Gerard Manley, Chairman of the Federation of Cocoa Commerce, speaks at the FCC Dinner Friday 15th May 2015

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    Your Excellency Mr Kwesi Bekoe Amissah-Arthur, Vice President of the Republic  Ghana;  Your Excellency Mr Muhammad Jusuf Kalla, Vice President of the Republic of Indonesia, Rt Hon The Lord Boateng, Ministers, Ambassadors and High Commissioners of cocoa producing countries, the Chairman and Madame le Directeur Generale of the Conseil de Café Cacao and the Chief Executive of the Cocoa Board,  the Executive Director of the ICCO, Chairmen and representatives of the cocoa trade and industry Associations and Federations, representatives of SOS Children’s Villages, the members and guests of the Federation of Cocoa Commerce, Ladies and Gentlemen.

    Cocoa, truly is the Food of The Gods, it played a valuable role in South American culture before being brought to Europe by the Spaniards in the 16th Century.  In the mid1600s cocoa had gained huge popularity with the French aristocracy; and it was a Parisian who opened the first shop in Bishopsgate, London in 1657; which spread to over 2,000 chocolate houses by 1700.

    This was the beginning of the world’s cocoa and chocolate trade, to which we all, and many millions of others, now play a part.

    We are indeed in a very valuable commodity: over US$14 billion in bean value, traded a multiple number of times; US$50 billion in cocoa processing and industrial chocolate and a chocolate market estimated in excess of U$110 billion.

    We have a production of approximately 4.2 million tonnes and a demand which is close to equilibrium – but with a bearing towards a structural deficit that could be amplified in years to come without a response to price or significant agricultural improvement.

    Since our last dinner three years ago the futures markets – and yes for some extraordinary reason we have 5 of these today – continue to provide an average daily volume of over 40,000 lots  – a total annualised value of US$300 billion. The price has appreciated by more than 30 % and we have had a trading range between a low of £1,382 and a high of £2,133.

    The combined futures open interest in the same period has had an increase of over 25%; and, much more dramatically, the open interest in traded options has increased from a combined number of 190,000 lots to just under 420,000 – more than doubling in this period; with the London option open interest bigger than futures. Interestingly, implied option volatility is trading around historic lows possibly as a consequence of origin forward selling and the rise in OTC transactions.

    Cocoa has spurned a wealth of businesses, supporting services and activities related to the cocoa bean and even fashion as Sylvie Douce demonstrated with Salon du Chocolat models last year! Some of the world’s best known brands have cocoa at their heart, whilst many smallholder farmers depend upon it for their livelihood.

    Within this context I will touch on three further aspects this evening: the role and work of the FCC; our theme of the night ‘West meets East’ and the macro factors that affect us all as we aim for the true sustainability of our business.

    The FCC continues to play its major role to promote, protect and regulate the trade in cocoa beans and cocoa products and to support and safeguard the status and interests of its members.  At the heart of the Cocoa trade the FCC continues to ensure that free, fair and open business may be conducted – something we should all be proud of.

    As an industry we are also clear of our responsibility and the need to operate a sustainable supply chain where all participants prosper and grow. We are proud of the support the FCC continues to provide to research institutions, education and to SOS Children’s villages.

    We are pleased to have a growing membership of the FCC which currently encompasses 193 companies from all sectors and with a global reach. I would again like to thank all Members for their continued support as I strongly believe that an inclusive Federation is essential for a stronger cocoa market with fewer defaults between trading partners due to the greater exposure to the FCC contract rules, conditions and best practices.

    Details of the work undertaken by the FCC may be found on the upgraded FCC website; including all details from the Annual General Meeting last month.

    Quality, of course, is a key consideration of the FCC and we were aware that the trade has managed to live with many differing interpretations on quality. We believe the time has come for a clearer clarification – providing better guidance for all those in the cocoa market with maximum levels of acceptance.

    With wide support from the membership I am pleased to confirm that, following significant consultation, these new quality rules and related arbitration and appeal rules for all FCC contacts will become valid to all contracts entered into from 1st June 2015 – just two weeks to go.

