Investor Focus: The Potential for Sustainable Cocoa
By Dr. James Tansey, CEO NatureBank Asset Management
Building on over a decade of experience in sustainable commodities, NatureBank Asset Management is finding new opportunities for investment. As a commodity, cocoa represents a very interesting target and we want to share our experience in the sector and why we feel there is significant opportunity here.
Demand for cocoa is growing, beyond knowing this from our own interest in consuming chocolate, we can see it in the numbers. Over the past 50 years, this demand has grown by 2.5% annually, and total global production for the 2015/16 years is forecasted to reach 4.15 million tonnes. If we assume this growth rate continues, an additional one million tonnes of supply will be required by 2020. That volume is equivalent to the current annual production of Cote d’Ivoire, the world’s current leading producer of cocoa.
The cocoa supply chain faces a number of economic, social, and environmental challenges—creating potential challenges for the chocolate industry. Understanding these issues and how to address them are the first steps to realizing significant opportunities for both innovation and strategic capital investment in the sustainable cocoa industry.
More than 70% of the global supply of cocoa comes from West Africa, however, in recent years this region has experienced a 2% annual decline in production. This is the result of aging cocoa crops, lower productivity due to underinvestment, and poor agricultural practices. In addition, child labour is an entrenched problem, which creates real supply chain risks for the largest chocolate companies in the world. These challenges are exacerbated by the fact that small-holder farmers, who typically own a few hectares of land, are responsible for the vast majority of cocoa production, so it is much more difficult to manage how they operate.
To address these issues, many of the world’s largest cocoa companies have joined forces through programs such as CocoaAction. Created by the World Cocoa Foundation, CocoaAction aims to achieve sustainability in cocoa by supporting communities that rely on cocoa for their livelihood. Commitments made by some of the world’s largest chocolate companies for 100% sustainably sourced cocoa will ensure the demand for sustainable cocoa continues to grow. The demand for sustainable cocoa will be the core driver for change in the industry and will ultimately encourage its small-hold farmers to adopt more sustainable and ethical practices.
NatureBank has been—and will continue to be—at the leading edge of sustainable cocoa development.
Through our subsidiary, Forest Finest, NatureBank has a strong track-record in developing sustainable cocoa projects in Central and South America. This is a region where the environmental conditions for growing cocoa are excellent, the investment climate is strong, and labour practices are ethical. NatureBank is actively leveraging our experience by directing investment capital into developing vertically-integrated and sustainably-managed high-quality fine and flavour cocoa production. Both fine and flavour cocoa are in high demand by chocolate manufacturers internationally, and priced at the premium end of the market.
NatureBank’s investors are partnering with a team of cocoa, agro-forestry, community development, and investment experts with proven experience working in Peru, Panama, the Dominican Republic, and Colombia. Having developed and managed a portfolio of agro-forestry projects valued at approximately $100 million, the NatureBank team is a capable and experienced partner.