Américas / June 2009
By Larry Luxner
About 160 kilometers northeast of Guayaquíl, near the town of Vinces, a highway sign proudly welcomes visitors to the obscure República del Cacao.
The name conjures up images of a whimsical new country nobody's ever heard of — rather than the cultivation, processing and marketing of the main ingredient in chocolate. Yet it's clear, once past the security guards overlooking their little eight-hectare "republic," that this centro de acopio is no ordinary business venture.
At its entrance is the company's mission statement, carved in wood for all to see. Rafael Aguirre manages República del Cacao, a division of Confiteca C.A. He says the parent company — which has annual sales of $120 million and is one of Ecuador's largest producers of candies, lollipops, gums and other delights — has invested $1 million in the project.
"We chose Vinces in Los Ríos province because here, you'll find the biggest and the most productive haciendas in Ecuador," said the 48-year-old entrepreneur as he led Américas on a tour of the company's facilities — and a short history lesson on the importance of cacao beans to Ecuador.
"At one time, each owner had 2,000 to 3,000 hectares of cacao, and they didn't have to pay their workers very much. Then came agrarian reform in the 1960s, when the government took away land from the biggest owners, divided it into small parcels and gave these parcels to the campesinos," he explained. "In the province of Los Ríos, there were about 30 to 50 haciendas in total. Now, just with a 25-km radius of Vinces we have approximately 2,200 finqueros with an average of only two hectares each."
Those finqueros arrive by truck to the collection center, where they're paid $95 per quintal (100 lbs) of dry beans, which is equivalent to 270 lbs. of grano en baba (fresh beans). "If they sell to me fresh, it'll weigh more, so I take off 10% for weight," Aguirre said. "But I'm also saving them the work of fermenting or sun-drying it — eliminating five days of their labor."
From the collection center, the beans go through the various stages of processing under thatched-roof buildings painted in rustic shades of green. Meanwhile, GPS units pinpoint the location of each supplying farm, allowing the venture to know exactly where each bean came from, in line with a growing trend toward "traceability" — which until recently was more associated with fine wines, premium cigars and gourmet coffee than bars of chocolate.
Last year, República del Cacao's revenues came to $500,000, but in 2009, thanks to record world prices for cocoa, Aguirre predicting sales will triple to $1.5 million or more.
Those prices, now running at around $2,800 per metric ton, are fueling a revival of Ecuador's once-proud cocoa industry — and offering hope to the hundreds of thousands of people whose livelihoods depend on the tastebuds of North American, European and Asian chocolate connoisseurs.
People like David Sabando, who's been a farmer since the age of 15. Now 33, he's still younger than most of the cacao trees he tends.
In 2004, Sabando and 80 other small producers in the province of Manabí organized themselves into a farmers' cooperative called Corporación Fortaleza del Valle. With help from German development agency GTZ and other NGOs, it has since grown into Ecuador's second-largest cocoa co-op, with 578 members and 1,500 hectares under cultivation.
"When we began, the children of the producers weren't studying in school, and producers didn't have any hope of improving their lives. There was no stability," said co-op president Sabando, interviewed over small shot-glasses of mistela del cacao in a warehouse filled with the pungent aroma of fermented cacao beans. "Now all our kids are in school. This is the big difference."
At Corporación Fortaleza del Valle, located along a bumpy road just outside the town of Calceta, members' fields are filled with cacao trees of varying ages. Each tree on average produces 80 mazorcas, and an average mazorca (pod) has 30 seeds. As a rule of thumb, 10 kg of fresh beans yields 3.5 kg of dry beans. Each hectare represents to the farmer 225 kg of dry beans, or about $600-700 worth of income per hectare per year.
One of the industry's pioneers is Alejandro Orellana, the 69-year-old owner of Guayaquil-based Eximore y Café SA.
"Originally we were coffee exporters. But over the last 15 years, productivity kept dropping, and that forced us to switch to cocoa. The government was not interested in caring for this crop," said Orellana, whose plant has 11,000 square meters of drying space for cacao beans; most of his dried beans go to the United States.
"In 1986, I had the idea of creating a National Cocoa Exporters Association. We got a group of friends together and in 10 days, Anecacao was born," he said. "The goal was to give money from exports back to the farmers."
At one time, Ecuador boasted 60 coffee exporters; today, there are no more than 10, and Ecuador is no longer known for quality coffee. By comparison, the country has 38 exporters of cocoa products, though more than 90% of Ecuador's cocoa producers are smallholders with two hectares or less
"Ecuador is the only country that exports all the cocoa it produces, because there's practically no consumption here— unlike Brazil, Colombia or Peru, where some of it stays in the local market," he told Américas. "If we could produce 300,000 tons, all of it would be sold internationally. That's why it's important that the government sees what happened in the past with coffee, in order to avoid the same mistakes with cacao."
