Characterization of the supply and value chains of Colombian cocoa

Caracterización de las cadenas de abastecimiento y valor del cacao en Colombia

Rafael G. García-Cáceres ^a, Alejandra Perdomo ^b, Oscar Ortiz ^c, Paulina Beltrán ^d & Karen López ^e

^a Escuela Colombiana de Ingeniería "Julio Garavito", Colombia,  rafael.garcia@escuelaing.edu.co
^b Department of Industrial Engineering, Pontificia Universidad Javeriana, Bogotá, Colombia perdomo-maria@javeriana.edu.co
^c Industrial Engineering School, Universidad de Pamplona, Colombia, oscarortiz@unipamplona.edu.co
^d Department of Industrial Engineering, Instituto Tecnológico de los Mochis, Sinaloa, Mexico ]]> ^e Department of Industrial Engineering, Instituto Tecnológico de los Mochis, Sinaloa, Mexico

Received: August 13^th, 2013. Received in revised form: April 12^th, 2014. Accepted: June 27^th, 2014.

Abstract
This paper introduces the supply and value chains of the Colombian cocoa agribusiness. For such purpose, we have identified not only the agents, phases, stages and factors influencing the planting and harvesting of the product, but also the chocolate and confection production process, as well as the final consumption. Finally, the national production is described in the context provided by the international market.

Keywords: value chain, supply chain, cocoa agribusiness.

Resumen
El presente artículo presenta la cadena de abastecimiento y de valor del sector agroindustrial cacaotero en Colombia. Para ello identifica los agentes, fases, eslabones y factores que influyen en la siembra y cosecha del grano, así como en el procesamiento del mismo hacia la producción de chocolates y confites, hasta llegar a las manos del consumidor final. Igualmente, se describe la producción nacional en el contexto del mercado mundial.

Palabras clave: cadena de valor, cadena de abastecimiento, agroindustria del cacao.

1.  Introduction

As a basic contribution to the development of the cocoa sector, the current paper is aimed at characterizing the supply chain (SC) and value chain (VC) of this commodity. This type of characterization allows companies to identify the value added by a given unit or function, in order to satisfy customer needs. Framed in the search for competitiveness, value is the amount that the customer is willing to pay for a product or service supplied by a company. Based on previous developments of the concept [1], the definition of VC proposed in this work highlights the fact that SC dynamics integrates several companies, together with their activities and interrelations. The SC comprises all activities involved in the flow and transformation of goods, from raw materials to final consumers, including information flow [2, 3]. In this work, "Supply Chain Management is defined as the systematic, strategic and tactical coordination of traditional company interactive functions aimed at improving the individual performance of organizations within the chain as a whole" (ibid).

Colombia has been making sustained progress in agribusiness chains such as those of sugar and confections, coffee and instant products, milk and dairy products, meat and derivatives, oils and oleaginous materials, cereals, poultry and pig farming, among others; all of which has had a significant overall impact on exports.

Taken together, agriculture and agroforestry are ranked fifth in the Colombian economy, thus constituting one of its most important sectors, contributing 9% of the Gross Domestic Product (GDP), 21% of total exports in the sector, 19% of its employment at the national level and 66% in rural areas [4]. During the 2004 - 2009 period, this sector's GDP grew by 2.3% real annual average, reaching levels of 3.9% in 2006 and 2007. This favorable behavior is explained both by a rise in exports (from three to six thousand million US$ between 2004 and 2009) and an expansion of the internal market [5]. In addition, the Cocoa Market Review 2012 foresees a 100,000 tonne deficit, the satisfaction of which constitutes a good business opportunity.

The importance of this supply chain in Colombia lies on its economic and social impact, since cocoa (Theobroma cacao L.) is grown by approximately 25,000 families, 90% of production being carried out by smallholders [4]. Yet, the export potential is just marginal, as far it is only accounted for by the few producers that are able to fulfill certification requirements such as those of Good Agricultural Practices (GAP) and Rainforest Alliance, among others. The 2012 - 2021 National Cocoa Plan [4] contemplates the modernization of 130 thousand hectares by a transition in which the old and less productive plants are substituted by the so called clones in order to guarantee the productivity of world quality cocoa. In general, the efforts of the farmers, the National Government and international agribusiness development entities have made cocoa a good alternative for illegal crop substitution.

