Casa Luker: Unveiling the sweet future of Colombian Cocoa Production
How could Casa Luker, a successful colombian 🇨🇴 family business in the cocoa products industry, secure the sustainability of its supply chain in times of environmental change leading to scarcity of the cocoa bean? Will the country’s potential in this new era of peace attract international investors and, along with the company’s investment in R&D, will it be sufficient to move forward with local and international expansion of its cocoa and derived product business?
According to the International Cocoa Organization (“ICCO”), the global deficit of cocoa will reach approximately 1 million tons by 2020 as demand continues on the rise, potentially leading to extinction of the seed [1]. Research from the Intergovernmental Panel on Climate Change (IPCC) forecasted in 2014 that countries within the area suitable for cocoa to thrive will experience a 3.8°F (2.1°C) increase in temperature by 2050 and hence will see a marked reduction in suitable cultivation area [2].
2016 proved to be a year of success in the Colombian cocoa industry as key players like Fedecacao (the Colombian National Federation of Cocoa Producers), the Ministry of Agriculture and members of the private sector such as CasaLuker, a family business with over 100 years of operation, have intervened to support growth. They have worked on developing technical expertise and investing on R&D for farmers to adapt to a changing environment. Despite multiple hits from natural phenomena like El Niño, the country has been able to increase production by 3.6% YoY, setting national record highs [3].
Will advancing harvesting techniques and innovation for sustainable practices in the industry be enough to offset the effect of climate change and open opportunities for profitability and growth?
Founded in 1906, CasaLuker, one of the most successful entrepreneurial efforts in Colombia, has positioned itself as one of the key players in the cocoa and derived products business, owning 31% of the exports of such products, as of 2013. With presence in 41 countries, the company is recognized by the ICCO as an exporter of 100% Fino de Aroma (high quality) cocoa, a highly regarded quality in the international markets [5].
CasaLuker has acknowledged the challenges that changing environmental conditions bring to the future of the businesses and therefore has invested in developing one of the few centers of research and development in the world that dedicates to modernize practices in the harvesting process of cocoa, called “La Granja Luker” (“Luker” farm). Founded in 1962 [6], the main purpose is to train local farmers to improve critical practices in harvesting under changing environmental conditions, fertilization techniques, pruning methods, plantation layouts and efficient pest management to increase productivity and ensure sustainability. According to CasaLuker’s statistics, Granja Luker trains approximately 700 farmers per year and has trained over 30,000 farmers over the past 50 years. Their laboratories have discovered 14 genome varieties of cocoa [5] through applied research projects. Through continuous innovation, the company has been able to achieve major improvements that have had long lasting effects on the farming community.
Given the company´s recent success in their international business, growing 8.5% YoY, management efforts have focused on launching new products, opening new channels and platforms of commercialization and distribution to be more efficient and to improve their client reach5, setting ambitious goals for 2017, expecting 12% growth YoY. In addition, the company has made debut in important industry fairs all over the globe and has invested in redesigning the brand to raise its attractiveness for investors [5]. CasaLuker has also engaged in partnerships with the U.S. Agency for International Development (USAID) to create a community-owned cocoa cooperative in a high-risk region as an alternative to illegal production of coca, violence and crime [7].
‘La Granja Luker’. Source [6]
CasaLuker has proven its commitment to sustainability and to secure future opportunities for growth. However, climate change should not be taken for granted. Now that CasaLuker is opening doors with international investors, strategic topics such as potential investment in infrastructure and further R&D for break-through discoveries like climate-resilient plant genomes should be addressed. The company should be in the quest for funding to help expand production as approximately 600,000 hectares of land in the country provide appropriate conditions for harvesting [8], encouraging the development of new technologies that could help secure their desired sustainable growth while meeting international standards. Stressing the positive outcomes of this new era of peace could turn out to be strategic for first entrants in an industry with high entry barriers.
How could the company bring interest from potential investors to ensure sustainability of their supply chain in the long term? Would investors still be interested even if the effort implied waiting for at least a decade to see ROI while securing a standing plantation that could last a century?
[1] Revista Dinero; “”Se podrían acabar las semillas de cacao en 2020″, ICCO”; June 29th, 2016; http://www.dinero.com/empresas/articulo/escasez-de-chocolate-va-a-aumentar-su-precio-en-2020/225187; accessed on November, 2017.
