By Holly Houston and Terry Wyer

SEP 6, 2012

This installment of Critical Questions is the first in a series that will focus on engagement by the U.S. government and the private sector in agribusiness.

Production of sustainable cocoa significantly impacts the economies of many developing countries and provides livelihood for an estimated 40 to 50 million people globally. Unlike larger industrialized agribusinesses, the vast majority of cocoa still originates on family-run small farms that have limited access to resources and organized markets. To address the many challenges confronting global cocoa production, public- and private-sector actors are increasingly partnering to dedicate funding and expertise to improve sustainable cocoa farming and the commercial conditions of the local developing economies. With the help of the World Cocoa Foundation (WCF), these efforts will translate into better livelihoods at the farm level, increased resources and investment at the national level, and a safer, more secure environment for smallholder farmers that supply the bulk of cocoa production for the world’s consumers.

Q1: How many people in the world farm cocoa?

A1: There are an estimated 5 million households that farm cocoa as a cash crop, mostly in tropical geographies of West Africa, Southeast Asia, and Latin America. In West Africa, 70 percent of cocoa is produced on small family farms, where farmers generally live on less than $2/day and rely on cocoa for 60 to 90 percent of their income.

Q2: What is the economic impact of chocolate?

A2: Behind the chocolate that is enjoyed by so many lies a global supply chain crossing countries and continents. As consumption continues to increase on an annual basis, it becomes more difficult for the industry to keep up with demand. In 2011, the chocolate confectionery industry surpassed $100 billion in value for the first time. The world cocoa market includes exports valued at more than $1.2 billion from Côte d’Ivoire, the world’s top-producing country; $840 million from Indonesia, the number two producer; and $650 million from Ghana, the number three producer. The industry also serves as a significant economic engine in Europe and the United States. As the leading importing country, the Netherlands imports approximately $2 billion worth of cocoa beans, with the United States following with an estimated $1.2 billion worth of beans. The U.S. cocoa and chocolate industry is composed of approximately 650 companies that directly employ nearly 70,000 Americans. More than 2,000 companies in the European Union are part of the chocolate and confectionery products industry.

Q3: What are the threats to sustainable cocoa production?

A3: Smallholder farmers that have limited access to resources and organized markets have a wide range of challenges confronting them in the cocoa sector: low yields attributed to pests, aging trees, and diseases that attack the trees; difficulty obtaining farming supplies; unfamiliarity with modern farming techniques; and limited access to credit and insurance; among others. Also, in many rural areas of sub-Saharan Africa, cocoa-growing communities face a multitude of social issues, such as low levels of adult literacy, health risks including malaria and HIV/AIDS, and lack of access to quality education for children. These and other difficult factors mean that the cocoa sector’s long-term viability and production is seriously threatened.

Q4: Why are partnerships important to address challenges in the cocoa sector?

A4: The complex problems facing the cocoa sector are too fragmented and large for any one entity to address on its own. When stakeholders operate in partnership, the knowledge and commitment of the partners is optimized and maximizes the benefit to farmers and their families. Normally, when working directly with the private sector, one would not see fierce business competitors sitting around the same table formulating plans for joint activities. However, in some industries, companies recognize the importance of organizing to invest in a challenge facing the industry. For example, companies have collectively invested in regional partnership programs through the WCF, a nonprofit, nongovernmental organization, in order to help improve the productivity of cocoa farms in growing regions.

An example of such cooperation is WCF’s Cocoa Livelihoods Program. With support from 16 corporate members, as well as the Bill and Melinda Gates Foundation and origin government representatives, the program is working to double the productivity of 200,000 family-owned small cocoa farms in West Africa. The program is working to improve marketing efficiency, productivity on currently farmed land, and diversification of income. As a result, farmers are improving yields and managing their farms as businesses. Farmers and farmer groups are empowered to engage more directly and professionally with cocoa buyers to strengthen their trading relationships. In addition to the general company support for the program, several cocoa companies and supply chain partners have teamed up to work more directly with farmer groups, committing additional investment of dollars and time to improve the quality of cocoa produced and professional relationships with farmers. One such program includes a Pennsylvania-based cocoa processor working with a Côte d’Ivoire–based cocoa exporter establishing high-yielding seed nurseries close to rural cocoa communities for farm renewal.

Another example of public/private-sector cooperation is the WCF ECHOES Program. With funding from the U.S. Agency for International Development and more than a dozen corporate members, the program is strengthening cocoa-growing communities in Côte d’Ivoire and Ghana by providing literacy training, equipping community learning centers, training teachers and school administrators, and offering vocational training to young people. One of the program’s legacies is likely to be a generation of young Ivorians and Ghanaians who view cocoa farming as a viable and profitable career option, improving on the practices of their forefathers.

These are just two examples of public- and private-sector partnerships that are impacting development in the cocoa sector. The much needed generation of employment and income for smallholder farmers is an extremely important component of contributing to improved economic opportunities and strengthening producing countries’ positions as key trading partners in the global arena.

(The World Cocoa Foundation (WCF) is a nonprofit, nongovernmental membership-based organization that promotes a sustainable cocoa economy by implementing programs that directly benefit cocoa farmers and their families. WCF was created in 2000 by a group of chocolate companies and has grown to include more than 90 members, who recognize the need to provide cocoa farmers with support to maintain their crop, including techniques to control diseases and pests that attack cocoa trees. For more information, visit the WCF website at http://worldcocoafoundation.org/.)

Holly Houston is a finance manager at the World Cocoa Foundation in Washington D.C. Terry Wyer is a senior associate with the Project on Prosperity and Development at the Center for Strategic and International Studies in Washington, D.C.

Originally published by the Center for Strategic and International Studies (CSIS).