We’ve been inspired by some of our fellow chocolate companies to publish a transparency report. We’d also like to take this opportunity to shed more light on the numbers behind the Ecuadorian cacao supply chain, as seen from the inside. The chocolate industry usually reports these numbers in the context of exporters and importers. We present these numbers from the perspective of A) small-scale cacao growers and B) a direct trade chocolate company (To’ak) operating in the bean-to-bar industry.
Wet Farmgate vs Dry Export
In the wider chocolate industry, cacao prices are generally quoted in terms of the dry cacao export price per metric ton. This is the price that a chocolate company would pay an exporter to ship cacao to them—usually via an ocean freighter. For chocolate companies located outside of the tropics, this is a necessary step.
Similar to the coffee industry, the export price of dry cacao is typically quoted in FOB terms (“Freight On Board”). This includes the costs of all of the services required to get cacao out of a production country. This includes farming and harvest, fermenting and drying, transport to the port, and the intermediary’s fees. The cacao farmer is usually only paid for farming and harvest. An intermediary is usually paid for the fermenting and drying, and transporting the goods to the nearest port.
FOB Export Price = Price paid to farmer + Price paid to intermediary(s)
In other words, publishing an FOB export price doesn't say too much about what farmers are actually paid. The same applies to the coffee industry. The Perfect Daily Grind—one of the leading sources of information about the coffee industry—published an interesting article on this same exact subject, called Coffee Pricing: Why We Need to Know Farmgate and Not Just FOB.
Our situation at To'ak is different, which has always created an interesting problem for us when trying to communicate our cacao prices. For one, To’ak is based in Ecuador—the same country in which our cacao is grown. So there is no need to import or export cacao. We also purchase our cacao directly from cacao growers, so there is no need for intermediaries. And last but not least, we purchase fresh cacao (also known as “wet cacao”) rather than dry cacao, so that we can do the fermentation ourselves.
In the interest of comparing apples to apples, we will ultimately convert our wet cacao farmgate price to a dry cacao FOB export price. And we’ll take you through the entire process.
- Although we tend to prefer the term “cacao,” we understand that some readers use the word “cocoa.” In this context, they mean the same exact thing. At the bottom, we include a glossary of terms.
- All prices are quoted in US dollars.
Cacao Prices On the Farm
In Ecuador, there are two different formats in which cacao farmers can sell their cacao beans. The first alternative is to sell freshly-harvested cacao (“wet cacao”) to a local intermediary, a growers association, or—in rare cases—directly to a chocolate company like To’ak.
In this case, the buyer is responsible for fermenting and drying the cacao, which are activities that are collectively called the post-harvest process. This is a critical step, and not every cacao buyer takes it seriously. Mistakes or a lack of effort during post-harvest is the surest way to ruin an otherwise good batch of cacao.
Alternatively, some cacao growers perform the post-harvest process on their own. In this case, they ferment and dry the cacao themselves and then sell “dry cacao” to a buyer. Once again, the buyer could be a local intermediary, a growers association, or a chocolate company.
Both of the above strategies can result in high-quality cacao. It really depends on how much care is given to the post-harvest process. Generally speaking, it’s difficult for small-scale growers to achieve optimum fermentation—for the simple reason that they often don’t have enough volume to reach critical mass. This means that the biological heat generated in their fermentation box may not reach the temperatures necessary to catalyze the chemical reactions that account for the rich flavor of the final product.
This problem doesn’t apply to large cacao producers, like our friends at Hacienda Victoria, who ferment and dry their own cacao. It also doesn’t apply to large growers’ associations like our friends at Fortaleza del Valle. Both have the benefit of large volumes of cacao, so achieving critical mass is not a problem.
At To’ak, we go to the farms at Piedra de Plata on harvest day and purchase wet cacao beans directly from the growers. Then we ferment and dry the cacao ourselves at Servio’s farm, which is nearby.
Note: the term “beans” simply refers to the actual seeds of the cacao fruit. That’s what chocolate is made from.
The farmgate price is defined as the price paid to the farmer. Throughout Ecuador, farmgate prices are generally quoted in terms of a 100-pound sack, which is called a quintal. Over the course of the year, the local market price for wet cacao in coastal Ecuador averages out at $25 per quintal, which equates to $0.25 per pound.
What do we mean by the “local market price”? If you’re a cacao grower and you take your freshly-harvested wet cacao beans into pretty much any mid-sized town in coastal Ecuador, there will be a guy sitting on a stool outside of a cacao depot who pays this price, regardless of which variety of cacao you’re selling. That's the local market price. For the vast majority of cacao growers in Ecuador, this is their only option.
Note: Although Ecuador officially uses the metric system, the weight of agricultural products is often measured in terms of pounds. The international chocolate industry, on the other hand, quotes cacao prices in terms of metric tons. It’s yet another number that requires conversion, which we’ll do further down the production line.
Converting Wet Cacao to Dry Cacao
At harvest time, the cacao beans are encapsulated in a juicy (i.e., “wet”) white fruit pulp. As the cacao beans ferment and then later dry, a great deal of water weight is lost. Wet cacao is generally reduced to about 1/3 of its weight over the course of the post-harvest process. This means that a 100-pound sack of wet cacao is ultimately reduced to a 33-pound sack of dry cacao. Or, to phrase it differently, it takes three hundred pounds of wet cacao to produce one hundred pounds of dry cacao.
