Binh Phuoc, Dak Lak, Dong Nai, Binh Dinh and Lam Dong. Interviews were conducted with all the actors along the market chain: from growers (farmers, state and private enterprises) to buyers (small collectors, buying stalls/shops, buying agents) and exporters, as well as other key stakeholders (provincial DARD, research institutes, etc.). A list of interviewees is given in Annex II. The collected primary information in terms of cocoa production scales, applied techniques, market mechanism, opportunities and/or constraints, and relevant policies can be summarized as follows.

Binh Phuoc province

Cocoa was first planted in Binh Phuoc in 1999 as a trial to test different breeding varieties as well as planting techniques. To date, the province has 268 ha of cocoa, of which 5 ha are in Nha Bich and Dong Xoai for planting seed. Cocoa is mainly planted in Bu Dang, Dong Phu, and Loc Ninh with a density of 1,110 trees/ha (3 x 3 m spacing between each) and 600 trees/ha for mono- and multi-crops respectively. Seedlings were mainly provided by Nong Lam University and Tay Nguyen Institute of Agriculture and Forestry. Yields of cocoa at several places is claimed to be about 2 tons of fermented grains/ha and from 1 to 1.2 tons/ha for mono- and multi-crop planting.

Binh Phuoc is a member of the SUCCESS Alliance project. This year alone, 250 ha of cocoa were planted in the province, increasing the total cocoa area to 268 ha. The project aims to transfer cultivation techniques to 5,000 smallholders and to establish new plantations of 1,200 ha in the province.

Masterfoods has also chosen Binh Phuoc as an area in which to develop its demonstration site for a sustainable cocoa plantation. The provincial DARD is, however, waiting for results from different locations of the SUCCESS Alliance project before making any decision on expanding cocoa planting there.

Management, marketing, insects, and (certified) seedlings and their prices are the main issues of cocoa farmers in the province. Farmers have not been equipped with an effective management mechanism and marketing knowledge applied to their production. This has resulted in a lack of output for their products, and the damaging of cocoa gardens by cattle and children. A high occurrence of insects and diseases has imposed considerable pressure on the cocoa growers. The price of seedlings (6,000 VND/seedling) is considered quite high. Certified seedlings should be supplied from reliable sources.

Table 5.1 shows the progress of cocoa production in Binh Phuoc.

Table 5.1 Progress of cocoa production in Binh Phuoc

|Planted year |Area (ha) |

|1999 |1.0 |

|2000 |6.0 |

|2001 |3.0 |

|2002 |5.0 |

|2003 |2.0 |

|2005 |250 |

|Total |268 |

The price of fermented cocoa beans has fluctuated from 18,000 VND to 20,000 VND/kg. Olam Ltd. is a company active in buying cocoa from Binh Phuoc.

Dak Lak province

At present, Dak Lak has 1,083.5 ha of cocoa planted mainly in Krong Ana, M’Drak, Krong Pak and Krong Buk. A long term strategy of the provincial DARD is to switch 40,000 ha of low-benefit coffee gardens to cocoa production.

Cocoa are planted with a density of 1,111 trees/ha and 3 x 3 m spacing. Seedlings are mainly provided by Nong Lam University and Tay Nguyen Institute of Agriculture and Forestry. Due to good management and advances in shade trees along with systematic irrigation systems, the rate of survival is very high and an average yield can reach 2 tons/ha.

Cocoa is recommended to be intercropped with banana, coffee, maize, Cassia Siamea Lamarch, Cassia Javanica L. and Leucaena Glauca L. To obtain a high yield, cocoa roots should be mulched after planting with organic materials and provided with sufficient water. Maintenance of moisture and the use of decomposed manure are key factors to success. The cocoa crop requires more attention than coffee.

Nevertheless, many planting areas are suffering from a severe incidence of insect pests and diseases, such as termites, insects from the coleopteran family, pink fungus, etc. These are the main causes of damage to cocoa trees. To prevent diseases caused by insects, it is recommended that cocoa trees should be trimmed and kept at only 3-4 stems per/tree.

The price of seedlings is deemed to be very high. Fermented cocoa beans can be sold from 18,000 VND to 22,000 VND/kg to Cargill and Dak Man, which are two active buyers in Dak Lak. Cargill enters into purchasing contracts with several local enterprises to buy all their products. Dak Man signed a memorandum of understanding with the DARD to buy cocoa products from 10,000 ha in the province. To promote cocoa growing within the province, the price given by the company varies from 16,000 VND to 28,000 VND/kg of fermented cocoa. All the products are purchased not for the domestic market, but for export. Currently, the quality of cocoa is based on Malaysian and Indonesian standards. In the near future, Dak Man will develop their own standard for cocoa quality to meet requirements of the international market.

