1. KAKAO KONEK
November 21, 2012
Apo View Hotel, Davao City
PRICE RISK MANAGEMENT FOR
PRODUCERS AND EXPORTERS
SENEN M. PERLADA
Director, Bureau of Export Trade Promotion (BETP)
2. Outline of Presentation
I. Risk Management
– World Price movement
– Cacao Production
– World Exports and Imports of Cocoa products
– PH Exports and Imports of Cocoa products
– Managing Export Price and Other Risks
II. Branding: What Now “Davao Cacao”?
- Comments and Observations
- Personal thoughts on way forward
9. World Importers of Cocoa and Cocoa Preparation
(Value in USD Thousand) Ave.
Annual
Importers 2007 2008 2009 2010 2011 % Share
Growth
Rate
Total 29,160,329 34,658,503 34,333,289 39,572,592 44,005,210 100.00 11.09
TOP 10 17,741,902 21,139,697 21,195,398 23,970,322 27,056,605 61.49 11.35
Rest of the World 11,418,427 13,518,806 13,137,891 15,602,270 16,948,605 38.51 10.74
United States of
1 America 2,786,092 3,433,912 3,592,364 4,415,104 4,807,051 10.92 14.91
2 Netherlands 2,573,455 3,305,293 3,599,911 3,863,087 4,616,382 10.49 16.04
3 Germany 2,844,769 3,277,378 3,558,919 4,145,858 4,581,950 10.41 12.70
4 France 2,516,337 2,906,035 2,781,388 2,911,125 3,319,193 7.54 7.47
5 United Kingdom 2,006,729 2,124,143 2,152,264 2,178,110 2,303,054 5.23 3.53
6 Belgium 1,540,567 1,697,680 1,628,839 1,735,502 2,040,341 4.64 7.56
7 Russian Federation 846,707 1,081,578 984,023 1,282,428 1,445,384 3.28 15.44
8 Canada 904,923 1,087,834 1,060,836 1,200,166 1,390,002 3.16 11.67
9 Malaysia 873,435 1,287,110 874,963 1,145,680 1,298,435 2.95 14.90
10 Italy 848,888 938,734 961,891 1,093,262 1,254,813 2.85 10.37
Source: TradeMap, International Trade Centre
10. Consumption of chocolate in the EU
in kg per capita (2008)
Source: Caobisco (2010)
Not including Czech Republic, Cyprus,
Luxembourg, Malta, Slovenia, Slovakia and
Sweden
11.
12. 2011 World Exporters for Cocoa and
Cocoa Preparation
Source: TradeMap, International Trade Centre
13. World Exporters of Cocoa and Cocoa Preparation
(Value in USD Thousand)
Ave. Annual
Exporters 2007 2008 2009 2010 2011 % Share
Growth Rate
World 28,218,564 33,224,466 34,453,233 38,623,213 44,179,966 100.00 11.98
top 10 18,288,386 21,420,424 22,080,922 24,453,963 28,914,160 65.45 12.30
Rest of the World 9,930,178 11,804,042 12,372,311 14,169,250 15,265,806 34.55 11.49
1Netherlands 3,615,627 4,327,889 4,210,231 5,021,441 5,188,407 11.74 9.89
2Germany 3,154,696 3,699,873 3,694,643 4,249,756 4,875,621 11.04 11.72
3Côte d'Ivoire 2,204,547 2,807,307 3,724,395 3,826,923 4,158,530 9.41 17.86
4Ghana 1,053,370 1,042,124 1,158,219 975,927 3,468,350 7.85 62.43
5Belgium 2,566,617 2,739,788 2,614,314 2,674,439 2,994,116 6.78 4.11
6France 1,776,832 2,021,234 1,940,537 2,029,604 2,353,762 5.33 7.58
United States of
7 America 1,013,378 1,183,395 1,161,575 1,386,631 1,591,796 3.60 12.28
8Italy 1,221,924 1,327,154 1,245,947 1,343,072 1,560,549 3.53 6.62
9Malaysia 757,236 1,002,713 917,620 1,302,521 1,377,751 3.12 17.91
10Indonesia 924,159 1,268,947 1,413,441 1,643,649 1,345,278 3.04 11.71
Source: TradeMap, International Trade Centre
16. Philippine Merchandise Exports of Cocoa
Value in US$ Million
6000000 5.24 5.40
5000000
4000000 3.54 3.57
3.24
3000000 2.53
2000000
1000000
0
2007 2008 2009 2010 2011 Jan-Aug
2012
Source: NSO; Processed by BETP
17. Top 5 PH Export Markets of Cocoa
January to August 2012
Rest of the
Thailand World
11% USA
9% 27%
Malaysia
10%
UK
20% Spain
23%
Source: NSO; Processed by BETP
18. Philippine Merchandise Imports of Cocoa
Value in US$Million
120,000,000
102.67
100,000,000 88.37
80,000,000
55.49
60,000,000 46.03 49.56
39.84
40,000,000
20,000,000
-
2007 2008 2009 2010 2011 Jan-Aug
2012
Source: NSO; Processed by BETP
19. Top 5 PH Import Sources of Cocoa
January to August 2012
Rest of the Indonesia
World 24%
20%
USA
7%
China Malaysia
15% 19%
Singapore
15%
Source: NSO; Processed by BETP
21. Risk Management
• Like all other commodities trading, cacao trading has
an inherent set of risks
• It is good policy to identify risks and set up a formal
and realistic and set up a formal and realistic
program on how to manage them, preferably in
writing and communicated to all participants in their
respective trading activities.