In 2000, exports of cocoa powder, finished chocolate and related products earned Ecuador $73 million, jumping to 104,000 metric tons worth $248 million in 2007 and 108,000 tons worth nearly $290 million last year. That places the sector ahead of coffee but still way behind bananas ($1.2 billion), fisheries ($700 million), shrimp ($600 million) and cut flowers ($400 million). If prices hold steady and Ecuador produces115,000 tons as expected, cocoa could surpass the $300 million mark this year.
"We have been exporting cocoa for hundreds of years, even before we became a republic," said Askley Delgado Flor, Anecacao's current president. "Cocoa has been present in our most important moments of history. Our revolution was funded by cocoa, and until 1920, cocoa represented 80% of Ecuador's export earnings and was the main source of employment in Ecuador."
At present, 60% of Ecuador's crop goes to Western Europe; in years past, most of it was shipped to the United States. Cocoa is produced from the cacao bean in six coastal provinces and also in Ecuador's highlands and Amazon regions.
"Right now, our government is really keen on promoting fine-flavor cocoa," said Delgado, originally a coffee exporter who switched to cacao in 1985. "We have to make a commitment not only to produce more, but also to improve quality. We hope to become like the Colombian Coffee Growers Federation — a great example of how the private and public sectors work together."
Anecacao, funded through a 0.35% levy on cocoa exports, has rehabilitated more than 1,000 small cocoa farms, said Delgado — proudly noting that yield has jumped from 3-4 quintales to 12-15 quintales per hectare. "We think we've accomplished a lot, thanks to the good prices we've enjoyed in the last three or four years."
Support from President Rafael Correa's left-leaning government has also helped.
Ecuador's minister of agriculture,Walter Poveda, said fiscal authorities recently imposed a two-year tax holiday until 2010 for all farmers, exporters and fertilizer producers, "even if a farm has to import a $10 million piece of machinery."
That generous tax exemption will cost Ecuador $600 million — a hefty sum for a country struggling with dramatic declines in the price of oil, its main export commodity.
In addition, Poveda says his government plans to add 50,000 hectares to the 400,000 hectares of cocoa already being cultivated in Ecuador. This 50,000 includes 20,000 hectares of new plantations, and the renovation and rehabilitation of 30,000 hectares of currenly unproductive, disease-ridden trees — some of them 80 years old or more.
"We think the ideal approach is to improve the productivity of existing lands," said Poveda, interviewed at his 10th-floor office overlooking Quito. "The government should regulate the industry so small producers can reinvest in their production. Before, the private sector considered agriculture to be high-risk, so interest rates were very high. As a result, only 4% of small producers had access to credit. Now that's increasing."
At present, financing for cocoa-export projects are channeled through three government institutions: Banco del Estado, Corporación Financiero and Banco Nacional de Fomento. In addition, the Instituto Nacional de Riego helps finance the rehabilitation of irrigation systems that have not been maintained properly.
Poveda's ministry has also taken the lead in trying to get farmers to plant only Ecuador's famous nacional variety (also known as arriba), which is renowned for its unique floral aroma and flavor. It also strongly discourages farmers from mixing nacional with the lower-quality CCN-51 cocoa, a cloned variety which is used mainly in mass-market chocolate or made into cocoa butter.
"We see a big problem with nacional in the future, because of its low productivity," said Alberto Nacer, commercial manager at Transmar SA, noting that CCN-51 yields three times as many beans as do nacional trees.
"Nacional beans give farmers only 0.25 or 0.30 tons per hectare per year. Small farmers with one or two hectares don't even produce half a ton, and that's not enough to survive. In Ecuador, CCN-51 has much better productivity, and it's more resistant to diseases. That's why there's been a big shift toward planting CCN-51 in the last few years."
About 90% of Transmar's exports — 12,000 tons of beans and 8,400 tons of liquid cocoa per year — consist of nacional beans; the remaining 10% are CNN-51 beans.
Nacer, who was a journalist before becoming a cocoa industry analyst, said that in 2008 his company exported 10,105 tons of cocoa products worth around $30 million. Once packed, the finished product takes 12 days by container ship to the U.S. East Coast, 15 days to the West Coast, 22 days to Hamburg and 31 days to Japan.
Transmar buys whole pods instead of just the beans, because that makes it easier to tell the difference between nacional and CCN-51 — which is important because some buyers insist on the more expensive, 100% arriba cocoa.
