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El Castillo del Cacao

Business Plan 2005-2007

Text: Harm van Oudenhoven Finance: Maurits de Koning

Matagalpa, Nicaragua La Esperanza, Honduras

April 2005

Executive summary
Our Aims:
1: To make the best chocolate in Central America. 2: To make chocolate available and affordable to all sectors of society

3: To create a sound business that can assist in poverty eradication and be an example to others. 4: To show that environmental conservation can be consistent with economic development. El Castillo del Cacao (the Cacao Castle) is a new commercial initiative in the department of Matagalpa, Nicaragua. It aims to create a viablemarket chain using local resources and produce value added products bringing these to customers all over Central America. Our main product is chocolate and we sell bonbons, praline chocolates and chocolate bars. In the future we hope to develop and market other products that can be combined with chocolates or sold separately: dried fruits, nuts, spices and liqueurs. El Castillo del Cacao has three investors. Total investments for product development, marketing trial and legalization as of May 1st, 2005 totalled $9,000-. Our first sales started on 1st of February 2005 and currently sell for $400- a month. In one years time we estimate monthly sales to reach $1500-$2000-. It is our strategy to start small and with high quality and grow steadily. Our aim is to establish a sustainable commercial enterprise will give a positive contribution to the fight against poverty and an example of environmentally sound production generating direct and indirect income for input suppliers, service providers and selling points as well as employment As an actor in the private sector, with development one of our main motivations, we hope to contribute, albeit modestly, to achieving the UN millennium development goals and assist in Nicaraguas National Development Plan. We will work towards: The Eradication of Extreme Poverty and Hunger (by creating employment), to Chocolate con Promote Gender Equality and Empower Women (by Almendras employing a high percentage of women under good working conditions), to Ensure Environmental Sustainability (by promoting organic and forest products) and to Develop a Global Partnership for Development (though being an active partner in fair trade and environmental organisations). (United Nations Millennium Goals 1,3,7,8)

El Castillo del Cacao

In this starting phase we employ 2 women for 4 days a week in chocolate manufacture and 3 men for 6 days a week in construction (extension of work area). Our Future Perspective for 2006: 7 to 9 permanent employees: 5 in production, 2 in IT and administration, 1 to 2 in construction. A $1000- dollar a week turnover should be attainable within 2 years. Internships will also be welcome especially if complemented with a small working budget from our own or other sources. We hope to establish excellent links with organic and fair trade certified cacao producers and chain actors (like Max Havelaar, Fair Trade Organisation, Transfair International etc.). For years Nicaragua has been known for its high quality Arabica coffee and it has the potential to become famous for its Chocolate and Cacao. Our first Chocolate Bar filled with Roasted Almonds and sealed in air tight packaging. First sales started in February 2005.

I. Introduction
Context and Country Profile
Nicaragua is a low-income country with the second lowest annual per capita income of Latin America estimated at $455. This general figure hides the great disparity of income distribution, one of the highest in the world. 50% of the population earns only 14.5 % of the gross national product (GDP) while the richest 10 % earns 45% of GDP. (UNDP Development Report 2004) Unemployment is estimated at 22% plus considerable underemployment. The country has made progress toward macroeconomic stability over the past few years, but Nicaragua will continue to be dependent on international aid and debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. Donors have made aid conditional on the openness of government financial operation, poverty alleviation, and human rights. A three-year poverty reduction and growth plan, agreed to with the IMF in December 2002,

guides economic policy. In 2004 imports totalled 2.022 million dollars, exports 755.6 million dollars. The national trade deficit is a major economic concern (Central Bank of Nicaragua www.bcn.gob.ni) Nicaragua has 5.1 million inhabitants and even with substantial emigration its population is growing at one of the highest rates in Latin America at 2.7 % per annum. This increases educational problems with the average level of education being only five years, even less in the rural areas. 29.5 % of men and 28.5 % of women are illiterate. In rural areas the figures are 46.6% and 45.9% respectively (UNICEF 2002). Nicaragua is also a food deficit country. In 1999 the minimum salary in the agricultural sector covered only 32 % of the costs of the basic food basket. Chronic malnutrition affects 1 out of 4 children under 5. Infant mortality rates are amongst the highest in the region: 50 per 1000 births. Maternal death rates are between 125-200 per 100,000 births. General malnutrition rates, which are related to income level and food access, reinforce the picture of poverty data. Matagalpa, our area of investment, has a level of chronic malnutrition of 30.2 % (WFP Country Programme 2004).

El Toro: Matagalpa. (As seen from our house) A forest 10 years ago is eroding fast. It was burned 3 times in 4 months. Proper investment could recuperate the vegetation of the mountain and its valleys.

