National Cocoa Development Strategy: The Case for ...
REPUBLIC OF LIBERIA
MINISTRY OF AGRICULTURE
MONROVIA, LIBERIA
National Cocoa Development Strategy:
The Case for Optimizing Farmer Income from
Cocoa Production
In Liberia
June 2012
Executive Summary
Land in Liberia’s humid subtropics is particularly well suited to cocoa, a crop for which strong demand has been consistently forecast since the early 1990s. Solid prices for this export crop are projected to accompany growth in demand until at least 2030.
Liberia enjoys two complementary assets with a potential for phenomenal growth once properly leveraged: fertile land and experienced cocoa farmers. Currently both assets are undervalued and captive to trends in underinvestment. Where farmers previously managed cocoa farms as businesses, ageing non-productive trees and a deterioration of trust in value chain participants has obliged farmers to favor subsistence agriculture over cocoa cultivation.
The Government of Liberia’s Ministry of Agriculture proposes that cocoa farmers revitalize the sector following various reforms such as market liberalization. This National Development Cocoa Strategy proposes Ministry-led, ways and means of reducing poverty through cocoa cultivation, and increasing food security in rural areas by tripling real income received from cocoa over the next five to eight years.
Of several strategic actions called for here, improved planting material will provide the greatest impact. Replacing trees beyond their useful production years will require the distribution of tens of millions of improved seedlings. The groundwork of distribution will require technical collaboration with the chocolate industry, and produce numerous skilled and semi-skilled employment opportunities for rural Liberians. This strategy insists that policy effectiveness be linked to farmer engagement following a gender-aware longitudinal study of farmer-preferred pathways to farm renovation. Without such a study, program managers cannot estimate the likelihood of attracting scarce farm labor to the task.
Most public-private partnerships to develop cocoa farming have focused upon providing technical skills. This strategy seeks the creation of circumstances that enable farmers to put learned skills including the establishment of credit histories syndicated sales and warehouse receipt systems into practice, having received the appropriately designed incentives.
Institutional reform of LPMC and technical assistance to the CDA should provide farmers with improved market access and a voice (through their preferred organizations) that is more effective in resolving financial, production and developmental constraints. Private trade and industry is also invited to participate in sector restructuring as collaborators in profitable enterprise such as nursery management, loan contracting, input sales and certifying exports.
This document considers that cocoa farmers will choose (rationally or not) from among several proposed tree crops to earn cash and increase their food security. Rubber and oil palm, also vie for land and farmers. Since concession-to-out grower schemes are not typical to the cocoa industry, smallholders have only their farmers’ organizations to express their interests internationally. Competitive partnerships will oblige each value chain operator to behave more professionally, offering more intensive, democratic, transparent and complex economic transactions that multiply benefits among participants. Third-party certification in industry-level partnerships further up the value chain will allow farmers to lock in profits and reap a maximum proportion of any value added to their beans between the farm gate and port.
Success in production may attract industrial transformation, but other infrastructure may be required before industry invests.
List of Acronyms
|ACC | |Agriculture Coordination Committee |
|BBC | |British Broadcasting Corporation |
|CARI | |Central Agriculture Research Institute |
|CDA | |Cooperative Development Agency |
|CIF | |Cost, Insurance & Freight (Incoterm) |
|CSTWG | |Cocoa Sector Technical Working Group |
|FaaB | |Farming as a business |
|FAPS | |Food and Agriculture Policy Strategy |
|FFS | |Farmer field school |
|FO | |Farmers’ organization |
|FOB | |Free On Board (Incoterm) |
|GAP | |Good agricultural practices |
|GBP | |Pounds Sterling |
|GOL | |Government of Liberia |
|ICE | |International Cocoa Exchange |
|ICPM | |Integrated crop and pest management |
|ICS | |Internal Control System |
|IITA | |International Institute for Tropical Agriculture |
|LASIP | |Liberia Agriculture Sector Investment Program |
|LB | |Licensed buyer(s) |
|LD | |Liberian Dollar |
|Liffe | |NYSE Liffe (cocoa terminal market exchange |
|LPMC | |Liberia Produce Marketing Corporation |
|MOA | |Ministry of Agriculture |
|MT | |Metric Ton |
|NGO | |Non governmental organization |
|SE | |Somatic embryogenesis |
|SMS | |Short message service |
|STCP | |Sustainable Tree Crops Program |
|TOT | |Training of trainers |
|TOTA | |Terms of Trade Analysis |
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Table of Contents Page
|Executive Summary | |1 |
|List of Acronyms | |2 |
|Context | |4 |
|PART ONE | | |
|Background | |6 |
|Vision | |6 |
|Trends in Land Use: Rubber, Oil Palm, Forest Conservation | |7 |
|The Cocoa Value Chain | |8 |
|Foreseeable market potential for Liberian cocoa beans | |9 |
|Current Situation in Liberia | |10 |
|The Market View | |11 |
|Technology Indispensable | |12 |
|Uptrending Prices Not An End-All | |13 |
|Comparative Advantage, Heightened Consumer Interest and Improved Technology | |13 |
|PART TWO | | |
|Overarching Objective & Strategic Objectives | |15 |
|Objective 1: Conducting a Survey of Cocoa Farmers | |15 |
|Objective 2: Optimizing access to improved planting material | |17 |
|Objective 3: Augmenting Farmer Application of Husbandry Skills | |20 |
|Objective 4: Strengthening farmer organizations via enabling institutions, training and certification | |24 |
|Objective 5: Improving the business environment (Government and NGOs) | |27 |
|Objective 6: Attracting Critical Stakeholders | |30 |
|The Cocoa Sector Technical Working Group (CSTWG) | |34 |
|Concluding Remarks | |35 |
|Appendix 1: Average 2.5% Increase in Grindings 1997/98 thru 2006/07 | |36 |
|Appendix 2: Markets: Old School Policies No Longer Appropriate | |37 |
|Appendix 3: An analysis of Per-Hectare Costs/ Labor Use | |40 |
|Appendix 4: Terms of Trade Important | |44 |
|Appendix 5: Percentages of World Cocoa Price: Liberia Falls Short | |46 |
Context
The government of Liberia’s Ministry of Agriculture developed the Food and Agriculture Policy and Strategy (FAPS 2008-2011) for reducing poverty and increasing food security in post-conflict Liberia. Its framework provides excellent guidance and support for ensuing sector-specific initiatives such as this cocoa sector development strategy.
Part One of the strategy is written more to policymakers both within and outside of government to solidify the logical framework with principles and to provide a justification to potential investors.
Part Two addresses the workings of recommended policy: ways and means for rallying advocates and aligning the motivations of stakeholders that are not always in harmony one with another. This strategy is not an implementation road map that delineates each and every action step to be taken in their season and over the years. Nevertheless a road map will be needed to guide stakeholders through the range of recommended options.
The above-mentioned FAPS puts priority on staples rice and cassava, but it emphasizes process as much as product across the range of food and non-food sectors including tree crop production. Its development goals put an accent on sustainability. Most of all, it obliges new initiatives to involve the fullness of Liberia’s human resources from a pro-poor standpoint.
Overarching objectives include:
• Training of all kinds;
• Affirming land tenure as a worthy (bankable) asset;
• Exploring profitable market linkages; and
• Devising value-added strategies amenable to extend business opportunities in rural areas.
Ongoing efforts must not only integrate our youth, but also inspire them. Via FAPS we are cautioned against more business as usual—more slash-and-burn, shifting and extensive land use. The results of past laissez-faire agriculture are known—depletion of soils, unmanaged pests, and mere subsistence yields. The following strategy will call on all stakeholders to pursue intensive as opposed to extensive agriculture. Intensive agriculture implies increased investment in inputs to augment yield per hectare, lower costs per unit produced and less waste in production from disease and infestation. Intensification also implies the maintenance of biological diversity on forestland that would otherwise be partially or completely destroyed when slashed and burned.
Specifically, cocoa production should be intensive not for the sake of producing more cocoa beans, but for the sake of producing a more dynamic agriculture that allows farmers to benefit from its synergies with other crops and to exist symbiotically with native forest. After all, farmers who cultivate cocoa are not just cocoa farmers—they are managers of productive land often no larger than a hectare. While managing a small farm that they believe should continue to include cocoa, they are nevertheless keen to increase their food security and without venturing into undo risk, they would like to earn enough cash to pay medical bills, and school fees—to build homes and perhaps even save enough to invest into a retirement plan. This was the scenario that inspired the original cocoa plantations of Liberia.
Rubber, another continuing FAPS priority, will no doubt serve as a pillar in the tree cropping tradition, having generated 90 percent of national export earnings in 2007.[1] Still rubber alone cannot form a well-rounded agricultural policy because it will take more than rubber to occupy the majority of Liberians hoping to procure an adequate income from agriculture.
Because cocoa grows well with several food and associated crops,[2] it may contribute to more aspects of sustainable agriculture than rubber, while balancing out the revenue stream for smallholder farmers when world prices for other commodities slump. To the extent that cocoa is replanted on old farms and newly planted in counties outside of the ‘cocoa belt,’ it should help diversify not just revenue streams, but the entire cropping system and access new markets.
PART ONE
Background
Of an estimated 400,000 farm-based families in Liberia, between 25 and 30,000 or now draw a part of their revenue from cocoa.[3] Over the years, however; their plantations estimated at 30,000 hectares nationally, have suffered from neglect. The average cocoa tree on such land today is between 25 and 50 years old and yields merely a fifth of what modern plantations should produce per hectare. More than half of the current stand of cocoa should have been replanted 5 to 10 years ago and for this reason, cocoa is no longer a profitable enterprise for most smallholders.
The dire reality is that farmers of cocoa will require a full range of services, a bold plan for seed and input distribution, additional market information and technical training before cocoa can again contribute substantially to their livelihoods. The good news is that world demand for cocoa has been strong and steady since the late 1990s. The confectionery industry projects demand to continue along similar trends at least until 2030. Moreover, several stakeholders from multinational cocoa traders to chocolate manufacturers have demonstrated a willingness to assist in the redevelopment of the cocoa sector throughout West and Central Africa.
This strategy statement will propose several ideas that encourage stakeholders along the value chain (from farm to factory) to participate in the renewal of the productive capacity of the cocoa sector in Liberia. Overall, the ideas presented here will harmonize with and facilitate those few activities that some cocoa farmers have already begun.
Vision
The cocoa crop is one of several opportunities for profitable enterprise that emanate from a love for and faith in farming in Liberia. A study of farmers in the cocoa belt of Liberia—Bong, Lofa and Nimba counties—reveals that although average cocoa farmers today are about 58 years old, they continue to maintain over 30 percent, of their tree-cropped land in cocoa.[4] They continue to tend these trees in spite of sub-standard yields, immense losses to disease and uncertain prices. Certainly they deserve access to a better production environment; one that they may pass on as an inheritance.
The following strategy will describe those management steps required over the next three to five years to engage stakeholders as appropriate in:
• Producing optimum yields; at
• Premium prices; within
• Risk-reduced markets; that generate
• Sustainable, rural, skills-based employment.
Trends in Land Use
Highly productive agriculture needs fertile soil, sufficient rainfall and intelligent husbandry, all found in Liberia. For this reason, agricultural interests other than the chocolate industry have been attracted to the Liberian hinterland and the wisdom of the farmers that live here. It would be irresponsible not to evaluate the prospect of cocoa cultivation within the context of other crops and cultivation systems equally rooted in the humid subtropical culture that compete for scarce soils and farmer skills.
