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EcuadorTripReportTamaraBenjaminandMichaelWilcoxJune2017TripOverviewandObjectivesAfternearlytwentyyearsofhistoricgrowth(GDProsefrom$18.3Bto$100.1Binrealtermsbetween2000and2015accordingtotheWorldBank),agriculturecontinuestobeimportanttoEcuador,andisconsidereditslargestemployer(USEmbassy).Ecuadorhasbeenexportingcacaoformorethanacenturyanditcontinuestobeakeyagriculturalsectoraccountingforapproximately8%ofGDPorUS$814million(MinistryofAgriculture).NearlyalltheproductionisexportedduetolittlechocolateconsumptionbyEcuadorians,resultinginrelativelylowdomesticdemand(3%goestolocalconsumption,theresttoexports).Ecuadorisnowagloballeaderexportingcacao(5thlargestintheworld,behindIvoryCoast,Ghana,IndonesiaandCameroon)i.Ecuador’slonghistoryofproducingcacao,anditscurrentpositionasthelargestcacaoexportingnationinLatinAmerica,providesanexcellentbackdropforexaminingthecurrentopportunitiesandchallengesfacingthecacaosectorinLatinAmericaandthebestpracticesthathaveledtoEcuador’sascendanceintheglobalmarketplace.Duringourweek-longvisit,weinterviewedgovernmentofficials,universityfaculty,researchers,producers,producerassociations,exporters,traders,andNGOpersonnelamongothers(SeeAppendixforitineraryfortrip).Theoriginalobjectivesforourtripwerethefollowing:

1. Understandthegovernmentalsupportsystemthatcreatedasuccessfulcacaosupplychain2. Determinehowextensionhasplayedaroleintheincreaseincacaoyieldandacreage3. Studythefarmerproducerorganizationstructuresthathelpedtocreateafavorablesupply

chainforcacaoproducers4. Gainanappreciationforthefinancialmechanismsthathavebeenputinplaceforthescalingup

ofthecacaosectorinthecountry5. Understandtheroleofcacaoinpovertyreductionstrategies

SimilartoColombia,thereareindigenousvarieties(Nacionalorarriba),whichhavebeencultivatedinanumberofspecificregionsofthecountry(Esmeraldas,Amazonas,Manabí,andothers).Althoughthesevarietiesarehighlyprizedbecauseoftheirgenotypeandphenotype(geneticdiversity,flavorprofiles,potentialdiseaseresistancecharacteristics,etc.)byproducers,government,researchinstitutions,andothers,theyareoftennotasproductiveasthevarietyCCN51.So,whilewecollectedinformationthatpertainstoeachoftheseobjectives,theprevailingdiscussionsrevolvedaroundtheviewpointsoffactionsthatsupportthenotionthatNacionalvarietiesofcacaoarethefoundationformovingforwardandthosethatseeEcuador’sfutureintheCCN51cacaovarietydevelopedinEcuadorinthe1960’s.Inthisreport,weprovideanoverviewofourfindingsanddiscuss,atlength,severalpressingissuesthatweuncoveredduringourtrip.OverviewofCacaoinEcuadorSince2000,Ecuadorhasseenhugeincreasesincacaoexports,astotalproductionwentfrom51,000MTin2000to265,000MTin2016,a5-foldincreaseinalittleover15years.Thereareanumberofreasonsforthisincrease,includinggovernmentalandnon-governmentalinvestmentsinprogramsfocusedonthecacaosector(forexample,theGovernmentofEcuador,USAID,CRSandmanyotherscommittedsignificantresourcesduringthistime)andprivatesectorcontributionsthatincludedupstreamsupply

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chaininnovationsandtheevolutionoflargescaleplantations.Inaddition,EcuadorexperiencedanincreaseinplantingsofCCN51,aprolificvariety(yieldingupto2500kilosperhectare)thathasbeentestedformorethan50years,isconsideredsomewhatdiseaseresistant,andcanbeproducedwithlittletonoshade.Alongwiththeintroductionofhighyieldingvarieties,manynewhectaresofareawereconvertedtocacaoasproductionextendedintomultipleareasofthecountry,someofwhichhadpreviouslybeeninbananaorcattleproduction.AccordingtoFAOSTAT,over100,000ha.oflandwherecacaoisbeingharvestedwasaddedbetween1999and2013,risingfrom301,160to402,434hectaresharvested.Currently,theEcuadoriansectorcanbebestdescribedasbeingintransition.Inonerespect,itisheavilyvestedinthepast,relyingontheflavorprofilesandhistoricbondtotraditionalNacional(arriba)cacaovarietiesthatarebeingusedtodevelopnewnicheproductsthataredifferentiatedbyoriginattheregionallevel.Ontheotherhand,farmersarerealizinghigheryieldsandbenefitingfromtheresultingproductiongainsthroughtheadoptionofCCN51andintroductionofinternationalexportersinterestedinthemarketingofbulkcacaoontheglobalmarket.Basedonourobservations,atensionpervadestheEcuadoriancacaosectorandthelineisdefinitivelydrawnbetweenNacionalandCCN51.NacionalversusCCN51Fortheeaseofcomparison,importantvariablesfortheEcuadoriancacaoindustryarelistedunderseparateCCN51andNacionalcolumnsinTable1.Theremainderofthereportwillfollowtheorderofthevariableslistedinthetable.Marketoutcomesarereferredtothroughoutasmanyofthevariablesexaminedpotentiallyhavesomeeffectonpricesreceived.Table1.ComparisonbetweenthecacaovarietiesCCN51andNacional(arriba)Item CCN51 NacionalPlantingMaterial Privatesector Publicandprivatesector