At the moment there is no clear master plan officially developed for cocoa production in Dak Lak, although the provincial authorities have highlighted their desire to switch many areas from coffee to cocoa. Many growers, therefore, cannot ask for financial support from a bank without any project proposal. This significantly affects the the province’s cocoa production plan.

Dong Nai province

Cocoa was first introduced to Dong Nai in 1987, with 100 ha of cocoa planted. The growth of cocoa was very good, as indicated by fruitful gardens at the age of 3-4 years. However, a failure to find buyers has made growers uneasy. As the crop was bringing little benefit, they switched to others.

In the province, there is only 50 ha of cocoa planted under the project “Improvement of orchards in three districts: Long Khanh, Dinh Quan and Cam My districts”, developed by Nguyen Loc ADICO Ltd in cooperation with Nong Lam University. The company buys fresh fruits at the price of 2,000 VND/kg. After preliminary process, the company resells cocoa to Dak Man at the price of 19,000 VND – 20,000 VND/kg.

Dong Nai has favorable conditions for cocoa production, such as fertile soil, high level of groundwater, etc. Moreover, cocoa planting does not interfere with the land use plan of local authorities. As a result, cocoa is planted under the shade of different species such as banana, durian, mango, etc.

Although there are a number of companies interested in buying cocoa from Dong Nai, the majority of growers still express their concern about the investment policy of different authority levels, and the need for a plan on the expansion of cocoa areas and an output for their products. Farmers are ready to plant cocoa if they are guaranteed that their products will be purchased by someone. Seedling source is another big concern of the farmers, since no seedlings have yet been certified by the control panel.

Cocoa trees in Dong Nai are also affected by pests such as aphis, green hoppers, some species from the coleopteran family, different pathogens, etc. There needs to be a pest control system applied for the production.

Binh Dinh province

Currently, Binh Dinh has 100 ha of cocoa in total. Bong Son and Hoai Thanh villages are two of the best locations for planting cocoa. Cocoa planting areas, however, cannot be expanded due to lack of capital, legal commitments of buyers, technical assistance, and information about the cocoa market. During the past, cocoa was planted in Hoai Nhon and Hoai Thanh villages and provided high yields. However, there was no market demand and products could not be sold.

At the moment, most of cocoa trees in Binh Dinh are young and cannot yet deliver fruits. Several companies have shown an interest in buying tons of dried cocoa, but growers still feel uncertain in terms of whether or not their product can be sold.

At the An Loc Unit, No 2 in Hoai Thanh village, the performance of cocoa trees is very good, with production of 50 – 100 fruits/tree/year. An average weigh is about 0.5 kg/fruit. Cocoa is intercropped with coconut trees. Cocoa trees are also damaged by some kinds of pets such as aphid, ants, leaf eaters, fungi, termites, etc.

At present, An My cooperative carries out several training programs on cultivating and post-harvesting treatment techniques for their members.

Lam Dong province

Cocoa was first brought to the area 30 years ago. After the reunification of Vietnam, some areas still planted a small scale with 20 to 30 trees at the Chau Son church, Don Duong district. They also produced fermented beans. However, there was no market demand and the cocoa trees were finally cut off. In 2004, Di Linh district conducted a trial on imported varieties, but again with no consumers.

According to Lam Dong’s DARD, the province would be ready to shift more than 10,000 ha of low-yielding coffee to cocoa production if there were a legal commitment from buyers. The province is receiving a large grant of 50 billion VND from the central Government for the construction of irrigation systems.

Currently, there is a trial of 1 ha with 400 trees on gardens in Da Hoai district. The experiment was supported by Nong Lam University, Lam Dong. Different shade trees which make a good canopy for cocoa are rambutan, banana, cashew nut, lemon etc. The production could be at a larger scale if there is a company guarantee to buy all the products.

Section VI: Environmental Issues Associated with Cocoa Production

Environmental Issues

The major environmental impacts of cocoa production are conversion of primary forest, soil erosion, degradation and pollution from chemical usage, and water use. Cocoa has an important influence on biodiversity since the main production areas are in tropical rainforest regions. Given the value of these areas for the planet’s ecological health, increased cocoa production is likely to have an environmental impact disproportionate to its area.[5] Most of the land that has been historically cleared for cocoa production is in what would be today be called biodiversity hotspots. These include areas in Brazil, Ecuador, Peru, Colombia, Ghana, and Côte d’Ivoire, where only small patches of original forest cover have been spared in the face of advancing cocoa production.

