SENEN M. PERLADA Director, Bureau of Export Trade Promotion (BETP) 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)
KAKAO KONEK November 21, 2012
Apo View Hotel, Davao City
PRICE RISK MANAGEMENT FOR PRODUCERS AND EXPORTERS
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
COCOA PRICE MOVEMENT FOR THE MONTH OF SEPTEMBER 2012
WORLD EXPORTS & IMPORTS
Cacao production Cacao production has been, and still is, concentrated in developing countries, more specifically in West Africa.
2011 World Importers for Cocoa and Cocoa Preparation
Importers 2007 2008 2009 2010 2011 % Share
Ave. Annual 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
1
United States of 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
World Importers of Cocoa and Cocoa Preparation (Value in USD Thousand)
Source: TradeMap, International Trade Centre
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
2011 World Exporters for Cocoa and Cocoa Preparation
Source: TradeMap, International Trade Centre
World Exporters of Cocoa and Cocoa Preparation (Value in USD Thousand)
Exporters 2007 2008 2009 2010 2011 % Share Ave. Annual 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
1 Netherlands 3,615,627 4,327,889 4,210,231 5,021,441 5,188,407 11.74 9.89
2 Germany 3,154,696 3,699,873 3,694,643 4,249,756 4,875,621 11.04 11.72
3 Côte d'Ivoire 2,204,547 2,807,307 3,724,395 3,826,923 4,158,530 9.41 17.86
4 Ghana 1,053,370 1,042,124 1,158,219 975,927 3,468,350 7.85 62.43
5 Belgium 2,566,617 2,739,788 2,614,314 2,674,439 2,994,116 6.78 4.11
6 France 1,776,832 2,021,234 1,940,537 2,029,604 2,353,762 5.33 7.58
7
United States of
America 1,013,378 1,183,395 1,161,575 1,386,631 1,591,796 3.60 12.28
8 Italy 1,221,924 1,327,154 1,245,947 1,343,072 1,560,549 3.53 6.62
9 Malaysia 757,236 1,002,713 917,620 1,302,521 1,377,751 3.12 17.91
10 Indonesia 924,159 1,268,947 1,413,441 1,643,649 1,345,278 3.04 11.71
Source: TradeMap, International Trade Centre
PHILIPPINE EXPORTS AND IMPORTS OF COCOA
PRODUCT COVERAGE
• Cocoa Paste
• Cocoa Butter, Fat and Oil
• Coca Powder w/o added sugar
• Chocolate & Other Food Preparations containing Cocoa
• Cocoa Beans
Philippine Merchandise Exports of Cocoa Value in US$ Million
0
1000000
2000000
3000000
4000000
5000000
6000000
2007 2008 2009 2010 2011 Jan-Aug 2012
3.54 3.57 3.24
5.24 5.40
2.53
Source: NSO; Processed by BETP
Top 5 PH Export Markets of Cocoa January to August 2012
USA 27%
Spain 23%
UK 20%
Malaysia 10%
Thailand 9%
Rest of the World 11%
Source: NSO; Processed by BETP
Philippine Merchandise Imports of Cocoa Value in US$Million
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
2007 2008 2009 2010 2011 Jan-Aug 2012
39.84 46.03
55.49
88.37
102.67
49.56
Source: NSO; Processed by BETP
Indonesia 24%
Malaysia 19%
Singapore 15%
China 15%
USA 7%
Rest of the World 20%
Top 5 PH Import Sources of Cocoa January to August 2012
Source: NSO; Processed by BETP
MANAGING EXPORT PRICE RISKS
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
Market risks
• Functional trading
• Hedging
• Unhedged position
• Futures hedge
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.
Certifications
• Fair Trade
• Organic
• UTZ-Certified
• Rainforest Alliance
SENEN M. PERLADA
Director, Bureau of Export Trade Promotion (BETP)
KAKAO KONEK November 21, 2012
Apo View Hotel, Davao City
Branding: What now “Davao Cacao”??
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-enabled Marketing?
• Fair Trade
• Organic
• UTZ-Certified
• Rainforest Alliance
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.
Roles and processes related to certification of sustainable cocoa
Source: 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 name
Accessories
After-sales
service
Warranty
Instructions
for use
Company’s
image Physical
product
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
Package Brand name
Accessories
After-sales
service
Warranty
Instructions
for use
Company’s
image Physical
product
Life is Davao Cacao. You always know what you’re gonna get!!!
Thank you very much!
Daghang Salamat!!