Marketing Strategies for Cocoa Products in the Context of Globalization Authored By: Mohan Kumar Iyer, MBA, MPhil,

PGDCA, PGDIB1 email: mki.matsindia@gmail.com Adithya Shyam Sunder,MBA2 email: adithya.mime@gmaill.com

Abstract

Agriculture has always been the lifeline of India. The agrarian country has a total land area of 3.28 million sq km. of which the total cultivable land and the land under permanent crops is around 1.69 million sq km. As a result of the various types of soils such as lateritic soils, black soils, desert soils, red and yellow soils, saline soils, alluvial soils and mountain soils, there exists two major categories of crops i.e. food crops and cash crops. When it comes to plantation crops the eight major categories are coconut, areca nut, cashew nut, tea, coffee, rubber, oil palm and cocoa. Cocoa is a cash crop grown throughout the humid tropics with about 6.5 million hectares planted with the crop in 57 countries. The production of the crop mainly comes from small holdings or large estates. Keeping in mind the above scenario, this paper aims to identify the importance of cocoa in todays global economy; agricultural applications of cocoa ; various marketing strategies that are being used ; a glimpse into the Indian cocoa industry ; trade aspects of cocoa.

Key Words: Marketing, Marketing Strategy, Agriculture, Cocoa, Globalization

1. Faculty Member, MATS Institute of Management & Entrepreneurship, Bangalore 78 2. Student, MBA, MATS Institute of Management & Entrepreneurship, Bangalore 78.
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1. Introduction to the Agricultural Sector of India Agriculture in India is one of the most important sectors of its economy. It is the means of livelihood of almost two-thirds of the work force in the country and according to the economic data for the fiscal year 2006-2007, agriculture accounted for 18% of Indias GDP. About 43% of Indias geographical area is used for agricultural activity. Though the share of Indian agriculture in the GDP has declined steadily, it is still the single largest contributor to the GDP and plays a vital role in the overall socio-economic development of India. One of the biggest success stories of independent India is the rapid strides made in the field of agriculture. From a nation dependent on food imports to feed its population, India today is not only self-sufficient in grain production but also has substantial reserves. Dependence of India on agricultural imports and the crises of food shortage encountered in 1960s convinced Indias planners on the required self-sufficiency in food production. This lead to the Green Revolution that involved bringing additional area under cultivation , extension of irrigation facilities , the use of improved high-yielding variety of seeds , evolution of better techniques through agricultural research , water management , and plant protection through judicious use of fertilizers, pesticides and cropping practices. To replicate the success achieved in the production of wheat and rice, a National Pulse Development Programme in 1986 and a Technology Mission on Oilseeds was launched in 1986. The government has also taken initiatives to encourage private sector investment in the food processing industry. Indian agriculture is heavily

dependent on monsoons. The monsoons play a crucial role in determining whether the harvest will be rich, average or poor. The structural weaknesses of the agricultural sector are reflected in the low level of public investment , exhaustion of the yield potential of new high yielding varieties of wheat and rice , unbalanced fertilizer use , low seeds replacement rate , an inadequate incentive system and post harvest value addition. 2. Introduction to Cocoa and Cocoa products Cocoa (Theobroma cacao L.) is a native of the Amazon base of South America that got its entry into India in the early half of the 20th century. It is seldom recognized as a plantation crop under the Indian Agrarian Administrative Sector. It is also one of the supporters of Agrobased industry in India. Cocoa beans are the primary raw material for confectioneries, beverages,
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chocolates and other edible products. Majority of the processed cocoa products are consumed within India. The tropical, diversified and congenial climate available in India provides immense scope for its cultivation. Cocoa products include cocoa beans, cocoa powder of coating sugar, cocoa shells husks skins and cocoa butter fat & oil. Cocoa is hardly grown as a mono crop. It is grown along with Coconut and Arecanut palms. Cocoa absorbs a lot of solar energy. Cocoa products include cocoa beans, cocoa paste/liquor, cocoa butter, cocoa powder, couverture (industrial chocolate) and finished chocolate products. Kerala was the leading State in promoting cocoa cultivation. Massive area coverage was possible through distribution of cocoa seedlings. Cadbury India Ltd., was the only industrial unit during the 1980s that had massive expansion of area under cocoa. There was an attractive price for cocoa pods and beans prevalent till 1980's. This favorable situation, coupled with large scale distribution of planting materials resulted in a enviable area coverage recording 29,000 ha under cocoa by 1980-81. The monopolistic exploitation of the crop caused fall in price in 1981-82 and 1982-83. Inadequate marketing network and the fall in price developed a sense of insecurity among the planting communities. The entry of CAMPCO from 1990's created a favorable atmosphere, but still the services rendered towards procurement of cocoa was far below the requirement. As a result, expansion of cocoa came to a standstill in spite of favoring the growers with a better price. From 1997-98 onwards the non-traditional tracts of Karnataka and other states like Andhra Pradesh and Tamil Nadu started developing cocoa. As on day, with the implementation of 8th Five Year Plan programmes through distribution of high yielding varieties in the form of clones and hybrid seedlings, the area under cocoa is 17,800 Ha. India has a meager production of 10,200 MT compared to total world production of 27 lakh MT.