A large percentage of the rural population survives through subsistence agriculture using traditional agricultural techniques with low yield production of basic grains and pulses. There is little farm management experience, are many financial constraints and high post harvest losses due to inadequate storage facilities and little know how of post-harvesting practices. During the dry season fires scourge the area, burning not only pasturelands but also forests and protected areas. Education in environmental practices is severely lacking. Of the 28 worst disasters that took place in Latin America between 1972 and 2001, nine occurred in Nicaragua. Four were climatic, three were caused by earthquakes and volcanic eruptions and two resulted from civil conflict. Droughts and floods and hurricanes have had the most direct effect on the rural poor. The recurrent nature of these effects makes it difficult for the country and its population to recover from one event before another strikes. Matagalpa, our work area, lies outside the earthquake zone, but droughts are common. However, signs of improvement in both the economy and government are being felt, albeit mostly in the capital Managua and for the richest sectors of society. The economy is growing at one of the highest rates in Latin America. An unprecedented economic freedom is motivating people to start businesses. Foreigners are encouraged to invest and are allowed to own businesses without local partners, can buy houses and land as well as receive permanent resident permits. Nicaragua is also aggressively pursuing fiscal decentralization. This process is an opportunity to enhance the quality of local services and is part of the democratisation process of Nicaraguan society (World Bank 2004). It remains to be seen if this growth will also affect the rural poor, who up until now see little of the benefits. Nicaragua is an exporter of coffee, bananas, sugarcane, cotton, rice, corn, tobacco, sesame, soya, beans, beef, veal, pork, poultry and dairy products worth $632 mil. (http://www.state.gov/r/pa/ei/bgn/1850.htm) It is noted that cacao, even though originating in this region, is not listed amongst major export items. Cacao export is estimated at only 822 tones in 2004 (INTA, Nicaragua Institute for Agriculture Technology). Matagalpa is a mountain town with a relatively large city centre that grew through the production of coffee. Low coffee prices in recent years hit the economy hard, but last years coffee price hike gave a short boost to its citizens. Situated at 640 meters above sea level surrounded by mountains, Matagalpa is one of the few cities where people from Managua can escape the heat. The department hosts a number of nature reserves that include the Selva Negra (2000 acres of high tropical rain forest) and Esperanza Verde (www.fincaesperanzaverde.org), which won the Smithsonian Magazine Sustainable Tourism Award for 2004. All over the department there are prime forest areas.

Although primarily a coffee producing area, a small number of cattle ranchers produce high quality milk and meat. However, it is clear that Matagalpa has potential to produce much more. Bamboo grows wild and there is no processing of this material into furniture or building material. A still existing leatherwork sector that produces boots and saddles could be a significant source of income if exports are realized. There are numerous fruits unknown even in Managua that grow here in abundance i.e. Naranjia, Granadillas, and Pitaya. Other business ideas could easily root, including many of the very good business plans presented by other competitors in the Bid Challenge. A professional sawmill could significantly raise the standard of wood for furniture and decrease waste within the industry. Mushroom cultivation is virtually unknown in Nicaragua while waste products of all types are easily available. Solar energy for lighting, cooking and refrigeration would all find a ready market. El Castillo del Cacao cannot fill all the voids nor solve all the problems mentioned above. It is hoped that we can make a small difference in the fight against poverty and, furthermore, by way of our innovative actions, encourage others to invest in new ideas and provide a much-needed stimulus to this part of the world.

The Two-toed Sloth. In our own garden, just outside Matagalpa town. We all touched it! Yes, this animal is soft. It looks very sweet, but can move really fast, like a monkey. Normally s/he moves very, very slow.

One finds a large variety of Orchids and bromeliads, many bird species and larger mammals such as the Sloth and Howler Monkeys. Matagalpa has significant potential for tourism. (www.matagalpatours.com)

II. Market Overview

1. Market Description and Size.
The existing market of chocolate in Nicaragua is minute. Even in the capital, that has ample shopping malls, many large supermarkets and speciality shops, high quality chocolate, chocolate sweets and bonbons are not available. On sale are the standard Nestle and chocolate bar varieties such as Mars, Snickers, Crunchy and M&Ms. A few supermarkets import fancy but low quality bonbons that have little to do with real chocolate. Through our trials it became clear that demand was great with people asking to bring more chocolate next time. Small orders started coming in for private consumption, coffee mornings and parties. The word has quickly spread that we are producing a fine product. Therefore, a substantial empty niche market exists that is waiting to be filled. The establishment of a good customer base will require a determined effort to explore proper sales locations, the development of appropriate products and a clear and determined marketing effort on the part of ourselves. We aim to approach the following potential clients as we increase production and reach legal status. 1/ Shops, restaurants and supermarkets in Matagalpa 2/ High-end restaurants in Managua. 3/ Luxury hotels that have a large foreign clientele. Both for their coffee bars, but also in the gift shops. 4/ The larger supermarket chains: La Union, La Colonia. 5/ Pricesmart: Membership shopping and large wholesaler of local and imported goods.

6/ Flor de Caa: Largest producer of Rum (one of our ingredients) and very big distributor in the Central American Region. 7/ Hiper Paiz: Honduras, Guatemala, El Savador Supermarket chain. (AHOLD). They have approached us to enquire possibilities to produce their brand name, but they would also respect our diversity production. 8/ Airport and souvenir shops at major tourist locations. 9/ The United States Nicaraguan Immigrant market: A World Bank report states that around 70 percent of immigrants consume products from their country of origin: tortillas, coffee, rum, tamales, and sweets, among others. The volume of nostalgic products exported to the United States from various countries of Latin America has come to represent some 10 percent of total exports. This is a very good market to explore and has been proven to function well as entry point into the general US market.

