Managing risk
Each supply chain—for cocoa powder vs. chocolate bars vs. chocolate chips, for example—is unique. However, a universal tension in all the cacao supply chains is the competing interests of securing supply, which is likely to be at a high cost, and the desire to not overbuy at high prices, only to have the market come down and be saddled with product that can no longer be sold at a price that covers the cost and needed margin. Everyone is making their best strategic guess at striking the right balance in securing inventory amounts and prices. It’s simultaneously risky to buy too little or too much while the prices are so volatile.
Another universal stress is financing. Most businesses, from farm co-ops to manufacturers, generally function based on balancing the costs and timing of when they pay for their own costs versus when they get paid for their end product from their customers. In this case, almost everyone in the supply chain is needing to spend way more—two, three, four, or more times their usual cost—to secure what they need. But they then have to wait the usual amount of time to get paid by their own customers. Many players in the supply chain are, therefore, facing the unexpected and acute financial strain of needing way more cash on hand to pay for their inputs.
This situation is incredibly challenging for the farmer co-ops that we work with. The co-op buys the cacao beans from many (sometimes hundreds of) individual small scale farmers. The co-op then collects and aggregates those smaller amounts of cacao to then in turn sell to international buyers at the larger quantities that the buyers need. The co-ops need to pay their farmer members immediately upon buying the cacao from them, but the co-op itself often may have to wait months to get paid for their contracted beans. Securing enough cash upfront to buy the cacao from farmers at that first step is proving to be quite a challenge.
A further risk unique to farmers is that cacao has become quite suddenly very valuable, and theft is a very real concern at the farms, co-ops, and collection centers. Security for both the products and the people are a growing priority.
Positive news
In certain supply chains, including ours, higher prices will help small-scale farmers and their families. In our alternative supply chain specifically, because we work with farmers organized into co-ops, payments don’t just go to individual families, but also to programs that benefit farmer communities. For farmers, farm health and productivity are the key not just for income today, but for years and generations to come. After over a decade of low prices that were challenging for them, this period of higher prices offers them a chance to re-invest and stabilize for an uncertain future.
Because Equal Exchange partners with organic, fair trade farmers, these farmers also serve as important stewards of their lands and surrounding ecosystems. The current cacao shortage is a reminder of how vulnerable crops and supply chains can be to unpredictable weather patterns. Equal Exchange supports farmer co-ops who are actively working to manage land in sustainable ways.
While we can’t foresee what the cacao market will look like in a year or 10 years from now, we are committed to working cooperatively with our customers and our farmer partners to be informed and engaged participants in an alternative food system. There are many inherent challenges in our food system, in chocolate and beyond, but there are also reasons for hope, and daily opportunities to take action. The model and spirit of co-ops also create a space for collaboration and creativity to build upon existing solutions and to continue to forge new opportunities.
