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Senen Perlada, BETP (21 pm 2nd speaker )

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  • 1. KAKAO KONEK November 21, 2012 Apo View Hotel, Davao CityPRICE RISK MANAGEMENT FORPRODUCERS AND EXPORTERS SENEN M. PERLADA Director, Bureau of Export Trade Promotion (BETP)
  • 2. Outline of PresentationI. 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 RisksII. Branding: What Now “Davao Cacao”? - Comments and Observations - Personal thoughts on way forward
  • 3. COCOA PRICE MOVEMENT FOR THE MONTH OF SEPTEMBER 2012
  • 4. WORLD EXPORTS & IMPORTS
  • 5. Cacao productionCacao production has been, and still is, concentrated indeveloping countries, more specifically in West Africa.
  • 6. 2011 World Importers for Cocoa and Cocoa Preparation
  • 7. 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 10.37Source: TradeMap, International Trade Centre
  • 8. 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
  • 9. 2011 World Exporters for Cocoa and Cocoa PreparationSource: TradeMap, International Trade Centre
  • 10. 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 dIvoire 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 17.9110Indonesia 924,159 1,268,947 1,413,441 1,643,649 1,345,278 3.04 11.71Source: TradeMap, International Trade Centre
  • 11. PHILIPPINE EXPORTS AND IMPORTS OF COCOA
  • 12. PRODUCT COVERAGE• Cocoa Paste• Cocoa Butter, Fat and Oil• Coca Powder w/o added sugar• Chocolate & Other Food Preparations containing Cocoa• Cocoa Beans
  • 13. 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 2012Source: NSO; Processed by BETP
  • 14. 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
  • 15. 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 2012Source: NSO; Processed by BETP
  • 16. 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
  • 17. MANAGING EXPORT PRICE RISKS
  • 18. 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
  • 19. 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.
  • 20. 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
  • 21. 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
  • 22. 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
  • 23. Market risks• Functional trading• Hedging• Unhedged position• Futures hedge
  • 24. Price StructureThe 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.
  • 25. Certifications• Fair Trade• Organic• UTZ-Certified• Rainforest Alliance
  • 26. 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)
  • 27. 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.
  • 28. Certification-enabled Marketing?• Fair Trade• Organic• UTZ-Certified• Rainforest Alliance
  • 29. Certification schemes focus areas and volume producedSource: 2010 and 2011 numbers are based on information provided by Fairtrade, RainforestAlliance, UTZ Certified through their annual reports and interviews. 2010 Organic figure is derived fromthe TCC (2010) Cocoa Barometer 2010.
  • 30. Roles and processes related to certification of sustainable cocoaSource: KPMG Team Analysis
  • 31. 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
  • 32. Package Brand nameCompany’s Physical Accessoriesimage product Instructions After-sales for use service Warranty
  • 33. So, what now, Davao Cacao??Anything but a Forrest Gumpexperience, please!!!“Life is like a box of chocolates.You never know what you’regonna get” Forrest Gump
  • 34. Package Brand name Life is Davao Cacao. You always knowCompany’simage Physical product Accessories what you’re Instructions After-sales gonna get!!! for use service Warranty
  • 35. Thank you very much! Daghang Salamat!!

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