FarmerGroups Few,ifanyGroupedforcertification

and/orverticallyintegratedwithexporterormanufacturer

Plantation Smallholderandlarge-scale SmallholderYield High LowProduction Increasing StabletoDecreasingFermentation Onfarm Onfarm/CollectiveAcreage Increasing StabletoDecreasingFlavor Evolving FineandFlavorOverallQuality Increasing Regionalization

GovernmentSupport None Research,Marketing,PlantationManagement

InternationalCommunitySupport None Farmergroupstrengthening

PrivateSectorSupport Fermentationtechniques,plantingmaterial,techtransfer Supplychaindevelopment

CacaoProcessingandChocolateManufacturing Local/International Local/International

CacaoExports Local/International Local/InternationalFarmgatePrice SAME

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PlantingMaterialCCN51–WevisitedHaciendaCañasinNaranjal,Guayaquil.TherewelearnedthatCCN51cuttingsaregrownforgraftingandpreparedforshipmentacrossEcuadorandbeyond.CCN51plantmaterialisonlyavailablethroughprivatesourcessuchasHaciendaCañas.Whilethesourcematerialislimitedinorigin,thequantitiesproducedcontinuetofacehighdemand(Figure1).

Figure1.PreparingthegraftingmaterialforCCN51plantationatHaciendaCañas.Nacional–Plantingmaterialforthesevarietiesareavailablethroughcommercialandpublicoutlets.TheGovernmentofEcuador,throughtheresearchconductedbyINIAP(ElInstitutoNacionaldeInvestigacionesAgropecuarias/NationalInstituteforAgriculturalResearch),maintainclonevarietytrialsonNacionalvarieties.DuringourvisittoINIAPattheirTropicalExperimentStationinPichilingue,wewereintroducedtothelatestclonesEETP-800andEETP-801(Figure2).ThesehighyieldingclonesareactuallycrossesbetweenNacionalandCCN51.ThedifferenceisthatthesecloneshaveaflavorprofilethatresemblesNacionalandyields,duringtrials,thatrivalCNN51.Itremainstobeseeniftheseclonesarewidelyadopted.Therearemultipleconstraintsfacingadoption,suchascontinuedtrialsacrossEcuador’sdiversecacaogrowingregionstoseehowtheyrespondtodiseaseanddifferingmanagementpractices,aswellastheresourcesatthegovernmentlevelavailabletocommercializethesenewclones.

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Figure2.NewNacionalclonesatINIAPexperimentalstationinPichilingue.FarmerGroupsCNN51–Therearefew,ifany,farmergroupsthatfocustheircollectiveenergiesonCNN51.WeweretoldthatamorecommonscenarioisthatfarmershavebothNacionalandCCN51ontheirfarms.Thevariety,CCN51,issoldindividuallyand,ifpartofafarmergroup,theNacionalproductionisdestinedformarkettransactionsmediatedbythefarmergroup.Nacional–Weweretoldthatnomorethan10%ofallEcuadorianfarmersmaintainamembershipinaproducergroup.ThosethataremembershaveaccesstomarketsdirectlymediatedbyEcuadorianandinternationalexportersandcollectivefermentation(necessitatingthepurchaseofcacaoenbaba,seenFigure3–cacaofreshlyremovedfromthecacaopodandstillencasedinmucilage-insteadofindividuallyfermentedanddried),whichisusedasaqualitycontrolmeasurebydownstreamactors(Figure4).Thispost-harvestpracticeistoensureconsistency,limitrisk,andincreasecertificationassuranceasmuchoftheoutputpurchasedthroughfarmergroupscarriessometypeofcertification.Ecuadoriancacaoprocessors,suchasCofina,workwithfarmergroupstoensuresupplyofavarietyofcertifiedcacao(organic,FairTrade,Kosher,UTZ,RainforestAlliance,etc.).Chocolatemanufacturers,suchastheEcuadorianfirmsPacariandRepublicadeCacao,workwithfarmergroupsindifferentregionstoensurethattheyhaveaccesstohighqualitycacaothatcarriesthedesiredflavorprofile.Itwasmentionedbyseveralentitiesthatworkwithfarmergroups,thatmembersoftenreceiveExtension-liketechnicalassistancethatisconductedbytheentitydirectlyand/oritspartners.

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Figure3.Collectionofwetcacao(enbaba)atacommunitycollectionpointtoincreaseconsistencyanduniformityforqualitycontroltomeetcertificationrequirements.

Figure4.CommunalfermentationboxestoincreasetheuniforityandconsistencyinthefermentationofNacionalcacaovarietiestoimprovequalitycontrol.