As per the recent statistics i.e. 2009-10, the following table shows the leading producers of cocoa in India with their respective production and productivity:
Table No. 1: Leading States in Cocoa Production in India

State Kerala Tamil Nadu Karnataka Andhra Pradesh *Source - dacnet.nic.in 3. Trade data on Cocoa

Area ( in Ha) 11044 9347 8958 16969

Production (in MT) 6344 900 7250 2704

Productivity (in Kg/Ha ) 592 443 3006 192

Agriculture is now accounting only for 14.6% of the countrys GDP in 2009-2010, and 10.23% (provisional) of the total exports. The sector provides employment to over 55% of the labor forces. Indias exports of agricultural and floricultural products, fruits and vegetables , animal products and processed food products were valued US$8.0billionn in 08-09, which was 13.88% higher as compared to agricultural-exports in 07-08 (US$7.11). According 2 APEDA, Indias agricultural-export turnover is expected to double in the next five years, to reach US$18biilion. At present around 70% of the countrys agricultural and processed food exports are to developing countries in the Middle-east, Asia, Africa and South-America. Indias Export of Cocoa products has increased from Rs.84.04 Crores in 2008-09 to Rs. 96.99 Crores in 2009-10. In 2009-10, Indias major export destinations fro cocoa products were USA, Nepal, Netherlands, Malaysia, Sri Lanka and China. India imported 19,000 tonne of cocoa products, which include beans, paste butter and chocolate preparations, in 2007-08 fiscal. The total value of imports comes to Rs 189 Crores and in 2008-09 the total value of imports was estimated to be around Rs 184.5 crore. Indian farmers had a disappointing start with cocoa in the 80s. However, this time cocoa is being promoted more as an inter-crop to coconut and areca nut to minimize the risk.
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According to DACCD (Directorate of Cashewnut and Cocoa Development) sources, Indias cocoa production is likely to cross 17,000 tonne in five years from the present 10,000 tonne. DACCD plans to bring another 75,000 hectare under cocoa cultivation in the next five years. One can easily say that the perception about cocoa farming has entirely changed in the past few years.

4. Cocoas contribution to the Indian Agricultural Sector India as we know is a predominant country as far as agriculture is concerned be it food grains or commercial crops. However as part of the study, the author wishes to emphasize more on cocoa. Cocoa as discussed above is one of the major plantation crops cultivated in India. During the years 2007 09, the production of Cocoa was only 5% it has remarkably grown up to 12% today. 5. Cocoa market in India Cocoa is mainly consumed in the form of chocolates. Given Indias mammoth population, the per capita chocolate consumption in the country is dismally low a mere 20gms per Indian. Both chocolate and sugar confectionaries have low penetration levels. The market presently close to 60mn consumers and they are mainly located in the urban areas. The rural India on the other hand is nearly chocolate-free. However, low priced unit packs, increased distribution reach and new product launches have fuelled the growth of the chocolate industry. Till recently due to low purchasing power, chocolates and other cocoa-based snack foods were looked upon as food suitable only for the well-off. 6. International Market for Cocoa Cocoa is grown principally in West Africa, Central and South America and Asia. In order of annual production size, the eight largest cocoa-producing countries at present are Cte d'Ivoire, Ghana, Indonesia, Nigeria, Cameroon, Brazil, Ecuador and Malaysia. These countries represent 90% of world production. Although cocoa is largely produced in developing countries, it is mostly consumed in industrialized countries. For cocoa, the buyers in the consuming countries are the processors and

