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)
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
COCOA PRICE MOVEMENT FOR THE MONTH OF SEPTEMBER 2012
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
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.
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
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
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
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.
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)
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.
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.
Roles and processes related to certification of sustainable cocoaSource: KPMG Team Analysis
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
Package Brand nameCompany’s Physical Accessoriesimage product Instructions After-sales for use service Warranty
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
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