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Report 3 of 5:
Pepa
da Oro - Ecuador
Introduction
Ecuador has 60,000 cocoa farmers who devote approximately 300,000 hectares to cocoa cultivation. 54% of these cocoa farms are smallholdings of less than 10 hectares. Ecuador produces two types of cocoa – CCN51 and National Cocoa. National Cocoa trees are low yielding and are mostly restricted to small and medium sized farms. CCN51, by contrast, is a high yielding hybrid and is mostly produced on large-scale plantations. Ecuador’s local cocoa processing and chocolate manufacturing industries prefer CCN51 because it has high cocoa butter fat content and suffers no mould problems.
Ecuadorian cocoa is marketed without government interference. Local prices are driven by international prices and by local supply and demand. Most producers are located far away from exporters’ yards and are unable to sell directly to the exporters. Transport costs and intermediaries’ margins bite significantly into export yard prices, leaving producers with a much smaller share of the export price. In the more remote areas, growers with limited quantities of produce to sell have even less bargaining power because of the scarcity of buyers.
Fair/ethical trade
Cocoa is an appropriate commodity for ethical approaches to trade. It has been traded for many years, is consumed in large quantities, has all the necessary infrastructure to support its trade and is processed into luxury items that have few substitutes and a high profile in consumers’ minds.
Fair trade is primarily focused on social benefits for small producers who have limited access to world markets and a weak bargaining position in relation to intermediate traders (middlemen). Fair trade aims to improve the position of the marginalised producers. It is more about the trading relationship than about the performance of the supplier. Key concepts of fair trade are direct trade at a fair price, the creation of a long term relationship and access to credit facilities. Producers are normally organised in groups (typically cooperatives) which are used as selling agents.
The existence of a fair trade label on the wrapper of a chocolate bar guarantees that a proportion of the ingredients has been purchased according to ethical rules laid down by the labelling organisation. The rules relate to "fair" terms and conditions of purchase. Certification and regular checks ensure that the rules are followed. Farmer organisations that do not meet the criteria are not excluded from fair trade providing they can provide evidence that they are making progress towards criteria fulfilment.
MCCH
The NGO, Maquita Cushunchic Commercializando como Hermanos (MCCH) which means "Let us help each other through cooperative trading" was founded in Quito, the capital of Ecuador, in 1985. It has been exporting cocoa grown by small producers from the coast of Ecuador since 1992 through its export company, Agroexportadora Maquita. MCCH’s cocoa operations are subsidised to a small extent. Donor grants have provided the organisation with capital to invest both in its marketing operations and improving cocoa bean quality at farm level. The part of Maquita’s profits that is not reinvested in the company goes via MCCH to farmers, funding for farmer training and other socially motivated activities.
MCCH works with 800 smallholder cocoa producing families which represents about 3% of Ecuador’s total number of smallholder cocoa growers (those with less than 10 hectares of land). They offer training in schools relating to cocoa growing, including improving production, post harvest and marketing. They also strive to buy the product at better prices than the regular local-merchants offer. Apart from cocoa, MCCH trades crafts and food processed by artisan methods, and they offer responsible tourism through quality tourist packages.
MCCH operates a vertically integrated marketing system which it claims rewards the loyalty of affiliated smallholder cooperatives. The criteria for becoming affiliated are that the association should operate in remote areas, should be well organised and its members should possess smallholdings of less than approximately 7 hectares. MCCH also purchases from regular sellers on non-preferential terms in order to realise economies of export scale.
Cocoa production
Maquita concentrates its operations in two of Ecuador’s largest cocoa producing provinces, Esmeraldas and Manabi, where livelihoods are based on collection, hunting and fishing for food as well as subsistence agriculture. The people depend on the forest for the wild flora and fauna, land and water. Cocoa growing in these regions is predominantly on small and medium sized farms. The principal vegetation cover of Esmeraldas Province is tropical humid forest.
Smallholder cocoa farmers in these provinces engage in a wide variety of activities and grow or trade diverse crops. Coffee, cocoa, peanuts and tagua (vegetable ivory) are cultivated on the more traditional smallholder farms. This strategy enables them to spread risk. The lands cultivated by the smallholders are isolated and remote with the fields being scattered over wide areas.
Access to transport is the biggest constraint on economic development and the region has many zones that are difficult to access, such as those far from water courses and roads. Access to credit for the vast majority of smallholders is extremely limited. Only certain populations which are supported by external institutions have hope of obtaining credit. There is also little access to health and educational facilities.
Cocoa production varies according to the area cultivated, the age of the trees, crop diseases, climatic variations and strategies employed to lengthen the marketing period. Small quantities of cocoa are sold in order to buy food or pay for health and education costs. The cocoa harvest lasts between 6 to 8 months of the year, providing farmers with a small but extended source of income.
Cocoa trading
The smallholders sell cocoa in different conditions: semi-green, en baba (fresh) without fermentation, or fermented at different levels of humidity, either with or without basic sorting.
Cocoa is bought and traded in small settlements, along rivers and roads and in towns. Most traders have appointed cocoa buyers in each small rural settlement. Cocoa is traded in better located villages on a specific market day and in other villages through shops and stalls at markets in neighbouring villages. Cocoa trading also occurs in the towns where the larger traders buy up the cocoa accumulated by local traders until a sufficient volume is collected for transport to Guayaquil.