2. Target Group and Region

This chocolate will first aim at the high-end market. A large foreign expatriate community and rich Nicaraguans are currently the main consumers of chocolate. Most foreigners bring chocolate from their home countries and it is often on the wish list. Local Nicaraguans are fond of sweets and have expressed their satisfaction in the product. Chocolate is a growing gift item. High-end restaurants have expressed their interest in the product, for their customers as well as for sale in their shops that sell organic and small producer products. In Nicaragua it is tentatively proven that El Castillo del Cacao will be a success if it adheres to its current quality and price. Effort will be put into the development of a cheaper variety to make the product available to a larger public. This most likely will require a higher content of sugar. This is however not of concern as Nicaraguans are; as are most Central Americans, sugar lovers. All Central American countries are large-scale sugar cane producers and sugar is a substantial part in local diets. Use of organic sugars or unrefined molasses will be promoted and advice on toothbrushing will be printed on the labels.

El Castillo del Cacao

Chocolate Seleccionada
Chocolate selected by her
Different types of bonbons, with coffee, nuts and sugared fruits. Close to the cacao source and with many recipes for excellent chocolate, we hope to please all customers. Internationally there is a growing market for specialist chocolates with similar small-scale initiatives from developing countries. Examples can be found in London, Paris and New York. Please see this article for a proven example from Senegal. http://news.bbc.co.uk/1/hi/business/3935769.stm. It should also be mentioned that our chocolate does not undergo the extended refining process carried out by the large chocolate manufactures. Although no figures are available it can be assumed that our unrefined chocolate has a much higher content of vitamins, anti-oxidants and essential oils than refined chocolate products. This can be a serious advantage in the health food market.

The Momotombo Chocolate Factory

Caf Orgnico, Coco Tostado... Five varieties of Soft Chocolate Bars, with one hot and spicy! Not to be missed!

3. Competition and Context

Since three months one other competitor that produces a soft chocolate bar has established a market in similar luxury stores in Managua. This is Mombotombo Chocolate. It also uses traditional means to produce a good and presentable chocolate. This enterprise started in similar conditions and social-environmental ideas as El Castillo del Cacao and we also share the same development stage. Contact has been made with the owner, a Nicaraguan writer and designer with international background, 29 years old, to see if we can cooperate on certain fronts. Mombotombo is a different chocolate in texture, taste and presentation and therefore poses no threat to our market. Suggestions are to look into communal advertisements in local newspapers promoting both our chocolates, small refrigerated display cases that carry both brands and campaigns during chocolate holidays i.e. Easter and Valentines. El Castillo has a larger investment portfolio and we believe that our contacts with suppliers of cacao and larger buyers extend the current reach of the competitor. Momotombo has excellent design and presentation ideas and has entry into entertainment sectors of the local market. Chocolate is a variety product: to let multiple brands flow along the same channels has always presented mutual profit (see the Amsterdam canals, The Netherlands as example). Besides great taste, public relations and design are strengths of this brand.

III. The Product

1. Short Description of Product
El Castillo del Cacao currently offers two different products: 1. The Chocolate Almond bar. This is a serious bar of chocolate with a strong lasting taste. 2. Chocolate Sellecionada chocolate selected by her a collection of different bonbons consisting of - La Trufa Pecana: Large chocolates rolled in powdered cocoa with a strong coffee taste and crushed pecan nuts inside. - The RonBon: A large toasted almond on top of a cushion of rum enhanced dark chocolate - ChocoMania: Slices of chocolate filled to the brim with roasted peanuts. - ChocoBalaz: Little balls of pure but sweet chocolate you can just pop into your mouth. Our products are unique in Nicaragua. The taste of all 5 products is very good and incredibly long lasting, beating any imported product multi-fold. Because of the thrill it produces, we are currently developing a range of rum based products and aim to have at least 12 tested varieties by the end of 2005. This will help us make a commercial connection with Flor de Caa (Nicaraguan Rum producer).

Chocolate Seleccionda La Trufa Pecana

Internationally seen, one of our major advantages is our proximity to the source of cacao. Some of the worlds best Nicaraguan Criollo Cacao is one of cacao comes from the lower mountain ranges of central the best in the world Nicaragua. The variety, Criollo, is renowned for its special bitter taste much admired amongst chocolate lovers around the world. Due to lack of infrastructure, export is only marginally developed. We use cacao harvested and fermented only weeks before it is roasted and pressed into chocolate liquor. This chocolate liquor is not processed any further as it is done in all western chocolate producers and therefore maintains the unique flavours of the original cacao. Instead we use it directly to make our bars and sweets, ensuring a very colourful and fulfilling chocolate experience. Within Nicaragua we are only scratching the surface of the potential market. Due to our small production capacity at the moment we have only approached a few outlets. Dark Chocolate Coffee and Pecan Praline rolled in Cacao Powder