the chocolate manufacturers. A few multinational companies dominate both processing and chocolate manufacturing. It is also observed that, the main exporters of cocoa are the main producers of cocoa beans. Although countries like Brazil and Malaysia are main producers, they are not necessarily large exporters due to the size of their processing industry, which absorbs local production. In Latin America for example, the Dominican Republic exports more cocoa beans than Brazil. 7. Scope for Cocoa & Cocoa Products in future Chocolate consumption is gaining popularity in the country due to shift in food habits, thus increasing cocoa imports. Currently more than 40% of the countrys cocoa beans production is being met through imports. The cocoa demand in India is growing around 15% annually and will reach about 30,000 tons in the next five years. This rising demand for chocolates, is forcing leading manufacturers to look within the country for cocoa sourcing to avoid 30% import duty and rising transportation cost. Cadbury is one of the major players in this market. Cadbury Indias Cocoa Department produces 2.5mn hybrid seedlings annually and distributes among farmers. India as compared to other cocoa growing countries, its farmers use cocoa as an intercrop between areca nut and coconut trees. Its believed that the co-ordination with the farmers and producers is expected to increase the countrys production of cocoa beans from the current 10,000tons to 150,000 tons per year by 2020. Indias Cocoa Development board has taken similar initiatives to increase the production to 16,000 tons in two years time. 8. Emerging Markets for Cocoa & Cocoa Products Emerging markets are also referred as the Big Markets owing to its size of potential. Some of the emerging markets for Cocoa include Asia, Latin America, and Eastern Europe. Apart from these countries who are in the pace of developing, there is another sub-category of countries among them, ie., the Newly Industrialized Countries (NICs), namely, China, South Africa, Brazil, Venezuela and etc 9. Global Marketing Effort The top producers at the global levels are Ivory Coast, Ghana, Nigeria, Brazil and Cameroon. In these countries, the domestic market chain (up to and delivery of the cocoa on board a ship)
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follows a path from farmers to international purchasers with two intermediary stages. The first stage involves local collection at or close to farm gate and delivery to the port of export (internal marketing). The second stage is shipment for export (external marketing). In order to hold a competitive position in the global market, one should formulate strategies that could be with a long term vision and in turn be comparable to the competitors. Therefore, the organization shall take the form of an International, Multi-national or a Transnational Company and enter in to global markets as Joint ventures, Strategic Alliances, Licensing and etc In this context the below figure shows the appropriate strategies that could be adopted while marketing a product like Cocoa:
Fig. 2. Marketing Strategy for Global Companies

Marketing in Developed Countries While targeting developed countries, the strategies related to the marketing mix elements shall be more competitive. As the characteristics of the population of developed countries are typically different, those people would prefer fully finished products of cocoa, rather than semi processed form. This is because of their nature of livelihood and the capacity to pay. This prevents them from purchasing semi-processed cocoa products. Such countries may also demand for cocoa products in the raw form, as they are self-sufficient and technologically sound to manufacture the finished product in their desired form and of the desired quality. When it comes to the pricing,
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developed countries believe that the higher the price the better the quality. This strategy ensures that they will be able to capture the consumer surplus. As far as distribution is concerned, developing countries opt for strategic alliance or joint venture form of collaborative agreements. Such a strategy is long term in nature. Where thee country is stable, one shall go for own distribution. The next strategy is that of promoting the product. Developed countries shall be more suitable to be exposed with Mass Media and Above the Line (ATL) promotional strategies. The people are more literate and this promotional strategy would be the ideal way of marketing keeping in view the pattern of lifestyles and demographics in those countries. Coming to packaging, if the cocoa products are to be exported to countries such as US and UK, international standard packs would be the packaging norm. Now cocoa isnt a new market in the developed countries, so the only way to ensure successful business would be for the products to be differentiated. Another factor for a thriving business is to continuously make changes to the product and market it i.e. the Product Development strategy. Marketing in Developing Countries As developing countries are potential markets, one can find many sellers playing and many more in the process of entering continuously. Such countries would require the cocoa products exported to them to be in the fully finished form as they may not be technologically advanced to carry out the manufacturing process. The costs involved for the same is high and so they will have to compromise by obtaining products of average quality. In the developing nations, cocoa may not be a predominant market and so a penetration pricing strategy would need to be put in place. Next up is the distribution. So in developing countries, franchising would be the ideal from of agreement. This would make it easier for both the countries, where the demand in the destination country doesnt meet the desired level; the contract could be easily terminated keeping in mind short term nature of franchising. With reference to promotions, mass media and Below The Line (BTL) promotions would be the most appropriate. When it comes to packaging of the product, customized packs would be the best option so as to cater to different market, ie., countries. It would be advisable to go for the Cost Leadership strategy as it would ensure more units of business and also facilitate the purchasing capacity of consumers. Considering the nature of the market in the developing nations, Market Development would be appropriate growth strategy. Table No. 2 in page 9 sums up the above mentioned strategies.
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Table No. 2: Marketing Strategies for Developed and Developing Countries