    I would like to thank all those involved in this process and especially the guidance of Council members; Contracts and arbitration committee and all the responding and supporting members.

    I am pleased to advise that on the 20th April the FCC published a revision of the Guidance Notes to the FCC Contract Rules for Cocoa Beans relating to the type, size and construction of the sampling probe and its use. Guidelines on Jute Bags for Packing of Cocoa Beans were also issued.

    In November, the ISO 2451 was published and is the basis for quality standards in many cocoa producing countries based firmly upon FCC definitions. Phil Sigley will lead a Working Group to incorporate further revisions on quality, bean size standards and definitions.

    In research, the FCC and its members continue to play a significant role, collaborating with the ECA and Caobisco under the combined Cocoa Quality and Productivity Working Group which is currently engaged in 3 projects: on the mitigation of Cadmium contamination; updating the Quality Requirements Guide; and a Swollen Shoot Virus Project, as well as supporting Cocoa Research UK.

    Education has become an integral part of the FCC calendar, running courses for aspiring arbitrators as well as advanced courses; it has also successfully run courses aligned to providing new talent with an understanding of the cocoa business. The courses to be run next month are already sold out but please do contact the secretariat for details on next year’s availability!

    On sustainable and traceable cocoa, the FCC and its member companies are actively involved in the industry’s initiatives. The pursuit of a standard began as a CEN European initiative and has now become an ISO Project which we hope will be implemented by 2017. The FCC also supports the ICCO’s work in building a sustainable future – with the next meeting of the World Cocoa Conference being held in the Dominican Republic in a year’s time.

    So with my FCC plug complete, let me turn to our theme of the night: West meets East

    Representing over 70% of the world’s cocoa production, West Africa has grown 3% in my nine years as an FCC officer.  Meanwhile, demand in Asia has grown at 11% in the same period.  It is therefore a great privilege to welcome the vice president of Ghana and the vice president of Indonesia and I look forward to hearing their views on their respective countries.

    Some of you will know that I have been fortunate to build my career in cocoa, starting as a post graduate trainee – one of the first! I was fortunate to be able to understand the true fundamentals of the business and within my early years to visit Cote d’Ivoire and Ghana; followed by Nigeria, and much later Cameroon.  As a young trader I was fortunate enough to witness the growth and golden years of cocoa production in Malaysia and the growth of its processing industry; and a decade later see the enormous growth in Indonesia and most importantly the new demand created in the Asian Tigers and their neighbours. With a Bloomberg survey of economists predicting in February that the world’s fastest-growing economies over the next two years are in Asia and Africa, our West meets East theme feels even more apt, framing not only the importance of these regions in production but the underlying strength of demand.

    As we are aware, cocoa consumption has a clear link to GDP growth. McKinsey research suggests that in 1990 the number of people earning US$10 per day was one billion out of 5 billion – mainly in the developed world. Today this has more than doubled – and by 2025 this is likely to be 4.2 billion consumers out of a global population of 7.9 billion. With one billion households having earnings greater than USD 20,000 expected by 2025 – with 60% of these in the emerging markets – so an inflexion level for cocoa consumption.

    Chocolate is still relatively new to the region, with Euromonitor putting the average amount of consumed across the Asia-Pacific region in 2014 at just 200g per person compared to almost 5kg for chocoholic West Europeans; but consumption is predicted to grow at almost 5% annually with countries like India, China and Indonesia leading the way.

    And Africa? Such potential if we can harness our collective powers to advance production.  Home to some of the best quality beans in the world, today fewer than 10% of West Africa farmers are using fertiliser and at least 95% of the cocoa produced is from seed taken from farmers’ own pods or from their neighbours’ pods rather than true hybrid material. Imagine what could be achieved with the right materials put in our farmers’ hands.

    All of the big four origins in the region have, however, responded to higher prices with new plantings.  If we can continue to scale up efforts to support African farmers we can start to tackle that cocoa deficit the media is so fond of talking about! Of course, the rainmaker that is El Nino is going to keep us on tenterhooks. The Australian Bureau of Meteorology said this week that key indicators have shown a steady trend towards El Niño levels since the start of the year. It remains to be seen whether it will become a fully-fledged phenomenon.

