The Conventional Market for Cocoa

The cocoa market has different segments, which are based on quality. Most of the world’s cocoa is sold into as conventional beans, this is also called the ‘bulk’ market, which is because the bulk (most) of the world’s cocoa goes into this market. Bulk cocoa often has a bad reputation which is undeserved. This is however what most buyers of cocoa beans and products (liquor, butter and powder) want.

The main cocoa producing countries in the world are along the equator, and then these countries export to manufacturing countries. The main manufacturing countries tend to be where most chocolate is produced (such as Europe or USA), or where production is cheap due to low manufacturing costs (such as Asia).

The Solomon Islands is geographically close to Asia, this is why most of the Solomon Islands beans get exported to Asian ports. The longer the cocoa beans are in transit, the more at risk they are of decreasing in quality, which would result in financial penalties for the exporter, or the buyer. For this reason most traders want to reduce the shipping/freight time where possible and therefore sell to their closer ports.

Prices in this conventional or bulk market usually follow the two main international futures markets, which are the New York Intercontinental Exchange (NY ICE) or the London International Financial Futures and Options Exchange (LIFFE, pronounced 'life'). These futures markets are the main platforms on which all of the world’s main commodities are traded.

For this reason, most cocoa contracts are set in USD (meaning the buyer is trading against the NY ICE) account or in GBP (meaning the buyer is trading against LIFFE). The prices of commodities change constantly between the trading hours every day.

Cocoa farmers rarely receive the market price for cocoa, and this is because exporters and buyers need to deduct their costs from this value. For example if the market price for cocoa is USD2,000 per tonne, the buyer will offer the exporter the market price, minus their shipping costs (and other costs). So the buyer may offer the exporter $1,950 per tonne. The exporter also has business costs, it may cost them $100 per tonne to buy the beans from the farmers, store the beans, pay their staff etc. Exporters would then offer farmers $1,950 - $100 = $1850 per metric tonne.

The price is set per metric tonne (abbreviated to mt), in countries where there is low production (such as the Solomon Islands and Vanuatu, price is set for farmer per kilo.) Therefore if the exporter knows that their buying price is $1850/mt, they would offer farmers USD1.85/kg.

When cocoa is exported into the bulk market it is packed into jute bags, and to make calculations easy, every bag needs to weigh the same. This is 63.5kgs per bag, but the jute bag itself usually weighs 1kg which means that there is 62.5kgs of cocoa in every bag of cocoa exported. There are 16 bags of cocoa in a tonne, and 240 bags of cocoa in every full 20ft container.

The Premium Market for Cocoa

The opposite end of the cocoa market is called the premium market, also called the boutique or niche market. In the years to come, Solomon Islands farmers, processors and exporters are aiming to produce and export greater amounts of premium cocoa to more countries overseas who are looking for high quality cocoa beans.

The premium market is the best of the best cocoa, and therefore only a small percentage of the world’s cocoa is sold into this market. The beans need to have the following characteristics to be sold into premium markets:

1. High quality. This means perfectly fermented, good bean size, well dried (between 6-7% moisture so its not too dry that the beans crumble and not too wet that the beans may become mouldy), an excellent flavour profile, no waste, no mouldy or germinated beans.

2) A story. Premium cocoa may sell to consumers who want the very best quality product (as above) or to consumers who want to support a specific cause. This may mean transparent trade (knowing which farmers supplied the beans and making sure they got a good price), organic produce, environmental reasons etc. This means providing the cocoa buyer with a lot of extra information/photos etc so that they can use this as a marketing technique, to request higher prices from consumers.

Solomon Islands companies that are engaged in the Boutique or Premium market are as follows:

  • Cathliro
  • DKFC
  • Makiara Gold
  • C-Corps
  • Lucasco Group