To’ak purchases three grades of cacao from Piedra de Plata: Grand Cru (special editions); First Cru (Signature editions); and Second Cru (T.cacao editions). Each is quoted in terms of wet farmgate prices. To’ak’s wet cacao prices are 220% to 700% above the local market price.
To convert our wet farmgate prices to dry farmgate prices, we merely multiply our prices by a factor of 3. The chocolate industry traditionally quotes cacao prices in terms of metric tons, which is what we do here. We also quote it in terms of kilograms.
Once the cacao beans are fermented and dried, we load them into jute sacks and transport them to our production facility in Quito, a few hours away. Here, we begin the process of sorting and classifying the beans according to size and health. The beans that pass our selection are then roasted, winnowed, ground, conched, and ultimately converted into chocolate bars.
In some cases, there may be a multi-year detour inside of a Cognac cask or some such vessel used for aging purposes, but that process is beyond the scope of this report. The point is, there are no further steps in the cacao supply chain for us. There is no export of raw materials—FOB or otherwise.
This doesn’t mean we can’t equate our farmgate prices to an FOB export equivalent price. It just requires some math and a few helpful industry reference numbers.
For this phase, we draw upon information published in the 2019 Transparency Report by the pioneering cacao-sourcing company Uncommon Cacao, whose transparency report is the gold standard in the industry. Uncommon Cacao has set a new standard in the industry by providing transparent pricing data for every transaction along its supply chain. Our own transparency report, right here, has been inspired by their work.
Uncommon Cacao’s transparency report publishes both the dry farmgate prices and FOB export prices from high-quality cacao producers located in a wide range of countries. According to their 2019 Transparency Report, their average dry farmgate equivalent price is $2,510/mt and their average FOB export price is $5,010/mt. This means that 50% of the export price goes to the farmer.
This is roughly in line with the coffee industry, in which the farmgate price of coffee is—on average—about 70% of the FOB export price.
To convert our dry farmgate equivalent price to an FOB export price, we’ll take the average of these two numbers, which is 60%. When we use this as the conversion factor, our cacao prices in Piedra de Plata equate to $22,213/mt for our Grand Cru, $11,135/mt for our First Cru, and $8,267/mt for our Second Cru. See the table below, which compares these prices to the Fair Trade minimum price.
Comparing to Fair Trade
Fair Trade regulations quote prices in terms of the dry FOB export price. In theory, the Fair Trade price is set at a 10% premium above the ICCO commodity price, which is also quoted as a dry FOB export price. Currently, the Fair Trade minimum price for cacao is $2,400 per metric ton. During the three-year period between 2017 and 2020, the ICCO commodity price ranged from $1,920 to $2,720 per metric ton, with an average price of $2,320 per metric ton.
To'ak pays 270% to 820% above the Fair Trade minimum price.
As far as we know, To’ak’s farmgate prices and FOB export equivalent prices are the highest that any chocolate company pays for cacao in the world. This is based on an audit of every single chocolate company that publicly discloses the prices it pays for cacao.
Here's a visual representation of how those numbers compare:
In 2019, To’ak purchased a total of 7,005 kg of wet cacao (2,335 kg of dry cacao) from Piedra de Plata. In 2020, we initially canceled our annual harvest because of the coronavirus lock-down. Much later in the season, we eventually attempted an unusually late harvest, which only yielded 1,296 kg of wet cacao (432 kg of dry cacao).
Clearly, the amount of cacao that To’ak purchases is much less than most other chocolate companies. Our business was not initially built with volume in mind, but we’re trying to change that. One of the things we’re hoping to achieve in the next three years is to purchase more cacao from more growers while still maintaining the same high prices we currently pay today. This would obviously increase our overall impact in Ecuador.
We hope that our pricing model helps raise cacao prices throughout the industry. Wet farmgate cacao prices of $0.25/lb (or, for that matter, FOB export prices of $2,400/mt) are simply not enough to support a family in most countries, including Ecuador. Considering the gigantic number of people in the world who cherish chocolate, it would seem fair that the people at the very beginning of the supply chain—who bring life to the trees from which chocolate is sourced—earn a dignified living.
For a closer look at what defines responsibly-sourced cacao, feel free to check out What is Fair Trade Chocolate and Why Sustainable is Even Better.
Glossary of Terms
- Beans: Industry term for the seeds of the cacao fruit.
- Dry Cacao: Cacao beans that have been fermented (hopefully) and then dried.
- Fair Trade minimum price: The minimum price established by the Fair Trade standard. This is usually 10% above the ICCO commodity price.
- Farmgate price: The price that is directly paid to farmers for cacao.
- FOB: An incoterm that stands for “Freight On Board.” The FOB export price of cacao = Price paid to farmer + Price paid to intermediary + Price paid to exporter.
- Local market price: The price paid by the guy who sits on a stool outside of cacao depots in pretty much any mid-sized town in coastal Ecuador (eg, Calceta, Chone, Pedernales, Vinces, etc.).
- Quintal: A 100-pound sack of cacao beans (either wet or dry, depending on the circumstance).
Wet Cacao: Freshly-harvested cacao beans (i.e., seeds) that are still encased by juicy wet fruit pulp, prior to fermenting and drying.