"Colombia has been very careful not to mix its varieties of coffee. We should have done the same with our cocoa many years ago. But happily, there are only 20,000 hectares of CCN-51, which is very small. It's not a risk yet," said Nacer, though he warned that "once the cocoa has been mixed, there's no machine that can separate it."
About 135 kms north of Guayaquil, Ecuador's Instituto Nacional Autónomo de Investigaciones Agropecuarias (INIAP) is looking to breed a new strain of nacional that yields more cocoa pods — yet offers more resistance to common diseases such as witches' broom, which kills the leaves, and monilia, which affects the fruit.
"These two diseases could potentially wipe out 80% of Ecuador's cocoa crop," said Ray Loor, head of the nacional coffee and cocoa program at INIAP's Pichilingue tropical experimental station in Quevedo. Loor's laboratory consists of 11,000 trees on 80 hectares.
"Within the next few years, we will come up with some pleasant surprises," said INIAP's director of cocoa research, Freddy Amores. "What we want is a nacional variety that can equal the yield of CCN-51. Farmers will feel happy about this because their investment would be assured. We are testing new plants all the time."
Meanwhile, República del Cacao's Aguirre says his business model is also a bit of a social experiment — and that things don't always go smoothly.
"It's hard to work with people who, for example, are used to selling their cacao to middlemen who give them cash," he said. "What we're trying to do is educate them to save their money and think about the future. We don't usually pay them with cash. We open a bank account for them and deposit their money directly into the account."
Previously, said Aguirre, laborers — who are paid every 15 days in cash — went into town to buy rice, sugar and cooking oil. "The rest of the money they spent on booze and cigarettes," he said. "But now, when we deposit their money into a bank account, the wife has more control because women are usually more careful."
Social responsibilty is also a priority for two of Ecuador's premier manufacturers of fine chocolate — both of which happen to be located in Quito.
Fausto Moncayo is general manager of Ecuatoriana de Chocolates SA, which began producing fine chocolate under the Cacaoyere label in January 2008 for a very discriminating market. Except for the Puerto Quito 91% bar, all of Ecuatoriana's chocolates are Rainforest Alliance-certified.
"This is very important," Moncayo told Américas. "In the United States, you cannot sell organic if you don't have Rainforest certification. If you want to compete with the best, you're expected to have that certification. And in Ecuador, only a few families can make that kind of investment," said Moncayo, though he declined to say how much the company poured into the venture, which employs 45 people in a 600-square-meter factory.
At present, Ecuatoriana produces only 20 tons of finished chocolates per month, which is a lot considering the retail price; a bar of Cacaoyere's 63% Amazonia sells for about $5.99 in the United States.
"Here in Ecuador, you have a return on your investment within five to seven years, but in this business, you can never stop investing," said Moncayo, whose parent company produces mainly poultry and spices. "For us, this was an opportunity to do something different for our country."
Half an hour's drive from Ecuatoriana is Pacarí, which bills itself as Ecuador's first exporter of organic "artisan chocolate." Marketing director Amanda Greene defines this as "chocolate produced by small chocolate-makers who understand their craft intimately."
"You need a fine grape to make fine wine, and you need great cacao to make a great chocolate," she said. "People in Europe were winning awards with our chocolate, so we thought, 'why not make it here?'"
Pacarí's parent company, Ecuadorian Organics, was founded in 2002 by Santiago Peralta and Carla Barboto. The upstart manufacturer launched its first organic product in 2007. Pacarí — which means "nature" in the Quechua language — currently sources raw material from 400 families and 20 cooperatives throughout Ecuador.
"We work very closely with the farmers to make sure we're getting the best ingredients," Greene explained. "All of our bars are organic, and we run our company with an approach toward completely fair and equitable trade."
Greene said all of Pacarí's chocolates are dairy-free. They range from 60% to 100% cacao content; the only one that doesn't have sugar is 100% cacao.
"Our 100% bar is raw chocolate, and very attractive to the health-food population," she said, noting the recent emergence of the raw-food movement. "Many people gravitate towards dark chocolate because of the antioxidants. For the raw bars, we don't toast the cacao becuase in the toasting process, temperatures can go up to 150 degrees C. That's a step that's skipped in making our raw bar."
"We don't dump a bunch of cacao beans into a machine, and out comes a bar of chocolate. We constantly monitor every single stage, and we check to make sure we're getting the perfect roasting on every batch of beans," she said. "It's produced bean to bar at the source. We want to make sure we're selecting the best of the best. At the end of the day, we want you to enjoy the product."