2. Location and Infrastructure

Our pilot area consists of Matagalpa town and a few organic food based restaurants in Managua. Infrastructure is basic. From cacao to chocolate we are the supply chain. There are food distributors of all sizes and Matagalpa is not far from the Central American Highway leading to Honduras and El Salvador. A small local cacao market exists. Cacao is used to make candy and a local chocolate-ground maize drink at home and industrially. It is exported in small quantities. There are a few NGOs and cooperations that can supply a number of containers of cacao. Dr. Noel Pallais Checa, the Director General of INTA (Nicaragua Institute for Agriculture Technology) estimates the area in production with cacao at 7000 hectares. Cacao export is estimated at only 822 tones in 2004. The INTA is now starting to promote cacao production for the benefit of small farmers and the environment. (http://www.chocolateandcocoa.org/Library/Research/usda_September_2004.asp) An estimated 2000 small producers (30-100kg each) produce in the target area of El Castillo del Cacao. Cacaonica, an association of 722 cacao growers is active in our area. 520 members are with organic certification. Last year Cacaonica exported 208 tonnes of organic cacao to Germany, The Netherlands, The United States and El Salvador. Potentially is has the ability to deliver twice this amount and it is interested to deliver straight to our production site. It is supported by Bioland and Pro Mundo Humano, two German donors. We aim to make Cacaonica our main supplier of cacao. The current supply of cacao will meet our demand for the coming years. With view to growth of the cacao sector, more producers are necessary. It is hoped that increased prices, a secure market (partly provided by ourselves) and technical assistance of the INTA and other NGOs will encourage farmers to grow more and supply cacao on a regular basis. A main obstacle to proper chocolate distribution is the lack of refrigeration. Because we do not use added preservatives, without cool conditions the chocolate is accessible to moulds. Our current preservation rates are:

Chocolate Bar: With airtight (non-vacuum) aluminium packing Refrigerated: 8 weeks with slight hardening of chocolate. Outside fridge: 10 days at 24, 4 days at 43 degrees Celsius (can be improved through vacuum pack and co2 gas) Selected chocolate: with semi airtight see through plastic (with ribbon). Refrigerated: 6 weeks with slight hardening of chocolate. Chocolate becomes more bitter afterwards Outside of fridge: 3-4 days at 24 degrees, 1 hot afternoon at 43 degrees Celsius. A step to improve the infrastructure for our product it to develop or buy non-expensive cooling cases using small solar panels. Store and restaurant owners are wary of the rising electricity price rises (10-15% a year). Besides saving on electricity, risks of power failure are minimal. Keeping Chocolate Cool may serve as an example for the solar cooling industry in general. Some extra financing and providing an internship for technical master students in this field would not be in vain.

3. Development Stage
Research and development of new tastes and qualities will always remain an essential part of the business. In the short term the inclusion of fresh milk creams and dried fruits is a priority. However there are endless combinations to be tried and perfected. A major effort will be put into finding local suppliers for all ingredients. Currently 75 % of the nuts used are imported. A short term goal to lower this to 50% with the introduction of cashew based recipes and looking for other, so far, unknown, traditional nut types. Furthermore, we will look into finding suppliers of local dried fruits for use in chocolate sweets. A fruit dryer will be installed to try out new varieties. A recent experiment with a variety of rum-based fruit preserves, used to fill chocolates, has created an unexpected by-product of rum with fruit flavour. For large-scale production it will be interesting to research more into the use of wey, currently a waste product of the Nicaraguan milk industry, into the chocolate. This is common practice in the worldwide chocolate industry. It is the intention to seek technical advice whenever possible, be it through internships or through specially acquired expertise. Advice will be sought for the development of the product itself and also for reaching international production standards. Before any attempt at export is made we will aim to gain international certification of the product, quality of the ingredients, hygiene standards and packing quality. For this, when finance is available, international expertise will be sought though organisations such as PUM and other business development service organisations.

4. Positioning and Protection

El Castillo del Cacao has its own secret recipes. This will ensure some level of protection of the product. However, if we are successful, other chocolate producers are certainly expected to enter the market. Thus the best chance for preserving competitiveness is through client satisfaction, constant improvement, diversification and competitive pricing. All registration processes will be followed to ensure legal recognition of the product name and trademark. This includes publication of all product names in the official government paper La Gaceta Establishing personal links with customers (supermarkets and restaurants) will also ensure a measure of protection against encroachment on our terrain.

IV. Marketing and Sales Strategy

1 Sales
Restaurants and specialty shops Starting at a mere 5 kilos a week in our first few weeks we now sell approximately 20 kg a week ($200) at three locations. This figure will rise as we are approaching other outlets that are more frequented by foreigners and rich Nicaraguans ( the site of one of our clients: www.olaverde.info). We aim to reach 40 kilos a week ($400- in sales) by the end of May with a total of 6 sales outlets selling our product.

The RonBon Chocolate Seleccionada

Roasted Almonds on a bed of Rum enhanced dark chocolate El Castillo del Cacao wishes to compete on the market with taste and quality, not necessarily with quantity.