Vietnam is an interesting case since initial cocoa production is taking place on lands that were cleared for other crops like coffee. However, coffee requires high nutrients and so the soil may not always be suitable for replacement crops. This could encourage production on naturally forested areas, particularly if the government seeks to achieve high production targets. Therefore, efforts need to be undertaken to clearly map out where cocoa can and cannot be produced. If it remains concentrated in those areas which traditionally grew crops such as coffee, this can bring positive biodiversity impacts. It should not take place in natural forest areas.

The environmental impact of cocoa will also depend on the type of production. Most cocoa is shade grown, but in recent years farmers have used more intensified cocoa cultivation methods. These methods can include monoculture plantations.

More intensive production will be much more demanding on scarce water resources and bring fewer benefits in terms of biodiversity. Plantations will also require more chemical inputs and are more prone to erosion with accompanying pollution of water sources and human health concerns. Such cocoa trees are more prone to poor quality outputs and pest outbreaks.

There are ways to integrate cocoa production into agro-forestry and mixed-cropping systems which reduce farmers’ dependence on a single source of income. Such shade systems provide habitat and protect greater biodiversity than full-sun cocoa cultivation. They create a habitat for a wide array of plant and animal species and can help maintain natural ecological functions such as nutrient cycling, weed and pest reduction, water retention and erosion control.

The majority of world cocoa production continues to take place in such agro-forestry systems. Given the climate and the existing structures of farming systems, with many farmers on relatively small tracts of land, shade-grown methods seem most suitable for Vietnam.

What is clear is the need for greater understanding of what constitutes sustainably produced cocoa, and where in Vietnam it should be produced to minimize environmental impacts and reuse already-cleared land. Cocoa could help Vietnam to provide more sustainable livelihood options for rural communities if it is managed carefully.

Sustainable models of cocoa production in Vietnam

The following five principles need to be followed in order to promote sustainable cocoa production in Vietnam.

1. Smallholder production offers more potential than extensive monoculture plantations for a sustainable, long-term cocoa industry.

2. The rapid and poorly coordinated expansion of coffee in Vietnam offers critical lessons that frame and guide the promotion of cocoa as a new crop in Vietnam.

3. Cocoa, as a shade-loving tree, should be integrated with existing tree species to form a multi-storied intercropping system on existing agricultural land. This will minimize the impact on biodiversity by limiting cocoa development to already-cleared land.

4. Soil health and water conservation are fundamental to a sustainable cocoa cropping system, so improvements in soil management and water use for irrigation are parts of the cocoa cropping technology being developed in Vietnam and shared with the farmers.

5. Multiple perennial crops should be evaluated for inclusion into the cocoa cropping system for their economic potential, ecological benefit, and their compatibility with Theobroma cacao and current cropping practices in Vietnam.

As mentioned earlier, two international projects which are helping to pioneer the development of such sustainable models in Vietnam are:

The Sustainable Cocoa Agroforestry System (SCAS) demonstration and research site in Nghia Trung Commune, Binh Phuoc province. This 30 ha site, established with funds from Mars Inc. in 2005, will demonstrate mixed agro-forestry systems combined with water harvesting and soil conservation infrastructure, such as dams, swales, surface reservoirs, and drip irrigation technology. This site will provide a major demonstration area to farmers and policy makers regarding the benefits of most of the principles listed above.

There are also the activities of SUCCESS Alliance. This program is aimed at increasing the incomes of smallholder farmers in Vietnam through the introduction of sustainable, diversified cocoa-based agro-forestry systems. Within the project scope of activities, training programs on cocoa planting and production will be organized for smallholder farmers; cocoa growing areas will be expanded by an additional 7,500 ha with the project’s direct assistance and farmers’ own investment. Farmers are also provided with high-quality cocoa seedlings and extension support.

Section VII: Some major issues and recommendations

This report has highlighted a number of issues related to development of sustainable cocoa production in Vietnam. These will be discussed here, and some recommendations presented for consideration by stakeholders.