Rubber
After their production of food crops such as rice and cassava, Liberians are most known for a propensity to invest in tree crops, the most notable of which is rubber. National policy sets the trend by inviting agro-industrial interests to manage rubber concessions spanning tens of thousands of hectares—this since the first rubber concession was granted to Firestone in 1926. Rubber industry specialists have earned a place for that crop in the national heritage because they have learned how to position right-sized incentives for most out-growers. In fact, by 1985, about 20 percent of rubber production came from independent Liberian farmers whose land is contiguous to or near rubber concessions.
Oil Palm
Policymakers are also evaluating oil palm as an opportunity for augmenting concession - to -out-grower production because this land use system seems to work very well for industry and smallholders alike. At the current scale, however; (over 12 million ha worldwide and counting) oil palm has been criticized for all of the reasons that industrial-style monocultures are frowned upon; destruction of bio-diverse ecosystems and wildlife habitat, massive use of agrichemicals, soil erosion, etc. That said, oil palm might respond to smallholder risk mitigation strategies in that it is the only tree crop/ cash crop that would directly contribute to smallholder food security in the case of a slump in world prices.
Forest Conservation
All tree crops including cocoa have traditionally replaced natural forestland. So far, Liberia still has an abundant supply of dense forest, but that ecosystem may be worth inventorying and conserving in order to obtain a better understanding of its worth in biodiversity. Conserving dense forestland may also assure rainfall in the surrounding areas. The Tai National forest just across the border in Côte d’Ivoire is reported to have a positive effect upon rainfall and environmental conditions in surrounding agricultural zones. This is one reason among others that the Ivorian government continues to support its preservation. Particularly where forested hillsides are denuded, in just a few years the soil erodes away, nothing else grows and rainfall suffers all at the hand of the well-meaning farmer. Good land is available for farming and government agencies must help in orienting farmers away from destroying that which is forest and not farmland.
An overview of Liberian land use is found in the table below:
[pic]
The Cocoa Value Chain
The cocoa value chain serves chocolate manufacturers in the consuming countries, first in Europe and North America (where most cocoa grinding plants are found) and more recently in emerging economies including Brazil, Russia, India, China and South Africa. The taste of chocolate as we know it today is rooted in West African cocoa. Why? West African cocoa farmers are still faithful to most recommended post harvest practices; particularly bean fermentation. Beans from this part of the world are in all of the recipes of the most popular chocolate bars, cakes, candies and ice creams.
Fully 70 percent of the beans used in the industry today come from four neighboring countries, Cameroon, Côte d’Ivoire, Ghana and Nigeria. Guinea, Liberia, Sierra Leone and Togo produce a similar quality cocoa, but these countries are generally ‘price takers’ on the world market having failed to distinguish themselves either by their quality or annual production.
Ghana beans stand out because of a national policy that obliges cocoa farmers to produce premium quality. Ghanaian policies provide an excellent example of support to farmers. Such programs as mass spraying campaigns, subsidized fertilizers and other initiatives like field school training clearly put cocoa quality first. The question remains, however; “At what price do these benefits come?” Clearly without government subsidies and NGO assistance, programs in Ghana would not be sustainable. This is the reason several less successful marketing boards including the LPMC were encouraged to liquidate or be transformed into regulatory bodies. The boards were not doing the right things to facilitate the socio-economic environment for profitable business.
Nonetheless, today without marketing boards to represent them, cocoa farmers are newly responsible for creating their own sector support initiatives and marketing strategies. Farmers create their own organizations from the ‘grassroots’ to accomplish objectives like training, improving cocoa value and obtaining lower prices for inputs those individual farmers could not negotiate individually. See Appendix 2 for a more detailed explanation of why farmers’ organizations (FOs) provide the better marketing option.
The war years in Liberia imposed an abandonment of and in some cases, even a fallowing of previously vigorous cocoa plantations. Already in need of rehabilitation before the war, at this writing, almost all farms are at a stage of declining productivity. The chart below shows that about half of the trees in plantations five years ago (2007) were between 25 and 50 years old. Since the productive life of a cocoa tree is 30 years, at least half of what now comprises the typical Liberian cocoa farm should have been replanted 5 to 10 years ago.[5]
[pic]
Foreseeable market potential for Liberian cocoa beans
Signature of the Harkin-Engel Protocol[6] in September of 2001 effectively flattened the cocoa supply chain. Where previously chocolate manufacturers were poorly informed concerning the difficult conditions in cocoa farms, thanks to the Protocol, they began to promote initiatives to reward efforts in sustainable production.
This new industry policy set the tone for incentivized cocoa farming worldwide, but particularly in West and Central Africa. The trend toward a professionalization of the cocoa farm enterprise will continue and Liberian cocoa farmers would do well to take advantage. At this writing, almost all chocolate manufacturers are interested in procuring beans from independently certified farms. While cocoa certification will be discussed elsewhere in this document it is worth stating here that the certification process provides farmers with complementary management skills that generate efficiencies translating into additional revenue. Certification of cocoa farms is one of the best examples of how improved process leads to improved product. We will discuss how certification enlarges the vision of the farmers’ organization (FO) in part two of this document.
Current Situation in Liberia
With current cocoa supply levels less than 20,000 metric tons, Liberia may be considered by market experts as an origin, of untraceable and of inconsistent quality. The known, but undocumented reception of thousands of tons per crop of low-quality Ivorian beans here stigmatizes Liberian marks. Stemming the flow from there will not be easy. Worse, an unknown volume of Liberian cocoa crosses into nearby Guinea and Sierra Leone. The best way to protect the Liberian brand’s image is to establish the traceability of her beans back to specific farms.[7]
As Liberian cocoa production increases it will most likely be transformed into cocoa liqueur and correspond to the general West African taste profile. Since West African beans are present in all of the “big five”[8] industrial chocolate recipes, the majority of Liberian cocoa will be subject to a function of world market prices posted in London (Liffe) and New York (ICE Futures, U.S.)
Though this is not the ultimate objective, success in boosting the reputation of conventional cocoa beans should not be underestimated. Two examples are illustrative: Cameroonian beans and liqueur sell at a modest premium simply because of their characteristic redness in color.
Ghana beans receive an even greater premium in response to the extra care their farmers dedicate to post harvest husbandry. Like Columbian coffee, Ghanaian cocoa has developed an international reputation for consistently good flavor, high fat content (which is desirable) and absence of defects. Their reputation bestows upon Ghanaian farmers an average premium of at least GBP 50 per metric ton in spite of being no further traceable than the port of origin. Note that cultivating their reliably superior reputation took decades, but it shows the capacity to build value even at the stage of producing conventional, non-certified beans.
The case of Ghana aside, on the world market conventional Liberian cocoa, a mere fraction of what is available in Ghana for the foreseeable future, will be subject to the ‘going price’ for West African origins until groups of farmers target one of several niche markets.[9] Numerous specialty chocolate manufacturers are keen to receive cocoa beans that benefit from value-added husbandry (premium quality). Group certification schemes such as Rainforest Alliance, Utz Certified, FairTrade © and organic cocoa also fetch premium prices. Several partnership opportunities will be available to FOs capable of rallying their membership around contracts for premium quality and maintaining cocoa traceability via an internal control systems (ICS) established within each FO.[10]
The Market View
Our latest statistics say that of those Liberians producing a tree crop (64 percent of rural households) fully 17 percent farm cocoa.[11] The next generation of cocoa farmers will be obliged to compete for a limited area available in the humid subtropics as Liberians eager to make a living return home, mature and raise families that depend upon a mix of crops of their choice. A cocoa promotion strategy should be prompt in harmonizing its approach with the most innovative of incentives provided by either market forces or industry partners since cocoa farmers will always be free to raise other crops too. Many creative incentive-based production systems utilized by the rubber and/ or oil palm agro-industry to attract and retain farmers may be adaptable and at times should be applied as incentives to farm cocoa.
A simple growth-oriented policy vision would put Liberia in formidable company since all four of her neighbors; Cameroon, Côte d’Ivoire Ghana and Nigeria also see production increases as advantageous. Still, Liberian beans will always have equal access to the world market at competitive prices if farmers improve product quality and efficiency in production. By some estimates there will be demand for another one million tons of cocoa annually (total demand of 5,000,000 tons) as soon as 2030[12]. This would be a 25 percent increase in demand over 18 years or a constant two percent per year growth in demand. The last 10 years have demonstrated growth in demand above three percent per year. That trend is consistent with what the industry has seen since the 1990s. While consumer nations in Western Europe and North America have fueled demand until now, increasingly growth in demand will emanate from Brazil, Russia, India and China (BRIC) as their increases in GDP translate into a more broad-based and prosperous middle class.[13] Note world grindings according to ICCO statistics below:
[pic]
Technology Indispensable
Confectionery and food manufacturers such as Mars and Nestlé actively encourage the region to collaborate in leveraging breakthroughs in science and technology emanating from their respective research. A market opportunity is assured for the Liberian interest that establishes capacity to multiply improved cocoa planting material, for this is the element in shortest supply. Currently Liberian farms are unwieldy and unmanageable given extreme labor scarcity. High-yield, disease-resistant trees with large fruits and a compact architecture are scarce and in demand while production capacity is limited compared to the surface area currently planted in cocoa.
Up-trending prices not an end-all
A cautionary note: considering that cocoa should occupy the land for decades to come, price indications should provide only limited assurance. In fact, given the trends in rising prices for most food crops, cocoa prices should be viewed relative to these and in keeping with agriculture as a whole. Again, one may ask why Liberia should promote cocoa in particular if all food prices are poised to increase. Why not consecrate scarce investment capital to rice production or another crop that more directly increases food security and reduces dependence upon foreign imports?
Our fathers willingly chose cocoa farming as a vocation, but why should policymakers today engage the coming generation in a crop that must be transported elsewhere before payment—a crop that benefits from little infrastructure in the hinterland where it is produced—a crop that requires such labor-intensive husbandry; both pre-harvest and post-harvest? Will our children, so desirous to adopt 21st century management practices embrace cocoa culture?
Comparative Advantage, Heightened Consumer Interest and Improved Technology
Generally, Liberia, like Cameroon, Côte d’Ivoire Ghana and Nigeria possesses a comparative advantage in cocoa cultivation because cocoa thrives in the narrow band of the humid subtropics within 10 degrees of the equator like nowhere else in the world. Culturally, Liberians are also familiar with the crop and are likely to adopt innovations easily. As for food security, rice production and cocoa production are not mutually exclusive though farm labor requirements must be followed carefully. (Women are more active than men in rice fields while in cocoa fields men are far dominant.[14])
Food industry stakeholders have expressed an increasing commitment to provide direct investment in the form of public-private partnerships.[15]
Recently developed varieties of cocoa are now more disease resistant, precocious and productive. Their more compact architecture permits easier harvesting and an economy of inputs since trees are smaller. Such improved planting material is now in high demand and its distribution (either seed or bud stock) begs the creation of hundreds of small nursery/ grafting businesses capable of planting, grafting and distributing the trees.[16]
Policymakers will note that rubber agro-industrialists invested here have not relented in promoting that crop among smallholders. However, when so heavily invested in any single tree crop, farmers are increasingly exposed to price volatility, diseases and long transition times (8 years for rubber). When comparing the status that rubber already enjoys as an export crop in Liberia, the preponderance of circumstances argue in favor of a move further in the direction of cocoa for the sake of equilibrium in policy that creates employment, diversifies revenue, cultivates added-value skills beyond simple agricultural husbandry and may even attract small scale transformation of beans to semi-finished products locally.