These figures should increase further as we develop more variety and our product becomes known around Nicaragua. If these targets are not reached, more effort will be put into seeking other outlets and restaurants. One major improvement will be our development of refrigerated presentation cabinets, enabling sellers to present the product with style and under proper cooling conditions. Supermarkets With legal conditions fulfilled we will be able to approach the larger supermarkets. Sales will comprise mostly of chocolate bars until proper cooled sales presentation boxes can be installed. This will take some investment and development. Another alternative is to add natural preservatives (still to be identified) to increase shelf life. Under the right conditions we expect to sell 400 bars a week ($500-) in 4-6 supermarkets by the end of the year. Movie theatres We aim to develop a special snack chocolate bar for movie theatres. Smaller and filled with peanuts and raisins, the bar should compete with more expensive Mars and Snicker bars. We aim to sell 400 bars a month in theatres within one year. Gift shops in Hotels With special packing and luxury presentation we will enter the gift shop market. No sales target has been set for this product but with exclusive designs of local artists and selections of our chocolates we aim to attract tourists and Nicaraguan travellers who wish to bring special Nicaraguan gifts to friends and family abroad. Airport The Airport has numerous shops were travellers spend their last cordobas on gifts to bring along. Offering a selection of chocolates in attractive packaging is currently under discussion with one of the businesses with an outlet in the tax free area. Gas Stations Most gas stations in Nicaragua are associated with fast food outlet chains. Most products, especially sweets and chocolates, are imported brands. With a good established production base we will aim to distribute chocolate bars through this network. No foreseen sales figures can be given at this time. Export As mentioned earlier we have plans to export to surrounding countries to the larger supermarket chains, one of which has already contacted us. When we reach sufficient capacity in production we will provide potential customers with price quotes and a selection of available products. The Nicaraguan immigrant market in the United States will most likely be our first entry onto the US market.

2. Distribution Channels and Networks

For the preliminary phase we will do all deliveries personally on a weekly basis. This is cost effective as it is combined with other activities i.e. meetings, purchases and other errands that are necessary in the capital. This personal touch is however proving very important in receiving customer feedback: essential for further product development.

A network of chocolate friends is slowly expanding that can bring the product further into other parts of the country. One such connection is currently delivering a shipment of Almond Chocolate bars to the beach resort of San Juan del Sur on a bi-weekly basis. We expect more of such connections to develop over time. This distribution system, albeit somewhat unstructured, is extremely valuable in this preliminary sales stage, with financial resources still very limited. When finances are sufficient we will invest in a small vehicle with a refrigeration unit. In the longer term a very important development is the offer of a local distributor to introduce and distribute our product to all major supermarket chains in Managua once all legal requirements are in place. They are also very interested in promoting baking chocolate (our basic unprocessed product) onto the market for the larger baking industry. This idea can significantly increase our turnover. Samples will be provided for distribution in the coming weeks. With increased sales it will be necessary to look for other good distributor systems especially if we aim to cover other departments and neighbouring countries. The United States has a large Nicaraguan immigrant population and it may be easy to establish a market here. Once the business is in full swing we will approach Casa Pellas. This is the largest private company in Nicaragua and amongst others, the producer of Flor de Caa, the best rum in Central America. We plan to introduce a range of rum based chocolates and include the trademark Flor de Caa on our ingredient list. We hope to interest Casa Pellas in developing a commercial relationship with our company. If a satisfactory agreement can be made, distribution in whole Central America will be assured.

3. Marketing and Communication

Our best marketing strategy so far has been the production of a high quality product. News has spread by word of mouth faster than expected. Customers who have purchased the product elsewhere have called our number to see if they can get larger quantities at the source. This includes the Hiper Paiz, a huge Guatemalan supermarket chain with presence in Honduras, El Salvador and Guatemala. Making available free chocolates to key persons, such as the wife of the ambassador, has made the whole Dutch community aware of the product. During a yearly regional meeting of SNV Netherlands, a whole selection was presented, distributed freely and received enthusiastically, giving brand awareness throughout the organisation. We plan similar actions in other organisations and embassies. The construction of the production area in the style of a middle age castle is also providing ample subject for discussion and the first tourists have come up to see the structure. It is currently small, but has the hallmarks of a true fortified castle with battlements and embrasures. It is proving to be very popular with children. The building also has a rainwater harvesting system and a roof designed for sun drying of cocoa seeds as well as a terrace with an amazing view over the city.

Choco Balaz a Chocolate Seleccionada

Little pure chocolate balls to pop into your mouth. El Castillo del Cacao constantly listens to its customers to develop new and better products. Our web sites www.thecacaocastle.com and www.elcastillodelcacao.com are under development. All our products will be presented with full description and order possibilities. Links to other chocolate sites will be inserted to make this an informative site for any interested chocolate lover. Further links to marketing organisations, alternative products and new ideas will be available.

Other marketing strategies are under consideration; these include advertisements before strategic holidays such as Christmas, Valentines Day and Easter. Small pamphlets explaining more about cacao and chocolate can be presented next to the product. Collectible cards, posters and a whole range of artisan packaging are expected to be brought onto the market in the future, catering to a whole range of customers, from the casual consumer to those looking for interesting gifts for loved ones and friends. In general free samples are given to stores that sell the chocolate so that customers can try before buying. This has shown direct results at all locations.