Therefore, the current paper is structured as follows. First, a literature review is presented, followed by the identification of the agents and interactions involved in this chain and of the product flow and value adding processes at each step. Finally, upon discussing the data, we draw conclusions and highlight future challenges. The particular value of the current contribution lies on its contextualizing the gray literature on the topic, complemented by information obtained through interviews with different agents of the SC.

2.  Background

A series of different standpoints, namely strategic [6] marketing [7], and supply chain management [8] have clearly recognized how the competitive development of organizations is strongly affected by the way they interact to exchange goods and services. In this sense, the supply chain structure has a two-fold effect, comprising both cost reduction [9, 10] and generation of added value [10].

For its part, the contribution of [12] analyzes the modularization of the SC's processes, which allows increased flexibility. This is usually done when very similar products change their form after assembly, or when the chain incorporates outsourcing and postponement, which means that the products differentiate more and more as they approach the final consumer. This allows reducing uncertainty in the predictions about the operation of the chain, thus improving the overall performance of the company. These authors state that low input modularization levels are associated to vertically integrated supply chains; while the opposite case corresponds to SCs with elevated levels of decentralization through outsourcing. On the other hand, elevated output postponement indicates a make-to-order SC environment in which the products differentiate towards the last stages of the process; whereas low postponement levels identify a make-to-stock environment in which demand satisfaction is guaranteed through abundant inventories.

In turn, [13] take an Activity-Based-Cost (ABC) approach to Supply Chain Management (SCM), taking into consideration monetary expense and value appreciation on the part of the client, and proposing production volume improvements according to costs, by identifying value adding activities and eliminating those that reduce or do not add any value to the process. Featuring a cause-effect relation between costs and demand, this approach is based on identifying those processes that promote a better performance in the organization, thus allowing a complete control of production and manufacturing costs and of the company's general expenses.

In the study conducted by [14], time is considered to be a SC performance measure that allows the identification of those activities which do not generate any value within the chain, together with their associated costs, finally integrated into the total costs of the system. This facilitates identifying the relation between time and cost within SC processes, as well as the adequate combination of both parameters when it comes to decision-making.

As to SC characterization [15,18, 20-22] it has been mainly oriented to agribusiness, namely biodiesel, oil palm upstream and middlestream phases and, specifically regarding cocoa, the performance of its different SCs from 2003 to 2012 (Table 1). In addition, we researched general market aspects and the position of Colombia in the international context.

3.  Methodology

Inspired by Stone [16,17], we followed the methodology detailed in [15-22, 18], which is apparently the only one developed so far to characterize SCs. It has been frequently used in agribusiness SCs such as those of coffee and oil palm, which facilitates future comparisons between Colombian agribusiness SCs. Hence, the method in question comprises the following steps: 0. Providing the local and global contexts of the studied SC. 1. Determining and describing its links and stages. 2. Describing the value added by the chain's agents and links. 3. Describing performance specificities. 4. Diagnose and conclusion about the SC. This methodology does not include data collection specific procedures, which is understandable if we take into account that SC characterization requires both primary and secondary information that, in turn, demands a broad and diverse series of procedures. In the current work we maximized the information available in the literature, which we complemented with primary information obtained through 29 interviews with key actors of the SC, namely personnel from FEDECACAO, cocoa growers, and agents from the chocolate industry, among others. The interviewed organizations are detailed under "acknowledgments".

3.1.  Global and national markets

Currently, Colombian cocoa plantations cover an area of 147,000 ha with a domestic production of 36,118.10 tonnes harvested from common, hybrid and cloned trees. As it can be observed in Table 3, the department of Santander accounts for half the national production (mainly through common germplasm), while the rest is broadly distributed over the country.