PART TWO
Overarching Objective
The proposed development objective is “to triple farmer revenue derived from cocoa by investing properly in the productive assets of poor smallholder tree crop farmers.” The process of attaining this overarching objective will require our pursuit of several strategic objectives such as:
1. Conducting a survey of cocoa farmers to determine where they are, the size of their farms and their preferred pathway(s) to total farm renovation;
2. Optimizing access to improved planting material for replacing old trees on existing farms and/ or creating new cocoa farms outside of dense forestland;
3. Promoting farmer application of husbandry skills;
4. Strengthening farmer organizations via enabling institutions, training and certification;
5. Improving the business environment (government institutions and NGOs);
6. Attracting key value-added industry, sector stakeholders and investors into the process of sector transformation.
Accomplishing our overarching objective should in turn increase opportunities for rural income generation via sector-related service provision and employment of skilled labor. Along the way, if individuals attracted to the sector require skills training, the above-described strategic approach to transforming the sector will also provide them with opportunities because labor is estimated to be a particularly scarce resource.[17] Leveraging the Liberian labor pool by augmenting its skills level may be considered one of the overarching outcomes resulting from pursuit of the above strategy.
All ways and means will be pursued while maintaining gender equity, the protection of children and stewardship of the environment, particularly forests that assure the rainfall necessary for maintaining the humid subtropical ecosystem, prerequisite to cocoa farming.
Strategic Objectives
Objective 1: Conducting a survey of cocoa farmers
Targets and indicators: The current strategy will require a baseline for measurement of outcomes for each year of implementation. Survey results will assist in the establishment of a more comprehensive statistical “barometer” useful for analysis. (It may be archived and perfected by the newly established agricultural commodity regulatory agency).
Ways and Means
A Longitudinal Study of Typical Cocoa Farms
Given the dire condition of the vast majority of cocoa farms, it should suffice to conduct a random sampling of a statistically significant number of farmers active in each region of the Liberian cocoa belt and its periphery. At a minimum, data collected should include:
1. Baseline farm identification (farm size, condition and productive capacity);
2. Level of farmer exposure to improved husbandry techniques;
3. Level of farmer exposure to market information;
4. Level of farmer interest in the local farmers’ organization(s);
5. Services offered to cocoa farmers in the production zone;
Critical to an analysis of the study will be farmer propensity to adhere to a general diagnosis that is already apparent from past studies, i.e. that “the Liberian farm is in need of a fundamental rehabilitation including replacement of most of the very plant material currently occupying the land.”
Based on the results of this new baseline study, farmers should be selected for program implementation according to a number of incentives that national policy might deem appropriate in exchange for adherence to a prescribed three-year management plan.
Discussion:
The latest set of near comprehensive statistics concerning cocoa farmers was collected in 2007. While that survey is already sufficient for projecting most trends, the next study must focus on the baseline, but must investigate:
1. Farmer constraints to production (both perceived and real); and
2. Farmer preferred pathways to cocoa farm reestablishment.
The survey should provide an opportunity for program implementers to discuss money and other management issues with farmers such as:
• Propensity to save;
• Capacity to project return on farm investments (specifically labor, forest products such as lumber or charcoal and cash);
• Cash flow between harvests (during husbandry when crop and pest management is most intense);
• Rationale for cocoa plantation and its complementariness with other crops from the labor management perspective.
Interviewers should encounter the household as a management structure, represented by both male and female farmers above the age of 18. Data should note whether preferences and work schedules and pathways were expressed by either male-only or female-only or consensually expressed (husband-and-wife) in order to benefit from the context: either husband-and-wife team, widow or widower, ‘empty nesters’ or large families as they respond.
Labor is a considerable constraint in Liberian agriculture and division of labor among householders should be thoroughly explored in order to avoid misunderstanding.
Gender-aware data should include:
• Division of female labor between cocoa and food crops;
• Valued forest products (harvested) including fruits, staples and medicinal plants;
• Who, (husband or wife) would spend any cash assistance and how (in the case of subsidies offered in exchange for replacement seedlings during the 24 months after farm sanitation)?
• Ideal mix of companion crops and cocoa when seeking ways and means to maximize the efficiency of male – female labor dynamics;
• Proposed household annual budget for given subsidy levels and who would spend each portion of the total amount;
• Do husbands consult wives before taking major decisions or do they take them alone?
The above discussion points are not meant to exhaust the subject, but should be perceived as highlights and key investigative areas. See the following table describing labor distribution and responsibility according to several crops.
Future program interventions should be encouraged to refer to proposed longitudinal study data to design assistance programming, to confirm impact each year and to redesign future assistance. Responses should be charted over time as the NCDS is implemented. An analysis of data taken in 1984 may be found in Appendix 3 of this document.
Objective 2: Optimizing access to improved planting material
Targets and indicators: According to the latest baseline statistics available, as many as 30,000 ha may be under cocoa cultivation. For all practical purposes this estimate is sufficient for anticipating the need for improved planting material. Improved planting material available in farmers’ fields shall be the only indicator useful in evaluating the attainment of this target, not millions of trees produced in nurseries or other impressive numbers duly noted prior to seedling distribution. Having established the baseline, our indicator for program implementation must note:
1. Capacity to procure seed (either by propagation or purchase from neighboring seed gardens);
2. Capacity to propagate seedlings, either from newly acquired seed or other means such as plantlets or cuttings;
3. Capacity to distribute seedlings once improved planting material has been distributed;
4. Capacity of farmers to establish seedlings or new grafts on existing rootstock in new or existing fields, respectively.
5. Germination rates, mortality and effective distribution rate at each level of the process.
Ways and Means
Cocoa tree replacement and renewal: Approximately three means of distribution are useful in replacing underproductive cocoa trees. A fourth hybrid method, perhaps the best option is explained as well as the others below:
1. Importing improved seed and/ or bud stock from certified seed gardens in neighboring Nigeria, Ghana and Côte d’Ivoire;
2. Propagating seed and bud stock from a local seed garden.
3. Developing Liberia’s own excellent clones using somatic embryogenesis (SE) in collaboration with a research center and lab in Abidjan, Côte d’Ivoire or Tours, France or elsewhere.
4. Propagating via SE and “mother SE plants” distributed for local macropropagation via cuttings-to-seedlings or via grafting onto existing rootstock.
5. Implementing programmers may choose a hybrid of the above options, but such ‘hybrid options’ should be tested for agronomical integrity. Clones should be fundamentally more consistent in productive ability and disease resistance, particularly if developed in response to specifically Liberian climatic and environmental conditions. Still, planting a single clone throughout any one farm may expose the plantation to a particular disease and some variability in sources of genetic material may be merited.
Discussion:
Option 1: Importing improved seed from neighboring countries is the only realizable objective in the short term since Liberia has no productive cocoa seed garden of its own. However, given that neighboring countries lack sufficient improved seed production for their farmers this option is not strategically dependable. Obtaining bud stock from neighboring seed gardens is also doubtful.[18] The only good news is that overall, propagation from seed is yesterday’s technology and makes our quest for more challenging, yet sustainable options worthwhile.
Option 2: Once the seed garden is established, propagating seed and bud stock from a local seed garden is easy and the most conventional of options. Ripe pods are simply distributed to farmers or their designated nursery managers for use in the establishment of improved seedlings for eventual out-planting. The only obstacle to this method is that Liberia has no functional seed garden where manual pollination of excellent varieties would improve the homogeneity of resultant plants. One hectare is capable of producing seed for approximately 1000 ha of cocoa. To replace Liberian trees (30,000 ha within three years) the garden, once productive (three years from establishment) should span at from 15 to 20 ha in order to generate the 12 to 15 million seeds required for propagating as many trees (12,000 to 15,000 ha per year).
Given a willingness to re-establish a cocoa seed garden, for example under the auspices of the Central Agricultural Research Institute (CARI), this option would present obstacles of scale as well as quality in reproduction because Theobroma cacao is persistently heterogeneous whenever propagated from seed. One consequence of such heterogeneity is the variability in resultant trees. Often as few as 20 percent of the trees in plantation are responsible for up to 80 percent of the yield,[19] therefore; this method of propagation can produce some incremental improvement, but not the dramatic impact in production that is available via the latest propagation technologies (SE).
Option 3: Somatic embryogenesis is a laboratory-based clone propagation technology that continues to be developed for cocoa. The technology is initially expensive to establish and implement compared to other propagation methods, yet the Nestlé Research Center in Tours, France reports that per-seedling costs can be lowered when combined with macropropagation, that is, producing cuttings from the “bending” of “mother SE plants.”[20]
Though SE may sound extremely ‘high-tech,’ in the context of African agriculture it is a more appropriate technology than the initial in vitro stages reveal. Other countries including Indonesia and neighboring Côte d’Ivoire now produce millions of seedlings for distribution per season via SE. In spite of its up-front cost, a considerable investment in SE may be justified from the standpoint of its potential to stimulate a thriving nursery business downstream. For example, ‘plantlets’ resulting from the final stage of embryogenesis need to be cared for from a very early age, then distributed to the various production zones, transplanted into potting soil that more resembles local conditions, hardened and finally out-planted as seedlings.
Option 4: From a business standpoint this 4th and best option is contingent upon Option 3: sourcing SE propagated planting material. Whether from a neighboring lab or one established in Liberia, initial cost and care for SE planting material can be further leveraged by a simpler propagation technique called “macropropagation.”[21]
Following training, rural nursery specialists should be capable of stewarding “mother SE plants” useful in generating up to 400 cuttings per mother plant per year to be rooted again in nurseries using this technique. Mother SE plants are productive for multiple (at least two) years, generating enormous production potential locally. Moreover, these cuttings are perfect clones of the original SE trees and not vulnerable to the variability evident in plants propagated from seed. To conclude, an investment in SE production could stimulate local skills development that is entrepreneurial and village-based—an asset available to local farmers.
To encourage these local nursery enterprises, propagation services should be pre-financed initially by local cooperatives or their sponsoring exporters, guaranteeing a base clientele until peripheral less well informed farmers see the productivity of such trees in farmers’ fields. As the superior productivity of such excellent trees is demonstrated, demand for trees should increase.
Centralized nurseries produce seed and seedlings far from the numerous smallholder plantations they are meant to supply. Given the difficulty in transporting them, many go unclaimed at planting time. Small business-sized nurseries render the farm better services because of their proximity. Where small nurseries have proximity to local farmers, they can expect to deliver both seedlings and bud stock for grafting to nearby farms. Contracts between target farmers and these nurseries are more likely to culminate in successful distribution channels that find happy homes in welcoming farms and survive once planted.
Option 5: Under pressure to produce results, grassroots implementing agencies will likely pursue a hybrid option for distribution of improved planting material, fundamental prerequisite to the farm management plan. That said, it would be imperative that policymakers urgently appoint an SE propagation source because initial trees require about a year in vitro before plantlets are ready for transplantation. While plantlets are maturing, village residents aspiring to specialized, farm-based careers should be identified and provided technical training in the full range of nursery management from grafting to nursery care and distribution techniques. Farmer organizations may also be given literature to assist them in marketing the improved planting material, touting its attributes and informing farmers how to prepare their farms for new trees. Once trained, where bud stock is available, younger, but less-productive trees may be side-grafted multiple times in order to improve existing tree architecture and genetic quality.
There is a danger in adopting Option 5 and that is to become distracted by this gradual approach and not fully develop the distribution channels for SE seedlings or bud stock. Farmers should be continually informed that the fundamental management of their farms has yet to begin in earnest and that as soon as the best planting material arrives, it will.
Realities of Implementation
It will take time to promote new planting material to farmers and to convince them to invest labor in field clearing activity in preparation for new trees, however; farms heavily infested with black pod and insect pests pose a threat to seedling survival. It is strongly advised that farm conditions be negotiated between farmer and seedling supplier before agreeing to release planting material of such high value, particularly at the advent of the initiative because if excellent planting material in the farms of novice stewards fails to survive and produce as anticipated, other farmers may be discouraged from the results.