Strategies

Developed Countries Fully Finished, Semi-

Developing Countries & Least Developed Countries Fully Finished, Average Quality Penetration Pricing Franchising or Own Channel Mass Media & Below the Line Promotions Customized Packs Cost Leadership Market Development

Product

Processed or Raw, High Quality or Average Quality

Price Distribution

Market Skimming Price Strategic Alliances, Joint Ventures or Own Channel Mass media & Above the line Promotions International Standard Packs Differentiation Product Development

Promotion

Packaging Generic Strategy Market & Product Development

The following global systems are currently available to support Cocoa marketers: y Marketing boards: This system has been mostly used in Anglophone producing countries in Africa such as Ghana and until 1986, in Nigeria. It is characterized by the existence of a parastatal with the monopoly for internal and external crop marketing. Once the cocoa is purchased from the farmer it is the property of the marketing board and will be handled by it in all the stages of the chain. Prices are determined by the Board and are fixed for the entire crop year. Fixing the price allows producers to be less vulnerable to fluctuations in world market prices. y Caisses de Stabilisation: Although similar to the marketing board (it determines internal prices and has the ownership of the crop along the marketing chain) there is less intervention than in the above-mentioned system. The physical handling of the crop, from the farmer to the export points, is carried out by private agents authorized by the Caisse.
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This system used to be common in francophone producing countries in Africa, particularly Cte d'Ivoire and Cameroon. Until 1999 in Cte d'Ivoire, the stabilization system was done through the "barme". The barme was a detailed system that fixed guaranteed producer prices and export reference prices for each step in the cocoa chain. When cocoa was sold, if the exporter's price was higher than the export reference price set by the Caisse de Stabilisation, the exporter had to compensate the Caisse with the difference, called the "reversement". If the world market price was lower, the Caisse made up the difference with payment (the "soutien") to the exporter from its financial resources. y Free Market: Under this system there are many private agents that participate in the marketing chain, there is no direct intervention from the government in internal or external marketing and prices are determined by the world cocoa market. Government involvement is usually centered on quality control, taxation and supervision. Due to competition and the non-intervention of the government, producers usually receive a much higher percentage of the FOB price. Until recently, centralized marketing systems prevailed in almost all major cocoa producing countries in West and Central Africa. With liberalization, countries such as Nigeria, Cameroon and Cte d'Ivoire have fully privatized their internal and external marketing structures while Ghana has introduced competition in domestic marketing by allowing private licensed agents to purchase cocoa from farmers. A liberalized environment has existed for some time in Brazil, Indonesia and Malaysia. 8. Suggestions Following are some of the suggestions that the author would like to mention through this paper that could contribute to the Indian Cocoa industry: y There is a very potential market for Cocoa and Cocoa products in world markets. This shall be tapped at the earliest. y The Government of India shall provide more information and statistics enabling prospective exporters to capitalize on the Big Markets.

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Organizations such as the Agricultural and Processed Food Export Development Authority (APEDA), the Directorate General of Foreign Trade (DGFT), Ministry of Corporate Affairs (MCA), Export Import Bank of India (EXIM Bank), Export Credit Guarantee Corporation of India (ECGC) and etc shall emphasize more on Cocoa and Cocoa products and work out beneficial schemes for such exporters.