Cocoa production in Colombia is generally featured by several decade old, hybrid material plantations with low planting densities (600 to 700 trees per hectare) [27] and low technological levels, all of which considerably hampers productivity and competitiveness (Ministry of Agriculture and Rural Development - MADR, 2010).

CORPOICA, FEDECACAO and the MADR [28] conducted a zoning study on land suitability for cocoa cropping, which estimated that in Colombia there are 2 million ha very suitable for cocoa production (2003). Of this area, 662,669 ha have no restrictions (they do not require any soil adjustment for cultivation) and 1.3 million present moderate restrictions.

A recent study on the cocoa SC [23] reports that the Colombian production is completely absorbed by the national chocolate industry, which pays lower prices than international markets. Nevertheless, this industry has had to import part of their raw material because the national production has been decreasing lately, mainly because of a) low grain local price, which leads the farmers to quit plantation improvement processes and simply assume a harvesting attitude; and b) the growing attack of the crop by pests and diseases, in turn associated with poorly trained personnel in charge of technology transfer, finally resulting in the hindrance of necessary productive increases. 

Productivity drop is expressed through lesser yields in areas where the crop has not been traditionally grown and through the aging of plantations in the most suitable areas, thus determining the need to import the product in order to supply local market requirements. This situation takes place in spite of the availability of adequate clones (Table 4), and probably due to lack of adequate promotion strategies.

3.2.  Characterization of the Colombian cocoa supply chain

According to its industrial process, this SC is divided in three phases: Upstream, Middlestream and Downstream. Comprising plantation set up, maintenance and harvest, the Upstream phase groups all farmers, land owners and supply manufacturers. Middlestream consists in grain commercialization both at the national and international levels, from the moment it is bought by wholesalers to its selling to the factories. Finally, the Downstream phase covers the industrial processing of the beans to obtain liquors, pasta, cocoa butter, cocoa powder, and chocolates and confections containing chocolate, all of which is carried out by the cocoa processing and chocolate industries, as well as by those producing confections containing chocolate. Fig. 2 illustrates the cocoa SC from cropping to final consumption.

3.2.1.  Upstream

After harvest, which is carried out with pruning scissors, the cocoa beans are extracted from the pod, which is commonly known as mazorca in Colombia. Next, the beans undergo a post-harvest process known as beneficio, after which they are ready to be commercialized for industrial transformation purposes that depend on market needs. The stages of the upstream phase are detailed in Table 5:

Table 6 details the steps of the post-harvest process.

3.2.2.  Middlestream

Cocoa commercialization is carried out among associations of farmers, wholesalers, commission agents (who trade at the national level) and exporters. Exports depend on whether there is an internal market surplus and on attractive international prices. Seventy five percent of the national cocoa production goes to the cocoa processing and chocolate and confectionery industries; the remaining 25% is absorbed by small drinking chocolate manufacturers [31].

Wholesalers operate in local towns, where they have direct contact with farmers and frequently sell the product they get to commission agents [23]. This product has low quality, since it is stored with other merchandise goods for prolonged periods. The price is fixed according to moisture and spoiled bean content. Wholesalers frequently omit applying NTC 1252 because the elevated national demand currently leads them to stock huge amounts of product at the expense of quality, thus paying the same for different product qualities. In face of this, many farmers dismiss complete fermentation in wooden boxes, instead resorting to grain fermentation in plastic fiber bags. The commercialization of this product, which is known as cacao en baba (pulpy cocoa), has a negative effect on grain quality.

Representing the cocoa processing companies, commission agents operate in small towns, where they purchase and stock huge amounts of beans. The price they pay depends on bean size, number of grains in 100 grams, fermentation degree, moisture, impurities, spoiled bean content and presence of plagues. They usually receive bonuses for their purchase work from the companies they represent. When the commission agent is too far from the factory, the beans are sold to wholesalers [23].

Both wholesalers and commission agents sell the purchased product to the processing industry. The national market is under the influence of two economic signals, namely importing and exporting bean prices [27].

Regulation: cocoa regulation is assumed by entities taking action in both internal and external markets. The objective pursued by these organisms is to promote product consumption and regulate its price, offer and demand.

