It’s hard to believe, but there is a worldwide shortage of cocoa powder. And it’s making things very difficult for manufacturers such as Mont Blanc Gourmet that use it in our products. An unusual confluence of events has triggered the situation, making the market the worst in decades. Rising prices, low production and crop shortages are all part of the problem. Unfortunately, the solution is neither simple nor available in the short term.

Cocoa beans are a traded commodity and, like other commodities, are bought as a hedge and investment and not to procure the actual item. In the last 18 months, the price of a ton of cacao beans has risen from $2,000 a ton to almost $3,600 a ton. This obviously has created higher costs for manufacturers that take delivery of the beans and convert them into cocoa powders and chocolate. And those manufacturers that have purchased these now more expensive beans are reluctant to turn them into cocoa powder because that is viewed as a fairly low-margin product. It’s easier to receive higher value for such products as dark chocolate, so existing bean inventories are being used to make chocolate and not cocoa powders.

At Mont Blanc Gourmet, we purchase a significant amount of cocoa powders and book contracts with our suppliers to guarantee prices over a fixed period. Those contracts specify the duration for which the price is good and the quantity of the specific powder that we are guaranteeing to purchase within that time. Recently, we received a large order from one of our customers for a new product launch that required hundreds of thousands of pounds of a certain cocoa powder. We contacted the supplier and told them how much we wanted to purchase. They declined to provide us with it because we did not have a contract in place with them for the quantity that we needed. In order to make the launch date for our customer, we had to reformulate using another supplier’s powder to match the taste profile and be available for production. Thankfully, we were able to accomplish both, and the new drink launches in May.

For the next six months or so, the situation will remain the same. However, the commodity price of a ton of cocoa beans is dropping somewhat, and manufacturers are beginning to produce more cocoa powder to meet demands. People are optimistic that within six to nine months the market will begin to stabilize and it will be easier to obtain the cocoa powders we need. In the meantime, we are doing everything we can to guarantee a supply so we can continue to make and ship for our customers. It’s been an exhausting six months, and everyone is looking forward to an abundance of beans and cocoa powders so we can concentrate on making sauces and syrups and focus less on the worldwide global cocoa shortage.

I just finished my third new business presentation in as many days. Each company is a large, publicly traded, well-known household name. All are considered leaders in food service and are responsible for serving millions of beverages and meals annually. And each meeting had nothing to do with saving money or cutting costs. Instead, the conversations focused on sustainability, Fair Trade and social responsibility.

The buyers at these companies are acutely aware of the importance of their supply chain in ensuring that their stores have an uninterrupted supply of products. None of them wants to face the thought of running out of a popular menu item. And all place a huge burden of responsibility on their vendors to make sure that doesn’t happen. At the same time, they all understand that focusing solely on price is a destructive business tactic. They prefer to focus on longer-term investments by paying higher prices and knowing that a third party certifies where the crops come from. The certifications we discussed include organic, Fair Trade, UTZ and Rainforest Alliance. These buyers know that paying more money for products that are independently certified means the crop is generally better treated than its non-certified counterpart. Fair Trade products mean that farmers receive a premium price; Certified Organic means that the coffee or cocoa was grown without using artificial pesticides; UTZ certifies that all of the growing and processing is subject to strict regulations; and Rainforest Alliance means that the crops were grown to ensure that valuable rain-forest lands are not endangered. Each of these certifications costs the buyer more money, and each company was willing to accept that price premium knowing it would lead to a more sustainable supply.

The discussions I had were focused on how we could help these companies deliver products with these attributes. Now, the fun part — the Research and Development component — begins. The lab is now creating single-origin cocoa mixes, Fair Trade chocolate syrups and organic flavored syrups. And while it is always fun to develop new items, it is especially gratifying doing so and knowing that both farmers and consumers will ultimately benefit from what we make.  

One of the biggest issues facing companies that use coffee and cocoa is sustainability. How can we, as users of a commodity, guarantee a consistent, quality supply of the materials that we use to make our products? There are myriad issues affecting supply-chain sustainability, but many are directly attributable to the welfare of the farmer or grower. This post is an attempt to illuminate a few of the challenges that cacao farmers face.

First of all, the farming itself is basic subsistence agriculture. Essentially, most of the grower’s income is derived from the cash crop that he is growing, and he must use the proceeds from the crop to cover all of the expenses of raising and harvesting the crop, as well as living expenses for a family. With cacao, the average crop is harvested on a plot that is approximately two hectares, or one acre. In West Africa, farmers receive between $30 and $100 per year for their harvests, representing up to 70 percent of their total annual income.  

A second problem the farmers face is a lack of knowledge and skills, preventing them from maximizing their crop yield. Without training and equipment, it is difficult to get the most from the land.  

A third problem is a lack of credit and financial resources that could enable farmers to purchase fertilizers that would increase yields and decrease crop loss. Since the average crop size is so small, even a slight increase in productivity would greatly increase overall income. 

