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Chocolate Shortage Spurs Revival of Cocoa in Amazon

Chocolate Shortage Spurs Revival of Cocoa in Amazon

Posted by Juan Gavasa on January 07, 2015

With chocolate prices surging, a formerCredit Suisse Group AG (CSGN) banker wants to help revive cocoa farming in the Amazon basin, where the beans are thought to have evolved about 15,000 years ago.

His campaign, located in Peru, is part of a Latin American push to gain more control of an industry now dominated by West African farmers who provide 70 percent of the market. The effort comes as drought, disease and government price controls have cut into the ability of Africa’s suppliers to meet demand, boosting prices by 7.4 percent in 2014.

Enter Latin America, where academics believe cocoa originated. At one time, the confection was known by the Aztecs as the drink of the gods, and eventually it was introduced into Europe by Spanish conquistadors. Now, the former banker, Dennis Melka, is joining a push by Brazil, Ecuador and Colombia to return a legacy product to its roots.

“The market is growing faster than Africa’s ability to supply it,” said Melka, chief executive officer and founder of Cayman Islands-based United Cacao Ltd. (CHOC) “It’s an incredible window of opportunity to supply and change the confectionery industry.”

Melka, who left Credit Suisse in 2005, was a director for the company’s emerging marketscoverage focusing on Southeast Asia. He founded Asian Plantations Ltd., which cultivates palm oilin Malaysia, and later began growing palm and other tropical crops in South America, where land is less expensive.

Temperamental Crop

In November, he sold Asian Plantations in a deal valued at 188 million pounds ($286 million), according to data compiled by Bloomberg. The following month, United Cacao raised $10 million in an initial public offering in London, and the shares have since gained 35 percent.

Cocoa is a temperamental crop, and can only grow within about 10 degrees of the equator. With land readily available in the South American jungle and ideal conditions, Melka said the Amazon region is emerging as a key supplier for chocolate producers.

United Cacao expects the first harvest from its 3,250-hectare site (8,000 acres) in northern Peru in the second half of this year. It’s on track to have 1,000 hectares planted this quarter and double that by year-end. When the entire area is planted by the end of next year, it may be the “largest and lowest-cost corporate cacao producer,” according to a filing with the London Stock Exchange.

Cocoa prices have been rising since 2011, and now stand at about $2,900 a metric ton.

‘Incredible Price’

“We’re rushing to plant because it’s an incredible price,” Melka said. “The Silicon Valley of the cacao industry is not in Asia or Africa, but in the Ecuadorian and Peruvian Amazonian belt.”

Melka is seeking to grab share from West African producers, where cocoa is grown mainly by small-scale farmers and sold to confectioners by large-scale grinders Cargill Inc., Switzerland’s Barry Callebaut AG and Olam International Ltd.

As global demand climbs, led in part by changing consumer taste in Asia, the International Cocoa Organization predicts a shortfall of 100,000 metric tons in the current growing year. The candy maker Mars Inc. anticipates a 1 million-ton shortage in 2020.

Last year, Ecuador displaced Cameroon to join the world’s five largest cocoa exporters after producing a record 240,000 tons in 2014, according to Ecuador’s cocoa exporters’ association, known as Anecacao.

China Interest

Favorable pricing is encouraging more planting in Ecuador, with U.S., Chinese and Japanese groups among those planning investments, Anecacao President Ivan Ontaneda said by telephone from Guayaquil. The association yesterday raised its 2015 forecast to 280,000 tons from 260,000 tons in October.

In neighboring Colombia, growers plan to take annual output from about 50,000 tons to 1 million tons over the next two decades, according to the National Cocoa Growers Federation.

Ivory Coast and Ghana produce more than 60 percent of the beans in the $110 billion global cocoa market. Indonesia and Nigeria make up the top five. Cocoa for March delivery rose 0.3 percent inNew York, heading for a third gain in four days, as hot, dry winds in Ghana dimmed the harvest outlook.

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