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Whileapproximately10%ofEcuadoriancacaoproducersareorganized,onemustkeepinmindthattheydonotsellalloftheiroutputthroughthefarmerorganization.Weweretoldthatofthetotalamountofbeansaproducermightselltoanassociation,about50%aresoldthroughtheassociation’schannels,whiletheother50%issoldindividuallybytheproducer.PlantationCNN51–Thiscacaovarietyisgrownonbothsmallholderplots(typicallylessthan10ha.andoftentimeslessthan5ha.)andmuchlargerhaciendasthatcoverhundredsofhectares.CNN51isusuallygrownasamonocropwithlittleshadeandplantedatrelativelyhighdensities(Figure5).AsEcuadorhasbecomeamajorplayerintheglobalcacaotrade,therehasbeenanincreaseinthenumberoflargescaleplantations.Nooneinourgrouphadeverseenthesizeandintensityofcacaoplantationsanywhereelseintheworld.Theeliminationofshadetrees,densityoftreeplantings,andtheextensiveareasthathavebeenplantedweremindboggling.Theplantingoftreesonanindustrialbasishasdefinitelyhadanimpactontheoverallproductionofthecacaosectorinthecountryaswellastheproductivityonaperhectarebasis.

Figure5.CacaoVarietyCCN51plantedatHaciendaCañasinNaranjal,GuayaquilNacional–TheNacionalvarietiesarealmostexclusivelygrownonsmallholderfarmsthatemployagroforestrysystemswhichaffordneededshadeandavarietyofeconomicopportunitiesforthefarmhousehold.Giventherelativelylowplantingdensitiesandsmallacreage,thediverseportfolioofoutputfoundinthesesystemsoffersmuchneededadditionalsourcesofincome.YieldCCN51–CCN51yieldswerequotedasanywherebetween800-2500kg/ha.ProducershavetendedtopreferCCN51duetotheresultingincreasedproductivity(andthemarketatthefarmgatenottransmittinganypricedifferentialsbasedsolelyonvariety).Nacional-TheyieldsforNacionalthatwerequotedtousvariedbetween200-500kilosperhectare.Asmentionedearlier,therewereinstancesreportedwheretheseyieldswerereportedlyhigherthanthenationalaverage(~450kg/ha,thoughthisfigureishighlycontestedbybothsides).

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Aswithmostcrops,plantingdensity,alongwithvariety,inputuse,farmmanagement,prevailingweatherconditions,etc.allplayaroleindeterminingyield.ProductionCNN51-Undeniably,therehasbeenamarkedincreaseinCCN51productionalloverthecountry,withestimatesrunninganywherefrom30-60%oftotalcacaoproductioninthecountry.Itischallengingtofindtheexactnumbersincethereisn’tnecessarilyamarketchannelforonlythisvariety.However,exportdatasuggestthatatleastonethirdofallEcuadoriancacaoexportsareCCN51.Givenitsuseinternally,theoverallproportionofproductionislikelyhigherthantheexportdatasuggest.Basedonourdiscussionswithstakeholders,CNN51productionisexpectedtocontinuetoexpandasfarmerseitherconvertawayfromNacionaloradditionalacreagesarebroughtintoproduction.Nacional–DespiteeffortsaimedasstavingoffthedeclineofNacionalplantingsandholdings,inadditiontothosefocusedonincreasingdemandforchocolatethatrequiresuseofNacionalvarieties,Nacionalproductioncontinuestodecline.Partlyafunctionofyields,Nacionaldoesn’tappearto‘pencilout’atthefarmlevelforalargenumberoffarms,regardlessofanyexistingpricepremiums.Thisisprimarilyduetotherelativelylowproductionofthesevarieties,whichcannotbecompensatedforinanyeconomicallyfeasiblewayatthefarmgate.Theonlyfarmsthatseemtobebenefittingfromapricepremiumarethosethathaveadirectmarkettoa“beantobar”companyorareconnectedtoaproducerorganizationthathasinvestedincertifications.Wewereabletofindwithourresearchthatveryfewproducersbenefitinameaningfulwayfromcertifications,mainlybecauseofthelackofarobustmarketinothercountriesfortheseproducts.AscanbeseeninFigure6,thisfarmerassociationwaspayinganincreasedpricefororganiccertificationbutonlyforafewdaysbecausetherewasn’tenoughdemandtopurchaseeverythingfromthefarmers.

Figure6.Signattheproducerassociationscommunitypost-harvestfacilities,whichstatesthattheywillstoppurchasingcacaoduringtheweekofFebruary20-28,apeakperiodoffarmerstosellcacao.

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FermentationCCN51-AconsiderableamountoftimewasspentduringourtripdiscussingthepoorqualityofCCN51.ThegovernmentseesCCN51asa“disease”andisatriskofjeopardizingthelocaltreasure,thearribavarieties.PartofthisisduetotheperceivedflavorprofileofCNN51.Aswithallcacao,thefermentationprocesshasasignificanteffectonthefinalflavorprofileoftheresultingfermentedanddriedcacao.ComparedtoNacional,CCN51hasanincreasedamountofmucilage,whichcaneasilyconverttoavinegartastingchocolatewhenitisfermentedthetraditionalwayinwoodenboxes.INIAP,industry,andsomeproducershaveworkedcollaborativelytomodifythefermentationprocessforCCN51.Thenewprocesshelpstoreducethemoisturefromthebeansinthefirststagestoeliminatethebuildupofaceticacidandtheastringentflavorprofilethatensues(Figure7).ProperlyfermentedCCN51resultsinaflavorprofilethatispleasanttastinganddoesnotrequireblendingofnon-CCN51beanstomakechocolate.Surprisingly(tous),weweretreatedtochocolatemadepurelywithCCN51beans.UnlikeourexperiencetastingunpalatablecacaoliquorinColombia,usingpoorlyfermentedCNN51,theCCN51darkchocolatewetastedinEcuadorwasproudlybeingservedtothepublic.