- Firstly, a major problem is slow progress on the development of certified cocoa varieties in Vietnam. According to the plans of MARD, it is hoped that cocoa-producing areas should reach 20,000 ha at the end of 2010. In order to implement this plan, growers require reliable sources of seedlings. However, at present there is no cocoa variety that has been officially certified. This means that present seedlings do not satisfy the current variety regulations of Vietnam. This creates uncertainty for farmers.

- Secondly, there is a lack of training and limited knowledge and experience with cocoa crops by both farmers and extension workers who are responsible for transferring necessary techniques to the farmer. Factors such as soil characters, fertilisation regimes and applying times and practical techniques impact on bean quality. Many farmers rely on their experience rather than knowledge provided by technicians.

- Thirdly, another main problem encountered by cocoa crops is disease, which is capable of seriously restricting production. Surveys conducted at five provinces show that the crops in a number of producing areas suffer damage from pests. Common pests found are termites, insects from the coleopteran family, pink fungus, aphis, grass hoppers, different pathogens, ants, etc. At the moment, growers are very much concerned about disease caused to cocoa trees by those pests and therefore pest control systems should be developed as soon as possible.

- Fourthly, there are issues around security of selling the beans in the marketplace. It is critical that farmers are secure in the knowledge that they can sell their produce. Particularly with the sector at an early stage of development, farmers are hesitant to invest in this crop unless they are secure in the knowledge they have a market to sell into. International companies have an important role to play to secure the purchase of any good-quality cocoa. There also needs to be improved systems to get the beans to be processed, and to buyers and ultimately consumers. This is a critical step if the cocoa sector in Vietnam can mature.

- Fifthly, there needs to be improved planning for the development of the cocoa sector, both centrally and provincially. Areas which are suitable for cocoa production as well as areas where production should not take place (e.g. natural forest areas) need to be clearly highlighted. There need to be provincial plans for the development of cocoa which also specify requirements for sustainable models of cocoa production.

Recommendations:

- Promote the early completion of a set of certified cocoa varieties and quality standards for cocoa beans in Vietnam, and establish more nurseries to provide high-quality seedlings to growers.

- Promote systematic research on the environmental impacts of different production techniques and species mixes, as well as biological mechanisms to control pests and disease outbreak. This research would ensure that Vietnamese cocoa production leads to positive environmental and social impacts. Existing projects such as Success Alliance could offer potential models to follow.

- Ensure that cocoa growers and extension workers are provided with high-quality training in a number of areas, including cultivation practices, crop maintenance, post-harvest treatment, and insect pest control measures. They should be encouraged to adopt sustainable models of production that are appropriate for Vietnam.

- Establish a viable market system to provide farmers with a secure environment in which to sell their produce. It is critical that farmers are secure in the knowledge that they can access their respective markets. Multinational companies and donors have an important role to play in the implementation of risk management strategies that help secure the purchase of any good quality cocoa.

- Develop more coordinated and clear government planning on cocoa production, at both central and provincial levels. There also needs to be greater government support for the establishment of post-harvesting facilities in Vietnam.

- Further assess the impacts of tariff escalation on the emerging cocoa sector to see whether this could affect the development of a value-added cocoa industry in Vietnam. A better understanding of regional and global trends in terms of production, trade, and consumption and their impact on Vietnam would also help to improve the strategic planning of cocoa production in the country.

- The development of the cocoa sector in Vietnam needs multi-stakeholder involvement. The necessary investment and coordination would best come about through a public-private partnership of companies, donor agencies and the Vietnamese government and industry. An important aspect of this partnership should be that the various stakeholders realize mutual benefits. The Co-ordination Committee for Cocoa Development is critical in this process to ensure sustainable and prosperous development of the cocoa sector in Vietnam.

References

1. Jason Clay. 2004. “World Agriculture and the Environment” Washington, Island Press

2. Darren Doherty. 2005. “Sustainable Cacao Agro-forestry Systems in Vietnam- Public- private Partnerships” - Report at workshop in Ho Chi Minh City.

3. Gerkens Cacao BV, Masterfoods Veghel BV, Cargill Vietnam Ltd. May 2004. PSOM04/VN/3 “Establishing a quality chain for Vietnamese cocoa” - Report at workshop in Ho Chi Minh City, March 2005.

