United Cacao Ltd SEZC (LON:CHOC) Chief Executive Officer Dennis Melka caught up with DirectorsTalk to discuss the cacao market, the game-changer in Iquitos, Peru’s new government and Sacha Gold
Q1: What are the latest developments with the cacao market and how is this year shaping out to be?
A1: We’ve seen now that the cacao production side, largely from West Africa, shrinking now for 5 years, the new season just started, it’s a split year so it starts in the fourth quarter of 2016 and goes into the third quarter of 2017. The first bit of news coming out of the market is that Cote D’Ivoire, the world’s largest producer, is expecting a 200,000 tonne reduction in output in just the first 3 months so this is quite astounding, everyone was expecting that eventually it would get better, it’s not so here we’re seeing again another down year. This is, on the production side, an industry that peaked in 2011 and every year we’ve had falling production and yet again looks like this year will be another reduction in output out of West Africa so I think for us as a producer of high quality beans in an area that’s got excellent rainfall conditions, the future looks quite positive and good for us.
Q2: Now Iquitos has been in the news lately, I believe the new president has announced some major infrastructure projects, is that right?
A2: The new government took over a few weeks ago and it’s really been a phenomenal development for the country, very positive, he’s got very high approval ratings of over 70%. What’s relevant to our area is he announced a road to Iquitos so the president, known by his initials PPK, actually his father came to Peru as an immigrant, as a doctor escaping the conflict in Europe in the 40’s and actually was a doctor in Iquitos, he worked at a leper colony there so it’s something I think has a very emotional tie to the family and the son, now the current president. PPK has announced he’s going to connect Iquitos by road which is really a gamer-changer, validates really our location and is really going to be a huge change for that area so we’re very happy with the position we have there, we’re very happy with our land expansion, the land privatisation project, that we earlier announced so obviously the road takes time but this is great news for the area.
Q3: So in general then, what’s the government saying and doing?
A3: Well we’re seeing incredibly positive on economic development, in fact the Minister of Environment announced that it’s important that environmental policy meets social and development goals so I think it’s a phenomenal change in what we’ve seen. I think Peru’s very well positioned, they’re talking about continued investment particularly in agriculture, they’re talking about more infrastructure investment, they’re reacting a whole series of mines in the mountains, they’ve been on hold for quite some time so what we’re seeing in these early days is a very pro-active, pro-business, pro-people government which is exciting and again I think it very much validates the location that we’re operating in as Peru is a global low cost producer of cacao.
Q4: Now Sacha Gold has been recently profiled in the media with a potential to yield 4 tonnes per hectare of true fine flavour of cacao, are you planning on using this or introducing this?
A4: Giles, we already have about 40% of our estate is Sacha Gold and so we’re excited that now the news is starting to come out in the marketplace. We were very early adopter of this species and in that article which was in Confectionery News, they mentioned that they had shipped to Peru, now that shipment was to us so we are delighted to have that crop, it’s growing incredibly well, we think it is a game-changer in the industry and it’s good to see that the media has sort of caught on this, frankly almost 2 years after we’ve been using it.
Q5: So the cacao market this year, what’s the latest and how’s the plantation going?
A5: We’re excited, we put out a very detailed annual report, a lot of information there on where we are with the planting and how we’re going to grow in the future. So right now we’re just under 1,700 hectares planted cacao corporate, we have another 200 of small farmer and then another 200 of small farmer coming up next year so in terms of estate size we are one of the largest in the world. Production will start coming on next year, we’re very excited about that, and I think the future looks quite bright for us. We see a continued contracting market in West Africa just as our production is coming on stream, again there’s been some M&A in this sector, in Ecuador where large confectionery business has purchased upstream estates so we think, again, we’re in the right place, right time doing the right thing and the cacao market, the chocolate market continues to grow each year. So you’ve seen a lot of activity on the downstream side, Mondelez is looking to merge with Hershey, so a lot of activity there and I think that bodes well for us and world economy and demand for cacao, which goes into chocolate, again every year continues to rise.
