A Dutch national, who established a cacao trading company in Davao City five years ago, is changing the landscape of coconut farms in the Visayas and Mindanao.
Simon Bakker encouraged coconut farmers to supplement their income by planting cacao, the raw material for cocoa powder and chocolate, between coconut trees. In just a few years, he helped revive the dormant cacao industry in the country, bolstered farmers’ income by six times and brought locally produced cacao beans to the Malaysia factories of Mars Inc. and other multinational chocolate companies.
Bakker, chairman and chief executive of Kennemer Foods International, caught the attention of the Asian Development Bank, which labeled his pioneering cacao contract growing program as an ideal model of inclusive business, where poor individuals become a part of the growth story of a major corporation. Simply put, Kennemer program enables small farmers to become players in the supply chain of cacao beans within the Asia-Pacific region.
Bakker insists that what he is doing is just regular business. “We did not set out to make an inclusive business. For us, working with smallholder farmers makes business sense,” he says. “It is not a charity. This is an equal business transaction. We wanted to make good quality cacao and chocolate. We are a regular business and we happen to have a lot of social benefits and we are now happy to be called inclusive,” he tells journalists in a roundtable discussion in Makati City, amid the country’s hosting of the Asia-Pacific Economic Cooperation Summit, where inclusive business is the main theme.
Bakker says under the Kennemer cacao growership program, he talks to small farmers and provides them planting materials, technology and financing, with the help of the Land Bank of the Philippines. “It has kind of evolved from there and we are now labeled as inclusive business,” he says.
Kennemer Foods is an integrated agricultural company which supplies high-quality fermented cacao beans to processing companies in Malaysia and Indonesia. Under its cacao growership program, the company provides financing assistance, planting materials and other inputs, farmer training and supervision, monitoring, evaluation and post-harvest assistance. It guarantees to purchase up to 100-percent of the cacao production of farmers under the program.
“The cacao industry in the Philippines faded away in the 1990s. There was no industry anymore, but there were a few pockets in Davao. We started buying cacao from small farmers in 2010,” he says.
He says the few cacao farmers in the country were not fermenting their beans, resulting in low-quality produce.
Bakker says while the cacao industry is limited to several thousand hectares in the Philippines, about 3 million hectares are planted to coconut, the country’s main farm export. He says between coconut trees, there is a large gap that can be planted to other crops such as cacao. Such farming method is called intercropping.
“Cacao needs shade. The ideal condition is 30 percent shade and 70 percent sun. If you have one hectare of coconut, you have a perfect shade and sunlight condition. We have 3 million hectares of coconut, where 90 percent [of areas] is not used,” he says.
“With one hectare of coconut, you can only earn about 1 ton of copra or P30,000 a year. Nobody can live out of that. It is good to find a crop that does not involve cutting the coconut. So cacao happens to be like that. We have ideal conditions because we have a lot of smallholders and we have a lot of coconut,” he says.
Bakker in 2010 developed “end-to-end solutions” for farmers and teamed up with Land Bank for Cacao 100, a program that provides credit for intercropping of cacao in coconut areas or planting cacao in idle lands.
“That [Cacao 100] became the basis at which we work. We initially worked with cooperatives, which were conduits of Land Bank loan. We grouped farmers into small clusters and provided them with extensive training program. We operate probably the largest clusters of cacao nurseries in the world right now,” says Bakker.
The program became popular and spread throughout Mindanao, southern Palawan, Cebu, Bohol and Leyte. “We cluster the farmers, with a farmer leader designated as cacao doctor, or the franchise holder of the program. We teach them everything we know. It takes about a five-week training over a two-year period,” says Bakker.
Each cacao doctor coaches a set of 25 growers and becomes the consolidator of their produce. “The farmers get all planting materials, fertilizers, pesticides, cash and knowledge. The cash they get is really for the establishment of the farm and for the maintenance,” he says.
“We work with clusters of 25 hectares each. We have about 400 or 500 [clusters] right now. By the end of this year, we will be about 10,000 hectares,” says Bakker.