4. International Trade Center. 2001. “Cocoa – a guide to trade practices”

5. Pham Hong Duc Phuoc. 2003. “Cocoa planted techniques in Vietnam”.

6. Pham Hong Duc Phuoc. March 2005. “Cocoa development project” - Report at workshop in Ho Chi Minh City.

7. Roger Dehnel. “The opportunity for Cocoa in Vietnam”- Report at Workshop in Ho Chi Minh City.

8. Ross K. Jaax and Nic Richards. “International Cooperation Towards Developing a Sustainable Cocoa Industry in Vietnam”

9. Tom Harrison. 2005. “Diversification Strategy For The Coffee Farmer - The Potential Offered By Cocoa to Vietnam”

10. Tran Duc Minh, Dao Thi Lam Huong, Nguyen Thi Chat, Nguyen Trong My and collaborators of Tay Nguyen Agriculture Forestry Scientific & Technology Institute of Tay Nguyen. “The studying on selection and multiplication technology of Cocoa” - Scientific report.

11. Tay Nguyen Agriculture Forestry Scientific & Technology Institute. Report “The result of cocoa variety selection”.

12. Yu Li. “Health benefit of Cocoa”. Report at workshop in Ho Chi Minh City, 2005.

Annex I: Cocoa planting in Vietnam - basic information

In the past cocoa seedlings were developed from low-quality seed, but now it is replayed by grafting stock with selected clones to improve genetic background. There are two sources of stock supply: NLU and Tay Nguyen Institute for Agriculture and Forestry.

• Planting method: grafted stock

• Planting model: pure and mixing with coffee, cashew nut, other fruit trees. It is necessary to plant the shade trees before planting cocoa.

• Planting density: 1,111 trees/ha with 3x3 m spacing in pure plantation and 500-600 trees/ha in mixed.

• The care: the control grass, water supply and shading are very important for cocoa growing.

• Insect, pest and disease control: there are many types of pests and diseases after planting, such as termites, pink fungi, and insects. Different type of fungicides and insecticides could be used

Cocoa consumption

- The price of dried cocoa beans varies from 16,000 to 24,000 VND /kg depending on place and bean quality.

- There are agreements for cocoa product consumption between buyers such as Dak Man, Cargill and Olam.

ANNEX II: LIST OF INTERVIEWEES OF THE SURVEY IN FIVE PROVINCES

| | |

| | | | | |

| | | | | |

|No |PROVINCES / INTERVIEWEE |Title/ occupation |Office |Address |

|  |BINH PHUOC |  |  |  |

|1 |Phan Van Don |Deputy director |DARD |Dong Xoai town |

|2 | Mr. Chien |Staff |Agriculture section |Dong Xoai town |

|3 |Nguyen Van Ba |Staff |Loc Ninh Rubber company |Loc Ninh district |

|4 |Tran Dinh Tho |Deputy director |Nha Bich tree improvement and|Nha Bich vilage, Dong Xoai town |

| | | |animal center | |

|5 |Tran Minh Ut |farmer |Private farm |Doan ket village, Bu Dang district |

|6 |Nguyen Duc Pho |farmer |  |  |

|7 |Tran Duc Huy |farmer |farm |Dak'la village |

|8 |Vu Thi hai |farmer |  |ditto |

|9 |Bui Van Thien |farmer |  |ditto |

|10 |Mr. Nhat |farmer |farm |Dak'gan village |

|11 |Ta Minh Khuong |farmer |  |ditto |

|12 |Nguyen Quang Vinh |farmer |  |ditto |

|13 |Vuong Quoc Thang |farmer |farm |Dak' Lao villlage |

|14 |Mr. Tan |farmer |  |ditto |

|15 |Hoang Viet |farmer |  |ditto |

|16 |Mr. Nam |farmer |  |ditto |

|17 |Nguyen Van Duc |farmer |farm |Dak'Sac village |

|18 |Thieu Dinh Thu |farmer |  |ditto |

|  |DAK LAK |  |  |  |

|19 |Bui Thi Tinh |Head of Agriculture |Economical Section- Dakmil |Dakmil district |

| | |Section | | |

|20 |Tran Minh Dung |Staff |  |  |

|21 |Pham Van Nam |Staff |  |  |

|22 |Man |Deputy director |Duc lap coffee company |Duc lap district |

|23 |To Quang Hoe |farmer |farm |5 hamlet Dak'la, Dakmil district |

|24 |Doan Van Tuan |farmer |farm |ditto |

|25 |Tran Thi Chuc |Farmer |  |  |

|26 |Nguyen Van Sinh |Vice director |DARD |47. Nguyen tat Thanh, BanMethuot city |

|27 |Le Ngoc Bau |Vice director |Tay nguyen Agriculture Forest| Hoa Thang village, Buon Me Thuot City |