Objective 3: Augmenting Farmer Application of Husbandry Skills
Targets and Indicators: Cocoa farmers must demonstrate the capacity to improve existing farmland profitability via:
• Improving agronomy—GAP, given labor constraints;
• Economics—Farming as a Business;
• Commercialization—Landing Contracts and Business-to-Business Partnerships
Ways and Means
Improving Agronomy and Mitigating Labor Constraints
Cocoa farmers should retire all overgrown and unsalvageable trees whose fundamental architecture precludes any feasible management. Old, diseased trees should never co-exist with the precious high yield seedlings intended to replace them. Trees over 20 years old and fallen or mummified pods and underbrush should be extracted from the plantation and burned. Fire is an excellent antiseptic and underbrush should be humid enough that fire does not disturb remaining plants. Burning should be conducted promptly after the rainy season.
While waiting for improved seed or seedlings, farmers should begin by sanitizing as above and after sanitation, introducing companion crops into the existing farm. Plantain and forest trees such as Terminalia ivorensis a fast-growing indigenous forest tree may be re-established on disease-free soils. Forest trees like T. ivorensis should be harvestable during the following cocoa replacement cycle in 25 to 30 years.
After acquiring new disease-resistant, high yielding trees, cocoa farmers instantly jump-start the potential for intensive agriculture and yield five times that produced by the ageing trees most struggle to maintain today. In the meantime farmers will require bridge funding for a period of two to three years during which they will be without revenue habitually derived from cocoa.
To encourage prompt rather than gradual installation of improved trees, farmers should be provided grants and loans during the bridge period. A pod count conducted during baseline study of current plantations would be useful in establishing the annual production value of the old plantation. If only 50 percent of the plantation is cleared, vouchers for the twice the value of the 50 percent harvestable could be justified as bridge funding during the 36 months after seedling out-planting.
Cocoa farms under preparation with plantain and other companion crops should produce some revenue and food security during the bridge period. Still, a standard budget for financial support should complement farmers’ reduced earnings power while waiting for new plants to enter into full production.
Liberian farmers are often members of ‘Kuu,’ work groups[22] facilitating cultivation of large areas. Farmer members of these groups should budget their time in a manner that allows each farmer to out-plant 0.5 hectares per kuu participant during a single planting season. The kuu system may considerably reduce the need for cash payment to laborers and has proven its efficiency throughout West and Central Africa—particularly where labor markets are tight.
Discussion:
The wealth of any farm begins with fertile soil and the plant material drawing its nutrients. The better the genetic material, form and age of a cocoa tree, the more productive a person-day of cocoa farming will be and the more productive a square meter of farmland will be. It is useless to recommend fertilizers that amend soil deficiencies if only older, less responsive trees are available. It is equally a waste of agrichemicals to fight infestation in a field that is already debilitated with age. Given the less-than-negligible cost of inputs like fertilizer and pesticides, farmers expect to see a maximum effect after application, but only when excellent trees are used will yields increase by multiples greater than 1000+ kg/ha.
At current yields of 147 kg/ ha, (and declining) doubling or tripling yield is still a bad proposition to farmers given the risk of correspondingly higher food prices and several other mitigating factors along the cocoa value chain. Given the propensity of West African farmers to manage their labor wisely, it is telling that they politely neglect essential GAP for cocoa culture that is labor intensive. Most Liberian cocoa farmers have figured out that GAP labor on an aged cocoa farm simply does not translate into the remunerative opportunity that equal time in their rice field would bring. (The author speaks somewhat figuratively, but the object of discussion should be opportunity cost.) See Appendix 3 for a confirmation of Liberian propensity to distribute labor intelligently according to farm quality. Data comes from a study of Liberian farms under four cultivation systems in 1984.
The baseline survey recommended in Objective 1 above should certainly apply gender-aware analysis to a test of the following hypotheses:
1. If women, like men (or more than men) contribute to cocoa farm maintenance, but are equally solicited in the rice fields, (or other fields) then a desire for food security will overshadow GAP labor requirements in cocoa, particularly if women do not market the cocoa or decide how to spend its proceeds.
2. If men, cognizant of their wives’ behavior decide that it is intelligent, then they may be as intelligently neglectful as their wives in cocoa husbandry deciding effectively that GAP is economically vain.
3. Only cocoa as subsistence is economical. Here we assume appropriately that:
a. Farmers consider land they own or inherit as a free good;[23] and
b. Farmers may estimate cocoa yield to be persistently low, but always above zero, thus of benefit, therefore not worth the risk of any additional investment.
If one or more of the above hypotheses are correct, then only a substantial change to newer high yield varieties of cocoa will motivate farmers to invest in cocoa maintenance. Once installed, however; the new trees and their correspondingly high yield would render the transformed farm too great an opportunity for increasing revenue to continue to neglect.
Ways and Means
Economics – Farmers to Apply Business Skills
NGOs should train farmers in using business analysis to test various GAP scenarios and particularly input-dependent ICPM on their farms. For example, because farm labor is scarce, modern ICPM technologies may allow farmers to work smarter. The cost of extending farms into new forest may be prohibitive compared to increasing yield on existing land through fertilizer use. Another test case would be the use of herbicides instead of clearing fields manually. Cognizant of that successful farmers are those who analyze terms of trade (for example time and investment toward cash crops versus food crops) farmers must be trained to perform such comparisons to insure a net gain from the farm enterprise.
Farming as a Business (FaaB) test cases recommended by NGOs and their facilitators must consider the entire farm enterprise, not just cocoa. For example, if herbicide use is more efficient in cocoa fields could it also be more efficient in rice fields?
FaaB practice (not just training) should take the form of the above and similar “small bets”—business strategies of acceptable risk that may be scaled up if found successful.[24]
Implementing organizations should consider all farm business strategies that concern other crops than cocoa and would allow farmers to reduce needs in bridge financing while waiting for new cocoa farms to enter full production.
Successful strategies for increasing revenue from other-than-cocoa crops may be later suggested as templates to be emulated by neighboring farmers, but each farmer should use creativity to determine what is most appropriate for his or her household while waiting for new cocoa to kick in. For an example of the terms of trade farmers must analyze, see Appendix 4.
With focus on the new cocoa enterprise, farmers should be trained in planning that renders the cocoa plantation one with sustainable viability. For example, where forest trees such as Terminalia ivorensis are maintained or replanted they might be valued as the next source of bridge revenue during cocoa restoration scheduled for years 28 through 30 of the cocoa plan.
Discussion:
Learning how to determine the break-even cost of a kg of cocoa is a good tool for farmers, but at some point they must pass from theory into action. Throughout West and Central Africa, farmers have attended FaaB and FFS training without evolving to the action stage of apprenticeship. It may be because curricula do not sufficiently challenge adult learners to put what they learn into practice. An absence of action in the farm business may also emanate from an aversion to risk typical of farmers worldwide.
Risk-averse cocoa cultivation so resembles subsistence agricultural behaviors in Liberia that it would be premature to consider whether farmers even understand such concepts as “the break-even cost” of a kg of cocoa. Their management is more intuitive than conventional financial analysis. Such an assessment of cocoa farmer management skills should not be seen as a denigration of their decision-making capacity. Rather it should allow dispassionate analysts to understand that farmers assess opportunities differently than formally trained business managers and need to be considered in context.
FaaB curricula promoting cotton culture and other crops are considerably easier to transmit since except for market conditions, the opportunity cost of cultivation is usually similar or equivalent to other annual crops on the same land. The business economy of a tree crop is more complex. Land use under tree crops may be as monoculture or multiple-use. There is a ‘bridge period’ during which investments in tree crops are committed without a return in revenue. Finally where cocoa is concerned revenue is seasonal, culminating in the 16 weeks between October and January. For all of these reasons, cocoa farmers must learn to budget total revenue and cash flow throughout the year.
By comparison to other tree crops, cocoa has the smallest revenue gap between initial planting and full production. For oil palm, farmers must wait three to four years. For rubber seven to eight years are required before tapping trees. The rubber strategy for Liberian smallholders proposes to “find a solution” for aspiring rubber out-growers in spite of the 8-year wait. The cocoa sector should be advised by this guidance from the rubber industry and accompany cocoa farmers during the 24 to 36 month wait for new beans with a subsidy and/ or a loan. Bridging the above-described revenue gap is the ultimate opportunity to promote FaaB skills application to participating farmers.
Ways and Means
Commercialization—Landing Contracts and Business-to-Business Partnerships
Local farmers’ organizations should become familiar with cocoa buyers and their exporters in order to establish contractual production of known volumes of cocoa at known prices.
Along with prices, farmers’ organizations should negotiate conditions such as percentages of pre-payment or loan guarantees enabling farmers to access credit from a financial institution.
Discussion:
Contrary to the rubber and oil palm agro industries, chocolate manufacturers have rarely involved themselves in agricultural production, let alone; concession – to – out-grower production schemes. To this day, they have relied entirely upon smallholders to steward the land, manage the labor from plantation to post harvest practices and even handle exposure to any credit and/ or price risk. Manufacturers consider it to be strategically wise to continue to maintain a certain distance from the production of raw materials. This may be because post harvest husbandry is seasonal and labor intensive. Chocolate manufacturers are so large that smallholders with little production to offer as individuals can only hope their needs may be heard when expressed as a syndicate via farmers’ organizations. Consequently, FO managers must become competent in negotiating timely (forward) contracts without which the membership is dangerously exposed to volatile world prices. Forward contracts lock in prices and guaranteed profits for farmers capable of managing their factors of production. Once contracts are signed, FOs must be careful to make good on promises in order to establish a name for themselves. The more credibility FOs can garner among value chain partners, the more likely they are to share win-win opportunities for profit-sharing during certification and other collaborative ventures discussed in Objective 4 below.
Objective 4: Strengthening farmer organizations via enabling institutions, training and certification
Targets and indicators: Facilitate the creation of appropriate farmers’ organizations (FOs) throughout the cocoa belt and its periphery.
Organizations should delegate the authority to convene membership meetings by subsection of the established Organization whereby no member resides farther than 10 km from the Organization or its respective subsection. Organizations and their subsections should meet bi-weekly or monthly and coordinate their project activity.
Organizations should retain paid management when feasible, and a board of directors including officers responsible for:
• Marketing and quality inspection;
• Transportation;
• Accounting; and credit management;
• Internal controls (good agricultural practices) leading to product traceability and certification.
Some farmers may prefer to align themselves directly with a licensed buyer (LB) or an exporter who buys their cocoa and markets it according to a broader vision. Farmers choosing to align themselves with LBs should not be discouraged from doing so per se, since the LB traditionally provides useful services such as liquidity in the community and transportation to port. Such a private interest would not be held to the same democratic standards as those of an FO, but should nevertheless be required to maintain transparency in management of all cocoa transactions, contracts and traceability of farmers’ stock.
In the LB configuration, farmers should first elect to form an economic interest group, designating a committee of three or four persons from among them to negotiate with their chosen partner. Ultimately farmers would have less market authority, but also fewer management obligations. In the case of farmers aspiring to have their farms certified, the partner would have to agree to become their certificate holder, maintaining all certification records and establishing an internal control system (ICS). Note that certification under an LB would require sharing a part of the farm premiums—to cover administrative and other costs.
In either configuration, smallholder cocoa farmers will prove their competence by:
• Electing leadership democratically at village and district levels;
• Evaluating gaps in knowledge and good practices among members;
• Accessing regularly-scheduled organizational management training;
• Organizing peer-to-peer audits of good agricultural practices;
• Maintaining detailed records of all cocoa consignment/ sale from farm of origin to FO or licensed buyer/ exporter;
• Propose quality-checked, pre-sorted, pre-weighed, pre-bagged cocoa to exporters for sale and
• Obtain third-party (international) certification.