Some producers take cocoa straight from their fields to embarkation points along the river or on the roads where it is collected by traders. The traders act mainly as buyers, although sometimes they carry manufactured goods ordered by the farmers (the price is deducted by the traders from the cocoa bought). Commercial transactions between the traders and smallholders include haggling and buying on trust/credit. Trade in cocoa at the village level reflects the scarcity of cash in the rural economy and the marginalised position of the farmers.
MCCH has established local farmer organisations specifically for cocoa commercialisation. Where farmer organisations do not have their own collector or trader, MCCH sends its own buyer to purchase cocoa. MCCH has written agreements with farmer cooperatives that supply them with cocoa. Some farmers and traders sell their cocoa to MCCH directly at the drying place in Esmeraldas. MCCH buys cocoa from individual farmers and from cooperatives. It selects cocoa beans by their size and appearance so beans infected by pests are excluded.
Maquita’s head office in Guayaquil is responsible for setting prices which remain valid for one week. The price is determined firstly in New York and local traders learn it from the radio. Farmers and traders try to find out what MCCH is paying before engaging in cocoa trading taking this as a reference point for the weekly price.
Exporting cocoa
The large port of Guayaquil exercises a national monopoly on cocoa and large export companies are concentrated here. All exported cocoa passes through Guayaquil. On receiving the cocoa, the exporters yards are responsible for grading, assessing moisture content, weighing, calculating and paying the purchase price, drying beans to a storable moisture level, bagging and storage.
The intention of MCCH was to establish a marketing system in parallel to the export of cocoa with the explicit aims of working with farmer organisations, securing a fair price and weight and a premium for any good quality cocoa produced. Export began through an opportunity provided by Max Havelaar (a fair trade labelling organisation) for the export of cocoa to Holland.
MCCH takes charge of selling the product abroad, concentrating heavily on exporting higher quality beans. They are the premier exporters of cocoa beans in Ecuador out of a total of 42 competitors and the main organisation exporting cocoa to fair trade markets. By far the greatest part of Maquita’s exports are sold, through brokers, to conventional markets in the US and Europe and directly to chocolate manufacturers.
"The Cocoa School"
MCCH provides technical support to the associate farmers through the mobile "Cocoa School". Producers and their families attend regular workshops to teach them how to prevent crops being attacked by fungus, how to improve their yield, grow cocoa from seed and to farm using natural fertilisers. The school is designed to train farmers over a period of three years.
MCCH provides training on the following activities:
- Production techniques
- Post harvest management
- Farm management (accounting and planning)
- Marketing and administration in the collection/processing centres
Ultimately, higher productivity, higher quality and better planning will have a greater impact on farmers’ lives than preferential prices.
Benefits for smallholders from the fair trade in cocoa
- Higher price paid for cocoa and/or influence on local prices
- Elimination of middlemen
- Fairer and more accurate weighing system
- Provision of market information
- Cash payments
- Access to transport
- Incentives for the production of better quality cocoa by smallholders
- Capacity building of MCCH agents and the cocoa growers
Intermediate Technology Development Group would like to acknowledge the Natural Resources and Ethical Trade Programme of the Natural Resources Institute (University of Greenwich) - in particular, Valerie Nelson and Modesto Galvez - for providing the original material which was taken from the paper on the Social Impact of Ethical and Conventional Cocoa Trading on Forest-Dependent People in Ecuador.
This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries through their Forestry Research Programme. The views expressed are not necessarily those of the DFID.
For further information, please contact:
Programme Coordinator
Natural Resources and Ethical Trading Programme
Natural Resources Institute
University of Greenwich
Chatham Maritime
Kent
ME4 4TB
United Kingdom
Tel: +44 (0) 1634 883190
Fax: +44 (0) 1634 883377
E-mail: nret@gre.ac.uk |
Further reading available from ITDG Development Bookshop
FAO
Cocoa
Part of a series of 31, this handbook is for an intermediate-level agricultural and training course.
£2.25 1977 PB FAO ISBN 9251006237
Guy Mossu
Cocoa
Cocoa covers in detail the characteristics and requirements of the crop and how to grow it in a variety of tropical zones. Pest and disease control, selection, the establishment and management of plantations, harvesting, processing, quality and chocolate manufacture are also included in a comprehensive text written in an easy-to-read style.
£6.99 1995 PB Macmillan ISBN 0333570766
K.C.Willson
Coffee, Cocoa and Tea
While botanically quite different, coffee, cocoa and tea are often considered together in the teaching of students of horticulture or agriculture. This is because all three represent plantation cash crops that are used as stimulant beverages and are grown in many of the warmer, less developed regions of the world. While there are a number of specialist books available on the aspects of each individual crop, as well as grower manuals focusing on particular regions, there is currently no book that provides a general introductory overview of the scientific principles underlying production of all three crops. This book fills this gap, and will serve as a broad-based text for students of agriculture, horticulture and food science, as well as professionals seeking an overview of the topic.
£29.50 1999 PB CABI Publishing ISBN 0851989195
Ian MacDonald and John Low
Tropical Field Crops
This book has been written for farmers, agricultural advisers and teachers who need a reference book, which contains basic information about growing crops, and gives detailed guidance concerning essential farming practices. It deals with those crops that are grown on a large scale. The recommendations are designed to be applicable throughout the tropics.
£8.95 1996 PB Evans Brothers Limited ISBN 0237507927
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