Translations

PACARI CHOCOLATES, Opting for a Rural and Ecological Development Model that Begins with the Small Producers

5. Fair Operating Practices

Responsible purchasing

Sector Food-processing

Year 2018

Country Ecuador

Transmitter

Context

Seventy per cent of the fine cocoa of the world is grown in Ecuador; this farming activity is undertaken by around 150 thousand families of small producers. However, although the world demand for fine flavour cocoa known as Arriba Nacional, used to make premium chocolates, is increasing year by year, the income and living standards of the small-scale farmers has seen no such increase.

Only eight per cent of the cocoa produced in Ecuador is exported in the form of chocolate as an end product. This export dynamic of raw material (92%) means that prices in the cocoa sector vary according to global supply and demand. This instability in the prices paid to small producers has a serious effect on their finances. The situation is particularly acute at times when the price may even fall below production costs.

On the other hand, it is calculated that approximately 86% of the cocoa production is marketed through intermediaries. This marketing system means that the producer receives less than 50% of the value per quintal of dry cocoa by the bag. This dynamic has also meant that, historically, levels of productivity and profits in the rural family farming sector could be so low that they did not cover production costs. For example, according to figures from the Ministerio de Agricultura y Ganadería (MAG) (Ministry of Agriculture and Livestock), the average production in provinces such as Manabí is 6.38 qq per hectare (ha) per year, with a price of 568 Euro per bag at the end of August 2018. This level of production and price scarcely meets the running costs, which according to the MAG are between 763 and 1300 Euro per ha.

In addition to this problem of low profitability and productivity, around 90% of the farmers have no access to credit which makes it difficult for them to make improvements to the production process or take advantage of technological progress that would be advisable to improve quality.

Pacari Chocolate is a family business created in 2002 by Santiago Peralta and Carla Barbotó with the aim of changing the history of chocolate in Ecuador. What began as a family business, very soon became a Company that revolutionised the industry, not only in the country but in the whole of Latin America.Pacari seeks to break up the dynamics of the market and of brokering, paying a higher price than that dictated by the market, and thus recognising the organic quality and giving family farming prospects for the future.

Objectives

To increase productivity and quality of fine flavour cocoa known as organic Arriba Nacional. To achieve this aim, three specific objectives have been defined:

To promote ways of organic production deriving from ancient practices. Pacari offers the families of small producers regular training and technical support from experts on organic methodologies, biodynamics and pest control through the use of microorganisms.

To improve the living conditions of small farmers in a sustainable way. Pacari has facilitated access to green energy and clean water resources. It has also promoted the construction of anti-seismic schools in rural areas of the coast in Esmeraldas. In June 2018, once the locations with greatest need had been identified, around 250 water filters were distributed to various rural communities in Ecuador.

To manage training and technical assistance to strengthen partnerships institutionally. Pacari has managed various projects of technical assistance and governance training within partnerships. In July 2018 it initiated a programme implemented by Pacari and financed by the Programa Re-Emprende (= Start Again Programme), which has been managing funds from a trust for the reconstruction and reactivation of productivity in Manabí and Esmeraldas since the earthquake; this programme will benefit 60 small producers from Manabí. The company has served as a way of connecting the farming community and funds from international cooperation organisations. The aim of the project is, along with technical support, to generate a partnership structure that will be able to manage a system of fair collection, control of the production process and financial management so that quality and productivity increase. Pacari will benefit by being able to buy better quality cocoa and satisfy all its demand.

APPROACH

Pacari was founded in line with the vision of its creators, Santiago Peralta and Carla Barbotó, who wanted to place the producer as the point of reference and to innovate with premium organic products derived from cocoa. The leadership and constant enthusiasm of its founders has been the key factor in maintaining these practices over 16 years and ensuring that they are still present at Pacari.

