The Cocoa and Coffee Opportunity in the Democratic Republic of the Congo A guide to the Congolese cocoa and coffee market for businesses, buyers and investors. APRIL 2019 1 The Cocoa and Coffee Opportunity in the Democratic Republic of the Congo Kevin Wilkins, ÉLAN RDC Executive Summary The Democratic Republic of the Congo (DRC) features new, acclaimed cocoa and coffee origins, profiles and products. The market offers traders, processors and roasters an exciting opportunity to diversify into a growing and increasingly attractive market. The following is an introductory guide to the cocoa and coffee market of the DRC. The purpose of the guide is to: • Outline the Congolese cocoa and coffee buying opportunity • Support buyer and investor due diligence with market information • Provide industry contacts to ease market entry The guide provides information on the following: History and Introduction ................................................................................................ 3 Production ...................................................................................................................... 5 Domestic Processing and Consumption .......................................................................... 6 Profiles ........................................................................................................................... 7 Market Information ........................................................................................................ 8 Quality Assurance ......................................................................................................... 10 Selected Industry Associations and Authorities ........................................................... 10 Operating Environment & Risks ................................................................................... 12 Conclusions .................................................................................................................. 13 2 History and Introduction Congolese cocoa and coffee markets have seen tremendous growth since 2000. In the period up to the 2015/2016 season, cocoa exports surged from 600 metric tonnes (MT) to 11,000 MT while coffee exports recovered to 11,000 MT following a 10-year slump in the previous decade. In this same period, the number and diversity of buyers also grew, with over 22 new, unique cocoa and coffee buyers entering the market by some estimates. These developments, teamed with the maturation of the market and investments netting improvements to crop quality, volume and reliability, position the Congolese cocoa and coffee markets attractively for a range of investment and sourcing opportunities. DRC Market Resurgence Congo is increasingly recognized as a DRC coffee exports averaged 100,000-120,000 MT per new frontier for unique, quality coffee year at their 1980s peak, approximately 80% of which and cocoa export. was Robusta. The industry provided significant employment, reliable income for producers and a steady Coffee Buyers include: source for coffee buyers and traders. African Coffee Roasters, Atlas Coffee Both cocoa and coffee industries declined significantly in Importers, Colruyt Group, Counter the 1990s. Years of conflict and instability, a less than Culture, Equal Exchange, Falcon favourable regulatory and business operating Coffees, Higher Grounds Trading Co., environment, poor or non-existent support services and Kivu Coffee, Let Sequoia, Olam structures in place to maintain crops, combat disease, Specialty Coffee, Peet's Coffee, sustain growth and regenerate aging trees discouraged Starbucks, Strauss Coffee, Trabocca, investment and resulted in abandoned or wiped out Tropicore, Twin Trading crops. As investments dried up, so too did the industry’s Cocoa Buyers include: focus on production in historically strong production zones in the West (Kongo Central), Northwest (Equateur, Barry Callebaut, ICAM, Tachibana, Nord-Ubangi, Sud-Ubangi), Central Provinces (Kasaï Theo Chocolate, Tropicore, Lush Central, Kasaï-Oriental), East (North Kivu, South Kivu), Cosmetics, Walter Matter and Northeast (Haute-Uele, Ituri). Despite setbacks, Congo is demonstrating strong potential as an Specialty Coffee emerging coffee and cocoa sourcing origin, though the DRC is not yet a Exports Sample major exporter. In the 2015/2016 season, the DRC officially exported just over 11,000 MT of cocoa—marking a period of major growth from a Year Containers K3 base of near zero in 2000. Moreover, driven by specialty buyer interests 2012 8.94 and coordinated investments in washing stations (up from seven in 2011 2013 18.34 to 100 in 2018) and agronomic extension services that reach more producers, K3 (best grade, fully washed) exports rose from 8.9 2014 21.64 containers in 2012 to 39.1 containers in 2017. 