THE COCOA INDUSTRY BOARD OF JAMAICA RESTRUCTURING COMMITTEE ...

1. THE COCOA INDUSTRY BOARD OF JAMAICA RESTRUCTURING COMMITTEE______________________________COCOA INDUSTRY DIVESTMENT REPORT(Jamaica)______________________________19th November 2010

2. 2 History of the Cocoa Industry in Jamaica The CIB was a construct of the latter stages of colonialism, and its main purpose was to ensure that Jamaica should become and remain an exporter of high quality beans � therefore remaining a raw producer, with added value being created in the metropole or elsewhere, and that is still its basic modus operandi. Jamaica�s fine flavour cocoa is viewed to be one of the best in the world. Premiums for fine flavour cocoa have fallen, and Jamaica can receive 40 to 50 pounds sterling or about 10 per cent over the price for bulk � although Trinidad can receive significantly more. Premiums on Jamaican cocoa have fallen as a result of Madagascar cocoa replacing Jamaican cocoa when Jamaican exports fell. The range of countries that produce fine flavour cocoa could increase from the current 17, which would create a large supply of the bean, and perhaps see a further reduction in price, unless demand also rises.

3. 3 The 1960�s 4. Since the Cocoa Industry Board (CIB) was established in 1957, the cocoa crop has never exceeded the 3500 tons of 1925. The highest recent production since the Board�s establishment was 2,738 tons in 1982/3 � well below the CIB record of 3394 tonnes in 1959/60 (see Pic No. 1). 5. Jamaica�s cocoa production has fallen from a high of about 3400 tonnes in 1961 to a low of 200 tonnes in 2004. The best years of production were in the 1980s with annual production of more than 2500 tonnes, until 1988 when Hurricane Gilbert struck the island. Production quickly improved however, until 1995 when production fell to just over 1000 tonnes, and has remained below that level ever since, badly affected by hurricanes, drought and loss of interest among farmers.

4. 4 Exports of main cocoa producing countries and Jamaica

5. 5 Graph of Exports from Exclusive Producers

6. 6 Graph of Exports from Caribbean Cocoa Producers

7. 7 Graph of Exports of global fine flavour Cocoa Producers

8. 8 SWOT Analysis of the Cocoa Industry in Jamaica Strengths One of the four internationally recognised best cocoas in the world, Long history and culture, Very difficult for a new entrant to gain high quality, Good to high demand, Cadbury�s Old Jamaica brand, history of Cadbury in Jamaica at Highgate, History of Jamaican cocoa in the UK, Jamaica�s strong brand on the international market Strong Jamaican coffee brand � opportunity to leverage that advantage Slavery free � unlike producers in Africa, recent BBC documentary will intensify consumer awareness of slavery and child labour in cocoa production Largely organic, Strong relationship with two buyers Jamaica�s fine/flavour cocoa gets a 10 per cent premium Demand for Jamaican cocoa exceeds supply Established processing system with three national fermentaries (though only two in operation) Potentially lower shipping costs due to central location Weaknesses Low production, Quality falling, Low and falling interest from farmers, Processing outdated and ancient Not enough cocoa to make fermentaries efficient Image of cocoa farming in Jamaica is poor, especially compared to coffee � cocoa walks compared to coffee estates , Only two international buyers, Politically charged environment � large farmers distrust and dislike CIB, CIB low on funds, not enough collection of cocoa as compared to past, Susceptible to hurricane High costs of labour when compared to competitors High costs of fuel when compared to some competitors

9. 9 SWOT Analysis (cont�d) Opportunities Increase production, Introduce local high-end chocolate, Sell direct to premium chocolate or ice cream producers, Partner with Blue Mountain Coffee, build on synergies, maybe piggy back into Starbucks Sell to local or international liqueur producers, Improve processing , Single estate cocoa or chocolate � move to wine industry model Good replacement crop for bananas which are now hardly exported, Convert to red wine model Kick start production on estates in Western Jamaica Seek new markets in China, East Europe � where chocolate consumption is low due to past economic and cultural history, but is increasing fast, Partner with foreign chocolate producer Introduce by-products, African black soap, jams and jellies, juices, cocoa butter Luxury chocolate for South American market, particularly Chile, Colombia and Brazil, Create flavour profile for various Jamaican cocoa regions Differentiate Jamaican flavour regions Allow Jamaican farmers to track fermentation of their own bean to ensure traceability protecting their flavour profile so that they can create their own estate brands of chocolate. Create a filtered cocoa product to create new high end alternative to growing filtered coffee market Partner with other high-end Caribbean chocolate producers Support Chocolate Dreams and other local high end producers Explore high-end chocolate balls market � for traditional Jamaican hot cocoa in Jamaican and Caribbean markets in North America and the UK Continued fall in production.

