Friday, May 16, 2014

The Challenging Road to Self Sufficiency for a Fairtrade Association: TCGA Part II

TCGA Office: "Fairtrade guarantees a better deal for Third World Producers"  

I'd like to pick up where I left off at the end of my last blog post. As part of a group visiting the Toledo Cacao Growers Association (TCGA) in Punta Gorda, Belize, I had the opportunity to hear a first-hand account of life in a farmers cooperative from a member farmer, Mr. Justino Peck. One of the challenges that became apparent during our discussion with Mr. Peck is the TCGA's struggle to become self sufficient.

Despite its status as a Fairtrade-certified organization, the TCGA is heavily reliant on grant funding, mostly from foreign organizations. This was an angle to fair trade I'd never considered before. When I think of fair trade, I think of farmers earning enough to live a better life. I hadn't considered that their association might not be self sufficient.

A View Inside the TCGA
The TCGA is a non-profit that was formed to support farmer members in marketing their produce. Its goal is to promote the growth of the industry, and to provide a sustainable source of cacao for the market. It also has the goal of trying to provide a stable income for cacao farmers, not one that fluctuates wildly with the commodity price of cacao.

The cacao farmers of the Toledo District have two cacao harvests a year. There is a criollo harvest that begins in October, and then a harvest of hybridized plants from Costa Rica that can last from January to June. Mr. Peck pointed out that climate change has made harvests unpredictable. Some years the harvest continues all year. This was not the first time I’d heard a Belizean farmer mention climate change, which surprised me. I’d always thought of it as an academic discussion that happens among more developed nations. I'd heard climate change mentioned by cacao farmer Eladio Pop, by Cotton Tree Lodge's Gardener, Armando, and now, Mr. Peck. This was a good reminder that no one knows climate change like a farmer.

Mr. Peck said that the farmers are not at full cacao production capacity because they also need to sell corn, beans, rice and other foods to make a living. While this forced crop diversity means they produce less cacao, it brings many important benefits. It's good for the environment, it's good for income stability, and it's good for the farmers’ families, who always have enough to eat. I have to give credit to Mr. Peck for a quote I have used in more than one blog post, “The Maya people are poor by cash statistics, but they’re rich in food.”

The Association has four full-time employees including a Manager, a Compliance Officer for Organic and Fairtrade, an Accountant and an Administrator. All of them are in tiny cubicles in the building we visited, which was a chemical storage facility before the farmers switched back to organic farming practices.

Mr. Justino Peck in the TCGA warehouse
The Challenging Road to Self Sufficiency
While Fairtrade certification brings some transparency and accountability to the purchase of cacao, it's an expensive program to implement. In most cases, small holder farms band together to create an association or cooperative that implements Fairtrade standards. This creates administrative costs for the association in the form of employees who certify and audit for Fairtrade compliance. There are also fees to become and remain a Fairtrade-certified organization. It's an expensive prospect.

The TCGA has a long way to go before it can cover these costs solely through the cacao harvest. Let me illustrate this for you.

The TCGA produces 50,000 pounds of cacao a year from 1,180 farmers. Mr. Peck told us that in order to become independent, the TCGA needs to produce 500,000 pounds of cacao a year. That's 10x their current cacao production, an enormous gap to fill.

Something dramatic needs to happen to the TCGA if it's going to reach its goal of self sufficiency. Its business model needs to evolve and it needs to innovate. In the meantime, the TCGA takes a lot of grant money from outside organizations to help fill the funding gap.

Grant Funding and the Odd Priorities it Creates
So who is providing these outside grants to the TCGA? Non-governmental organizations (NGO's) and governmental agencies including USAID, HIVOS (Dutch-based organization in Costa Rica), the Inter-American Development Bank, the European Bank for Reconstruction and Development and the Fairtrade Foundation.

It was interesting hearing about the projects that some of these organizations have funded.

One of the best examples of the skewed prioritization that can happen when you’re receiving funding from outside sources is the example we saw while visiting the TCGA offices. Mr. Peck said that their office building was built by a project in 1993, but the TCGA still doesn’t own the building. Just this past January, the Ministry of Agriculture said it would grant a lease to the TCGA that would eventually enable the TCGA to purchase its office building. When we visited, the TCGA still didn’t have a copy of the promised lease from the government.

At the same time, Mr. Peck showed us the artist's drawings for a demonstration farm and Maya Cacao Museum that was going to be built a few miles from town. This lovely artist's rendering showed a Maya-pyramid-like building with orchards around it. While I'm not entirely clear on the timing for this new venture, it seemed like it was happening in the near future. Given the difficulties the TCGA is having in becoming self sustaining, I was surprised at the prioritization of this project. I had to conclude that the museum was being funded by an outside organization who had put up funds specifically for this project.