When the issue within the cocoa production chain was recognised, the next step was to define priorities and actions to break the chain of brokerage between small producers and the company. For Pacari it is essential that the collaborators in the provision of raw materials and ingredients should be able to access programmes and projects that would reinforce and improve their production, social and organisational processes. Because of this sustained practice, the Pacari Foundation has collaborated with institutions that are both public and private, national and international. Some of these institutions are: PRODEL, USAID, GIZ, VECO-ANDINO (now Rikolto), Ministry of Heritage, CORPEI, KIVA, The Waterbearers, the Catholic University of Ecuador, COPADE, PROECUADOR, AL Invest 5.0 Programme, Programa Re-Emprende de la Alianza para el Emprendimiento y la Innovación (Start Again Programme of the Partnership for Entrepreneurship and Innovation), among others. The appearance of these partnerships within a practice that prioritises the small producer is reflected in projects dealing with topics such as agro-tourism; anti-seismic construction; renewable energy and drinking water; technical assistance to improve productivity and quality; generational succession, institutional reinforcement of partnerships; biodynamic agriculture; promotion of gender equality; and traceability via a blockchain.

The company identifies its impact on society by using qualitative methods, based on which it schedules action plans and monitoring. First, it carries out mapping of problems and baselines with a methodology named MetaPlan. This methodology enables the sharing of opinions anonymously between small producers so that every aspect of the problems they face can be understood. In addition, reports of field visits are produced to verify the well-being of the small farmers and to monitor the application of polyculture and organic practices. The baselines jointly established with producers enable better monitoring of good agricultural practices and the skills involved.

Another key point that differentiates Pacari from other companies has been the accreditation of international verification bodies, which recognise the good practices that Pacari has implemented since it was founded. Among the international certifications Pacari holds are Kosher, SPP, and being part of the ‘B Companies’. The brand is now recognised for its high-quality organic products and its commitment to the development of small partner suppliers. This public recognition has led to increased interest from NGOs, financial and governmental bodies, wishing to support and join the vision of Pacari.

CONTRIBUTION TO COMPANY PERFORMANCE

One of Pacari’s principal contributions to the cocoa sector and one of its main differentiating factors is that it pioneered the cultivation of organic cocoa and the manufacture of premium organic chocolate. This differentiation has generated a growth in international demand for Pacari products of approximately 10% per year.

Pacari has been recognised over seven consecutive years by the International Chocolate Awards, winning over 200 prizes. This has earned it the title of the best organic chocolate in the world. It also holds certifications for its organic quality and for good practices in its manufacture.

By dealing directly with associations of small producers, Pacari can offer its customers a guarantee of 100% traceability. This is an advantage compared to other companies in the chocolate trade and would not be possible with intermediaries.

Price stability and control of the production capacity of each association are other key aspects. A base price is maintained of no less than 130 Euros per quintal of cocoa. With stable prices for the raw material, the company can establish strategic prices for the insertion of the brand in new markets in an efficient and functional manner.

For its social projects and for the direct way the trade is organised with farmers and the community, Pacari is an Empresa B (B Company), a recognition awarded to companies that use the power of the market to provide concrete solutions to social and environmental problems.

Benefits

The first impact was the re-evaluation of ancient practices in growing crops. These practices keep the cocoa crops, for example, free of chemicals but resistant against potential pests. By providing incentives and regular training to the farmers, practices are developed for diversifying organic crops that are less invasive for the environment.

Another aspect is that the self-esteem and perception of the agricultural sector have also changed. Farmers do not only taste the chocolate they have helped create, they now also know the value of their work and how special their crops are. Pacari has revolutionised the cocoa industry by giving small farmers direct and active participation. Trade that is transparent, fair and direct is encouraged. In the beginning, an association of only 400 families of farmers accompanied Santiago and Carla in this undertaking yet now there are seven associations, representing 3,500 families of small producers, and many more wish to join and are in the process of accreditation.

In addition, with the growth and recognition that Pacari has experienced, the resources the company can invest in social projects are now mush greater, as in the new agreement with the World Wildlife Foundation (WWF) for wildlife conservation.

Greater recognition from governmental authorities towards the needs of farmers has also been achieved. This gives greater support to the practices Pacari employs and which are now beginning to become more mainstream. Pacari helps with finance so that small producers can form associations, buy technology and cover the costs of obtaining international certifications.

In the traditional cocoa production chain, the price farmers receive for the cocoa varies between 25 and 120 Euros per quintal. Pacari decided not to be bound by market norms and to pay no less than 130 Euros per quintal. In addition, it gives financial recognition to the efforts of producers’ associations in terms of quality, social responsibility and the development of the community. This is verified by field visits and support with the organic certification process.