[2] Scott, Michael; National Oceanic and Atmospheric Administration; “Climate & Chocolate”; February 10th, 2017; https://www.climate.gov/news-features/climate-and/climate-chocolate; accessed on November 2017.
[3] Revista Dinero; “Colombia alcanza récord en producción de cacao, ¿cómo lo ha hecho?”; August 2nd, 2017; http://www.dinero.com/economia/articulo/produccion-de-cacao-alcanza-cifra-historica-en-colombia/241797; accessed on November, 2017.
[4] Federacion Nacional de Cacaoteros; “Producción Nacional de Cacao en Grano (Ton) ”; Data as of December, 2016; http://www.fedecacao.com.co/portal/index.php/es/2015-02-12-17-20-59/nacionales; accessed on November, 2017.
[5] Revista Dinero; “CasaLuker, el emprendimiento chocolatero con más de un siglo de historia”; July 20th, 2017; http://www.dinero.com/edicion-impresa/caratula/articulo/casaluker-y-su-estrategia-en-el-comercio-internacional/247657 ; accessed on November 2017.
[6] Casa Luker; “Granja Luker”; Company Website (Video); http://www.casaluker.com/granja-luker/; accessed on November, 2017.
[7] Jurgens, Chris; Devex Impact; “Innovating partnerships: USAID’s views on the future of partnership”; March 6th, 2016; https://www.devex.com/news/innovating-partnerships-usaid-s-views-on-the-future-of-partnership-87842; accessed on November, 2017.
USDA Foreign Agricultural Service; “Cacao for Peace. (CFP) Overview”; July 29th, 2017; https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Cacao%20for%20Peace%20%28CFP%29%20Overview_Bogota_Colombia_7-28-2016.pdf; accessed on November, 2017.
[8] Proexport Colombia, Official Investment Portal; Government of Colombia; “Colombia commits itself to Cocoa”; http://www.investincolombia.com.co/publication/magazine/799-colombia-commits-itself-to-cacao.html; accessed on November, 2017.
[9] Casa Luker, Company Website for ‘Cacao Fino de Aroma’; “The Land of Cacao Fino de Aroma”; September 27th, 2017; http://www.cacaofinodearoma.com/fr/noticias/the-land-of-cacao-fino-de-aroma/; accessed on November, 2017.
[10] Featured picture taken from http://www.latinamericanpost.com/index.php/trade-2/17483-colombia-cocoa-is-the-new-coca
Despite rising temperatures and the decreasing suitable cultivation area, I believe that CasaLuker is positioning itself well to weather the impending storm. With its R&D facility, cooperatives, technological advancements, and “La Granja Luker”, the company is doing its part to meet international standards and appeal to investors in the midst of a major environmental shift. Also, through its use of the Fino de Aroma cocoa, CasaLuker is also displaying a commitment to quality – a necessary focus area in an industry expecting lower supply. One other suggestion I would make is to diversify into more heat-resistant crops, possibly oil palm and cashew as possible alternatives. I would also further emphasize better shading for cocoa plants, increased research into new varieties of seeds and better prevention of brush fires. Ultimately though, Casa Luker is taking all the necessary steps to protect the business and survive, which is especially important considering how many jobs depend on the sustainability and growth of this industry.
The author poses a question at the beginning of the article. She asks, “Will advancing harvesting techniques and innovation for sustainable practices in the industry be enough to offset the effect of climate change and open opportunities for profitability and growth?”
