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Lack of transparency in the cocoa value chain hinders local
farmers as well the environment. However, with better management of
data, this can bring real benefits to Ivory Coast's cocoa farmers
and effectively transform the supply chain, according to Kleos
Advisory UK.
Currently Ivory Coast produces around 45% of the world's cocoa
(an estimated 2.2 million tonnes in 2018/19 according to IHS
Markit) and the value chains that manage the cocoa flows are highly
complex. These include numerous players, from the local buyers, to
the grinders, trading houses and offtakers. But within these value
chains the country's 600,000 cocoa farmers are essentially
invisible. Kleos Advisory UK indicated that at least three quarters
of Ivorian cocoa production is not traced back to its source, with
most being sold in bulk shipments to offtakers by local aggregators
(intermediares).
However, farmers' invisibility in the value chain also has
indirect impacts, denying farmers access to lending, insurance and
training. For commercial banks, who have no information about the
cocoa farmers, their farms or cocoa earnings, most farmers are
effectively unbankable. And the little financing they do receive is
drip fed to them by the cooperatives or by microfinance
institutions, Kleos Advisory UK explained.
The inability to link the cocoa to the farmer raises huge
questions about the sustainability of the cocoa sector. When we buy
a bar of chocolate, how do we know for certain that the cocoa in it
was not produced with child labour or environmental damage? This is
a major issue in Ivory Coast where an estimated 500,000-700,000
tonnes of cocoa (18.5% of national production according to Kleos
Advisory UK), is being produced illegally in protected forest
areas, causing devastation to the local ecosystem.
Therefore, the key to overcoming these challenges is simply
better use of data, Tedd George, Chief Narrative Officer at Kleos
Advisory UK outlines. "If you want to get financing to cocoa
farmers, it's about how you organize the data." IHS Markit spoke to
George who has been working with Fairtrade and pushing the digital
agenda. He discusses his latest project and how its outcome is
expected to aid cocoa farmers.
This is the third part from this interview. The first covered
the impact of Covid-19 on the sector as well as
the upcoming elections in Ivory Coast. The second discussed the
implementation of the Living Income Differential
(LID).
Q: So how did you start working with
Fairtrade?
Fairtrade launched an IMS (Internal Management System) project a
few years ago, but it proved hard to implement. So they brought me
in last year saying, 'what can we do to advance the IMS project?' I
went out to Ivory Coast and visited a bunch of cooperatives. My key
finding is that the coops have the data, but it's all over the
place. It's a complete mess. On the laptop, in another spreadsheet,
in someone's head. But I saw it, the data is there. Which means
that if you manage this data correctly, everyone is bankable.
You have the ability to prove whether you have a high incidence
of child labour i.e. "the kids are here, the farm is here, the
nearest school is 20 miles away, bam, there's the problem". You can
prove if the production is on protected forest land, we've got GPS
mapping of farms linked to the cocoa they produce, which can prove
it wasn't on protected land. There are even ways, if you're clever
with the data, to heat map the yields of all farms in a particular
area. You can have a look and say: 'Hold on, why does this farmer
have yields twice as high as others around him?' Probably because
he's mixing uncertified beans with certified production. Or the
guys' a genius! In which case, go back and work out what he's
doing. And get everyone else to do it. There's so much you can do
with the data. And in particular, financing for the farmers, for
the co-ops etc etc.
Q: So how are you proposing to carry out this
project?
So after completing a scoping report I proposed for Phase 2 we
run a pilot in 3 different groups of cooperatives. The first group
will be cooperatives which are quite advanced with digitalisation
but which are doing little with the data they have. Here we would
help with getting the most out of the data, from data mapping to
automated reports, tracking and alerts.
The second group are cooperatives that have barely started on
the digitalization process. Like a greenfield site almost. They
need an IMS system, they are supposed to have one, but they have
made little real progress. So the idea is that we come in and say
'We're going to turbo charge your IMS process and get you over the
line'.
The 3rd group will already use an IMS system, but not theirs
own. So they use, let's say, Olam's system or Cargill's. So, even
though on paper they have a great IMS, they're like 'Oh that
engineer they hired does it and he sits over there and he just does
it all', but where's the data? 'We don't know, we just send it to
Olam or whoever'. Fire and forget.
So the idea is to take a different approach to those three types
of coops and also come up with a model. So, we go to the coop and
say: "Where are you with your data management? Are you nowhere? Are
you somewhere? Have you done a lot of work but are getting no value
from it?' Then we build a roadmap for where they want to get to and
train them. But the key thing is for them to have ownership of the
system, to how to use that data in order to get funding for
yourself, for the farmers, forestry protection and off-taker
agreements etc.
Q: So at what stage is the project
currently?
I am pitching with several partners* for Phase 2 which will
comprise the pilot in six cooperatives in Ivory Coast over a
six-month period. The pilot will start with a full data mapping and
audit of all of the data they have, and from this construct an IMS.
It could be that they are quite developed and only need help in
tweaking the IMS and adding more value. Or they've got nothing and
we develop a roadmap to get there. Should the pilot prove
successful, Phase 3 would roll out to 40-50 cooperatives in Ivory
Coast, and potentially many more in subsequent phases.
Q: How will this all benefit cocoa farmers?
Where I see the real potential for this project is in addressing
a major problem for the cocoa sector: banks generally don't fund
farmers or the agricultural sector. They always come in at the
point of aggregation, such as the trader or processor. Because
you've got a flow there and it's easy to take control of it and put
security around it. But if it's a farmer, they're like, 'I know
nothing about this farmer, nothing about his background and if it
doesn't work out, how do I get my money back?' So you basically get
zero lending from banks into co-operatives and then to farmers.
What I hope by the end of this project is that coops with
functioning and fit-for-purpose IMS will be able to say, 'We've got
6,000 farmers and here is 3 years of data on them, here are their
cocoa deliveries, their payments/repayments, you know where the
farm is, you know they're compliant with environmental standards'.
Ok, let's lend them some money. Banks might start by taking risk on
50% of the lending that the coop makes to the farmers. But over
time they should be able to lend directly to farmers, having the
visibility over the flows to provide sufficient comfort.
The central point to make is that the data is out there - on
cocoa, the farmers and their farms. If this data can be properly
managed then it opens real possibilities for funding to flow into
the part of the agricultural value chain where it is really needed:
the start.
*Farmstrong are the local partners on the ground, PCR &
AgriVanguard on the IT side/all the software.
Posted 16 September 2020 by Sandra Boga, Deputy Editor