The Foreign Trade Policy of India shall restructure the schedule covering trade restrictions and tariffication clauses so as to encourage more entrepreneurial growth in the field of Cocoa production, Processing Cocoa, Producing products with Cocoa as an ingredient and traders of Cocoa.

There is a good potential for processed Cocoa, therefore processing zones for agricultural products (AEZs) shall provide additional privileges for Cocoa processor, as there involves more imports or raw material.

The horizontal concentration process involving mergers between large multinationals to form larger combined entities as well as takeovers by the large international concerns of smaller companies that mainly operated in a national context. The importance of global brand recognition and commercial marketing strategies are major factors underlying structural developments in the consumer segment. The market today is dominated by large multinational confectionery companies which market their brand in all major consumer countries.

Branded consumer companies outsourcing their ingredient needs. More recently (mid2000s), there has been a trend towards brand manufacturers outsourcing even their couverture needs to specialized partners. The outsourcing has even reached the final consumer product.

9. Conclusion More than 20 million people depend directly on cocoa for their livelihood. Today cocoa is an essential ingredient in a wide range of products, delicacy and indirectly in many other products. High quality cocoa beans offer confectionary manufacturers a world of opportunity in the range of products that can be made from them. The cocoa bean and chocolate with its unique flavor and textural characteristics combined together has almost universal appeal. Cocoa is vital to the economies of some countries in the regions that produce it. Cocoa consumption has
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evolved more predictably. World consumption of cocoa is expected to continue growing, in response to rising incomes. Compared to other crops, cocoa is only now beginning to receive the focus of international research. As research in cocoa the plant, the pod and the bean continues, a whole realm of possibilities exists in what new food, cosmetic and pharmaceutical uses we can find for this versatile crop. The Indian Foreign Trade Policy and its objectives are quiet favorable for Cocoa and Cocoa products. The size of emerging markets is huge and the changing lifestyles of consumers increase the potential for Cocoa further. This potential market could be best tapped by entrepreneurs of India at the earliest.

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References Books: Charles W.L Hill, Arun K. Jain, International Business, 6th edn, Tata Mcgraw Hill Publishing Company Ltd., Delhi, India Francis Cherunilam, 2004, International Business, 3rd edn, Prentice-Hall of India Private Limited, Delhi, India Kotler, P. 1999, Marketing Management: Analysis, Planning, Implementation And Control. 9th edn, Prentice-Hall of India Private Limited, Delhi, India Krishna Havaldar, Vasant Cavale, 2006, Sales and Distribution Management: Text and Cases, Tata Mcgraw Hill Publishing Company Ltd., Delhi, India M.I. Mahajan, 2008, Export Policy, Procedure & Documentation, 22nd edn, Snow White Publications, Mumbai Philip R. Cateora, John L. Graham, 2005, International Marketing, 12th Edition, TataMcGraw Hill Publishing Company Ltd., Delhi, India San Onkvisit, 2007, John J. Shaw, International Marketing : Analysis and strategy, 3rd Edition, Dorling Kindersley(India) Pvt. Ltd, Delhi Warren J. Keegan, 2006, Global Marketing Management, 7th edn, , Prentice Hall of India Private Limited, Delhi Research papers: y Cocoa Study : Industry Structures and Competition, Study prepared by the UNCTAD secretariat y Globalization and Agriculture : New Realities, Michael Boehlje, Center for Food and Agricultural Business, Purdue University

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The Utilization of Cocoa and Cocoa By-Products, Darin A. Sukha, Cocoa Research Unit, U.W.I.

Other reports: Economic survey 2010-2011 and 2009-2010, Oxford University Press. The World Cocoa Market Outlook, Prepared by Ann Gray, LMC International, 22 May 2000 y The Asian Economic Review, Journal of the Indian Institute of Economics. Dec-2010, vol-52. y Indian Journal of Marketing, Volume:40, Number:8 , August 2010.

y y

Websites: www.apeda.gov.in www.dacnet.nic.in www.fao.org www.indiabudget.nic.in www.world-agriculture.com

y y y y y

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