Cargill – Cocoa in Vietnam
One business Cargill is not in, curiously, is farming. With exception of two large palm plantations in Indonesia, Cargill does not own land. That’s partly a capital deployment choice, much like its decision to charter, not own, ships. ‘Pure trading opportunity’ developing in the next four or five years and has set up a partnership to buy distressed shipping assets: “we will buy when things are looking bad and at times sell when things are looking better” Shonda Warner, a former Cargill trader says “They are not corporate farmers, farming is not their business. Grain handling and grain trading – trading the produce is their business”
That means stimulating new markets, opening new trade routes, matching producers with consumers, and above all, ensuring steady flows of agricultural commodities in a changing global environment “as far as our corporate strategy works” say Conway “we don’t say, we think the world going to look like this, let’s define our strategy for that world” We say, ‘we don’t know what the world going to look like, we need a strategy or a set of strategies that can be successful almost irrespective of what the world looks like” which explains how Cargill got into the cocoa business in Vietnam.
Seventy percent of the world’s cocoa grows in West Africa, and most of that in one country Ivory Coast. Since 1999, Ivory Coast has been through a bloody succession of military coups, rigged elections, and civil wars. “We were concerned about running into a ceiling on production there” say Harold Poelma, managing director of Cargill Cocoa. So Cargill began looking for other options. The solution that it came up with perfectly illustrates the company’s global reach and long view.
Cocoa trees don’t grow just anyplace. They need shade, warmth, and humidity, as well as deep, rich soil – conditions generally found within a band 20 degrees north and south of the equator. That band passes through Vietnam. Cargill was one of the first U.S. MNC to return to Vietnam when President Bill Clinton normalized relations with the government in Hanoi in 1995. Today it is the country’s largest domestic producer of livestock feed and central player in Vietnam’s fast moving shift from a state-controlled agricultural economy to one where small farmers are encouraged to work private plots for private gains.
In 2004, Cargill launched a public-private-partnership with one of its biggest customers, chocolate giant Mars, and the governments of Vietnam and the Netherlands. The aim: to create something that had never before existed in Vietnam, a cocoa- export economy.
First, Cargill had to convince a front line of growers to switch to cocoa from well-established crops like coffee, black pepper, and cashews. The two years before the first harvest before there was anything to buy, Cargill opened two fully-staffed cocoa buying stations on major roads, in Ben Tre and Dak Lak provinces. It made an early commitment to transparency, posting on the Cargill website and offering by text message both the daily international price on the London market and what Cargill is paying locally; growers can lock their price for three weeks, the time it takes to ferment and dry the beans after harvest. Cargill also built a network of more than 100 demonstration farms. And in February 2011 the company took delivery of the first Vietnamese cocoa beans to carry UTZ certification.
Mr. Poelma sees the potential for 100,000 tons by 2020. Cargill hopes to have a Cargill factory in Vietnam by then, processing cocoa liquor, cocoa butter, and cocoa powder for export to growing markets in China and India.
To be continued…
