Iaan, as usual, provided a fascinating perspective on things this week. As long as humankind has existed, young children have had a primal need to make dolls or effigies to express and learn about individual emotions.
For girls, it may have been exploring nurturing or caring impulses derived from biological imperatives. For boys, it may have been the exploration of conquest and bravery.
Then came Barbie and Ken. Industrialised and commoditised role models became the implicit expression of ideals. The exploration and creative expression inherent in making your own dolls were inverted to a dependency on status and "belonging" derived from a normative standard.
In a stroke, we lost the power over our projections as they claimed power over our imagination, hopes and ambitions. Instead of making our dolls in our image, they demanded conformity to theirs.
Our imagination becomes a hostage to the formula and expectations of the norm.
Stockholm syndrome describes a condition where the hostages, the ones who have been held captive, form a psychological bond and associate with their captors.
Nils Bejerot coined the term in 1973 to describe why the hostages of a 6-day heist refused to testify against their captors and even started raising money for their defence!
The Cocoa industry is suffering from collective Stockholm syndrome right now.
For over thirty years, we have heard about the impossibility of producing fair and sustainable cocoa and that poverty and deforestation can only be avoided by making cocoa impossibly expensive.
As the cocoa elites gathered in Brussels this week, cocoa futures topped the unprecedented $ 12,000 per ton mark. Fittingly, Fast Company reported that the Mars and Ferrero families are richer than Côte d'Ivoire and Ghana, the two leading cocoa-producing countries combined.
To be clear, the cocoa industry is suffering from collective Stockholm syndrome, and the hostage taker is commodification.
Codification
On Tuesday morning, Mr Michael Ndoping was on stage in the "Farmer Income and Social Responsibility" session, making it clear. In his usual disarming and pointedly accurate style, he pointed out: "What are the criteria for defining cocoa quality? These are all physical attributes, yet cocoa is a food. Flavour, the most essential part is not considered!" The soul of cocoa has been codified out, in order to deliver the commodity.
Commoditised cocoa has driven a race to the bottom over the last 40 years. When quality and care are not rewarded, price becomes the factor that shifts cocoa through the pipeline.
When Martin Short delivered his inaugural speech to the WCF (as the short-lived President), he shared an anecdote. On his desk, he had two photos of cocoa farmers, taken 50 years apart. The only difference was that one was in colour. The conditions on the ground, for the most part, have not changed.
An army of nearly 5 million smallholder farmers still define the source of cocoa. Their potential is still defined by muscle power and the whims of the weather.
The most fragile part of the value chain defines its future, and the consequence of this has been on stark display over the last six months.
When I last visited Côte d'Ivoire in December, denials and excuses clouded the view of just exactly how much cocoa would be coming out of the main harvest.
Coming off a three-year high of roughly 2,2 Million tons per year on average, people thought we were being absurd when we predicted the harvest would land at 1,5 Million tons.
Walking through the field, what was missing was shouting the loudest. No pods, no flowers. You cannot magically apparate cocoa; it has to be grown. And a commoditised flow of $2000/ton cocoa for 20 years had sucked the investment and resilience out of the farms.
Misapplied models
In the 80s, a productivity drive encouraged farmers to remove shade trees. When you do this, the trees will produce more pods in the short term. This is how experimental farms in South America achieve 3000 Kg/Ha yields.
The cost of this productivity is tree stress and a shorter productive lifespan. This approach requires more fertilisers and farming inputs as the trees are driven like machines.
This increase in productivity led to an oversupply, crashing prices and leaving the farmers poorer than before, as they had Ferrari farms requiring expensive upkeep at Tata nano prices. (Side note, there is a highly productive cocoa hybrid called Mercedes!).
As you can imagine, driving an expensive Ferarri in the jungle does not provide the same speed and thrill as driving on the autobahn. Instead of the theoretical yield of 3000 Kg, or even the stated aim of 1000 Kg, most farmers were producing cocoa at a rate of between 300 and 500 Kg per hectare.
The farmers' solution to increasing income was to increase their farm sizes, as they simply did not have the capital and infrastructure needed to achieve optimum yields. Increased yields = increased land use = more deforestation.
In this mix, trading cocoa as a commodity had a doubly toxic effect. The consistently low prices and anonymity of the brown beans meant there was NO incentive for West African farmers to invest in quality or value. In addition, anonymity has been rocket fuel for deforestation as farmers' only option to earn more was to burn more forest.
Time and time again, we have heard the hostages to commodification claim: There is no customer for quality.
Even Sylvestre Awono, the group head for cocoa at Puratos, the leaders in value-added cocoa sourcing, stated on stage: "Do not build a fermentation centre if you do not have a customer for that cocoa."
We have seen this policy put into action. There is a fermentation centre about 4 Km from our research centre in Ntui. It has been in operation for one month in the three years we have been there.
Commodification disincentivises quality and traps farmers in poverty.
In order to save costs, farmers are reverting to managing post-harvest processes themselves. Untrained and ill-equipped to manage this delicate process, the result is a degradation of their product. Instead of fermentation and drying being a value gain, it becomes a value drain!
We have the proof. Over the last weeks we have been doing a side by side comparison. We used the same beans, harvested on the same day on the same farm and sent them through two processes.
On the left side, the farmer was asked to handle their cocoa exactly as they have always done. On the right we used the COOKO method to capture the beans at source.
The result is striking and obvious.
So why would the industry willingly put so much effort into sustaining a system that clearly produces worse quality and more remedial costs?
Why would they opt for diluting out contaminants like free fatty acids, rather than avoiding them through a professional post-harvest management?
As Gricha Safarian made abundantly clear: mindset.
The prisoners (of mindset) dilemma
The industry is victim to a mindset where someone has to loose in order for someone else to win. As he stated:
"Most sustainability efforts fail because they only try and redistribute value; they do not create value."
The costs on the farmer P&L do not concern the trader and buyer. If they can squeeze 2% more margin from the farmer, that is 2% more margin in their own pocket. This mentality is evident throughout the value chain as contracts have added ever more hoops for farmers and cooperatives to jump through as the "price to play".
Ten years ago, it was cadmium contamination, then child labour, then deforestation and next comes the CSDDD regulations, looking at a raft of European expectations being demanded from farmer actions.
When I joined the industry three years ago, I was flabbergasted at the complexity in pricing. To compensate for the obvious structural problems, a myriad of "premiums" try to parachute cash back to the farmers, creating intermediary rent seekers and service providers who end up earning a bigger share of the incentives than the farmers themselves. Instead of paying the full value of the cocoa, we pay an army of people to administer a premium scheme.
Imagine slicing a cake where the knife takes a bite.
As Safarian said, we first have to add value before allocating it. Make the cake bigger, and then divide it equitably.
A digital value chain makes this possible. Direct connection to the point of harvest creates a "Megallan's map" for digital referencing. Now we can allocate ecological services, social rights and quality equitably and personally, freed from the mindset of commodification.
By being digital, we can make cocoa human again.
We need to bring the story of cocoa back to its source by blowing away the layers of obfuscation that have accumulated over the years.
A digital value chain removes anonymity and connects the players as a team rather than asymmetrical competitors. If we want cocoa to survive, if we want the next generation of farmers to stick to this challenging crop, we need to invest in and capitalise value creation.
This means seeing the people, the struggle and the opportunities for collaboration, not just the opportunities for speculation.
Let’s break free from the mindset that has captured our imaginations and limited our options.
Let's take that leap!