Specific services routinely provided to Organization membership will include:
• Consignment (storage) in anticipation of transport and sale (bulking);
• Syndicating of credit on the basis of guarantees such as land certificates or cocoa under consignment in approved warehouses/ sheds;
• Acquisition of inputs at wholesale prices;
• Risk management (forward contracting/ price fixing); and
• Promotion of similar services to non-members (leading to membership).
Ways and Means:
Promoting Organizational Formation
The Cooperative Development Agency (CDA) in collaboration with broadcast media will promote and monitor the formation of farmer organizations via multiple diffusion/ reporting methods:
1. Rural radio and television broadcasts;
2. Field visits and periodic inspection of accredited FOs;
3. Certification trainings of trainers (TOTs);
4. Management team certification
5. SMS feedback and reports between Organization officers and the (CDA);
Farmers’ organizations apply for farmer training via the Ministry of Agriculture extension department or NGO-led:
1. Farmer field school (FFS) training emphasizing integrated crop and pest management (ICPM);[25]
2. Farming as a Business (FaaB) training;
3. Farm certification training;
4. Farm visits to promote and confirm good agricultural and business practices.
Farmers’ organizations participate in existing warehouse receipt systems that encourage:
1. Maintaining records of farmer deliveries; (Identifying value origin)
2. Delivery of cocoa for independent grading before sale; (Rewarding value)
3. Presenting their clean, dry cocoa to exporters in export bags;[26] (Creating value)
4. Farmer savings; (Leveraging value)
5. Farmer participation in credit schemes by depositing cocoa in guarantee against loans extended to cohort groups of between five and 12 farmers. (Investing in value)
6. Participate in FO-guaranteed or exporter-guaranteed loans as cohorts whereby an internal control system audits the investment, GAP and reimbursement procedure.[27] (Certifying/ Validating value)
Village leaders discuss the possibility of establishing a credit union, village bank or local bank accounts open to all resident farmers. They should be assisted by:
1. A specialist in microfinance;
2. Existing bankers or managers of locally established credit unions.
3. Exporters willing to pay farmers or farmers’ organizations for cocoa by crediting their savings accounts rather than with cash.
Discussion:
Cocoa smallholders cherish their relative independence, but it often comes at an enormous cost. Where there are no community-based FOs, individual farmers are exposed to the wiles of uncouth intermediaries free to depress prices, trade and mix cocoa without adhering to any clear standard for quality. Each intermediary takes a ‘commission’ in the process, slowing transactions while diminishing, rather than adding significant value to the final product.
Farmers must ruthlessly eliminate transactions between farm-gate and port that do not add value, even within their own Organization. Sound FOs should assume every value-creating activity that they possibly can (including export bagging) that is transparent and increases efficiency. Farmer representatives must clearly articulate salient farmer needs to their partners as well as the membership. In so doing they create an environment where services such as planting material, inputs and financial services become more routinely available and at competitive rates.
Farmers have historically underestimated their capacity to pool their market power while negotiating a sale and/ or their buying power when purchasing supplies. Though they may begin small, as few as 250 loyal farmers may be all that are needed before a small consignment fee can cover the cost of a competent staff. Cocoa farmers need to grow their membership by offering superior prices and better service. In so doing, they become the pivot point of created value on the farm.
For the first time in the history of the sector, farm certification as pursued by FOs has created significant value and provided them with an opportunity to invest in world-class technical assistance at reasonable costs. Good technical assistance is often expensive and farmers will rarely pay to receive it, not capable of seeing its value, but certification training culminates in an appreciation of value in large part because of the synergies between product and process.
At the heart of group certification is the process, an active in-house internal control system (ICS) that echoes FFS training. Farmer trainers assigned to a portfolio of neighboring farms assist their peers in adherence to GAP and production increases follow. While price premiums for certification are not negligible, the real boost to farm revenue comes from yield as shown in diagram 1 below where; Revenue = Price x Yield.
The above scenario as has been validated in the cocoa fields of West Africa and shows how farm revenue increases following the certification process regardless of brand or country of cocoa origin.
Objective 5: Improving the business environment (Government and NGOs)
Targets and indicators: In order to conserve the farmer share of product value through to port and perhaps beyond, local regulatory agencies, NGOs and other mission-critical institutions must be re-activated or rendered more efficient and accessible to farmers. This may be best accomplished by increasing possibilities for dialogue and data exchange between FOs, NGOs and institutions including the LPMC, MOA and CDA.
Government institutions and non-governmental organizations (NGOs) will serve cocoa farmers best by collaborating together in:
• Disseminating knowledge and information (Trainings of trainers, use of information and communications technologies; radio and other broadcast media);
• Promoting less profitable, but essential technical services (such as county-level jute bag distribution) until private sector providers step in to formalize market linkages;
• Letting contracts that promote small businesses with scarce skills until FOs and service providers can form business-to-business linkages. (e.g. farm extension, mass pesticide application, improved seedling production, bud grafting, fermenting, compost manufacture, soap manufacture, animal feed manufacture, etc.);
• Promoting safe use of authentic pesticides obtained via approved distribution channels;
• Publishing the rules and regulations of the newly liberalized marketing system;
• Holding regular meetings among the inter-profession for the purposes of coordination.
Discussion:
Business thrives most where buyers are well informed concerning the value they generate and receive for services rendered. Cocoa sector margins are miniscule and depend upon rigorous pursuit of economies of scale. The following recommendations for market regulation may be considered as necessary for stakeholders to feel safe doing cocoa business.
Ways and Means
Regulatory
1. A college of Licensed Exporters (not a government agency) should confer buying agents’ licenses. If contrary to this recommendation, a regulatory body decides to confer licenses, it should never be without the consent of the entire community of exporters for which all buying agents must work. If the private sector is permitted to confer licenses as recommended here, it would be wise for government to appoint an auditor (non-voting). Establishment of private sector licensure does not preclude any licensed operator from strict conformity with fundamental law. All transactions (such as the red-listing or black-listing of a candidate for licensure) must be transparent and documented. All actions must include an appeals process for which a sitting sub-committee of arbitrators may rule. Members must declare all conflicts of interest in the event one is asked to rule on issues submitted to a subcommittee. Licensure of buying agents should be subject to annual renewal.
a. This measure should help decrease cross-border trade of cocoa.
b. The measure should help resolve disputes of a financial nature amiably since unknown to exporters, buying agents may accept money from more than one of them.
2. The LPMC or her delegated implementing agent should publicize CIF prices and a corresponding Liberian farm-gate price to Liberian farmers each day that terminal markets in London and/ or New York are open.
a. Any announcement of market prices should be considered ‘indicative’ and not ‘guaranteed’ since both price and cocoa quality changes several times per day.
b. Ideally, indicative prices should be posted for each county.
c. An additional service announcing the average prices paid during the previous week would provide farmers with the price trend as well as the spot value.
d. At a minimum an Internet site should be updated (with previous prices archived). Additional listing should be posted as budgets permit on radio, television any other media easily accessed by farmers.
3. A set of simple definitions for Liberian cocoa should be established and published for the following qualities and marked according to international standards on each bag exported:
a. Grade 1;
b. Grade 2;
c. Sub-grade.
4. All exporters should be permitted to establish buying centers in the capital cities of major cocoa-production zones in order to promote linkages with farmers’ organizations incapable of transporting their cocoa to the port in Monrovia.
5. Farmers’ organizations should be audited by the CDA according to their statutes as FOs require, for example:
a. Regularly held elections;
b. Annually audited accounts;
c. Annual general assembly of the membership and authorities during which accounts and business results are announced/ certified and published.
6. The MOA should conduct (and publish) an official estimate of Liberian annual production (per district or county) as determined by pod counts in August and September.
7. The LPMC should publish statistics of arrivals to Monrovia each day as well as shipments and ports of destination per week in order to improve product traceability.
8. Farmers’ organizations should share production statistics and audited documentation with the membership during public forums including annual general assemblies; namely:
a. Total product consigned and sold;
b. Total value of all activities;
c. All outstanding debts and assets.
9. The LPMC should make training in cocoa quality analysis available as a service to all buying agents and FO quality managers.
a. Training should include storage requirements for cocoa, humidity measurement, identification of defects via classic bean cut test and bean count per 100 grams.
b. Training should include recordkeeping.
c. Buying agents not willing to receive training should be offered the option to pass an examination confirming they are competent in these skills before licensure.
10. The LPMC should require the verification of all scales found in the production area whose capacity is equal to or exceeds one metric ton.
11. The LPMC should be open to auditing and validating the storage conditions and transactional procedures of accepting, stewarding and releasing cocoa from regional warehouses wherever cocoa may be stored on consignment.
Objective 6: Attracting Critical Stakeholders
Targets and indicators: Critical stakeholders include financial institutions, input distributors, insurers, technical (extension) assistants, exporters, NGOs and partners in industry. Currently many of the above stakeholders are either underperforming, watching from the sidelines or altogether absent, from the cocoa sector. Today cocoa needs these stakeholders more than they need cocoa, but as private sector interests, they will not invest in the field without a hope for greater returns. Cocoa sector policymakers must draw them in with opportunities for growth and profitability. The strategy for attracting them should always be conceived with their motivations in mind.
Ways and Means
Attracting Financial Institutions
If cocoa farming is truly an entrepreneurial activity then no cocoa farmer should be without a savings account. Savings accounts permit banks to see customer cash flow and help bank managers to consider cocoa farmers as potential business partners. If cocoa farmers are generating income from other business such as palm oil or rubber, these transactions can only augment bank consideration of farmers from the standpoint of their potential creditworthiness.
Banks want to do business and so they should be invited to consider financing some percentage of the value of cocoa consigned to warehouses that deliver quality/ weight receipts. In anticipation of required procedures for finance, warehouses should consider organizing independent audits performed by an NGO or other third party inspector. If existing banks decline to finance this business then farmers will need to establish their own village banks in local communities where management capacity is available. Village banks should then extend loans against warehouse receipts.
Discussion:
Banks, like all businesses need to see a potential for earnings and even credit unions must be assured they can do cocoa business without undue risk of losses. Cocoa farmers like all entrepreneurs can only attract financial services to their communities by demonstrating willingness to:
• Save regularly, (in local banks or credit unions);
• Borrow wisely (e.g. against warehouse warrants for cocoa or other assets); and
• Reimburse promptly (after harvest, according to contract).
One way to encourage savings account establishment is for farmers’ organizations to establish direct deposit into savings accounts (rather than cash) as the preferred payment method. Farmers’ organizations may also be capable of negotiating discounted bank fees for their member farmers since many farmers may not be convinced of the utility of a bank account.
One hurdle to retaining bank services is often the distance traveled to bank. The establishment of a village bank often resolves the distance problem. Money is less likely to be pilfered by or stolen from persons maintaining a bank account. The ultimate objective, however, should be for farmers to obtain credit when needed.
Farmers would benefit from reasonably priced credit for all sorts of needs, but where farmers cannot demonstrate a credit history or any form of asset, banks turn them away. Village banks with proper recordkeeping can assist farmers in establishing a credit history and eventually enabled farmers may ‘graduate’ to a larger more established institution.
Attracting (or creating) a financial institution near cocoa farmers is essential to the promotion of cocoa farming because other sectors have devised ways to finance farm investment that are transparent. Cocoa farmers often access credit from buyers, but terms are often less than fair and opaque.
Effective cocoa loans can span as little as six months—the time needed to apply pesticides and/ or fertilizer (April/ May) and later harvest the pods (October/ November).
To the extent necessary to attract banks, credit unions or village banks, exporters may see it in their interest to guarantee loans to FOs until banks feel comfortable enough to make the loans themselves. To limit moral hazard, exporters may want to involve an international NGO in the transaction and where possible make loans ‘in kind’ (e.g. inputs) rather than in cash. One-acre input packages may be appropriate for piloting the experiment among cohorts of 5 to 12 farmers who would be joint and severally responsible for loan reimbursement. Farmer groups that reimburse 100 percent of 1st year credit for one acre should be eligible for 2.47-acre (one hectare) input packages. During the third year of successful reimbursement, farmers should be capable of receiving loans individually (no longer obligated to be a part of group loan requests).