2015 36.41 Despite constituting only a fraction of the global market, Congo is 2016 50.32 attracting new waves of buyers from a diverse range of markets. Valued 2017 39.12 for its many unique zonal profiles, marketing and sourcing opportunities not readily available elsewhere within the region, several of the world’s Source: ONAPAC / ONC leading buyers of specialty coffee – and increasingly cocoa – (i.e. Counter Culture Coffees, Higher Grounds Trading Co., Let Sequoia, Twin Trading, and more) have come to dub DRC as the “final frontier for specialty coffee”. 3 State of the Global Coffee Industry State of the Global Cocoa Industry Production and Export: In 2017, global Production and Export: Roughly 70% of the coffee production was documented at 159.8 global cocoa crop originates from four West million [60-kilogram] bags with global exports African countries (Côte d’Ivoire, Ghana, Nigeria reaching 111.2 million.1 Building on increased and Cameroon). Of the 3.97 million tons of cocoa productivity, strong crops and favourable produced worldwide in 2015-20162, Côte d’Ivoire climatological conditions, the International and Ghana accounted for approximately 60% of Coffee Organization (ICO) estimates that the total. Other major origins include Indonesia, 2017/2018 production will close out at 164.81 Ecuador, Cameroon, Nigeria, Brazil, Colombia, million bags, exceeding the estimated 162.23 Papua New Guinea and the Dominican Republic – million bag demand for the same year. Facing accounting for the majority of the balance of a 2.5 million bag surplus and a weak BRL production. exchange rate to the USD, recent months have seen prices drop dramatically, and they Import Markets: In terms of destination continue to hover around 1 USD/lb. Needless markets, leading countries include the United to say, the crisis has taken a toll on all—from States, the Netherlands, Belgium, Switzerland, buyers to producers—as production costs Germany, Malaysia, and Italy—all key destination exceed trading prices across the majority of markets for Congolese cocoa as well. producing countries. Processing and Value Addition: The global During this same period, top producing and market was valued at over $13 billion in 2017, 3 exporting countries including Brazil, Vietnam, according to IMARC Group. The market is also Indonesia, Colombia and others continue to driven by only a handful of companies. In recent inch higher on crops performance. Among years, cocoa processors have benefited greatly African coffee producing and exporting from regulatory reforms and concessions— countries, representing nearly 40% of the incentives that have successfully attracted continent’s coffee production, Ethiopia investments to improve production and bolster continued to lead the way in 2017/2018 – origin-based processing. In response, interest, where Arabica production topped out at activity and investment have followed. Domestic 416,580 tonnes. Other East African countries processing in Côte d’Ivoire and Ghana, for realizing an upward trajectory include example, have helped to propel these markets Uganda, Tanzania and Kenya. among the world’s leading origins for cocoa. Processing and Value Addition: As In contrast, mandatory price minimums designed volatility remains centre stage, increased to mitigate declines in productivity and output in attention and calls for investment in domestic the face of volatile markets have also emerged. processing are on the rise. Within Africa, However, these policies have driven investors countries with historically strong levels of away and, in some cases, slowed purchases, domestic consumption, like Ethiopia, are opening the door for leading grinders and traders leading the way. As a steadily growing origin, to explore less mature origins to satisfy ever- Rwanda is also investing to retain processing growing demand throughout European, Asian and as an economic driver. North American markets. 1 Source: United States Department of Agriculture, Foreign Agricultural Service, June 2018 2 Source: International Cocoa Organization (ICCO) 3 IMARC Group, “Cocoa Processing Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2018- 2023”, 2018 4 Production With arable land estimated at over 80 million hectares, rich soils, elevation range and abundant natural resources, Congo’s diverse growing zones offer a variety of attractive sourcing opportunities. The above zonal map provides a brief outline of the primary cultivation zones for coffee and cocoa in Congo, indicating differences in availability and quality while signalling opportunities for investment. Primary Arabica Production Zones of North Kivu, South Kivu and Ituri: Arabica production is primarily concentrated in the East, in North