| | | |Scientific Institute | |

|28 |Bui Quoc Nghieu |Staff |ditto |ditto |

|29 |Nguyen Thi My |Head administrative |ditto |ditto |

| | |section | | |

|30 |Dao Thi Lam Huong |Head of Cocoa |ditto |ditto |

| | |beeding section | | |

|31 |Tam |Director |KrongAna Coffee Company |Krong Ana District |

|32 |Huy |ditto |ditto |ditto |

|33 |Pham Ngoc Hai |farmer |farm |Buon Trap hamlet KrongAna |

|34 |Tran Van Tu |farmer |farm |Buon Trap hamlet KrongAna |

|35 |Mr. Minh |farmer |farm |Buon Cham hamlet KrongAna |

|36 |Tran Xuan Dinh |farmer |farm |ditto |

| | | | | |

|37 |Pham Ngoc Bang |Deputy general |Coffee processing & Export |National toad 26, Tan Hoa Ward BuonMeThuot|

| | |director |J.VCO. |City |

|38 |Mr. Diep |Vice director |Agriculture Extension Center |Buon Ho - BanMeThout City |

|39 |Mr. Chau |staff |  |  |

|40 |Nguyen Dinh Hoan |farmer |farm |Km 10. National Road No.14, BuonMeThout |

| | | | |City |

|41 |Tran Bac |farmer |farm |ditto |

|32 |Mr. Quang |farmer |farm |ditto |

|  |DONG NAI |  |  |  |

|43 |Do Thanh Bon |Chairman of Nam Cat |Nam Cat Tien people's |Tan Phu District |

| | |Tien commune |committee | |

|44 |Nguyen Van Loc |Director |Nguyen Loc ADICO Ltd.,co |Long Khanh District |

|45 |Luong Duc Trong |farmer |farm |Cat Tien |

|46 |Mr. Hung |farmer |farm |ditto |

|47 |Truong Duc Kien |farmer |Farm |ditto |

|48 |Nguyen Van Chien |farmer |farm |La Nga Town , Tan Phu District |

|49 |Luu Van Hien |farmer |farm |Tan Phu district |

|  |BINH DINH |  |  |  |

|50 |Nguyen Chi Cong |Acting Head of DARD |DARD |Hoai Nhon district |

|51 |Nguyen Van Bam |Vice Chairman |An My Agriculture Cooperative|Hoai Nhon district |

|52 |Tran Quang Sanh |Businessman |My An unit, Hoai Thanh |ditto |

| | | |Village | |

|53 |Nguyen quoc Bao |  |An Loc No 2, Hoai Thanh |ditto |

| | | |Village | |

|54 |Vo Van Thuan |Vice chairman |Hoai Thanh Village |ditto |

|55 |Dat |Deputy director |Private company |ditto |

|  |LAM DONG |  |  |  |

|56 |Mr.Chinh |Head of Agriculture |DARD |Dalat city |

| | |Section | | |

|57 |Mrs. Thi Be |Head of Agriculture |Don Duong district |Don duong District |

| | |Section | | |

|58 |Mr. Tư |Head of Agriculture |DARD |Dalat city |

| | |Extension Section | | |

|59 |Mr. An |Head of Agriculture |Lam Ha district |Lam Ha district |

| | |Section | | |

|60 |Nguyen Minh The |farmer |Magagui town |Da Oai district |

|61 |Truong Van Kien |farmer |ditto |ditto |

-----------------------

[1] Ross K. Jaax and Nic Richards, “International Cooperation Towards Developing a Sustainable Cocoa Industry in Vietnam”

[2] 1 US dollar = 15,840 Vietnamese dong

[3] Pham Nguyen, July 2005. Vietnam Business Forum – vibforum..vn

[4] PSOM 04/VN/3 “Establishing a Quality Chain for Vietnamese Cocoa”, May 2004

[5] “If nothing is done to prevent [expansion into new forests], cocoa cultivation can be expected to cause the deforestation of millions of hectares of tropical forests over the next twenty-five years” (Clay, p. 125). Also see Commodities and Conservation: The Need for Greater Habitat Protection in the Tropics (Conservation International, 2005).

-----------------------

EXPORTERS

COCOA PROCESSORS/

CHOCOLATE

MANUFACTURERS

BUYERS

(small collectors, buying stalls, buying agents)

Post-

Harvesting

Treatment

GROWERS

(Farmers & Enterprises)

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