• Risk management may be seen as series of actions
that modifies the risks from less acceptable to more
acceptable
22. Physical Risks
• These are traditional dangers to which all
goods are exposed, e.g. a warehouse may
burn down, a ship may sink, the shipment may
be contaminated or infested; a truck mightr be
hijacked.
23. Non-performance risks
• Perhaps the most common- examples are:
• The risks of partners in a transaction not fully living
up to their obligations, e.g. a farmer may not deliver
the crop after having signed a contract to do so, or
may deliver only part of it;
• A shipper may not ship at all (default) or may not
ship within the terms of the contract
• A carrier may deliver to a contract point other than
that required by the B/L.
• A buyer may refuse a delivery, for some reason, or
fail to make payment
24. Non-performance risks
• Financial instruments
– Following fundamental principle of all risk
management: the greater the protection, the
more costly it is
• Performance bonds (c/o insurance cos.)
• Delivery obligation secured by L/C
• Marketing boards/bodies
25. Non-performance risks
• Superintendence arrangements
– Importer may retain a company whose function is
primarily to safeguard the interests of the
principal, for a fee
• Deliveries may be structured so as to give such
company custody of the goods prior to export
• Other arrangements
28. Price Structure
The price structure of a chocolate bar (ex-factory)
may be broken down roughly, as follows:
• Cocoa producer: ~4-6%
• Traders: ~30%
• Transport: ~20%
• Confectionery industry: ~40%
• Retail channels can make up to 50% profit on
the final product.
30. KAKAO KONEK
November 21, 2012
Apo View Hotel, Davao City
Branding:
What now “Davao Cacao”??
SENEN M. PERLADA
Director, Bureau of Export Trade Promotion (BETP)
31.
32.
33.
34. Tell your story: From “plot to gut”
• There is an increasing interest in the origin and context of the cocoa
bean production.
• Chocolate companies want to connect the end-consumer to the very
beginning of the production process; that is, from “bean to bar”. But I
challenge you to go further by making it from “plot to gut”
• To gain loyal consumers, large marketing campaigns of chocolate
brands engage in new promotional tools.
• Marketing expenses of major chocolate manufacturers estimated to
amount to more than 19% of their total budget.
• There is Increasing focus on the origin of cocoa to highlight quality;
Origin/region and processing methods also play a central role in brand
image
• Marketing noise: Consumers are confronted with a large amount of
information when they purchase chocolate bars, ranging from how a
company is active in the conservation of natural resources to how they
engage in the improvement of livelihood opportunities for the cocoa-
producing farmers, etc. etc.
36. Certification schemes focus areas and volume produced
Source: 2010 and 2011 numbers are based on information provided by Fairtrade, Rainforest
Alliance, UTZ Certified through their annual reports and interviews. 2010 Organic figure is derived from
the TCC (2010) Cocoa Barometer 2010.
37. Roles and processes related to certification of
sustainable cocoa
Source: KPMG Team Analysis
38.
39. Areas for further research
• Study the value chain perspective, from farmer to
coop, trader, processor, retailer and consumer.
• Validate information on costs and benefits on the ground
(farm level)
• Costs and benefits between coops and individual farmers
• Costs of group churn, agrochemicals usage, product handling,
rejuvenating trees, farm wages, etc.
• Deeper insights in certification schemes impact assessments
• Farm size/productivity potential
• Pros and Cons of multi-certifications
• Actual social impact of certification, e.g. gender equality and
elimination of child labor
40. Package Brand name
Company’s
Physical Accessories
image
product
Instructions After-sales
for use service
Warranty
41. So, what now, Davao Cacao??
Anything but a Forrest Gump
experience, please!!!
“Life is like a box of chocolates.
You never know what you’re
gonna get”
Forrest Gump
42. Package Brand name Life is Davao Cacao.
You always know
Company’s
image
Physical
product
Accessories what you’re
Instructions After-sales
gonna get!!!
for use service
Warranty