Ways and Means
Attracting Input distributors
Invite input distributors to establish demonstration sites in strategic locations.
Invite input distributors to offer input sales to FOs at wholesale prices in exchange for exporter payment in 30 to 90 days (according to volume).
Invite input distributors to conduct extension visits to promote their products.
Invite input distributors to train FO-member farmers in proper application methods.
Invite input distributors to train local grafting specialist/ nursery business managers in pesticide application methods, stocking nurseries with a modest supply of products for sale on a cash and carry basis.
Devise an input verification system in collaboration with LPMC whereby users of authentic pesticides may confirm product origin by SMS, thereby thwarting the sale of fraudulent agrichemicals to unsuspecting farmers. (This system could be expanded to include those pesticides provided for other crops as well.)
Conduct an awareness building campaign by radio and television describing any inauthentic products being sold as well as those products approved for sale.
Discussion:
Input distributors know that less than half of the farmland under cultivation in Liberia benefits from any kind of input. Liberian cocoa alone represents a considerable market for inputs; 30,000 ha under cocoa GAP translate into more than USD 9 million per year without considering anticipated extension into other areas (herbicides). Until now, sector disorganization, prohibits any concerted marketing effort. Even in those sectors that are well organized such as rubber and oil palm, industry is more likely to import their agrichemicals directly, bypassing the local market. In the meantime petty vendors of fraudulent, non-approved pesticides seduce local farmers with dangerous chemicals that don’t work. Cocoa farmers would benefit from better access to certified pesticides and fertilizers, but currently few manufacturers are willing to import such products to so unsophisticated a market base.
Each year multinational manufacturers of pesticides develop new, more selective and less residually toxic chemicals at competitive prices. Liberian cocoa farmers have remained by default unaware of these advances developed in their very interest. While companies will do their part to demonstrate their products’ attributes, (after all, they compete with distributors of many similarly-acting products) farmers’ organizations would do well to inform their membership how agrichemicals help to conserve pods from destruction.
Given that all farmers suffer from pod destruction, but find it difficult to act alone, FOs will be the best advocates of a collective decision to buy and use agrichemicals.
At current cocoa prices (greater than GBP 1400+/mt/CIF) an investment in agrichemicals is more than merited, yet input distributors cannot justify the promotion of sales representation to smallholders until there is more demand.
They target other plantation-style sectors such as rubber and palm oil where transaction costs are low and volumes are higher. To the extent that cocoa farmers also utilize rubber-related and other agrichemicals, it would be wise for them to pool requests for these products along with their needs in cocoa inputs.
Where stakeholders such as exporters can align themselves with cocoa farmers, a sort of forum for distribution of inputs of all kinds and at reasonable prices may be appropriate.
Farmers’ organizations could delegate a committee of their peers to negotiate prices and product mix. In such a configuration, it would be wise to include representatives of more than one level of the value chain to provide an arbitrating effect between parties.[28]
Ways and Means
Attracting Large Concession Producer Partners
At this writing, there is only one potential partnership opportunity with a large concession – out-grower production strategy. While the concession – to – out-grower production strategy is common in rubber and oil palm, to date, the strategy has been unsuccessful elsewhere in African cocoa given the substantial financial commitment necessary. That said, the strategy provides a unique opportunity for Liberia to anchor its aspiration for scaling cocoa production up, not by promoting other similar concessions, but by supporting this concession institutionally and uniquely as a catalyst for smallholder cocoa production in appropriate zones.
Specifically, the MOA should negotiate with Liberia Cocoa Corporation (LCC) to determine its interest in hosting and stewarding:
• An independently audited (yet private) and contractual national network of greenhouses for the propagation of SE mother plants and seedlings;
• A cocoa nursery training workshop;
• A companion plant propagation nursery and training workshop;
• A workshop to teach grafting techniques;
• A lab for the multiplication of excellent planting material via somatic embryogenesis and/ or raising plantlets.
Discussion:
Cocoa and companion plant nurseries established at the LCC are unparalleled in their scale, quality of production and potential as a training ground for aspiring cocoa technicians. The ideal headquarters for a greenhouse, this plantation would easily qualify as a production point for certified and traceable planting material. All that would be needed are the appropriate technicians and a procedure for tracing the provenance of plantlets and bud stock.
Depending upon ownership vision, a lab capable of performing the somatic embryogenesis of selected genetic material (propagated specifically for Liberian soil and climatic conditions) may also be sustainable. If the local lab proposition is deemed too expensive for an LCC – government partnership, then government negotiators should seek plantlet production service from the reputable outside lab(s). The LCC should be considered as a supplier of husbandry services that husband plantlets until they become hardy seedlings.
If other large agro-industrial entities offer similar services, the MOA should inspect their premises and consider contracting with them as well. Essentially, these services have been grossly underestimated in the cocoa value chain and Liberia has an opportunity to leverage them in an exemplary manner by distributing planting material of the highest quality to active cocoa farmers. To do so would make Liberia a first-mover in this regard and her farmers would reap the greatest benefit of the move.
Ways and Means
Attracting Manufacturers
At this writing cocoa arrivals into Monrovia are of variable quality and volume and so in spite of recent advances in husbandry, it would be premature to recommend an active campaign soliciting the installation of a cocoa grinding facility of more than 3,000 to 5,000 mt capacity.
Discussion:
Today chocolate manufacturers seek as many opportunities as possible to streamline the value chain in their favor and produce three essential products from cocoa beans: cocoa liqueur, cocoa powder and cocoa butter.
The process of grinding and pressing cocoa is energy-intensive. If electricity prices are not competitive with plants in other parts of the world, (and in Africa they usually are not) then manufacturers usually grind at a loss. Plants found in origin countries of West Africa are confronted with another disadvantage: they cannot mix their local beans with other origins of better value-to-cost ratios like plants do in Europe, the U.S. or elsewhere.
A local plant can save shipping costs since they export only the semi-finished product.
Small plants can grind liqueur for export, but costs are so dependent upon economies of scale that they would not likely be profitable without subsidies, i.e. tax forgiveness from government over the long term. The employment created by a local plant of so small a scale would be negligible.
.
The Cocoa Sector Technical Working Group (CSTWG)
The CSTWG, comprised of trade, public sector, farmer organization, private sector and NGO leadership, fully represents the cocoa sector and serves by avocation only. As the NCDS enters into operational status, CSTWG must be consulted continually and integrally involved and solicited for its point of view because no other body more fully represents the mind of sector stakeholders, most important among them, farmers and their appointed organizations.
Aside from providing guidance to strategy implementation, the CSTWG should do all to:
1. Encourage the full participation of all stakeholders along the value chain;
2. Cultivate collaboration between public and private sectors to promote the growth and development of the cocoa subsector that will increase farmers’ incomes and export revenues accruing to government;
3. Encourage the MOA to stimulate accomplishment of national policy in areas that affect cocoa farmer access to credit such as land tenure reform.
Concluding Remarks
This document is essentially a strategy statement, therefore; comments pertaining to implementation should be brief.
We assume an equitable market as legitimate arbiter between stakeholders throughout the value chain and that operators should receive a margin of profit corresponding to the value that each contributes to the chain from plantation to port. True to national policy expressed elsewhere, farmer interests should always be protected, but we depend more upon the creativity of initiative that stakeholders bring to the business to increase efficiency rather than stringent controls and regulations. If the sector does not protect farmer interests, then they will adapt to the circumstances and may even leave the sector. When exposed to low prices and other risks, farmers protect their interests in a manner that is prejudicial to cocoa farming. Seeing the value of their production usurped either by unscrupulous merchants or by inefficiencies in production, transportation and reception at port reduces their trust in the value chain and willingness to investment. Other sectors while courting these farmers, may present more attractive options.
A 2007/ 08 study of the Liberian cocoa value chain determined that farmers who produced the cocoa beans for export received between 23 and 25 percent of the FOB value for their efforts. This was the lowest percentage received of all regional cocoa origins by comparison.[29]
There is evidence that sector stakeholders have since taken steps to eliminate such market distortions and inefficiencies. Also, wherever FO managers receive appropriate training and facilitation it has improved their attentiveness to market information and prices and improved their ability to negotiate with exporters, ensuring that prices received by FO members have increased to more than 60 percent of FOB. This shows how indispensable market information, business training and facilitation can be to equitable product valuation. At this writing the sector has an opportunity to further motivate cocoa farmers with agricultural, organizational, financial and commercial assistance. To the extent actions toward improving productivity on cocoa farms are noted and leveraged by farmers, an increased production capacity should allow all stakeholders nationwide to benefit accordingly.
Appendix 1
Average 2.5% Increase in Grindings 1997/98 thru 2006/07
[pic]
Appendix 2
Markets: Old School Policies No Longer Appropriate
Liberian farmers most familiar with cocoa manage small plots according to their needs for cash. Until about 15 years ago the crop was largely taken for granted by industry buyers since their only counterparts were usually governmental marketing boards such as the LPMC. Most chocolate manufacturers were content to pay local exporters on the basis of futures prices posted in London and New York.
Most cocoa plantations were carved out of virgin forest with rich untapped soils. Plants were young, vigorous and area expanded as farmers saw how attractive the crop was to small merchants with ready cash.
Prices quoted by the monopsonic marketing boards during those decades did not consider the cost of renewing depleted soils or the decreased production due to insect and fungal infestation. Ageing farmers on low-yielding farms would eventually need to replace their towering, disease-prone trees. From offices in Europe and the U.S., industry could not know that millions of cocoa farmers were continually selling their beans at a loss.
In the spirit of reform, the Bretton Woods institutions more cognizant of an underperforming, overtaxed cocoa sector negotiated cocoa sector liberalization with the largest producers in exchange for new loan facilities.[30] The measure was originally designed to relieve farmers of burdensome export taxes, ultimately conserving for them a greater percentage of world prices. Farmers and later even those economic analysts in favor of liberalization would later deem the strategy incomplete for lack of sufficient measures addressing above-stated production issues.[31]
World prices in decline since 1979/ ’80 continued their slump from the late ‘90s onward.
Meanwhile, a 2001 BBC report identifying ‘child slaves’ in the cocoa plantations of Côte d’Ivoire revealed abusive labor practices and the exploitative economics of cocoa production which were in part a consequence of low world prices. Chocolate manufacturers, having considered the effect abusive labor could have on their brands began participating in policy and development. In signing the Harkin-Engel Protocol[32] of the U.S. Congress (under threat of an African cocoa import ban) chocolate manufacturers promised that children would no longer contribute labor to cocoa production by 2005. The deadline was not kept, but the Protocol had the effect of stimulating ongoing action across the value chain until a full range of measures beyond simple liberalization could be implemented.
Lessons Learned
Export taxation was reduced at the recommendation of economists, but world prices unexpectedly fell correspondingly, testing farmer willingness to continue production. Meanwhile farmers and their chosen organizations found themselves ill equipped to take an arbitrating position. They bore the full downward slump in prices without protection against speculators. The resultant belt tightening was manifest in further postponed investments such as fertilizer and further cutbacks on labor to the point where children still join adults in the field.
Contrary to the fully integrated rubber or oil palm, agro-industrial concessions, cocoa production is managed by smallholders whose production serves more as a generator of cash. Once exported, most cocoa is mixed and manufactured into an anonymous chocolate elsewhere. The national policy promoting cocoa cultivation in Liberia will need to investigate ways and means for extending the traceability of beans back to farmers such that any value added later in manufacturing may be shared equitably with them.