10. 10 SWOT Analysis (cont�d) Threats Disease � black pod here � others overseas Hurricane Marketing Jamaican Cocoa from the Inside Out Decline in processing/fermentation quality Fall in cocoa quality Small production means producers no longer interested, Expansion of production by competitors New competitors introduce fine or flavour cocoa � as in the case of Ghana, which is also introducing Fair Trade certification Continued disinterest of younger generation in farming Decline in demand for fine flavour cocoa Jamaica no longer being seen as a producer of fine flavour cocoa Chocolate becoming less popular

11. 11 Revamping the Cocoa Industry in Jamaica On the 05th day of June 2009 the Minister of Agriculture and Fisheries, Dr. Christopher Tufton, appointed a Cocoa Industry Divestment Committee that I chaired. The Cocoa Industry Divestment Committee was charged to divest the Cocoa Industry that had been running a deficit for several years and had low production output particularly since 2004. The Cocoa Industry Divestment Committee had its terms of reference as follows:- a. Develop clearly defined roles/functions for both regulatory and commercial entities. b. Identify all the assets of the current Cocoa Industry Board. c. Divide the assets appropriately among the regulatory and commercial entities. d. Develop a proposed new organizational structure for the regulating entity. e. Propose possible funding mechanism for operation of the regulating entity. f. Recommend suitable management structure for the commercial entity. g. Identify possible timeline for divestment of commercial entity. The main and fundamental problems of the Cocoa Industry currently are the legal framework and the ability of the cocoa farmers to obtain a better farm gate price viz-a-viz the open market price for exclusive fine flavoured cocoa beans. This low rate of returns for the cocoa farmers has had the negative effect of the farmers not sufficiently tending their cocoa farms and this in turn further reduces the output of cocoa.

12. 12 Revamping the Cocoa Industry in Jamaica (cont�d) But the opportunity to turn this industry around has never been better. Jamaica�s cocoa is still considered to be one of the world�s best (though some experts say that the quality is not as high as it once was) Global chocolate sales continue to grow, and Jamaica�s cocoa is in high demand for up-scale chocolate producers New wealth in developing countries is producing new markets for luxury chocolates � places like China, South America and Eastern Europe, which have been starved of certain luxuries for years The Jamaican brand in general and for food in particular is excellent, and there are opportunities for Jamaican chocolate to build on that Virtually no by-products are made from cocoa production � but several are available, and could be sold on both the foreign and local markets, bringing more income to the farmers themselves The fermentaries could track the cocoa coming from various estates, so that separate flavour profiles could be created and protected, and allow the development of estate chocolate Jamaican cocoa � already fine/flavour � could be further differentiated by becoming officially organic, fair-trade and child labour free. Chocolate Dreams and any other small producer of chocolate could be assisted by the CIB to go global, producing fine quality chocolates with Jamaican cocoa and ingredients Other boutique producers of high quality chocolates, cosmetics, candles, soaps and beverages could be encouraged to use Jamaican cocoa in their products Government could lead the way in creating an estate chocolate industry by introducing that concept to the CIB farm near Richmond, seeking an alliance with foreign or local chocolate producers Already successful Caribbean estate chocolate producers in Grenada, Tobago and St. Lucia could serve as models � The Grenada Chocolate Company, The Belmont Estate (Grenada), The Tobago Cocoa Estate W.I. Ltd and Hotel Chocolat in St. Lucia. Cocoa could become the replacement crop for bananas and coconuts � new lands could go into production The upcoming privatization of the commercial side of the Cocoa Industry Board will shake up the industry and bring new opportunities, hopefully succeeding in making cocoa a more popular crop. But moving up the value chain to by products and chocolate will create more jobs for more Jamaicans and more export earnings for an economy that is today importing more cocoa products than it exports.

13. 13 Projection of Cocoa Sales for Next Five Years and Best Case Scenario � Jamaica�s case 6. Cocoa export sales currently stand at 450 tonnes. That is expected to improve to 750 tonnes for 2010 and to 1050 � 1100 tonnes for 2011. This is largely due to improved output of cocoa since the recent devastating hurricanes in 2004 to 2007. 7. With the deregulation of the cocoa industry, that should allow farmers to sell at higher prices outside of the CIB, the production of cocoa should improve all things remaining equal. Higher prices for the farmers will result in greater production and greater sales. If all existing trees were to be in full production, it would mean production could increase to the 2500 tonnes that was the norm in the 1980s � without much difficulty. 8. To increase the level further will require the planting of new cocoa trees, which will not bear fruit for three years. It is unlikely that any cocoa farmer will do that, unless they are happy with the price they get for their labour � and currently they are not. But the introduction of the free market should change that, bringing new farmers and new cocoa lands into production. 9. Provided that cocoa production is successfully marketed as an attractive crop � cocoa estates rather than cocoa walks � profitable rather than subsistence - dying farms could be brought back into production and new farms opened up. This could bring Jamaican production back up to the 3500 tonnes that was achieved in 1925 and more, as new farmers could see the worth in planting new cocoa trees � but that will still be a tiny drop in the global market for both bulk and even fine/flavour cocoa. As such, demand for Jamaica�s cocoa and cocoa product should exceed production, provided the CIB and others successfully differentiate the Jamaican flavour profile and skillfully build on the existing Jamaica brand. 10. In a best case scenario Jamaica should be able to return to production up to 2500 tonnes in the following three years, with 500 to 800 tonnes more if the large farmers should go into full production for a total of about 3000 tonnes � without any new trees being planted. 11. Once Jamaica hits 2500 tonnes, and proves to be a profitable crop, the train will be in motion and more farmers will come on board. With the addition of profitable by-products and more local buyers, the sky is the limit. Jamaica�s cocoa is a niche, high-end product, but that niche is greater than Jamaica could ever supply in the short term. By creating and innovating new approaches to the sale and marketing of cocoa we can greater incentivize the cocoa industry and improve significantly the rate of return to the cocoa industry.

14. Kent P. Gammon CHAIRMAN OF THE COCOA INDUSTRY BOARD OF JAMAICA RESTRUCTURING COMMITTEE C/o 07 Barbados Avenue Kingston 5 Jamaica, W.I. Tel: 876.754.3000 Fax: 876.754.3333 www.kentgammonlaw.com