The Cocoa Supply Chain

The first six months of my current job, which started in July, are learning months, meant to expose me to the various elements of the agri-commodities value chain. We are 14 associates in the 2018 cohort of “Future Leaders,” and we have been sent to various countries around Africa to gain this value chain exposure. I am currently in Nigeria learning about cocoa procurement. My company calls procurement of the agri-commodities themselves “origination.”

Our main base of operations is in Akure, Nigeria. Akure is in Ondo State, the largest cocoa producing state in Nigeria. Ondo is in Southwest Nigeria, approximately five hours drive from Lagos, the largest city in the country. Akure is at about 1,000 ft of elevation and I would say it has been uncharacteristically cold here during what for me are the summer months. At any given time of day, I can feel a wind-whipped chill. I don’t think it’s reached above 80° at all since I have been here. It has been raining a lot, and the rain leaves the surrounding area very lush and green. It looks like a shrubby stout tropical rainforest. Of course, this climate and ecosystem is ideal for cocoa production, which is what has brought me to Akure in the first place. Akure is aware of the importance of cocoa to the city and region. In the middle of one of the city’s main traffic circle there is a statue of a man holding a larger than life cocoa pod. The landscape of Ondo is also dotted by these half-barren hills of black rock. Although at first glance they look burned and scorched, I think they are actually a quite nice feature of the Ondo surroundings and a nice contrast to the green forest and the signs of human habitation all about.

Cocoa is the fuel that makes the Akure economy go round

A sampling of products with our cocoa

My main “job” here is to learn anything and everything I can about the cocoa procurement process. This stems from planning and planting of new farms all the way to processing cocoa into chocolate and shipping it out of the country from the port in Lagos. Learning what I have, I find it fascinating that we are able to enjoy any chocolate at all. There are many steps in the supply chain, and it’s truly remarkable that we can get cocoa all over the world, in a variety of different forms, at very reasonable prices.

Cocoa grows on trees. They are short trees that like shade, lots of water, and some heat. Pods, thicker than soda cans and more than half a foot long, grow off the branches of the tree. The pods vary in color from yellow to red to green. The pods are hard, but when you crack them open they reveal a stack of seeds, or “beans,” that are surrounded by a pulpy white flesh. This thin flesh is quite sweet. That’s not the cocoa. The cocoa is inside the seeds. However, the beans are actually fermented via a natural bacterial process before they are sold. The fermentation dissolves away the flesh and improves the texture and taste of the cocoa.

Cocoa nursery

Give it five years and it’s a productive cocoa tree!

Ripening cocoa

Ripe cocoa pod (and my fat fingers)

Fermented and dried cocoa beans

Cocoa is grown on small family farms throughout Central and South America, Africa, and Asia. In many regions of Nigeria cocoa is the main cash crop, but to diversify farmers are encouraged to raise other crops. Kola nut (an original ingredient of Coca Cola) is another popular crop on the local farms. To give you a sense of how many cocoa farmers there are, my roughest of rough calculations puts the figure at 180,000 in Nigeria.

The farmers do not sell directly to the global trade houses. 180,000 farms leave too many roads for companies like mine to tread down. Instead, the farmers sell to brokers in their local communities. The brokers, in turn, sell to local buying agents (LBA’s). We deal directly with the LBA’s by funding them with cash and they buy the cocoa and deliver it to us. When we fund an LBA, we expect to receive cocoa from him or her within seven days. Seven frantic days for the LBA to coordinate with the brokers and the farmers, and if necessary get the cocoa cut from the trees, taken out of the pods, fermented, dried, and transported. These seven days are fraught with hazards. We are currently in a very rainy spell and the roads to the farms are barely passable. Even if they were, the cocoa beans are not drying, which is critical to moving them down the supply chain. Some cocoa comes from remote farms and swollen rivers need to be crossed by boat to get the cocoa to markets. The river crossing threatens the transporters as well as the dryness of the cocoa.

The Unit Head in Owo inspecting an LBA’s stock

Buzzing around the LBA’s, brokers, and farmers are the various local employees of my company. Branch controllers, unit heads, and quality control inspectors are responsible for collecting market intelligence, making harvest yield forecasts, and constantly liaising with the LBA’s. The LBA’s have other potential customers they can sell the cocoa to if they so please, so it is a fine balancing act to get the amount of cocoa that we want, at a fair price, and at the right time.

That’s the easy part. Before the cocoa can leave the LBA’s storehouse it has to be graded as export quality by the local Produce Officers, with the requisite fees and taxes. At this point the cocoa may have made it only a few mere miles from its mother tree. The cocoa has yet to begin its journey from the farm to the shelves in your local shop. Its first stop is likely to be one of our local warehouses. From a local warehouse it may go to our primary “upcountry” warehouse here in Akure. That’s the main consolidation point. From Akure we can load up the big trucks and send it to our portside warehouse in Lagos. Every time the cocoa crosses a state border we pay an “evacuation” fee to the local authorities.

At each handoff between LBA, transport company, or warehouse there is a meticulous weighing and quality control process. This ensures that the LBA is compensated appropriately for the cocoa and that we are only procuring cocoa that meets the quality expectations of our customers. However, repeatedly loading and unloading the trucks with big burlap sacks of cocoa beans is backbreaking work, and the labor costs add up as a result.

Not every cocoa bean makes it into the chocolate destined for consumers. There is a litany of defects that can cause a bean to be discarded. Beans may just grow deformed, so there’s no real cocoa inside of the shell. Excessive moisture can cause mold to form inside the bean. If beans are improperly fermented or wait too long before fermentation then they may germinate or the cocoa inside may have a poor consistency. More so, the beans can be infested by weevils that leave bore holes in the beans, or excessively dry and dusty conditions can leave white spots on the shell of the bean and render the cocoa inside inedible. Every single bag of cocoa is sampled and the beans are meticulously sliced open to inspect for these defects.

Good beans

Moldy beans

The port city warehouse, which all cocoa passes through, is a completely different sight from the sleepy warehouses upcountry. The warehouse is cavernous and trucks are always coming and going, stacked to the brim with sacks of cocoa from upcountry. They are all weighed on a truck scale (known as a weighbridge) and then park in front of the warehouse doors.  Workers, like marching ants, climb up into the trailers, unload the cocoa, bring it into the warehouse, and stack the bags 10 high or more on pallets. Forklifts zip on by, moving pallets around to improve space utilization. For illustrative purposes, if a warehouse clears 50,000 metric tons of cocoa in a year, that’s approximately 3,000 bags of cocoa a day (or 6,000, if you think that each bag needs to come in and ship out). It will be many more during the “Main Crop” season, and fewer during the “Light Crop.”

At the moment, my company does not perform any cocoa processing inside Nigeria. We export all of our procured beans. However, we have processing plants in Côte d’Ivoire, Amsterdam, Singapore, and Chicago, if not more locations. The cocoa could be destined for any one of these plants, or to the plants of other processing companies. The plants have an intricate process to extract food ingredients from the cocoa. In general terms, the shell of the bean is removed and then the cocoa is subjected to various presses and pressures. This yields three products: cocoa butter, cocoa liquor, and cocoa powder. Chocolate, as we think of it, is a combination of these products and sugar, to soften the bitterness of the cocoa.

From the processing plant we sell the butter, liquor, and powder to a multitude of food manufacturers, which have their own intricate supply chains to get the chocolate to the shelves in stores around the world.