Some of these issues can be addressed by getting farmers more money for their crops. Fair Trade purchasing is one way to generate more income for farmers by getting buyers to commit to paying a premium for a more consistent, higher-quality product. Although some argue about the model, Fair Trade purchases and practices are gaining popularity as customers, like us, are willing to spend more money for a commodity in the beliefs that the end product will be of a more consistent quality and that by paying more, the farmer will benefit. We just introduced two new Fair Trade cocoa mixes, and I hope that our customers see the benefit as well.  

It is the oldest cocoa plantation in Ghana, dating from 1878. Started by Tetteh Quarshie, a blacksmith who smuggled cocoa beans into the country from the island of Ferdinand Po, it is the birthplace of the Ghanaian cocoa industry. Ghana is the second largest producer of cocoa beans in the world after the Ivory Coast and more than 3.2 million people in Ghana rely upon cocoa for their livelihood.

Tetteh Quarshie’s farm is small, covering less than half a hectare, or about an acre of land. My family toured the farm recently and saw not just cocoa trees, but also other crops planted to provide a protective canopy for the cocoa trees while helping the soil and serving as secondary cash crops.

In addition to cocoa beans, plantains, bananas, mangos, papayas, and yams are all grown on the property. But it is cocoa that dominates.

Three varietals are grown on the farm: amelonado, Amazonia, and a hybrid. The hybrid flowers the fastest and produces the most beans. Our guide cut down a pod using a long handled pole that had a knife attached to the end.

After catching the pod, he cut it open with a machete to reveal the inside, where about 50 beans were resting in a milky white film. He scooped out some of the beans and gave them to us to taste. “Suck on them,” he said, “don’t chew them.” The texture of the pulp itself was smooth. The taste of a fresh, raw cocoa bean is not at all what one expects. They have a fruity, citrus flavor, with no chocolate overtones.

The guide then led us to the drying table, which is a narrow, wood table that holds a folded up wooden mat. First he placed some banana leaves on the ground. Next he scooped out the beans from several pods. He formed them into a small mound, and then covered them with more leaves.

“The fermentation and drying are critical steps to develop the flavor of the beans,” the guide explained. “Once the pods are harvested, the beans are fermented for two days by laying them on banana leaves and covering them. Two days later, we come back, stir them around to expose all sides to the air, and cover them again. Two days after that, we repeat the process.

“Then we do it a third time. Finally, after seven days of fermenting, we take the beans from the leaves and place them on the drying table where they dry in the sun. Once they have dried for several days, they are placed in sacks and sent to the factories for processing.”

Most of the cocoa made from Ghanaian cocoa beans is processed by major industrial producers in Europe. But my friend Steve Wallace, owner of Omanhene Cocoa Bean Company, not only buys cocoa beans from Ghana, but his factory is in Accra, the capital of Ghana where he makes his cocoa powder and chocolates.

It was fascinating to see the cacao trees and eat the fresh, unfermented cacao beans, which are a unique taste that most people never get to try. Refreshing though it was, I still prefer the finished dark chocolate. And dark chocolate made from Ghana cocoa beans has a rich, cherry flavor that makes it quite unique.

A look inside a pod at the mucilage, which causes the cocoa beans to ferment, ultimately giving them their flavor.

The cocoa beans are placed into banana leaves to allow for the fermentation process.

After seven days, the bean are placed onto a drying table.

A look at the inside of a fresh cocoa bean and a dried cocoa bean.

What do you think the economy is going to do in 2009?  At the recent Fancy Food Show, everyone was talking about the economy, and everyone had a different perspective.  I heard horror stories, and I heard stories that give me hope.  The heartbreaking stories include one about a confectioner who landed a large account from a national retailer to produce a unique item for them in their packaging.  He went into production, and then the retailer cut the purchase order in half.  By that time, however, the product was produced.

The retailer refused to honor the original purchase order, and the manufacturer shipped what he could, but was stuck with the rest.  He hopes to sell the rest to the retailer at some point because it is in their packaging, but it was a holiday item, and he might be stuck with it ‘til Christmas.  Assuming the retailer takes it then.  I hope they do.

Another company owner told me they had a great year until October.  Then the orders dried up.  As a chocolate manufacturer, 60 percent of their business is holiday business.  They had geared up and added a second shift to gear up production.  As soon as sales tanked, they were forced to lay off the second shift. They ended up doing OK for the year, but they are concerned about what this year holds.  The CEO feels badly for those he had to lay off and hopes that business will pick up, but so far he isn’t optimistic.

Everyone realizes that companies are cutting back. A common theme at the show was that businesses are spending much less to do trade shows.  Although the booths at the Fancy Food Show are not that elaborate compared to other shows such as the National Restaurant Association, I noticed that some of the companies had cut back on size of their booths and staff.  One friend told me that they cut back on their large, elaborate booth and with the savings in set up, tear down, and drayage, could afford to bring more people.  Smart marketing.

Another peer said he will cut down on the dozen or so shows he does annually to focus on those that deliver a solid return.  Gone are the days of doing trade shows that might merely support a branding message.

In this economy, shows have to deliver real, tangible, bottom line results.