Good Morning Ladies and Gentlemen. I want to thank Bill Guyton and the World Cocoa Foundation for this opportunity to get acquainted and for the honor and pleasure of sharing this occasion with my friend and distinguished fellow speaker, Anne Venneman.
I’m excited to be here today for the simple reason that you and I are in the same business—the business of sustainable development. The areas where cocoa is grown and harvested, with few exceptions, are areas marked by poverty, inadequate education and healthcare, and limited economic opportunity.
In those places your industry represents a source of hope—the possibility of work, of a predictable income, of investments in infrastructure and all the other benefits that come with a thriving export commodity.
And yet this potential is often thwarted. Many countries cannot meet the minimum conditions to become reliable suppliers. And even in those countries where the cocoa industry has taken root, political instability, sectarian conflict, plant diseases and market volatility can quickly snuff out the modest prosperity of a cocoa farmer.
These factors can also damage your bottom line—and put a question mark over the long-term prospects of your business.
Of course, yours is not the only industry operating in developing countries and facing these risks. But what sets you apart, and what you can be proud of, is the fact that the cocoa industry has emerged as a leader in the movement to tackle these problems through a proactive engagement in sustainable development.
The creation of the World Cocoa Foundation in 2000 was a milestone in this respect. I have been impressed by your projects in market access, farmer training, and cocoa rehabilitation throughout the Andean region, as well as your ground-breaking work to prevent child labor in Africa.
Your partner organizations program is a compelling example of how to leverage the expertise of specialists in sustainable rural development. It’s remarkable to see the names of the major chocolate and cocoa companies next to well-known non-profits recognized for their accomplishments in the developing world.
This is not just public relations. Taken together, these actions show a clear understanding of the fact that the business of the cocoa industry is tightly bound to the business of development. You know that if your companies are to continue to prosper and grow, you cannot afford to be mere bystanders in the great challenge of our age—the challenge of extending dignity and opportunity to those at the base of the economic pyramid.
That is why I said that we are in the same business. There is a strong convergence between the interests of the cocoa industry and the mandate of the Inter-American Development Bank.
The Bank’s primary mandate is to alleviate poverty and to lay the basis for long-term sustainable growth. The typical profile of cocoa producers—small-scale farmers with limited resources—coincides with the profile of our primary rural beneficiaries across a wide variety of crops. A large percentage of our lending portfolio is either directly or indirectly aimed at improving the health, education and economic prospects of small-scale farmers.
Though Latin America is no longer a dominant cocoa producer, cocoa continues to play an important role in Brazil, Ecuador, my home country of Colombia and has a strategic importance in various smaller countries such as the Dominican Republic and Haiti. In fact, 20 of the 26 countries that borrow money from the IDB have some level of cocoa production, and virtually all of the major chocolate producing nations are among the non-borrowing members of our Board of Directors.
Trade liberalization has taken root in Latin American, favoring the tendency in the cocoa industry increasingly to be organized into supply chains that connect processors to small producers. The market has also become more sophisticated in its demand for traceability of qualities and origin. As a result, we are adapting our lending to support supply chains and working with private sector associations to identify new market partners and sources of financing.
Cocoa farming demands excellent environmental stewardship, and this is one of the driving forces in IDB projects. Our work with the coffee sector, for example, has for many years emphasized the benefits that accrue when small-scale farmers adopt shade-tree practices that reduce erosion and improve watershed protection. As you know, many of the prime growing zones for highland coffee are adjacent to low-land cocoa producing areas that benefit from the same agricultural practices. Future IDB projects that use commercial incentives to promote environmental sustainability could consequently be a natural fit for the cocoa sector.
Cocoa continues to suffer major setbacks from plant diseases and pests. These are challenges where political borders are irrelevant and where effective prevention and treatment requires support from public services beyond the scope of private producers. As a multilateral organization with a long history of championing causes that require regional cooperation, the IDB has solid experience with control and eradication campaigns with other charming names such as screwworm or foot and mouth disease. Going forward, we can bring that experience to bear in efforts to contain or prevent new threats to your industry.
The IDB and your industry have not worked closely together in the past, but times are changing.
In addition to the traditional lending and technical assistance for the public sector that I’ve just described, we have recently expanded our ability to lend directly to private enterprises in sectors where we did not lend before, including small scale agriculture and related manufacturing.
In August, our Board approved changes that will allow us to move more aggressively into financing private projects, including agribusiness and partnerships involving trading companies and chain buyers.
There are several key areas where I believe closer collaboration in the future can be mutually beneficial.
One is Supply Chain Finance. While we’ve made a lot of progress in lending to urban micro-enterprises, advances have been slower in the rural economy. This is all the more so in the case of tree-crops such as cocoa where the gestation period is long and the working capital turnover cycle slow.
While your industry already engages in supply chain finance mechanisms such as contract farming, the IDB is actively exploring more options to improve the effectiveness of such arrangements. For instance, we are studying buyer supplier credits, pre-export trade finance, equipment leasing businesses, and secured transaction modalities that can provide collateral, such as warehouse receipts. All of these have potential to expand the scope and terms of financing available to cocoa producers.
In Brazil, for example, we are working with a $50 million project to securitize warehouse receipts. This is an innovation that could be helpful to you in Brazil but may also set an example for other countries.
Another key area for collaboration is Plant Protection and Applied Scientific Research. With the concentration of cocoa production in Africa, supply diversification and disease risk management is once again an urgent issue. As the genetic source of all the world’s original cocoa varieties, Latin America plays a strategic role in plant protection.
Managing these risks requires strong public phyto-sanitary services and applied research as a complement to private efforts, and this is the sort of investment that the IDB has long supported. We have learned that the best results are achieved when public-private collaboration draws upon the best know-how about particular supply chains, lowering the costs for all parties. And we are aggressively expanding our lending in science, technology and applied research.
In Brazil, we have supported EMBRAPA’s research for many years, most recently with a project known as AGROFUTURO that includes competitive research funds.
We financed similar competitive funds in the Dominican Republic that help to modernize quality control and certification systems. These systems are all the more important given that the Dominican Republic is now the world’s leading producers of organic cocoa.
And in Ecuador, we have a project with ANECACAO to support the competitiveness of the “fine aroma” cocoa supply chain, in the country that was once the world’s largest producer of quality cacao.
As you look to diversify your sources of cocoa and to strengthen your productive base, I am confident that Latin America and the Caribbean will provide significant opportunities for expansion. At the IDB we share your commitment to ensuring that the cocoa industry will be an engine of rural development in the region,
I hope this meeting will be the beginning of a fruitful dialogue between your businesses and the IDB. The advances I have mentioned regarding sustainable production, supply chain finance, sanitary controls and infrastructure all complement your work. Though we are humble about the magnitude of the challenge, we are also bullish about Latin America. I look forward to hearing from you in the future.
Thanks again for your interest and attention.