Figure7.BurlapbagsareusedtofermentCCN51cacaotoincreasethedrainageofexcessliquidfromthemucilageandtochangethefermentationprocesssothecacaodoesnottastelikevinegar.

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Whethertheyareemployingthenewfermentationtechniqueornot,smallholderfarmerstypicallysellCNN51alreadyfermentedanddried.ThisispartlybecauseCCN51iscurrentlydestinedforinternational‘bulk’marketsandsoldbyindividualfarmersratherthanfarmergroups(whoaremorelikelytobeinvolvedincollectivefermentationarrangements).Large-scaleplantationsalsosellfermentedanddriedbeans,albeitinmuchlargerandmorefrequenttransactions.Thisoutputisfermentedonmuchthesamescale(orlarger)asthecollectivefermentationunits.Thedifferencebeingthatthecacaoisownedbythesameentityandsimplyaggregatedfromacrossthefarmratherthanindividualfarmers.Nacional–Asmentionedabove,Nacionaliseitherfermentedcollectivelybythefarmergrouportheentitycontractingwiththefarmergroup.IndividualfarmersthatdonotbelongtofarmergroupsfermentanddrytheirNacionalbeansontheirown.AcreageCNN51–AsdiscussedintheProductionsection,acreageofCCN51isexpectedtocontinuetoincreaseinEcuador.ThenewacreagewilllikelybeacombinationofNacionalcacaofarmconversionorconversionofnon-cacaofarmsintoCNN51farms.Severalofourintervieweesexpressedthatfarfeweracreswouldbebroughtintoproductionthroughtheconversionofforest.Nacional–AcreageinNacionalisexpectedtostabilizeorcontinueonitsdownwardtrend.ThiswillbedeterminedbymarketdemandforNacional,perceivedprofitabilityandtheintroductionofhigheryieldingNacionalvarietiesorNacionalproductionsystems.FlavorCCN51–AsdiscussedintheFermentationsection,theflavorofCCN51ispartiallyafunctionofitsgeneticsandpartlyduetotheapplicationoffermentationtechniquesthatareappropriateforNacional,butnotCCN51.Withappropriatefermentationtechniquesbeingrefinedanddisseminated,oftentimesthroughCCN51producer(commodity)groupsandtrainingsheldatlargehaciendasandthegrowingdemandfrominternationalexporters,thequalityofCCN51fromaflavorperspectiveshouldcontinuetoincrease.Nacional–Thegovernment,non-governmentalorganizations,andprivatefirmshaveputmanyresourcesintorecognizingtheorganolepticqualitiesofNacionalattheregionallevel.ThispushisaimedatdevelopinghighvaluenichemarketsthatfocusonthespecificregionalattributesofEcuadorianNacional(fruit,floral,etc.)cacao.Whilethereareexamplesofsuccessfullymarketingsuchaproduct,themarketisextremelysmallandthepricescommandedattheretailleveldonotoffertheopportunityforpremiumsthatcanovercometherelativelylowproductioncurrentlyexperiencedinthetraditionalNacionalproductionsystem.Atamoreglobalscale,Nacionalisthesourceof‘fineandflavor’cacaofromEcuador.Basedonoursecondarydataanalysis,Ecuadorispositionedtobeoneoftheleadingpurveyorsofthisdifferentiatedcacao,buttheproductionshareofNacionalcontinuestodecline.AtthismomentinEcuador,basedonofficialexportdata,theshareofNacionalisroughly27%ofexports–acompletereversalfromtheICCO’s‘fineandflavor’benchmarkof75%‘fineandflavor’forEcuador.ThroughtheeffortsofseveralEcuadorianfirms,processors,andchocolatemanufacturers,marketpenetrationforNacionalcontinuestooccurasdoesinvestigationintofindnewandsecuringknownflavorprofiles.