4. Price Breakdown.
With slight variations total production costs of the major chocolate products are as follows: For 100kg of Chocolate Mix 1 Cacao Liquor Sugar Powdered Milk Nuts Milk Total costs for 100 kg Sales Price for 100kg. $1000 It costs an average $3.99 to produce 1 kilo of Chocolate Bars and Selected Bonbons. Including packing and labour the estimate is $4.65 a kilo. We sell at $10 wholesale. It is estimated that production costs will go down as we find substitutes for imported nuts and milk powder. With are looking forward to the introduction of Chocolate Candy. Chocolate sweets or toffees recently developed are cheaper to produce using unrefined brown sugar. We can increase sugar content bringing down production costs significantly: at $.50 a kilo, sugar is our cheapest ingredient. Full cost calculations for mass production are being made. Estimated production is 20-25 kg per day per person. Wage for our chocolate workers is set at $7- per day, compared to the average $3-4- a day wage for semi-skilled labour. Total Costs $192.30 $19.67 $77.80 $102.71 $6.12 $398.60

Don Castilln
Roasting and processing cacao is done at the supplier of cacao paste. Costs will go down and quality will improve with proper installation of processing machines.Estimate cost: Cacao: Roasting Peeling Processing, packing and storage Total Sales price $4.70 a kilo $1.60 (1 kg = 800gr. roasted) $0.40 $0.30 $1.20 $3.50

V. Financial Aspects

1. Financial Plan
In the first month of production we sold 10 kilos a week through the three outlets contacted and 5 kilos a week to private customers. This figure is rising as customers become aware of the product and return for more. Our maximum production at this point is 40 kg a week. We aim to sell this amount on a weekly basis by the end of May. Current restraints are, production at supplier, construction at our facility and our legal status. A significant boost to production will be the installation of the cocoa processor at our partners location. Chocolate paste production is then expected to rise to 25-50 kg a day, signifying a production maximum of 100 kg of chocolate a day at our location. Growth will coincide with the legalization of the company and increase in the market. There are three major investment periods. Current Investment for the trial has been $4500- A further $4500 is now being invested in the extension of the production facility and purchasing of essential equipment. In the following 6 months, $2000- will be spent on marketing and legal fees. If we win the Bid Prize the 20,000 Euro will give a significant boost and confidence to the company. Use of these funds is described in the financial template attached.

2. Investment plan
Phase 1: October 2004-March 2005 Trial and product development: Total investment cost $4,500. Completed with positive results Phase II: April 2005-June2005 Legalization, expansion of work area, purchase of new production items: $4,500 Phase III: July 2005-June 2006 Inputs US $2,000- Private Euro 20,000/ US $25,000 (Bid or Loan) Improvement of work area, changing room and bathroom. Repair of access road. Office and administration upgraded. Printing unit established. Proper warehouse facilities at Castle and at Supplier. Installation of mechanical roaster at supplier. Excellent kitchen facilities. Establishment of ample cacao stock during harvest season. Recruitment of 4 additional staff for kitchen and 2 part time for administration, web and IT and label printing. Part time driver, guard. Acquiring proper cooled transportation vehicle is an option. See financial template for more details.

3. Share of own contribution

Currently my personal share of the investment is US $5,000 from savings. In my own time I initiated the first trial and marketing phase to prove to others the commercial potential of this product. Seeing the items on offer and the reactions of customers, two other investors have come forward and invested $6,000- at this time. Development costs are not calculated here but are estimated at 2 months full time.

VI. Development Impact

1. Economic Development effects
El Castillo del Cacao aims to have an influence in the whole production chain of cacao and chocolate: from the small-scale cocoa grower to the enthusiastic chocolate lover. We are now positioned in the middle and as we expand we hope to create a network that will encompass all aspects necessary for a top

quality product. As we link up with farmer groups and NGOs we will provide them a direct outlet for their harvested product. Working with a cacao roaster and chocolate paste producer, we will invest to improve production capacity and product quality. In El Castillo we will produce, pack and introduce a previously unknown product to the market. From our customers we will collect feedback to improve and streamline our chocolate collection.

ChocoMania
a Chocolate Seleccionada.
Chocolate Rolls filled with peanuts. Chocolate can be combined with many local ingredients; dried fruits nuts, rum etc. El Castillo del Cacao is already creating jobs. In the kitchen two ladies work 3 days a week and this is expected to rise significantly when sales increase. Both these ladies are single mothers of 2 and 4 children respectively. Recruiting single mothers will always be a priority in order to assist this vulnerable and large sector of society. Four day work weeks (well paid) are envisaged so that mothers will be able to spend time at home as well. Part time recruitment of teenage mothers for 3 days a week is also an option so that they may have time to follow a formal eduction in their free time. Chocolate Momotombo has a group ownership agreement with the two women working there fulltime. The construction of the kitchen area and current extension is giving employment to three men, six days a week. Suppliers of building materials are also benefiting from this small financial injection into the community. At the supplier of chocolate paste there has been a significant growth in employment for two ladies working in roasting, peeling and pressing the cocoa beans. Here we witness an increase from 1 day a month to 4 days a week in employment. Currently we are at the very beginning of our production capacity. As we grow, more people will be hired and trained to assist in the production and packing of the product. We also foresee the need to establish a commercial Internet site and this will require a (part time) system manager. For administration, a bookkeeper will be hired to complete all official tax forms and keep administration up to legal standards. The management team is made up of three men. We will, therefore, require outside expertise for gender analysis of management and the production process.