The cost of marketing boards proved burdensome without delivering the benefits of price stability at the farm gate. Today cocoa farmers would do better consigning their beans to a professional, local organization that preserves their earnings and shields them from risk. Just as rubber plantations work well when linked to an industrial manufacturer, cocoa producers require partnership with a confectioner or an appointed intermediary willing to invest capital into assets that are mutually beneficial. Without such collaboration along the value chain, cocoa is no longer the safe and profitable enterprise farmers seek and they will likely choose to raise a different cash crop.
To the extent that governments have renounced of market intervention, they must nevertheless be cognizant of any significant divergence in policies between countries since border production zones are porous. Liberian cocoa is known to flee north into Guinea, west into Sierra Leone and even east into Côte d’Ivoire because of differences in price caused by taxes or exchange rates between national currencies. To the extent that the government provides additional infrastructure to promote cocoa culture at home, exports to neighboring countries would represent a lost investment.
The Liberian Produce Marketing Corporation functioned similarly to that of Cameroon, Côte d’Ivoire or Nigeria, assessing taxes upon cocoa exports with the intent of stabilizing prices when the world market slumped.
Like the other countries, the LPMC failed to redistribute surpluses to farmers they were assigned to protect in years when prices were low. Farmers have often criticized marketing agency failure to redistribute subsidies during years of low prices as incompetent or corrupt, however; economists familiar with stabilization systems submit that,
“Stabilization is difficult because [price] slumps tend to last longer than booms… so all stabilization systems are bound to eventual failure.” [33]
Farmer risk seems to be more effectively mitigated locally where farmers choose a multiple crop approach to generating cash income. Farmers specializing in cocoa production improve efficiency through intensive production and selling at least part of each crop according to sales prices fixed contractually and in advance.
In so doing farmers manage labor costs and optimize revenue streams either via loans, advanced payment for sales or other mechanisms. To succeed in this somewhat technical endeavor, farmers concede the marketing of their produce to their local farmers’ organization.
Characteristics of a good farmer organization:
1. Established as a legal entity with written bylaws;
2. Democratically governed from within a clearly-established organization;
3. Meets regularly with members to determine their common vision and ways/ means by which the vision may be accomplished;
4. Maintains a channel for the expression of grievances and for arbitration;
5. Publishes its accounts annually.
For whatever reason, not all farmers are willing or able to take part in an FO. Private interests by way of a buying agent often target these farmers. Independent farmers also must depend upon their own resources to attract extension services. Because of the low volumes bought and sold, buying agent commissions and transportation expenses are higher for the farmer without an organization to work with. The only advantage buying agents bring to a cocoa transaction is ready cash. Currently circumstances require most individual farmers to fend for themselves in accessing technical assistance.
Since unlike rubber or oil palm, large-scale cocoa plantations do not exist, farmers need their own organizational, particularly to obtain the best price for the cocoa they consign for sale.
A schematic description of the cocoa supply chain is traced in the diagram below:
Appendix 3: Analysis of Per-Hectare Costs/ Labor Use
The above study of Liberian cocoa farms draws its labor (person-day use) data from a 1984 World Bank document, “Liberia Agricultural Marketing Study,” David Hughes et. al. (1989)
Discussion:
The data above portrays Liberian cocoa farmers as results-based managers who will invest their labor (person-day use) according to the potential productivity of their farms—beginning with improved planting material and inputs. We see farmers almost doubling their person-days (from 27 to 47 days) when stewarding improved planting material. We also see them suffer diminishing returns as the cost of inputs and time spent in their application factored in; this in spite of their improved husbandry resulting in a 22 percent increase in yield (from 992 to 1213 lbs.)
Using higher-yield planting material available today—trees that produce from 1500 to 2000 kg/ ha (3300 to 4400 lbs.) System 3 rather than System 2 may have generated the most profitable results.
Lesson Learned:
From the table above and additional data below, we can see that in 1984 Liberian farmers were certainly good farm managers, investing in productivity and innovation beyond the point of diminish returns in (System 3) and retracting labor when it was no longer justified (System 4). Considering continued labor constraints, today we must not fail to note the scenario depicted in System 4 whereby inputs were invested in rehabilitated rather than improved planting material. This System yielded neither a substantial production increase nor a better investment in labor over the traditional system. Where only unimproved plant material is available, therefore, exhorting farmers to invest in state-of-the-art husbandry and inputs is vain, a conclusion that we find validated by farmers who used 21 person-days less in System 4 than in System 3.
The author assumes that labor data found above may still reflect Liberian farmer judgment when deciding to invest their labor today. Below cash costs are adjusted for inflation to 2012 US dollars and assume an inputs package of fungicides, insecticides and fertilizers also valued in 2012 US dollars.
|Cost-Per-Hectare Comparison of Cocoa Production Systems: |
|1984 Labor Data Updated with 2012 Costs and Prices |
|Farm-Gate Price USD: |$1.55 | | | | |
|Costs |Units |Day rate 2012|Value 1984 LD |Value 1984 USD |Value 2012 USD |
| | |USD | | | |
|Traditional System (existing trees, no | | | | | |
|inputs) | | | | | |
|Kg Yield/ ha |225 | | | | |
| | | | | | |
|Person-Days Labor |27 |$4.00 | | |$108.00 |
|Subtotal Labor |27 | | | |$108.00 |
|Return/ Person-Day |$6.62 | | | | |
|Cash | | |$28.00 |$14.00 |$31.00 |
|Tools | | |$8.00 |$4.00 |$9.00 |
|Development | | |$20.00 |$10.00 |$22.00 |
|Total cost System 1 | | | | |$170.00 |
|Sales Value | | | | |$348.75 |
|Net Revenue | | | | |$178.75 |
| | | | | | |
|Traditional System 2 (Improved Seedlings, | | | | | |
|No inputs) | | | | | |
|Kg Yield/ ha |452 | | | | |
| | | | | | |
|Person-Days Labor |46 |$4.00 | | |$184.00 |
|Subtotal Labor |46 | | | |$184.00 |
|Return/ Person-Day |$9.51 | | | | |
| | | | | | |
|Cash | | |$36.00 |$18.00 |$40.00 |
|Tools | | |$14.00 |$7.00 |$15.00 |
|Development | | |$22.00 |$11.00 |$24.00 |
|Total Cost System 2 | | | | |$263.00 |
|Sales Value | | | | |$700.60 |
|Net Revenue | | | | |$437.60 |
| | | | | | |
|Traditional System 3 (System 2 + Inputs) | | | | | |
|Kg Yield/ ha |551 | | | | |
| | | | | | |
|Person-Days Labor |68 |$4.00 | | |$272.00 |
|Subtotal Labor |68 | | | | |
|Return/ Person-Day |$5.94 | | | | |
| | | | | | |
|Cash | | |$16.00 |$8.00 |$18.00 |
|Tools | | |$16.00 |$8.00 |$18.00 |
|Development | | | | |$142.00 |
|Total Cost System 3 | | | | |$450.00 |
|Sales Value | | | | |$854.05 |
|Net Revenue | | | | |$404.05 |
| | | | | | |
|System 4 | | | | | |
|(Non-improved seedlings, but input-driven | | | | | |
|rehabilitation) | | | | | |
|Yield/ ha |351 | | | | |
| | | | | | |
|Person-Days Labor |47 |$4.00 | | |$188.00 |
|Subtotal Labor |47 | | | | |
|Return/ Person-Day |$5.30 | | | | |
| | | | | | |
|Cash | | |$214.00 |$107.00 |$107.00 |
|Tools | | | | |$18.00 |
|Development | | | | |$142.00 |
|Total Cost System 4 | | | | |$295.00 |
|Sales Value | | | | |$544.05 |
|Net Revenue | | | | |$249.05 |
More Lessons:
It is apparent that the traditional system (1) risks the least amount of labor and yields more revenue per person-day of labor than the system that would rehabilitate the same farm using inputs! (System 4)
Under System 4 according to the yields measured in 1984, older trees produced a 64 percent increase over the traditional system. One might say that the inputs had a considerable effect on yield, but on par with the labor requirement, inputs, while leveraging a notable increase, initial yields are so poor that the results of additional inputs are severely mitigated.
When comparing their results, therefore; the farmers will discover that after 27 days investing one’s labor in an enterprise other than cocoa presents no risk because of diminishing returns.
When faced with low-yielding trees, the best farm manager will maintain a traditional farming system and rather than invest 20 extra days of labor required of good practices, the farmer will channel that time into another revenue-generating activity. (20 extra days invested by the farmer in System 4 generated only $70.30 more revenue.)
System 4 Labor: (rehabilitating) = 47 days Net revenue = $249.05
– System 1 Labor: (traditional) = 27 days Net revenue = $178.75
Traditional System 1 : Labor Savings = 20 days; System 4 gain = $ 70.30
For farmers to apply good agricultural practices to their benefit, therefore; they must be equipped not just with inputs; they must plant trees high enough in yield to begin with. The greater portion of trees standing in the cocoa belt today resembles those modeled in 1984. This is why more Liberian farmers’ cocoa cultivation systems resemble more the traditional system depicted above than the improved husbandry costed in System 4. (Liberian farmers are good labor managers; it cannot be stated too frequently.)
The results of System 3 indicate that the expense and extra time invested in input use caused a diminishing return in large part because of the additional labor use. Farmers need inputs that increase yield, but that also save labor. In fact, the “input” most likely to increase yield and save labor in cocoa-producing farms is called new, improved planting material. Today’s excellent varieties stand no higher than two meters, taking the form of a wine glass and require little effort to harvest and fewer chemicals to treat than their predecessors, given their diminished size and compact architecture.
At 2000 kg/ ha production, such trees would generate revenue more resembling that found in the table below:
|Updated ‘System 3,’ (Costed with yields | | | | | |
|corresponding to 2012 planting material) | | | | | |
|Kg Yield/ ha |2000 | | | | |
| | | | | | |
|Person-Days Labor |68 |$4.00 | | |$272.00 |
|Subtotal Labor |68 | | | | |
|Return/ Person-Day |$36.35 | | | | |
| | | | | | |
|Cash | | |$16.00 |$8.00 |$18.00 |
|Tools | | |$16.00 |$8.00 |$18.00 |
|Development | | | | |$142.00 |
|Total Cost System 3 | | | | |$450.00 |
|Sales Value | | | | |$3100.00 |
|Net Revenue | | | | |$2472.00 |
| | | | | | |
Appendix 4: Terms of Trade Important
Concerning projected increases in cocoa prices as a justification for cocoa farming, we must be careful not to look upon this choice in a vacuum. As cocoa prices have tended upward, rice prices are reported to have trended upward more dramatically than cocoa.
For example, in a comparison of livelihoods between 2007 and 2008 among coffee/ cocoa producers in Kolahun District (Lofa) families interviewed there confirmed receiving higher per-kg prices for their cocoa production in 2008 compared to 2007. At the same time, however; per-day costs for labor (brushing) increased three-fold largely because 2008 prices for rice had more than doubled as the Liberian dollar lost value. Therefore the terms of trade when comparing cocoa to rice had deteriorated between 2007 and 2008 and cocoa prices would have had to double for cocoa cropping to maintain parity with the increasing cost of rice.
From a strategic point of view, policymakers should not consider price alone as the key indicator for success. First, prices are out of farmer control for the most part; influenced by the complexities of world markets, exchange rates different from our local currency and other constraints. While price is an important guide in determining profitability, the true key indicator will be Revenue, i.e. (Price x Volume) – Costs. While cocoa farmers are ‘price takers’ on world markets, they are nevertheless free to intensify their production strategies and to shift labor to where it is most efficient diminishing per kg costs.