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OverallQualityThequalitymeasurementsthatshowupinofficialexportdataforEcuadorareassignedmuchlaterinthesupplychain,whenthetraderisplanningonexporting.Traderswillsampleandsorttheirlotsofbeansandthensellbasedonthequalitystandardsbeingmet(seebelow).CCN51beansareprizedbyprocessorsfortheirrelativesize,largerbeanshavemorecacaobutterbasedonweightandNacionalbeansaresoughtafterfortheirorganolepticqualities.Exportdatathatwassharedwithus(fromMAGAP)suggeststhatatleast34%ofallexportsarecomprisedofCCN51.ThisrunscountertotheICCOruleofthumbthat25%isnotconsideredtobe‘fineandflavor’.Additionally,thedatasuggeststhat,betweenJanuary2012andSeptember2015,72%ofcacaoexportswereconsidered‘conventional’andtheremaindermettheA.S.S.S.orA.S.S.qualifications,qualitystandardsthatarebasedonbeanweightsthatcorrelateto%fermentation.Thehigherthegrade(A.S.S.S.),thehigherpercentageofbeansthathavebeenfermented(acuttesttodetermineiftherewere75%wellfermented)andheavierweight(130-135gramsper100beans).Duringthistime,theoveralldifferencebetweentheunitvalueofconventionalandtheA.S.S.S.orA.S.S.designatedcacaowasapproximately$85.Basedon100beans,fromhighestqualitytolowestqualityforNacionalbeans:A.S.S.S 130-135grams 75%fermentationA.S.S 120-125grams 65%fermentationA.S.N 110-115grams 54%fermentationA.S.E 105-110grams 53%fermentationCCN51 135-140grams 76%fermentationThebuyer(forexampleECOMorafarmercooperativeorproducerassociation)samplethebeansand"assume"thecostofsortingtoachievethedesiredgrade.Thisisoneofthereasonswhybeansarebeingpurchasedenbabaandtheprocessingisdonebyseveralmiddlemenorsomecooperatives.Themajorityoffarmersdonotknowaboutthequalitystandards(basedonlyonweightandfermentationpercentages),unlesstheyreceiveaqualitybasedpayment.Thispracticeisbeingreducedatmostcollectioncentersbecausealargepercentageofbuyersarepurchasingenbabaorpayingthesamepriceforalldriedbeans,regardlessofwhethertheyarewellfermentedorareCCN51oradifferentvariety.Thereislittleconsistencyandonlyphysicalqualitymeasuresaretaken(towhetherthebeanshavebeenwellfermentedanddriedbasedonphysicalcharacteristics)whenpurchased.Atthistime,themarketisnotconcernedaboutwherethebeansarecomingfromorwhatvariety.TheonlytimethatadifferentiationismadebetweenNacionalandCCN51iswhenthebeansaresoldthroughaproducerassociation.Thereareveryfewfarmerswhoaremembersofaproducerassociationorcooperative(weweretoldlessthan10%ofallproducers).GovernmentSupportCCN51–PubliclyfundedresearchonCCN51isessentiallyfocusedonusingitsgenometointroducepositiveattributestonewNacionalclones.Additionalgovernmentsupporthasbeenlentthroughresearchcollaborationonfermentationmethods.

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Nacional–TheEcuadorangovernmenthastakenaparticularinterestinsupportingthecacaosector.AgovernmentalprogramforimprovingproductivityoftheNacionalvariety,MingadeCacao,wasinitiatedtoincreasetechnicalassistanceforcacaoproducers,predominantlypruningcacaotreestoincreaseyields.Thereishopethatthenextgovernmentalprogramwillfocusonpost-harvestandqualityaswellasgrindingpotentialinthecountry,currentlytheyareonlyabletogrind2%oftheproduction.Attheexperimentstationlevel,researchisbeingconductedondiseaseresistanceandtreatment,sustainableproductionsystems,developingnewcultivarsandqualitycontrol.Attheuniversitylevel,someofthecuttingedgeresearchoncadmiumincacaoisbeingconducted.OneissuethatrequiresmoreattentionisthatcollectionanduseoffeesthatwerepreviouslyusedbytheAsociacionNacionaldeExportadoresdeCacao(ANECACAO)arenowadomainofMAGAP.The‘bestuse’oftheseresourcesshouldbeexaminedandprioritiessetbasedonpotentialandactualimpactsonthesector.InternationalCommunitySupportCCN51–TheinternationalcommunityhasnotbeenparticularlyinterestedinCCN51,despiteitsproductionpotential.ThoughitwasdevelopedinEcuador,CCN51doesnotappeartofitthenon-governmentalorganizationnarrativeasitistypicallynotgrowninextensiveagroforestrysystemsbutratherinintensivemonoculturesystemthatcanbescaledupwellbeyondthesmallholderhousehold(typicallythefocalpointofinternationalefforts).Nacional–VirtuallyallcurrenteffortsfundedbytheinternationalcommunityarefocusedonpositioningNacionalfarmerstosupplynichemarkets.Thisincludesexercisesthateffectivelyshortenthesupplychain,inanefforttoincreasemarginsforcacaofarmers,andexpandopportunitiesforfarmersbeyondsimplysellingtheiroutputtopotentiallyunscrupulousintermediaries.Farmergroupsareakeyinstitutionalingredientfortheseefforts.Asmentionedpreviously,thevastmajorityofEcuadoriancacaofarmersarenotorganizedintofarmergroups,andthosethatareoftentimesneedadditionalcapacitybuilding.Lastly,mostoftheinternationallyfundedeffortsrelyoncertificationinordertofurtherdifferentiatetheproduct.Tothatend,sourcingNacionalbeansisanecessarybutnotsufficientcondition.PrivateSectorSupportCCN51–SupportforCCN51isalmostexclusivelythedomainoftheprivatesector.WemetwithCCN51‘advocates’fromtheproduction,processing,andexportsectors.Theseentitiesareleadingeffortstocontinuetorefinethefermentationregimeandproductionsystems,includingthescalinguptocommercial,large-scalesystems.TheprivatesectorisalsoactivelyworkingtowardsincreasingmarketpenetrationforCCN51andadvocatingforCCN51amongstdownstreamactors.Withsomucheffortbeingexpendedbygovernmentalandnon-governmentalorganizationsfocusedonpromotingNacional,theprivatesectorisrecognizingthatCCN51requiressimilarefforts.Severaloftheintervieweesdiscussedtheincomepotentialforsmallholderfarmersthatareconverting,orshouldbeconvertingtoCCN51.TheywouldliketheconversationamongstalloftheactorstofocusontheeconomicoutcomesatthefarmhouseholdlevelgiventheprevailingagronomicconditionsinEcuador.Nacional–PrivatesectorsupportforNacionalappearstooriginatefromthedownstreamactors,especiallyprocessorsandchocolatemanufacturers.Incontrast,theexportsectorislessdividedbycacaovarietyandmorefocusedonthelocalversusinternationalexporterdivide.