Within the Middlestream phase, Table 7 presents the most value adding processes of the cocoa SC, namely the transformation ones, which are carried out by the trading and processing companies.

After these processes, the resulting products split the SC: cocoa butter goes to chocolate, ice-cream, cosmetic and pharmaceutical production; while cocoa cake is employed for powdered cocoa or drinking chocolate.

3.2.3.  Downstream

In the International Standard Industrial Classification of all Economic Activities (ISIC), the two sub-sectors involved in this part of the SC are:

31191: manufacturing of chocolates and cocoa derivatives.
31192: manufacturing of chocolate confections.

The processing industry does the roasting, shelling and grinding of the grain [23]. An important portion of the resulting cocoa liquor goes to chocolate production. Drinking chocolate elaboration constitutes a lesser value adding process in which ground cocoa is mixed with sugar. For its part, the chocolate confectionery and covering industry mixes cocoa liquor with sugar, milk and cocoa butter. The cocoa liquor that is not employed in either of these processes is filtered to separate cocoa cake, which is solid, from cocoa butter, which is liquid. Cocoa cake is pulverized to obtain powdered cocoa, while cocoa butter is centrifuged, crystallized, molded and packed.

The great variety of existing chocolate products results from the various ingredients that are combined with four basic raw materials differentiated by their cocoa content (Table 8).

Both at the local and global levels, the stages of the cocoa SC differentiate through the activities, processes and market types they involve. At the national level, this chain comprises agricultural production, post-harvest processing, industrial transformation and end point commercialization of the manufactured goods. The agents of the VC are presented next.

3.3.1.  Non-regulatory entities

Table 9 shows the Non-regulatory entities of the local SC:

3.3.2.  Regulatory and development entities

These are guild and government institutions intended to provide technical or financial support to cocoa growers in order to promote and regulate the issues related to this commodity. The Colombian organizations in this category are introduced in Table 10.

3.4.  Considerations about information and material flow

Regarding the flow of materials, Colombian logistics is considered to be one of the most important limitations for SC competitiveness due to its considerable dependence on road transportation, the latter being particularly sensitive to climate change which, in turn, produces a stronger impact in tropical countries. In addition, the Colombian public servants in charge of transport infrastructure and maintenance are constantly criticized.

The Colombian cocoa SC is oriented to the local market. In this respect, during upstream and middlestream, materials are transported along a variety of roads that go from the farms themselves through country paths to tertiary and secondary roads, most of which are unsurfaced, thus bringing about costly technical difficulties that affect both farmers and traders. During downstream, transport is done along primary roads, where productivity is significantly improved, although it is far from the standards of the competing countries in the region.

4.  Analysis of results

In the lines that follow we synthesize the fieldwork employed to confirm information and identify the sector's problems. This activity was carried out in plantations of the departments of Santander and Norte de Santander, where we researched cocoa cropping and commercial details; and in FEDECACAO (Bogota), where we conducted meetings with guild leaders about specific features and competitiveness of this SC.

Cocoa cultivation in Colombia has comparative advantages arising from favorable natural conditions for production determined by climate, humidity and environmental conservation due to agroforestry. Development agencies of the cocoa sector can take advantage of these conditions to develop strategies for future grain exports. However, most lands are located on sloppy areas that prevent mechanized work and make cultivation excessively labor demanding, thus raising logistic costs and hindering productivity and profitability.

An important part of cocoa production is classified as fine flavor cocoa, which is mainly used for the production of high-quality chocolates. But unlike the commercial policy of other countries such as Ecuador, there has been no proper promotion of the brand "Colombia" in terms of developing a quality culture among cocoa farmers. Sustainability strategies are required to achieve this goal.

Cocoa growing in Colombia is featured by abandonment and recovery of the plantation by the farmer. The reason for this are prolonged periods of unfavorable prices resulting in no income for the farmer, who finds it difficult to invest in crop maintenance. As a result, plantations receive only minimum or simply no attention. This leads to cycles of low national production and, consequently, to the importation of this commodity by the processing industry.