Bakker says the program will be brought to other parts of the country, including the Autonomous Region in Muslim Mindanao.
While the program was introduced in 2010, it scaled up in 2013, after the first batch of farmers started to reap the cacao beans. Cacao planting has a two-year gestation period.
“We have a lot of parent stocks and we propagate those. The varieties we have, we give to farmers. The key now is to find farmers who are willing to become full-time cacao farmers. It takes about two years before they become productive. Right now, we have 50 to 60 [clusters] who are very productive. The rest is slowly coming in,” he says.
Bakker says the first batch of farmers saw a significant increase in annual income. “The income is quite significant. A decent yielding cacao farm, if you follow the protocol and put in a little fertilizer, can produce 1.5 to 2 tons per hectare. In peso terms, we are buying right now at P125 per kilo. That’s around P180,000, and the net is P150,000 per hectare per year,” he says. “So, that is six times their previous income.”
Kennemer purchases about 40 percent of total 5,000 tons of cacao beans produced in the Philippines annually, according to Bakker.
By 2020, the company aims to plant 40 million cacao trees in 50,000 hectares owned by around 35,000 families across seven strategic zones. Land Bank has so far released P700 million for the program over the last three years, while Kennemer invested P1 billion for infrastructure and technologies.
Bakker says the company is in talks with Land Bank for additional P5-billion financing to propagate the program. “They said they were willing to provide what it takes. Our own plan is to plant at least 50,000 hectares over the next five years. That’s about 75,000 tons,” he says.
Kennemer currently has three buying and training centers and is set to open four more. “By 2020, we will have 25 buying centers. What we do is fermentation and buying of high-quality cacao beans,” says Bakker.
Bakker assures that if more Filipino farmers decide to plant cacao, this will not affect prices, amid a supply gap in Asia and the rising global demand for chocolate. About 70 percent of cacao beans comes from West Africa while Indonesia is one of the biggest producers in Southeast Asia. Indonesia, however, saw its total production shrink from a peak of 600,000 metric tons a year to around 400,000 MT.
“We have a processing facility in Asia Pacific with close to 1 million tons a year, mostly in Indonesia and Malaysia. About 700,000 tons in Indonesia and 300,000 tons in Malaysia. There is clearly a need for long-term good suppliers, specifically in Asia-Pacific,” he says.
“With the Indonesia situation, where production is not increasing, there is a need for additional production. We are planting at a rate of 6,000 hectares a year or 5,000 farmers [in the Philippines],” says Bakker.
Bakker says Kennemer provides a link between small cacao farmers in the Philippines to global food corporations such as Mars. “Most global businesses cannot buy anymore from nameless traders, not knowing where their produce come from. There is really a need for transparency in the value chain. A global business like Unilever, Mars or Nestle needs to know that farmers are treated fairly in terms of buying practices, in terms of pricing throughout the value chain. Otherwise, it will come back to haunt them later on,” he says.
“What we are trying to do is create good-quality product and then we can talk to multinational buyers. We are now a part of global sourcing strategy of Mars for their cocoa,” says Bakker.
Bakker says inclusive business can also be profitable. “We are making profit. We are here for a long haul. Our profit is not big yet. We are doing well. The key is we plant, plant, plant. We really need to think long term,” he says.
Board of Investments managing head Adrian Cristobal Jr. says Kennemer’s contract growing program is an example of inclusive business, where communities become a part of the global business.
“It is not good works of the corporation. It is actually a business proposition that happens to be profitable,” says Cristobal. “Inclusive business is not something invented by policy makers or academicians. It is really something that has evolved. We tried to promote inclusive business so that small businesses and entrepreneurs can be understood and hopefully we do our part of promoting it.”
Cristobal says the ADB has identified 100 case studies of inclusive business in the Philippines across different sectors such as agribusiness, tourism, energy, education, housing, health and water.
Cristobal says the Philippines brought “inclusive business” as a main theme to the Apec Summit. “That’s our contribution. It is an Apec theme. The Philippine hosting is inclusive. We have to ensure that the micro and small players are able to participate in this regional trade,” he says.