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TheMarsCompanyrecentlypurchasedafarminEcuadorandisworkingtoimproveefficiency,includingdeterminebetterwaystoshapetreestouseanautomaticpicker,andimprovingcacaofarmingsystemstoensureasupplyofcacaototheirfactories.Thiscouldbethoughtofasariskmanagementstrategythatcombineslarge-scaleproductionwithintensiveresearchthatcanbedisseminatedtosmallholdersaswellaslarge-scaleplantations.CacaoProcessingandChocolateManufacturingTheprocessingandchocolatemanufacturingindustriesinEcuadorcontinuetoevolve.FirmslikeCofina,processEcuadoriancacaotomeetdemandforbutter,powderandpasteinEcuadorandbeyonditsborders.Otherfirms,suchasUniversalSweetIndustries(ChocolateslaUniversal),seek‘bulk’cacaotoprocessfortheirneeds.Whileotherfirmsintensivelyseekoutspecializedbatchesofcacaoforspecificproducts.Asmentionedpreviously,someprivatefirmsandthegovernmentofEcuadorhavetrulytakenontheideaofembracingregionaldiversity.EcuadorianBeantoBarcompanies(Pacari,RepublicadeCacao,etc.)haveseentheneedtoidentify,highlight,andmarkettheregionaldifferencesincacaotosatisfyagrowing,albeitrelativelysmall,consumerdemand.Wherepricedifferentialsarepaidforthosevarieties,producersareabletocontinuetopreservethesevarieties,buttheactualmetrictonsthatareneededforthesemarketsisextremelysmall(impactinghundreds,notthousandsofproducers)anditishighlyunlikelythisnichewillgrowsufficientlytobecomesignificantintheglobalexportmarketinthefuture.CacaoExportsTheEcuadorianexportsectorhasbeeninsignificantfluxoverthepastfewyears.Traditionally,ANECACAO,theexporterassociation,wasprimarilymadeupofmembersthatwereEcuadorian.TheintroductionofECOMandOLAM,alongwiththebankruptcyofTransmar,hassignificantlyimpactedtheexportsector.BothECOMandOLAMarelargetradinghousesthatexportcacaofromallovertheglobe.BothhavearelativelylargepresenceinEcuador.Bothareexportingcertifiedandbulkcacao.ECOMhasreachedintothecacaogrowingregionsrelativelyfurtherthanOLAM.Bothrelyprimarilyonintermediariestosecurecacaosupplies.Whilethetwomajorinternationalexportershavesecuredmarketshare,therearestillmanyEcuadorianexporters,manyofwhichareextremelysmall.Basedondatasharedwithusuponourreturn,itappearsthatthetopfiveexportershadroughly40%ofthemarket,leaving60%tobesharedamongstnearlysixtyotherentitiesbetween2012andSeptember2015.Basedonourinterviews,thishaspotentiallytightenedabitwithTransmar’sdeparturefromthemarketandOLAMandECONareexpandingtheirreach.Seemingly,becauseoftheissueofinconsistentfermentationinCCN51andthenegativeimagethevarietyhasintheregion,Ecuadorhasseenareductionintheamountofcacaothatisclassifiedandexportedas‘fineandflavor’.Amongourresearchteam,thereisrealconcernthatthe‘fineandflavor’percentagesforeachcountryisapoliticalissueandnotsomuchanactualobjectivecriterionbasedsystem.WeheardtheoppositesentimentfromgovernmentofficialsinEcuador.TheyarecommittedtocarryingthemantleofNacionaland,byassociation,‘fineandflavor’.However,evenifEcuadorcould