The presence of wholesalers in towns and country settlements comes to be a Colombian specific feature, inasmuch as they operate as credit agents for the farmers, who finally pay their debts with coming production. Government strategies intended for value adding, in situ processing of the grain (i.e., local agribusiness activity) should be implemented and evaluated. Such a strategy would not only strengthen cooperation and association among cocoa growers in the municipalities that concentrate production, but also improve, by adding value, the quality of life of the farmers and their families, who, after all, constitute the main agents of the cocoa-chocolate chain in Colombia.

From an economic standpoint, upstream is the most vulnerable phase, but also the one that produces the strongest social impact. The government should ideally develop downstream strategies, labor unions and business initiatives, which would position the brand "Colombia" as an icon of quality culture and first-rate production. For such purpose, it is important to implement in situ transformation processes and local performance controls and evaluations so as to strengthen cooperation and partnership between farmers in cocoa producing municipalities. This is likely to bring about a series of advantages: a) balanced production across regions at the national level, thus opening the possibility of a common front negotiation before the chocolate industry; b) value added increase throughout the chain, thus enhancing the quality of raw materials and final products and optimizing final prices; c) improved life quality of the cocoa growing families, thus advancing this activity as an effective alternative against the proliferation of illegal crops; and d) product and process innovation, which confers international prestige to the middlestream and downstream phases.

According to the latest Cocoa World Conference [33], greater cooperation is necessary among all actors in the chain in order to foster sustainability. Those efforts that help growers perceive more benefits from the wealth generated by the chain are likely to improve their quality of life, especially when children are involved. As well, it is important to move towards a more innovative, qualified, clean and environmentally friendly chain also taking food security, biodiversity and conservation of existing ecosystems into account. In this sense, Nutresa, a food industry trust operating in the department of Antioquia and its surroundings, has been conducting an important effort through which they supply cocoa growers with cropping resources from a specific fund for such purpose, without claiming any property on the farmers' lands. This is not only a more egalitarian way of sharing risks and benefits with all chain links, but also a value adding strategy for stakeholders.

5.  Conclusions and research perspectives

The current study presents a clear perspective of the logistical processes involved in the cocoa SC and VC. It summarizes key local and global aspects of this chain, looking forward both to supporting future studies and aiding in the establishment of policies, strategies, tactics and operational possibilities for its different stages and processes. The methodology applied to characterize the chain provides an organized and detailed description of the stages through which cocoa and its derivatives are processed, thus identifying value added at each step.

Efforts should be made to render the chain as short as possible, in order to improve coordination, efficiency and flow traceability. Moreover, the current global cocoa agenda should be followed. In this respect, Colombia did not participate in the World Cocoa Conference in 2012, which followed the International Cocoa Agreement 2010.

The case of the cocoa growers of the department of Santander constitutes a reference standard in the sense that they are associated, which allows solving two important upstream aspects, namely quality assurance and price management. Unfortunately, this case seems to be an exception, since cocoa growers in the rest of the country certainly face a survival economy.

In summary, crop quality and crop productivity are the key aspects to generate the welfare of the chain, especially in the upstream phase. This involves investing in research for the development of new species and the renewal of crops.

Research perspectives relate to government and sector gray literature making use of the results of this work in search of policies and actions aimed at improving the chain. From the scientific point of view, it would be desirable to characterize other important agribusiness chains such as that of floriculture.

Acknowledgements

We express our gratitude to agronomic engineer Joshua Rangel for helpful collaboration in the development of this work. Just as well, we want to thank several agents of the Colombian cocoa supply chain for their contributions to our understanding of the sector's condition and troubleshooting, as listed below:

• Santa Isabel farm, locality of Llana Fría, municipality of San Vicente de Chucurí, Santander.
• El Placer farm, locality of Hojarasco, municipality of El Carmen de Chucurí, Santander.
• Venecia farm, locality of Palmira, municipality of San Vicente de Chucurí, Santander.
• Los Samanes farm, locality of San Nicolás Bajo, municipality of Lebrija, Santander.
• Lomalinda farm, locality of Honduras Bajo, municipality of Rionegro, Santander.
• Santa Inés farm, locality of El Quinal Alto, municipality of El Carmen, Santander.
• Parcela 4 farm, locality of Manzanares, municipality of El Tarra, Norte de Santander.
• Sabanalarga farm, locality of La Perla, municipality of Tibú, Norte de Santander.
]]> El Porvenir farm, locality of La Miel, municipality of Sardinata, Norte de Santander.
• La Siberia farm, Locality of Nueva Frontera, municipality of Cúcuta, Norte de Sder.
• La Fortuna farm, locality of Caño Victoria, municipality of Tibú, Norte de Santander.
• Parcela 2 farm "Luz de la Verdad", locality of Caño Victoria, municipality of Tibú, Norte de Santander.
• Parcela 7 farm, locality of Venecia, municipality of Tibú, Norte de Santander.
• San Antonio farm, locality of La Fortuna, municipality of Sardinata, Norte de Santander.
• El Diamante farm, locality of Bellavista, municipality of Sardinata, Norte de Santander.
• Hogar Juvenil Campesino (Youth Farming Project), locality of El Caimán, municipality of Teorama, Norte de Santander.
• Las Marías farm, locality of Vijagual, municipality of Teorama, Norte de Santander.
• La Trinidad farm, locality of Nueva Victoria, municipality of Cúcuta, Norte de Sder.
]]> Sincelejo farm, locality of Venecia Guamalito, municipality of Tibú, Norte de Santander.
• Villahermosa farm, locality of Campoeyuca, municipality of Tibú, Norte de Santander.
• La Arenosa farm, locality of El Llano, municipality of El Tarra, Norte de Santander.
• El Limoncito farm, locality of Los Curos, municipality of Sardinata, Norte de Santander.
• La Soñada farm, locality of La Pita, municipality of Sardinata, Norte de Santander.
• Villa Antigua farm, locality of Astilleros, municipality of El Zulia, Norte de Santander.
• La Nacional farm (Nutresa Group), municipality of Támesis, Antioquia.
• El silencio farm, locality of Cámbulos, (in the small town of Aguaclara), municipality of Cúcuta, Norte de Santander.
• Las Acacias farm, locality of Cámbulos, municipality of Cúcuta, Norte de Santander.
• El Horizonte farm, locality of Bracitos, municipality of El Tarra, Norte de Santander.
]]> El Diviso farm, locality of Caño Victoria Norte, municipality of Tibú, Norte de Santander.

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R.G. García-Cáceres, received the Bs Eng. Industrial Engineering in 1998 from the Universidad Pedagógica y Tecnológica de Colombia (UPTC), Colombia; MSc. in Industrial Eng. in 1999 from the Universidad de los Andes, Colombia; PhD. in 2007 from the Universidad de los Andes, Colombia. Since 2010 is Associate Professor at Escuela Colombiana de Ingeniería "Julio Garavito", Colombia; director of the Centre for Research on Optimization and Logistics (CIOL) and the Research Center on Manufacture &Services (CIMSER). Main research interests correspond to operations research, decision making support systems and logistics.

A. Perdomo, received the Bs Eng. Industrial Engineering in 2013, from the Pontificia Universidad Javeriana, Colombia.

O. Ortiz, received the Bs Eng. Industrial Engineering, from the Universidad Libre de Colombia, Cucuta campus, Colombia; the MSc of Engineering Management in 2002 from the Queensland University of Technology, Australia; the MSc in Environmental Engineering in 2007, from the Universidad Rovira i Virgili, Spain; the PhD in Chemical Environmental and Process Engineering in 2009 from the Universidad Rovira i Virgili, Spain. Is Associate Professor at Universidad de Pamplona, Colombia. Main research interests associated to Life cycle analysis and sustainability.

P. Beltrán, received the Bs Eng. Industrial Engineering in 2013, from the Instituto Tecnológico de los Mochism México.

K. López. received the Bs Eng. Industrial Engineering in 2013, from the Instituto Tecnológico de los Mochism México.