    And speaking of El Nino it’s a good link to my next points on the macro challenges ahead.

    In fact, I half wonder if it is not a reminder from Mother Nature to force nations to focus on weather impacts ahead of the UN climate change discussions in Paris so we actually make some progress! Perhaps more than any other industry, agriculture, and particularly cocoa, knows that sustainability is critical.  Many of us can cite the statistics in our sleep.  But let me highlight 3 areas as food for thought:

    We are currently enjoying a delicious meal.  We are lucky.  Not only will our hunger be satisfied but our food (apart from our indulgent dessert!) will be nutritious.  FAO tells us there are 805 million hungry people in the world and 98 percent of them are in developing countries.  The cocoa industry plays its part in helping small-scale farmers increase productivity and therefore incomes to purchase food, but we must be mindful of the need to help them secure nutritious food.  In developing nations, micronutrient deficiencies especially Vitamin A, iodine, iron and zinc are major factors in stunting, wasting and premature death.  As an industry, aside from a moral obligation, we need our farmers to be healthy as well as prosperous.  The issue is complex but here’s just two points we can address:

    • Help producers tackle post harvest waste for both cocoa AND more critically their food crops
    • And no surprise here: support women farmers – as studies show, productivity increases if they are given the same resources as men, but educate women on how to grow the right food crops and malnutrition can be tackled at the same time

    And keeping with nutrients, did you know that this year is the UN International Year of Soil?  It’s about time that soil started to get the same recognition as water scarcity and climate change.  As defined by the US Department of Agriculture, soil is a living and life-giving natural resource.

    My favourite statistic of the year is one the USDA cites:  one teaspoon of healthy soil contains 100 million to 1 billion bacteria.  If you weighed the number of microbes in one acre of soil it could weigh the same as two cows!

    Although some of these organisms may cause us headaches, we need to protect these tiny populations. A study by Wood et al cited by the World Business Council for Sustainable Development, states that soil degradation has already reduced global agricultural productivity by 13% in the last 50 years.

    So let’s acknowledge an issue on cocoa: we know that the growth in many cocoa regions around the world has been, in part, due to the high levels of soil nutrients that occur after forest conversion. But these soils from converted forest will degrade and farmers will not be able to afford the required use of inputs to compensate.  We cannot allow farmers to deforest to access more and better soil, not only if we are to halt climate change and biodiversity loss, but if we are to prevent further soil degradation and flooding.  So if we can protect the forests and protect the soil through the uptake of Good Agricultural Practices and climate smart cocoa initiatives, we will be limiting our own impacts.

    The last point I want to flag here is one of sustainable land management.  Everyone in this room has a duty to ensure that the cocoa industry plays its part in being a steward of the land. Making sure that we get maximum productivity from every established plot because the world is running out.

    The UN Convention to Combat Desertification provides the numbers: if agricultural land productivity remains at its current levels, an estimated 6 million hectares of land (roughly equivalent to the size of Norway) would need to be converted to agricultural production every year until at least 2030 to satisfy the growing demand.

    To bring it home: in 2008, more than 60 food riots occurred worldwide in 30 different countries, 10 of which resulted in multiple deaths.

    But there is good news.  It has been predicted by the Economics of Land Degradation Initiative that sustainable land management, which includes closing yield gaps, could result in an additional 2.3 billion tons of crop production per year, equivalent to a potential gain of US$ 1.4 trillion. And we are seeing it with our own eyes as cocoa yields increase.

    My call to action therefore is for the cocoa and chocolate industry, governments and trade associations to share knowledge not just with each other but across agri supply chains.  We may be considered just a luxury treat or flavour to some but our insights and our work with smallholders can help meet the challenge of feeding 9 billion people by 2050.

    Let me expand on this theme of collaboration.