My answer to this question is a no. Mere focus on innovation and advancement is not adequate. The bigger challenge in the Colombian coffee industry is to encourage and enforce adoption of these innovations. In Colombia, 95% of the 500,000 coffee growers are small-scale farmers, with less than 5 hectares. These families are extremely vulnerable in the face of extreme weather events. Their livelihoods have been affected as ‘rust’ (a coffee leaf fungus) has reduced productivity and incomes, and landslides from excessive rainfall have destroyed homes and roads. In one extreme case, an entire coffee-growing community had to be evacuated as a result of severe landslides. To deal with the threat posed by climate change over the longer term, Colombian farmers have had to begin diversifying their income so they are less vulnerable to these threats, as well as increasing their use of rust-resistant plant varieties. Some new varieties have been developed by Colombian Coffee Growers Federation’s (FNC’s) National Coffee Research Center (Cenicafé). These have been available for some time but farmers can be reluctant to uproot existing trees and plant the new variety. Why are coffee growers reluctant to change to rust-resistant varieties? For one thing, it is often hard to convince farmers to change their longstanding agricultural practices. However, the reality is also that many cannot afford to forego three years of income (while the new trees mature), without external assistance. The FNC has been working with the local government and finance providers to improve credit programmes and increase the pace at which new coffee plantations use rust-resistant varieties. [1] It is interesting and commendable that Casa Luker has developed strong innovations. However, to truly deliver value, the company has to offer adequate financial and non-financial incentives to the poor farmers of Colombian coffee industry to encourage the adoption of advancements aimed at fighting climate change.
Endnotes:
[1] Anon, (2017). [online] Available at: https://www.oxfam.org/sites/www.oxfam.org/files/dp-climate-change-risks-supply-chain-responsibility-27062012-en.pdf. [Accessed 29 Nov. 2017].
I do believe that investing in sustainable practices is a must do for CasaLuker. Rationale is extensive but includes that, on the long term, climate change would negatively impact CasaLuker business.
However, and as you mentioned in your article, the company will need to find additional capital to fund its growth and may turn to financial investors to do so. These investors will probably not stand in this case for investments in sustainable practices, mostly because gains from these investments cannot be expected before a long period of time while investors are generally looking for short or mid-term ROI.
This is one of the reason why I do believe that international institutions and governments have a huge role to play in fostering positive agricultural practices. Increase in regulation could force every economical actor (both agricultural companies and investors) to comply with necessary investments in sustainability, especially when their time horizon is not aligned.
I know that genetic engineering for crops is a controversial topic, but I believe CasaLukor should consider researching modified cocoa strains that could lead to more sustainable land use. With only 600,000 hectares of available land, CasaLukor must think long term about how to extract the most value from that land for years to come. Strains that place less burden on soil nutrients, use less water, or yield more beans per plant could provide long term sustainability. Additionally, more robust strains could expand the arable land available to CasaLukor. There will likely be push back from regulators and environmental activists, but some small genetic changes could drastically effect how much burden their farming practices put on the land.
The strategy that is most likely to enable Casa Luker to continue to delivery on its customer promise over the long-term while remaining in the cocoa business would be to diversify production geographically. Casa Luker could look to expand production outside Colombia in order to diversify its production regions. In this way, if any one region were to be negatively impacted by an extreme weather event or a change in climate, the company would still retain production assets. Potential regions include other countries in Central and South America as well as countries in Africa. In addition to capturing the benefit of diversification, Casa Luker could proactively invest in production capabilities in regions that the company expects to become more fertile for cocoa over the medium- to long-term in light of the warming climate. This strategy, however, involves a great deal of speculation, and it is possible that such a region may not exist.
Given Casa Luker is owned by a Colombian family, the company may not be interested in international expansion. If that were to be the case, then Casa Luker should continue its R&D efforts in the near-term and aggressively pursue product diversification over the medium- to long-term. The company’s R&D efforts should focus on new production technologies as well as genetic engineering to make crops more resilient in expected future climes (given changes in precipitation, temperature, pests, etc.). La Granja Luker seems to be a great start. Over the medium- to long-term, the company should investigate alternative products that could be grown in Colombia that would be more resilient to the impact of climate change. Both the near-term strategy as well as the medium/long-term strategy could be achieved organically, as described, or inorganically via M&A.
Really interesting read! This issue is very similar to the problem that wine producers are facing, a subject which I looked into. Many of the solutions appear to be similar – I agree that Casa Luker should focus its R&D on climate-resistant genome varieties, and that it should continue to develop farming techniques which reduce the impact of temperature increases (both are solutions wine producers are also exploring).
I wonder if there are additional steps which Casa Luker could take to reduce its exposure to this potential issue. One step could be to look to expand into other geographical areas where cocoa’s prospects might be improving as global temperatures increase. Alternatively, it could also start to look into alternative crops which might work well in its current geographical area as the temperature grows.