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reversethetrendandclaim100%ofallcacaoexportedis‘fineandflavor’,itisunclear(unlikely)thatthemarketisavailabletoabsorbtheadditionaloutputatpremiumprices.FarmgatePriceAtthispointintime,Ecuadoriancacaobeanspurchasedatthefarmgateareareflectionofwhatthefarmerhasplanted;amixtureofCCN51andNacionalorplantingsofoneortheother.Weweretoldthatwhencacaoispurchasedfromthefarmers,over90%ofthetimefarmersarenotcompensatedforhighqualityor‘fineandflavor’beans.Farmersaresimplypaidbasedonhowmuchthecacaoweighsandtheformthatitissoldin(driedandfermentedorenbaba).Thereislittletonoselectionprocessthatoccursatthetimeofsale.Apriceissetfordriedbeansinthoseareasthatdonothavethecapacitytocollectivelyfermentanddryoraseparatepriceissetforenbaba,wetbeansthathavenotbeenfermentednordried.Subsequenttoourreturn,oneofourlocalcontactssharedmarkettransactiondatathatdifferentiatesbetweenprovince,districtandform(dried/fermentedorbaba).Thebasicconclusionswere:

- ‘Fineandflavor’receivesahigherpricethanCCN51(3%to5%)whensolddried.- ‘Fineandflavor’receivesalowerpricethanCCN51whensoldwetorenbaba.- The3%to5%pricedifferencecannotcompetewiththereturnsassociatedwithhigheryields

(+/-20%)fromCCN51,netgainseemshigherfromCCN51(consideringsameplantingdensity).Theotherstrikingdifferencewithothercacaoproducingareasintheworldisthepurchasingofenbaba(wetcacaobeans)tobettercontrolthequalityandconsistencyofcacaobeingsold.Farmerswhoaremembersofassociationsthatsellcertifiedbeans(UTZ,organic,FairTrade,RainforestAlliance),bringtheirwetcacaobeanstoacentralizedfermentationanddryingfacility.Thepricethattheyreceivewouldbelessthanwhattheywouldnormallyreceiveiftheyheldontothebeansanddidtheprocessesthemselves,butbecausethebeansarecertified,theyareabletogetahigherprice(duetothecertificationprocess).ThesebeansarenormallyonlyforNacionalvarietiesbutbecauseofthefermentationissueswithCCN51,thisprocessisbecomingmoreprevalentwiththosebeansaswell(CofinadiscussedthisatlengthaswellaswithEduardoMarquezdelaPlataandVincentZeller).Premiumswereonlymentionedinthecontextofspecificcertifications(UTZ,organic,etc.)andforoverallquality(foroutputfromalargeCCN51plantationthathassortingcapacityandrelativelylargevolumes).Additionally,thereappearstobesomebenefitaccruingtofarmerorganizations,andpotentiallytotheirmembers,througharrangementswithprivatefirmsthatprovidesomeservices(technicalassistance,inputs,forwardcontracting,etc.).Therehasbeenanincreasedlevelofregionalizationintermsofmarkets,flavorprofiles,andotherfactorsfosteredbygovernment-ledresearchandmarketing.Inmanyways,thecountryiswellpositionedtoincreasepricepremiumsduetoconsistency,quality,andquantitybecausetheyhavebeenabletoproducelargequantitiesthatleadtomorecompaniescontractingcacaopurchasesinthecountry.However,atthispointintimemostoftheincreasedpricesbeingattributedtoqualityareduetocertificationprograms,suchasFreeTrade,UTZ,organic,orRainforestAlliance.Thesemarketsareincrediblysmall,eveniftheyaregrowing,andstillimpacthundredsandnotthousandsofcacaoproducersintheregion.

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Inanycase,weuncoverednoevidenceoffarmersreceivingpremiumsfortheircacaobasedonthequalitydesignationthatwasultimatelyreceivedattheport,norwasthereevidencethattheircacaowasbeingdiscountedsolelybecauseitwasfromtheCCN51variety.ConclusionBecauseoftheyielddifferentialsbutnopricedifferentials,thereseemstobeanongoingwarthathaspittedthearribavarietiesandCCN51.Peopleacrossthecountrylineupononesideortheother.Theissueisthatbothcanbeimportanttoolsfordevelopmentstrategiesinthecountry.WhatneedstooccurissomerealtechnicalassistanceforproducerstoeitherfermentCCN51wellorbringthebeanstofermentationanddryingstationswheretrainedpeoplecantakeonthetaskofensuringthequalityofthebeans.Leavingthesystemthewayitis,orcontinuingthewar,willnothelpthecountrytomovebeyondtheproblemssinceCCN51isnotgoingaway,theproductivityofthevarietyandthefactthatithasbeeninproductionfordecadesandalloverthecountry,makesitthechoiceformanyproducers.Thenewhigheryieldingarribahybrids(someevencrossedwithCCN51)needtobetestedoveralongerperiodoftimeandindifferentecologicalzonesandnurseryprogramsneedtobescaleduptobeabletomeetthedemandsandneedsoftheproducers.Inthisvein,thereissomeinterestwithregionalizationanddiversificationtomaintaingeneticpoolsthroughoutthecountryfordiseaseresistance,pestissues,orflavorprofiles.Thismakessense,butthisshouldbetheresponsibilityofthegovernmentorchocolatecorporationssincethefarmersarenotcompensatedforthereducedyields.Inotherwords,thecurrentyieldsofarribasystemsaresolowthatanyexistingpremiumsdonotcomeclosetomakingupthedifferenceinrevenuerelativetofarmerswhoarefarminginhigheryieldingsystems(ie.CCN51).WedonotexpectcornproducersintheUSAtogiveuptheirhybridcornvarietiestomaintaingeneticdiversityinthefields.Weexpectthattohappenatresearchinstitutionsandthroughfundingfromthecornindustry.MostEcuadoriancacaoissoldformassmarketchocolateandsomelargecorporations,whoholdmostofthemarketshare,willpaymarketpriceoralittleamountmore($100–300MT)forcertification,qualityoraspecialstory.AllofourconversationsinEcuadorandColombiahaveledustobelievethatthismarketissmallandgrowingbutcouldnotabsorbthethousandsofMTneededtoraisethousandsofcacaoproducer’sincomesthroughstablepricepremiums.Giventhissituation,alongwiththetangibleyielddifferences,itisnotclearifsimplyembracingregionaldiversitycanraisefarmincomeatthesamemagnitudeorrateasusinghighyieldingvarieties,irrespectiveoftheirflavorprofile.