    The CocoaAction initiative, under the World Cocoa Foundation, spearheads sustainability in the Cocoa industry. The FCC today has 5 CocoaAction companies represented on the Council including two Board members.  This pre-competitive partnership of major chocolate industry companies, cocoa processors and traders uniting to co-ordinate and commit to sustainability efforts is transformational.  Initially focusing on the two largest producers of Cote d’Ivoire and Ghana and then to other countries, it has two major packages focusing on productivity and community development.

    But CocoaAction is not the only collaboration.  Many of you in this room will be partners to each other, through government, customer, supplier, NGO and trade association relationships. One of the most significant collaborations, of course, being the response of the industry to Ebola, not only through donations to the aid agencies but in the ongoing awareness and hygiene programmes to combat this devastating disease.

    Working together, I believe our challenge is to maintain and develop a traceable and sustainable supply chain that meets the aspirations of consumers whilst acknowledging the complexity with working with many millions of smallholder farmers.

    And whilst it is important that programmes need to demonstrate a truly positive impact, we should not lose sight of the importance of scalability.

    As the Worldwide Fund for Nature reminded us last year there is still much to be done in terms of outreach.  In fact they said our sustainability efforts are upside down. They found the worst cocoa producers, the bottom 25%, only produced 10% of the world’s cocoa yet account for 40-50% of negative impacts such as deforestation, illegality, soil erosion, misuse of fertiliser, pesticides and underpaid labourers. But I am confident that through aligning strategies and harnessing technology we can tackle this challenge head on.

    And so to the future of the industry.

    My tenure as Chairman started in 2012 – the year of the London Olympics which depicted the UK’s industrial revolution in its opening ceremony.  With London full of smog from pumping factories it took over 150 years for Britain to double its economic output; the second stage spurred by the US took 50 years. A century later China and India industrialised in 12 and 16 years respectively – each doubling their GDP output and with populations of over one billion.

    Clearly if we believe in the correlation of cocoa and chocolate to global gdp growth there is a continuing need and desire for our industry. We must be proactive in shaping tomorrow and work in unison.

    The world of the Cocoa trade has no doubt changed – but challenges on the physical front, differentials, ratios, structure and price will continue to keep us all engaged in one of the most complex and rewarding of industries.

    We may have a consolidating industry in search of a margin structure that allows all participants to prosper; and we have to understand and work with our regulators to ensure fair and efficient management of the trade.

    As we have seen before it is a vibrant community and as I look around at almost a thousand guests I am clear that the future may be changing but it is as dynamic as ever; and I wish good fortune to all of you.

    So in my last few moments as Chairman of the Federation of Cocoa Commerce, may I take this opportunity to say a few thank yous.

    Firstly, I restate my deep appreciation to Your Excellency Mr Kwesi Bekoe Amissah-Arthur, Vice President of the Republic Ghana; Your Excellency Mr Muhammad Jusuf Kalla, Vice President of the Republic of Indonesia and all other distinguished guests.

    May I take a very special moment, to thank my wife, Diane – who has had to encounter too many interesting moments in my cocoa life!

    The FCC secretariat has provided me and the Council with wonderful support; and I would like to thank them for their dedication to the cause of the FCC. To the Chief Executive, Phil Sigley, I owe a very special debt of gratitude for the manner in which he boldly strives to ensure that we act fairly for the industry; and across all spheres; also for the enthusiasm and effort that he and his team have put into organising this evening’s event.

    I would also like to thank my predecessor as Chair, Filipa Secretin for her wisdom and guidance and my thanks to all Council members, especially the Chairs of the sub committees and their teams who put in so much work on behalf of the industry.

    In my Vice Chair and Chairman elect, Aldo Christiano I have been fortunate to have had his wide ranging talents and advice from the numerous additional bodies in which he serves. Special thanks to our Treasurer who continued to make the FCC money – Olivier Hullot and finally to the Chairman of the Contracts and Regulations committee, Roman Mueggler- who is to become the new treasurer.

    I leave believing that the FCC has a truly representative and first class council and I wish them the very best of luck in the future.

    Thank you

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