2. Social Implications
Matagalpa is renown for its coffee production. Although the price has recovered to some extent, the coffee price has suffered severely in the last few years. This has produced a negative connotation amongst people in Nicaragua, who now relate coffee to bankruptcies, financial difficulties and unemployment. Chocolate (with a nice cup of coffee) can give a positive impact in how people see Matagalpa in the future. Already we see that Matagalpinos enjoy the fact that chocolate is now produced in their town and many encourage the business with positive feedback. Some have taken chocolate to relatives and friends in Managua as a gift from Matagalpa. We purposely print made in Matagalpa, Nicaragua to complement any such sentiment. In the long run cacao and chocolate may encourage more people to visit Matagalpa. The town lies in the hills and the surrounding mountains give an escape of the heat of Managua. When our production centre grows we may make it accessible for visitors, giving one more tourist attraction to the town.

3. Environmental Implications

Cocoa is a forest product. It needs forest cover and humid conditions to prosper. The cocoa tree produces all year round with one peak-harvesting season. Cacao in Nicaragua grows amongst other productive plants, including coffee, and for small farmers is one of his or her additional sources of income. In this combination it is an excellent crop for analogue forestry, integrated farming and perma-culture. The continuing coffee crisis, affecting large and small farmers, is having a negative impact in the environment. With only the most dynamic producers keeping their head above water, many smaller producers are falling back to survival practices. There is a noticeable regression toward primitive agriculture that consists of slash and burning on hillsides, followed by the sowing of corn and beans. The crops depend on rainwater for irrigation and harvests are small. During the rainy season rivers are dark brown with eroded soils and erosion gullies are a common sight. Increased prices for cacao can help slow this deterioration. Cacao needs three to four years to produce and is not an immediate solution to poverty, but a higher price can motivate farmers to conserve the areas that they have and look towards the future with positive perspective. For El Castillo del Cacao higher cacao prices are not necessarily an unwelcome development. Derk Norde of Fair Ventures was quick to point out that higher prices lead to an increased supply potential. I thank him for this remark! It is an actual fact, when buying from small farmers directly; a higher price for quality should always be initiated immediately to ensure supply. Money motivates (be it a crude comment).

VII. Management and Organisation 1. Management Team

The three partners that currently finance the business will form the management team. . Harm van Oudenhoven (Dutch) Matagalpa, Nicaragua: Experience with small-scale business development including three private enterprises in the Netherlands and Sri Lanka. Excellent reporting skills and identification of alternative production methods. Will manage day to day running of business as well as initial set up. CV

Milton Fernndez Nicaragua. Long-term legal terms under which good links with owners Currently employed as environmental SNV office hours! CV

Vargas (Chilean), Matagalpa , 15 years in consultancy experience. In charge of El Castillo del Cacao will operate. Has of food distributors and supermarkets. SNV advisor economic tools for governance. We never meet during

Maurits the Koning (Dutch), La Esperanza, Honduras. Experience with development of community based enterprise in El Salvador and Honduras as well as experience in commercial banks in the Netherlands (ING Bank). Currently employed as advisor in financial services for SNV Netherlands. He advises the business plans financial aspects and its cash flow statements. In future he will be responsible for the Honduras and El Salvador markets and eventual replication of production facilities in Honduras and El Salvador. CV

We will constantly remain on the outlook for individuals that can bring in new ideas and investments into the enterprise. Our thoughts go out to providing internship spaces to students involved in food processing and conservation. Expert advice will be sought to bring the enterprise up to international standard.

2. Legal Status
The business will be registered as required by Nicaraguan Law under the name El Castillo del Cacao. The process for full legalization requires approximately 2 months and will start in April 2005. The legalisation process requires the writing of a social constitution, authenticated by a lawyer, registration at the Chamber of Commerce to obtain a Commercial Registration Number. This is followed by registration at the town hall. Parallel to this process is the sanitary inspection of the premises and the receipt of an official Health Certificate. To protect the company name and logo our Trade Mark will be registered and published in La Gaceta, the legal publication of the State. We will further request a Green Certificate signifying that our production is ecologically sound and opening the way for the certified organic market.

3. Partners
There are two main partners that will play a key role in the supply chain. Cacaonica will provide the major part of organic cacao, guaranteeing quality and environmental sustainability. The second is Sr. Guillermo Castilln. He runs a small cacao roasting and processing plant and is currently installing new processing machinery. Sr. Castilln has experience with cacao and chocolate through extensive study and practice. In the past he has conducted studies for the European Union on the availability of cacao in the region. We will aim to invest in the processing plant to improve the working space, needed molds and other working materials. In the longer term this section my also be brought up to international standard and incorporated into a legal association with El Castillo del Cacao. Other potential strategic partners have been identified but have, so far, not been approached, as we have not reached enough volume to make any commitments. However possibilities exist to make formal arrangements with NGOs, womens groups, small farmer organisations that produce one or more of the needed ingredients needed for a pure organic chocolate production. Producers of organic dairy products, organic cacao, fruit and nut producers are all present in Nicaragua. With production in full swing, a network of such producers will be essential if we wish to remain on the forefront of excellent quality chocolate production. Any selection of partners will follow specified criteria that adhere to our own norms and values including: a high standard of product quality and a commitment and proven record to deliver , equal or extended employment opportunities for women especially single mothers and an environmentally sustainable production system.