The table below demonstrates that following trends in increasing prices in 2008, Liberian cocoa farmers increased time spent in their cocoa farms by 6 percent (from 46 percent to 52 percent) and almost doubled activity in their rice fields from 6 percent to 10 percent. They lessened activity in petty trade and vegetable production.
Meanwhile, as depicted in the histogram below, household expenditures on food increased by 10 percent over the same time frame:
The additional cost of labor is only modestly higher in the big picture, but increased food costs bring to light farmers’ constant preoccupation with food security. If a cash crop cannot more than compensate for other increases in the cost of living (such as when staple prices increase) then farmers will invest less in cash crop husbandry. Given the current dependency upon imported rice, Liberian farmers have two choices, increase their food (staple) production capacity or dramatically increase their cash crop productivity (according to an acceptable budget) in order to be capable of covering rising food costs.
As explained elsewhere in this document, Liberian cocoa farmers maintain a comparative advantage in producing certain tree crops for the world economy, but if farmers are not as efficient in leveraging that advantage, then they will lose the opportunity to earn cash from a position of strength. Comparatively, rice yields in Liberia are among the lowest in the region.[34] The opportunity to produce cocoa with improved disease-resistant, high-yield planting material could provide a just compensation for their weakness in rice. [35]
Appendix 5: Percentages of World Cocoa Price: Liberia Falls Short
A September 2008 Sustainable Tree Crop Program Policy Brief [36] noted Liberian farm-gate prices for the 2006/ 07 and 2007/ 08 crops as a paltry 23 percent and 25 percent of the FOB price for cocoa, compared with farmers in Côte d’Ivoire and Ghana receiving roughly twice those percentages (49 and 47 percent respectively). According to the same policy brief intermediaries (chiefly LBs) were capable of commanding margins akin to 30 percent of FOB. These multiples are unheard of in neighboring countries and belie a system where LBs often usurp value unjustifiably. In fact, Liberian margins should more resemble liberalized markets of Cameroon and Nigeria. Their farmers received 75 and 86 percent, respectively, of the FOB price for cocoa during the same period.
The above statistics demonstrate that with regard to marketing their cocoa in 2007/ 08, Liberian farmers lacked market information and this lack of information clearly benefited exporters and their intermediaries during the 2007/ 08-crop. If Liberian cocoa quality remained low over the same years that they receive only a third of what Cameroonian or Nigerian farmers receive for a kg of cocoa, then one could argue that the market will get what it pays for.
In the future, farmers may be more inclined to use the complement of what they were deprived of in prior seasons to renew their farms because they begin to see markets become more efficient. Only farmers can insist on better prices by designating competent organizational management. The LPMC and CDA can help in this regard by sending daily price guidance via SMS to FO management teams. Simpler systems such as posting daily prices on the proverbial warehouse blackboard also work. At this writing, evidence of diminishing margins at the LB level have been reported by exporters, but FOs and the CDA should keep an eye on the attribution of value between farm gate and port.
The above-referenced policy brief also noted increased percentages of FOB prices to farmers thanks to an increase in the number of exporters (even from Guinea) in 2008. Therefore, exporter competition should be encouraged though not necessarily from neighboring countries. One way of facilitating additional Liberian exporter capacity in Liberia would be to replace the annual royalty fee of $10,000 with an indexed per-kg tax on tonnage exported.[37]
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[1] FAPS 2008-2011 p. 26
[2] Consider plantain, banana and a range of trees such as Terminalia Ivorensis and Acacia mangium as companion crops providing food, fuel and lumber, not to mention mango, avocado and various other fruit trees.
[3] The author prefaces these comments with an apology for the dearth of current data drawing some small assurance, however; from the assumption that due to the two-to-five-year delay in tree production after planting, even statistics from five years ago (2007) may be useful.
[4] “Tree Crops to Ensure Income Generation and Sustainable Livelihoods in Liberia: Unlocking the potential of the cocoa sub-sector,” Wilcox, Michael D. Jr. (2007), p. 31
[5] The author of this report assumes that five years of age should be added to 2007 data (the most recent study available at this writing).
[6] The Harkin-Engel or ‘Cocoa Protocol’ is a voluntary agreement signed by the Chocolate Manufacturers Association and the World Cocoa Foundation in September of 2001 promised to take “…action for the elimination of the worst forms of child labor.” (According to ILO Convention 182).
[7] A primary objective of cocoa farm certification is to establish and preserve the origin of cocoa bean production.
[8] Cadbury/ Kraft Foods, Ferrero, Hershey, Mars and Nestlé.
[9] While individual FOs may find several opportunities to deliver cocoa to niche markets, selling to these markets, still requires more effort than a simple national policy seeking quality and economies of scale.
[10] Certifying cocoa farms should become a top priority in Liberia very soon after the basics of farmer organization are put into practice.
[11] “Gender-Aware Programs and Women’s Roles in Agricultural Value Chains,” World Bank Gender and Development Group. (May, 2010) p. 5
[12] Estimated by Mars Snackfoods, 2011.
[13] To consider China alone among consuming nations, has considerable potential for growth. See Chocolate Fortunes: The Battle for the Hearts and Minds and Wallets of China’s Consumers, Lawrence L. Allen (2009).
[14] See “Liberian Agricultural Sector Investment Program” (LASIP), (2010) p. 29 citing the burden of food security resting disproportionately upon women including widows and other female heads of household. Rice is the staple upon which most would rely for subsistence.
[15] Transmar, a manufacturer of semi-finished cocoa products maintains an active interest in partnering with Liberian cocoa farmers just as the big five confectioners have already engaged funding of cocoa farmer livelihood programs in neighboring Côte d’Ivoire, Ghana and elsewhere. See the World Cocoa Foundation website for ongoing industry investments.
[16] See Implementation of somatic embryogenesis as a propagation technique for cacao (October 2009) Nestlé Research.
[17] According to the “Liberian Agricultural Sector Investment Program” (2010) p.30 and “Outcomes from the Liberian Cocoa Sector Roundtable” (May 2006) Michael D. Wilcox, Jr., after the war a key cross-section of the labor force, 18-45 year-old men and women migrated to urban areas following what they perceive as greater opportunities for employment. This strategy is structured to attract some percentage of those laborers back to newly created opportunities in the rural areas.
[18] For example, CNRA, the Ivorian cocoa seek garden produces only enough pods for about 75,000 ha, or about 3.7% of what is required to rehabilitate their cocoa fields in excess of 2,000,000 ha.
[19] See “Implementation of somatic embryogenesis as a propagation technique for cacao,” Nestlé Research Report, R&D Center, Tours, France (October 2009) p. 2
[20] Ibid. p. 24-26. By the way, somatic embryogenesis is an accelerated propagation method that does not produce genetically modified trees or cocoa beans.
[21] Ibid. p. 27
[22] Kuu work groups enable participating farmer proprietors to volunteer their labor on other farms in exchange for mutual group members volunteering to work on their farm(s).
[23] Though land is inherently more valuable than its quality of being ‘free and clear,’ the additional value is captive to a scarcity of labor required to fundamentally transform the farm into a newly productive asset.
[24] Exceptionally, cocoa as the foundational enterprise is condemned to characterization as a “big bet.” As a tree crop, it can only really be pursued at maximum scale if the business analysis demonstrates net earnings. As a tree crop, its culture must be led with a view to the long-term benefits for which complementary actions may render it more and more sustainable as husbandry improves.
[25] Training specialists should determine what modules are required for continued dissemination to members over a five-month period, careful to nest FaaB training into the curriculum after basic pruning and farm planning, but before the discussion of ICPM.
[26] Where farmers are willing to bag their cocoa in a partner exporter’s new jute bags, they create employment (bean sorters and baggers) save time downstream for the exporter(s) and receive higher farm-gate prices.
[27] Banks should receive ‘first loss’ insurance funding of up to 10 percent of the loan portfolio value as an incentive to participate. The exercise would allow reliable farmers and farmers’ organizations to begin to establish a credit history that may be shared with financial institutions and build trust in their name sector wide.
[28] While such committees are successful in negotiating low prices, the choice of such committee members should be subject to scrutiny to avoid potential conflicts of interest. Having a banker or exporter included within the committee of FO managers would provide the desired effect.
[29] See Appendix 5 for a more in-depth comparison of prices received and chart per national origin in 2007/ 08.
[30] Ghana was in a better position to repel proposed reforms and did. Cameroon, however liberalized in the late 1980s, Nigeria followed in the early 1990s and Côte d’Ivoire followed in 1998.
[31] "Reforming Cote d'Ivoire's Cocoa Marketing and Pricing System," John McIntire and Panos Varangis, Policy Research Working Paper for the World Bank Abidjan Resident Mission and
Development Research Group Rural Development (March 1999) see also Deaton, A.S. (1992) “Commodity Prices, Stabilization, and Growth in Africa”. Discussion Paper #166. Center of International Studies, Woodrow Wilson School, Princeton University.
[32] Harkin-Engel or The Cocoa Protocol, a voluntary agreement signed by the Chocolate Manufacturers Association and the World Cocoa Foundation in September of 2001 the industry promising “…action for the elimination of the worst forms of child labor.” (According to ILO Convention 182).
[33] "Reforming Cote d'Ivoire's Cocoa Marketing and Pricing System," John McIntire and Panos Varangis, Policy Research Working Paper for the World Bank Abidjan Resident Mission and
Development Research Group Rural Development (March 1999) see also Deaton, A.S. (1992) “Commodity Prices, Stabilization, and Growth in Africa”. Discussion Paper #166. Center of International Studies, Woodrow Wilson School, Princeton University.See also Deaton, A.S. (1992) “Commodity Prices, Stabilization, and Growth in Africa,” Discussion Paper #166 Center of International Studies, Woodrow Wilson School, Princeton University
[34] “The State of Food and Nutrition Security in Liberia: Comprehensive Food Security and Nutrition Survey” (2010)
[35] Not only are rice yields low, given the importation of low-cost rice, there is little incentive for rural Liberians to produce in excess of their needs. According to the 2008 Government of Liberia study: “The Impact of High Prices on Food Security in Liberia,” local production has been, but one third of consumption.
[36] STCP Policy Brief: “Reforming Cocoa and Coffee Marketing in Liberia” Issue. No. 2, IITA, September 2008, Jim Gockowski and Michael Wilcox, Jr.
[37] Economically, the $10,000 royalty is also a tax, but a regressive one.
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[pic]
Field Responsibility By Gender Among Liberian Farmers
[pic]
Revenue before and after certification process: R = (P x Y)
>
Price Increase
(Premium)
Greater yield thanks to improved husbandry and sustainable management
P
Y
Diagram 1 (Yield)
(Price)
Farms
Beans
Village Shed
Independent Buying Agents
Farmers Organization (FO)
Conditioning Warehouse
Via Buying agents = Price – commissions and transport fee
Independent Buying Agents mix all qualities; destroy traceability and chances for certified sales. They may even sell across borders.
Via FO = Price – consignment (bulking) fee (may include transport)
FO can preserve quality, traceability and price, but will not mix poor quality or sell across borders. Possibility for certification!
Price/ Economies/ Value-Added
Analysis of per Hectare Costs and Corresponding Yield of Cocoa for Each of Four Different Cultivation Systems
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US$ 1 = LD$ 2* *This rate was cited in “Liberia Agricultural Marketing Study,” p.iii, David Hughes et. al. (1989).
Official bank rate in Liberia at time of publication: US$1=LD$1
Average CIF prices for cocoa in 1984 = US$ 2300/ mt) following ‘82/’83 low harvest (El Nino)
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Source: Report: “The Impact of High Food Prices on Food Security in Liberia” (July 2008)
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Source: Report: “The Impact of High Food Prices on Food Security” Government of Liberia
(July 2008)
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Source: STCP Policy Brief, IITA Issue No. 02, (September 2008)
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