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AppendixQuitoandGuayaquil,Ecuador•February12-18,2017

Monday,February139:00AM:MeetingwithUSAmbassadorToddChapman,FASAgAttachéKirstenLuxbacher,FASAgSpecialistHenryVega,USEmbassy,AvigirasE12-170yAveEloyAlfaro10:30AM:JorgeGaiborandMarcoFernandoGuilcapi,(MAGAP-GerentedeProyectosdeReactivaciondeCacaoyCafé),AvenidaEloyAlfaroyAmazonas,13oPiso,EdificioMAGAP,CentrodeQuito1:30PM:LeonorZambrano,LaGranMingadeCacaoNacional,HernandodelaCruz,N32-153yAv.Atahualpa,Quito(http://www.mingadelcacao.com)3:00PM:JoseLuisZambrano,INIAP,AvenidaEloyAlfaroyAmazonas,4toPiso,EdificioMAGAP,CentrodeQuito4:30PM:JuanRodriguez,ProgramaProCambio,PedroRamírez,ProgramaAmazoniaNorte,GIZ,2doPiso,EdificioMAGAP,CentrodeQuitoTuesday,February149:00AM:RegulaChavez,SwissContact,Av.OrellanaE11-14yCoruña,EdificioM.Gabriela,5°piso,Quito10:30AM:GabrielaParedes,ProjectManagement,Pacari,JulioZaldumbideN24-676yMiravalle,LaFloresta1:30PM:ThomasHollywood,AlexMoncada,JairoAndrade,CatholicReliefServices,DelosNaranjosN44-491yLasAzucenas,Quito4:00PM:GonzaloJoséChiriboga,RepublicadeCacao,Ave.ColónE8-85yYanezPinzonEdificioElDorado,Piso3,QuitoWednesday,February158:30AMJuanPabloZuñigaandMerlynCasanova,ANECACAO,AsociacionNacionaldeExportadoresdeCacao,AvenidaMiguelH.Alcivar,EdificioTorresdelNorte,TorreB,Local610:00AM:LinaMarcelaNaranjo,ChocolatesLaUniversal,EloyAlfaro1103yGomezRendon,Guayaquil11:30AM:LuisValverde,ViceMinisterofAgricultureforEcuadorandPatriciaFietz,ConsulGeneral,USConsulate,AvRodriguezBonin,Guayaquil12:30PM:LunchandMeetingwithRobertoGranja,JoseCarbo,OLAM,VigneshThirukonda,OLAMandAldoZolezzi,BarryCallebautatLoNuestro,VictorEmilioEstrada903,Guayaquil

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3:30PM:RenatoProaño,CoordinatorofSustainableDevelopment,andRicardoZambrano,VicePresidentofCofina,Km11½viaDuránTambo(300metrosdespuesdelpeaje)6:30PM:DinnerwithKateCavallin,RandallCamacho,PamSchreier,PatricioEspinozaECOM,HectorBallesteros,AndinoVecoKm.4.5ViaDuranYaguachiThursday,February169:30AM:DaniloVera,ReyGastónandJuanJimenéz,ProgramadeCacao,INIAP,Km5delavíaQuevedo-ElEmpalme1:00PM:Producerassociations(RicardoAlvarezfromINIAPissettingup)4:00PM:IntermediariesorPointsofSale(RicardoAlvarezfromINIAPissettingup)Friday,February178:00AM:Dr.PaolaCalleDelgado,DeputyDeanoftheFacultyofLifeSciences,RamonEspinel,DeanoftheFacultyofLifeSciences,ESPOL,Kilómetro30.5VíaPerimetral,CampusGustavoGalindo-Prosperina.FacultadCienciasdelaVida11:30AM:SergioCedeñoAmador,FarmAdministrator,HaciendaCañas,Naranjal2:30PM:LorenaVera,Administratorforproducerorganization,APROCAFA6:00PM:DinnerwithEduardoMarquezdelaPlataandVincentZeller,BrokersandExporters,HiltonHotelinGuayaquilCentro

iSource:http://www.coffeenetwork.com/Portal/Entities/_ShowContent.aspx?Eid=735&Iid=176436&Path=Documents/News/2016-12/735/ICCO%20quarterly%20bulletin%20dec%2020%202016.doc&ContentType=application/msword