This left me with a number of questions about how projects get prioritized. Despite the best of intentions of outside organizations, is this project the best use of the TCGA's time and energy? Is it the best use of foreign resources?

The TCGA does not have ownership of its own offices, but it’s going to build a beautiful demonstration garden and cacao museum for the tourists to visit. While that might have some impact on the local farming community, producing more of their fabulous cacao would likely have a larger, faster impact, and help them get to self sufficiency faster.

Facing a Competitor
Let me turn back to the 1,180 farmer members of the TCGA who are going to have to produce 500,000 lbs of cacao a year for the TCGA to become sustainable. There's a wrinkle that developed recently. Not all of those 1,180 farmers are selling their cacao to the TCGA. Now they can choose to sell their cacao to the TCGA or to its competitor, Maya Mountain Cacao (MMC). This makes it even harder for the TCGA to become self sufficient.

MMC Fermentation House
If you read my blog post about MMC, you'll know that it's an innovative cacao purchasing company with a triple bottom line. Maya Mountain Cacao is purchasing cacao from the same farmers as the TCGA. While the TCGA administrators see this as a bad thing, I believe it's a good development.

MMC offers farmers a choice, and it brings new energy and a spirit of innovation and competition to the game that will help take the farmers to the next level. In the long term I think it will be a good thing for the farmers. In the short term, I couldn't help but sympathize with Mr. Peck's grave concerns. The TCGA has been working for many years to become self sufficient, and this upstart shows up and makes it even more difficult.

In the meantime, the TCGA and MMC are learning to collaborate on small initiatives. There's room for both groups to exist, and the rise of a scrappy competitor has forced the TCGA to become more nimble and innovative. For example, MMC purchases wet cacao instead of dry cacao. This enables MMC to control the fermentation, resulting in the kind of consistency desired by craft chocolate makers. The TCGA used to purchase dry cacao from farmers, leaving the fermentation process up to each farmer. Now the TCGA purchases wet cacao and controls the fermentation. This approach enables them to better meet the quality and consistency requirements of craft chocolate makers, making them much stronger competitors.

Outlook for the Future
Not surprisingly, Mr. Peck said that the ultimate goal for the TCGA is to take the value-added route and produce its own chocolate. There are a number of farmers’ cooperatives in Central America who have taken this path, creating more stable income streams for their members. Cooperatives such as Grenada Chocolate Company (Grenada), El Ceibo (Bolivia) and Kallari (Ecuador) all make chocolate.

While some of these cooperatives have been successful at creating quality chocolate that can compete on the international market, some of them have failed. I've had to make the hard decision not to sell chocolate from a farmers cooperative because of its poor quality. It's a very tough decision because I'd love to help the farmers. But I'm not helping them by purchasing chocolate that isn't going to sell. They'll never have incentive to ensure their chocolate farming and production is of a quality that will be successful on the international market.
Craft chocolate maker located a few blocks from TCGA office

I have hope, however, when it comes to the TCGA. It has some of the best organic cacao in the world, produced using traditional Mayan farming techniques. Craft chocolate makers are flocking to the area to source cacao, creating a direct feedback loop between the farmers and the chocolate makers. The TCGA benefits from the information it learns from craft chocolate makers about their desired fermentation and quality levels. This knowledge puts the TCGA in a great position to make chocolate that will succeed on the international market. Financial independence, while difficult to reach, is possible.

Wednesday, May 7, 2014

The of Best Intentions Not Always Enough: The First-Hand Perspective of a Fairtrade Farmer

Toledo Cacao Growers Association Office
As a professed cacao geek, one of the most exciting outings of our chocolate trip to Belize was a meeting with the former Association Chair of the Toledo Cacao Growers Association (“TCGA”).

Sitting at a long conference table in a small room, we could have been anywhere in the world. But here we were in Punta Gorda, the capital of the Toledo District, meeting with someone from a Fairtrade-certified farmers’ cooperative. After years of doing my best to answer customers’ questions about fair trade, I was sitting in the same room with a member farmer from a fair trade group. My moment had finally come.

Our host was the former Association Chair from 1992-1997, Mr. Justino Peck, himself a cacao farmer. I really appreciated his candor. He wasn’t trying to sugar-coat his experiences or how he views the future. He was incredibly honest and forth-coming, providing us with a brief glimpse into the window of his livelihood.

