Industry heavyweights plan roadmap to boost Indonesian cocoa output

Mon Apr 8, 2013 5:49am EDT

* Industry group targets 1.5 million T output by 2020

* Disease has hurt Indonesia cocoa production for years

* Farmers need better prices to stop then switching crops -analyst

By Michael Taylor

JAKARTA, April 8 (Reuters) - Some of the biggest names in the cocoa industry are chalking out an ambitious roadmap for Indonesia to triple output of the bean by 2020, as they push the world's third biggest producer of the commodity to capitalise on rising demand for chocolate.

Disease and adverse weather have hampered supplies for years in Indonesia, where smallholders own about 95 percent of cocoa plantations and the government is struggling to revive the industry through a $350-million programme.

Members of the Cocoa Sustainability Partnership (CSP), which aims to boost cocoa development in Indonesia, met on March 26 to study ways to improve crop farming and yields and lift output to 1.5 million tonnes by 2020, group chairman Ruud Engbers said.

"There hasn't been a roadmap in the past with so many parties involved and aligned, and with so much commitment from the industry and donors to make it happen," he told Reuters.

"The momentum and the need is there to make it work now," added Engbers, who also heads Mars Symbioscience Indonesia, a unit of privately owned chocolate giant Mars Inc.

The 22 members of the group, launched in 2006, include U.S. agribusiness giant Cargill Inc, Singapore-based Petra Foods and Olam International Ltd, soft commodity giant Armajaro Trading Ltd and industry body the Indonesian Cocoa Association.

If output lags production, global cocoa prices could more than double by 2020, rallying to a level last seen 36 years ago, an official at Petra Foods has estimated.

Petra was the world's third largest supplier of cocoa ingredients before it sold the cocoa business to Swiss chocolate maker Barry Callebaut late last year.

Cocoa demand is forecast to exceed production by 45,000 tonnes in the season to September 2013, helped by economic growth and changing tastes in emerging markets such as Indonesia and China, the International Cocoa Organization (ICCO), a grouping of consumer and producer nations, has said.

From the year 2009/2010 until 2012/2013 cocoa bean grindings in Indonesia are seen soaring 119 percent to 285,000 tonnes, ICCO data show, while in China a rise of 91 percent to 42,000 tonnes in estimated in the same period.

The Indonesian Cocoa Association estimates cocoa output will rise as much as 11 percent in 2013 to 450,000 to 500,000 tonnes in Indonesia, home to around 1.5 million to 1.6 million hectares of cocoa plantations.

But improving cocoa output in Indonesia, which lags Ivory Coast and Ghana, will not be easy, analysts say.

"A concerted effort like that is definitely the best way to go about it," said Keith Flury, a senior soft commodities analyst with Rabobank, referring to the programme unveiled by the Cocoa Sustainability Programme.

"You can get partnerships together but there instantly needs to be a strategic outlook that is going to have to support farmers and production," added Flury, who sees Indonesian output at 435,000 tonnes in 2012/2013.

With global prices trading near multi-month lows, farmers' key concern was to get better rates for their produce, he said.

Indonesia should consider removing a levy on exports, Flury said, and industry should consider paying the smallholders more.

"The only variable there for me is price. Do any of these guys down the supply chain feel like paying more?" Flury said. "It is a question they need to answer."

Better prices would also keep farmers from switching to crops such as palm oil and coffee that are less cost-intensive, he added.

CONSULTANT TO PREPARE ROAD MAP

Engbers said other key global commodity firms were joining the effort.

"We agreed to hire a consultant to work out the roadmap, to be finished this year," he said. "There is more and more high-level consensus on the fact that we need to work more closely together and strengthen the cocoa supply chain."

A task force drawn from government researchers, industry, certification bodies and non-government and farmer groups will manage the drive to ensure better use of resources, he added.

Indonesia's main crop harvest usually starts in April and peaks in July and August, before a smaller harvest, known as the mid-crop, begins in October or November.

CSP members will discuss progress at a quarterly meeting on June 24 in Makassar, the capital of South Sulawesi. More than half of Indonesia's cocoa is grown on Sulawesi island.

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