Milestones
A thousand stones to build a castle. Currently under construction: a rounded tower (on the left) to serve as an enlarged kitchen area and storage. Photo: 22nd of April, 2005. Matagalpa, Nicaragua

VIII. Strategy
1. Milestones
In the next 2 years we hope to reach the following Milestones. 1: Within 3 months (still without prize money) Legalization of the business and sustainable production of current varieties without hands on management. Staff should be trained sufficiently to allow absence of day-to-day manager. 2: Within 8 months (with prize money) much improved standard in packing and shelf life of the product. First sales to major supermarkets. A link with a number of Film theatres to sell chocolate during the remake of Charlie and the Chocolate Factory out in December 2005. Chocolate alphabet: a first in Nicaragua! 3: Within 1 year: Established sales points in at least 8 high end restaurants and coffee houses with our own refrigerated display cases. A collection of at least 12 varieties of chocolates. Chocolate Easter Eggs and Bunnies at all locations. 4: Within 16 months: First Export to Honduras and El Salvador. 4 different well conservable chocolate bars of excellent quality 5: Within 2 years: International standard certification for export beyond Central America and first contacts in Europe with exclusive chocolate sellers. For sale at de Chocolade Fabriek or The Chocolate Factory to be opened in Amsterdam at the end of 2006.

2. Requirements for success and Risk Factors

For the business to be a success it needs dedication and a growing variety of products with different tastes and presentation. As stated before, constant new ideas will be sought and new products developed and tested to keep the enterprise dynamic and on the forefront of chocolate production in Nicaragua and in the Region. A major risk to the business is failure of the electricity grid. With our products in cold storage, a cut of more than 24 hours during the warm season can mean disaster. As we do not use preservatives in our chocolate, mould growth has been noticed on chocolate after 72 hours outside the refrigerated unit. With the prize money one of our first investments will be in solar panels and battery back-ups. Water is also a scarce resource. Efforts will be made to conserve water and re-use drainage for irrigation. Another risk is large-scale buyers of cocoa suddenly entering the market and depleting our resource. With more capital, stocks of cocoa seeds will be created at the production site (the castle) and at our partners. A higher price is not necessarily of concern as in the long term this will lead to more supply. A further risk pertains to staff. AIDS is still relatively uncommon in Nicaragua, let alone Matagalpa. However, my own experience in Ethiopia has shown me that preventive measures are essential if we wish to guard against HIV and AIDS and subsequent loss of trained personnel. Information will be made available to all staff regarding HIV/AIDS and included in any hygiene training provided. In the past Nicaragua has been hit by earthquakes, hurricanes, droughts and different sorts of animal plagues. Any of these could also affect our business. In order to keep risks to a minimum we will always insure our property, maintain a high standard of safety in our buildings and deposit sufficient savings in order to prevent any such occurrence harming the business beyond repair.

3. References
Reference Person 1

Carla Fjeld Owner and Founder of Ola Verde www.olaverde.info an organic oriented restaurant based in Managua, Nicaragua. One of the first to sell our chocolate and can give feedback on quality and presentation of the product. Mrs. Fjeld is a nutrition specialist with extended international experience. Contact info: Telephone: 00-505-270-3048 e-mail: olaverde@ibw.com.ni Reference Person 2 Warner ten Kate First Secretary Netherlands Embassy Kampala, Uganda. An economist and good friend. Knows of my networking and organisational capacities. Contact info: Telphone: 00-256-(0)77-766553 e-mail: warner-ten.kate@minbuza.nl

Adriaan Loeff Director FACET Knows me from person to person interview for the Bid Challenge in April 2005, Managua, Nicaragua. adriaanloeff@hotmail.com

See other references attached to my personal cv.

http://www.chickenstreet.com/ElCastilloBizPlan.htm

3. The Work Plan

Workplan April 2005- July 2006 Start Up April May 1st Quarter July 2nd Quarter Oct 3rd Quarter Jan 4th Quarter April May

June

Aug

Sept

Nov

Dec

Feb March

June

Internal Business Planning Legalization Process Creation of Business Constitution Web Site Expansion Extension of Building Investment in New Kitchen Material Installation of Office Improved Storage Area Purchase of Refrigerated Van Solar, battery backup Research and Development Development of new products Christmas Selection Valentine and Easter Collection Construction of Cooled Showcases Marketing Sales to Restaurants/ Specialty shops Introduction to Theaters Introduction to Supermarkets Airport Export Flor de Caa Pricesmart Recruitment Kitchen Staff Support Staff Other Buying of Cacao during harvest Networking

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