He spoke incredibly eloquently about the history of the TCGA, offering an illustration of how difficult it is to be an organization dependent upon outsider funding. It was hard not to be sympathetic with this man and his fellow farmer members. Outsiders come in and tell them what to do, and then leave after just a few years. The farmers are left to their own devices after the projects end, a practice that has taught them not to rely on outsiders.

Mr. Justino Peck, former Association Chair

The Beginning of the TCGA: USAID Arrives in Belize

In the 1970’s, farmers in Belize were growing cacao mostly for their own use. In 1984 USAID came to Belize to work with farmers to encourage commercial cacao farming. It probably won’t surprise you to find out that Hershey was involved in this interest in Belize. Mr. Peck, a teacher by training, decided to leave his job in 1984 and begin planting cacao.

USAID ran this project from 1984-1989. They encouraged farmers to abandon their traditional organic methods and begin using chemical “inputs”, a.k.a., fertilizer and pesticides. They introduced the farmers to Hershey as a buyer, who offered better prices. After only five years, the project came to an end and USAID left Belize.

Mr. Peck pointed out that while a cacao tree may begin producing pods after 3-5 years, it doesn’t reach maturity for ten years. Planting cacao is an investment for the Maya, one that they expect to produce for 80-100 years. USAID left after five years, leaving the farmers high and dry before their plants had truly reached maturity. The farmers jettisoned the fertilizers and pesticides and returned to the organic farming rituals and traditions of their ancestors. While this was good for them in the long-term, the short term was about to get ugly.

Between 1990 and 1991, the bottom fell out of the cacao market. Prices went from $0.85/lb to $0.25/lb (they're currently at $1.32/lb dry). Most farmers looked for jobs in the citrus, banana or shrimp industries. Mr. Peck, however, stuck with cacao.
It all started with Green & Black's

Green & Blacks Purchases its First Fairtrade Cacao

Mr. Peck became the first chairman elected to lead the TCGA in 1992. When a contact at the Ministry of Agriculture connected him with a buyer looking for organic cacao, he felt it was important for the TCGA to bind itself to one buyer to try to prevent the farmers from failing. Based on the farmers’ past experiences with the volatility of the cacao market, he felt the farmers would be better off signing contracts with specific buyers. Without a contract, it’s the farmers who fail in a down market, not the buyers.

In November 1993 the farmers agreed to sign a 3-year, binding contract with Whole Earth Foods Company LTD, a Green & Blacks joint venture. The farmers were happy with the negotiated price, and it gave them income certainty, something they’d never had with cacao. They produced 16,000 pounds of cacao in their first year, which, while significant for them, was only a small fraction of the cacao used in Green & Blacks’ production of their Maya Gold chocolate bar. It was Green & Blacks first purchase of Fairtrade cacao, and it was the beginning of a good relationship for the TCGA.

In 2005 Cadbury purchased Green & Blacks, and then in 2010 Cadbury was taken over by Kraft foods (now part of Mondel─ôz International). This is when things changed. While Kraft still purchases a significant amount of cacao from the TCGA, Kraft does not offer the rolling 5 year contracts that Green & Blacks offered in the past. Like most large chocolate companies, Kraft negotiates the price on every shipment based on world market rates at the time. If it weren’t for the booming interest in artisan craft chocolate, these farmers would be back to square one without a stable income.

Chocolate makers and chocophiles outside TCGA office and warehouse
The Impact of the Craft Chocolate Movement

The craft chocolate movement around the world, and, particularly in the US, has had an impact upon the Belize cacao market.

When Maya Mountain Cacao (MMC) set up shop in the Toledo District in 2010, the TCGA was skeptical. Here was another outside group that the TCGA didn’t expect to stick around. During my stay in Belize I heard that the TCGA had discouraged farmers from selling to MMC, telling the farmers that MMC wouldn’t be around for long. Given the track record of outsiders, can you blame them for saying this?

Fast forward four years, and MMC is going stronger than ever and expects to be around for a long time.

So what’s different? There’s been a fundamental change in the American chocolate market. American chocolate lovers are becoming chocophiles. They’re learning to appreciate single-origin chocolate made from organic, fine flavor cacao that has been well fermented, and they understand that with this increase in quality comes an increase in price. Demand for organic fine flavor cacao can only be expected to continue to grow.

I considered sharing this thought with Mr. Peck, but I decided I wouldn’t. After his experiences with outsiders leaving, I decided he and the other farmers would need to figure this out for themselves through personal experiences that would only come with time.

Stay tuned for Part II of the story of the TCGA. Next week, The Challenging Road to Self Sufficiency for a Fairtrade Association.