We seek to become the world’s largest and lowest cost corporate grower of cacao. By early 2016, we expect to have over 2,000 hectares planted making us the largest cacao estate in Latin America. By the end of 2017, we expect to complete the planting of our 3,250 hectare project area thereby making us the largest in the world.
A well-planned and managed cacao plantation has two revenue streams:
- Cacao, yielding a first harvest in the third year post field planting and achieving peak maturity in year seven;
- Timber, planted along the exterior of the planting area to provide shade for the cacao, expected to be harvested in year 10 and a second timber harvest expected from the cover trees interspersed within the cacao planting area, from year 30 onwards.
We began on-site operations in the project area in May 2013. The Group planted its first cacao seedlings in the nursery in July 2013 and its first field planting took place in November 2013; therefore, the Group expects its first cacao harvest in 2H 2016/ 1H 2017.
The Directors believe that an investment in the Company is attractive for the following reasons:
Market Leadership Position
The Company’s strategy, subject to the availability of future funding, is to develop the Group such that it can become the world’s largest and lowest-cost cacao producer and the first publicly traded pure-play cacao producer. The European and North American confectionary buyers of cacao are increasingly concerned about sustainable supply, ethical labour standards, consistent fermentation quality and origin. The Company’s strategy is aligned with these market trends. All of its workers are documented and registered under local laws and all salary payments are made electronically to the workers’ local bank accounts.
Strong and Rising Confectionary Market Demand
Cocoa is an essential, non-substitutable, ingredient for the global chocolate confectionary market which has global sales in excess of US$120 billion. The global demand for cocoa and cocoa butter is driven by the global chocolate confectionary market. Industry commentators expect the global chocolate market, approximately US$120 bn of revenues per annum, to grow at a CAGR of over 5.02 per cent. till from the 2014 to 2019 period. In its most recent publication dated 22 September 2015, the ICCO projects that cacao bean demand will rise from 4.131 m tonnes in year ended 30 September 2015 to 4.568 m tonnes for the year ended 30 September 2019. Whilst manufacturers can adjust the amount of cocoa powder or cocoa butter in an individual product, there is no substitute for the cacao bean. Changing tastes and rising incomes in China and India are expected to be a key driver behind this growth – per capita chocolate consumption in China and India was 0.1 kg per person in 2012 compared with 11.9 kg, 8.2 kg and 5.6 kg in Switzerland, Germany and the USA, respectively, thereby indicating potential for significant growth.
Cocoa Market Deficit
In its most recent publication dated 22 September 2015, the International Cocoa Organization projected that cacao demand is expected to exceed production until 2020.
Proven Development Team
This is the third large-scale plantation company that the Company’s Executive Chairman and Chief Executive Officer, Dennis Melka, has successfully developed, and the second AIM quoted plantation business (the first being Asian Plantations Limited, which was successfully sold to FELDA Global Ventures in October 2014 generating a 24 per cent. IRR over five years since its Admission to AIM). Mr. Melka and Mr Kozuch have already planted over 10,000 hectares of palm oil estates in the Pucallpa region of Peru. The Group’s senior Peruvian managers collectively have several decades of cacao experience primarily with the United Nations Alternative Development Program.
Peru has a freehold land title regime. Peruvian land titles have clear Universal Transverse Mercator (UTM) co-ordinates and are also publicly available through the land registry. Compared to Southeast Asia or West Africa, where leasehold title or communal land rights prevail, Peru offers agricultural investors a superior titling regime with improved security and clarity.
Low Tax Environment
Cacao is a zero tax corporate activity in Peruvian Amazon pursuant to the Law 27037, and will, assuming no unexpected change in the tax regime in Peru, continue to be so until 2048, resulting in superior financial returns when compared with other Latin American countries or West Africa, which have confiscatory export tax regimes across most cacao producing countries.
Optimal Operating Environment
Cacao production requires skilled estate supervisors and low cost labour. These two ingredients drive field productivity and earnings margins and the Directors believe that no other cacao producing country can currently offer these two favourable factors to the extent that they are currently available in Peru.
The Loreto region of Peru is ideally suited for large-scale cacao production due to a highly suitable climate and soil. Cacao is an indigenous species to the area. In addition, Iquitos is less than 1 hour by speedboat to the Group’s estate. The plantation’s proximity to Iquitos allows for reliable supply of fuel, materials, labour and equipment to the plantation.
Supply of Skilled Field Managers
Due to a very extensive anti-narcotics programme in Peruvian Amazon, which was supported by USAID and the United Nations, over the last 20 years, there is a plentiful supply of trained field technicians looking for permanent, stable employment. The availability of a skilled managerial workforce positions Peru favourably compared with countries more commonly associated with large scale plantation businesses, such as Malaysia, Indonesia and West Africa. The Group is in a fortunate position of being immediately the employer of choice for trained field technicians who are essential for maintaining healthy cacao and high yields. The Group believes it has a competitive advantage in the organisation and development of large scale plantation development. In the case of cacao, the Directors believe the optimal structure is field blocks of 1,000 hectares each, with sub-blocks of 250 hectares each.
Flexible Pool of Low-Cost Labour
At maturity, the Group’s estate will require the full-time employment of more than 800 people. The Directors are confident there is sufficient labour availability due to the Group’s proximity to a major metropolitan area with a population in excess of 450,000 and which suffers from relatively high unemployment. Peru’s day rate for agriculture labour, NS 25 (US$7.70), is significantly below that of rates in Asia and other Latin American countries.
Investment Grade Country
Peru is currently rated BBB+ by S&P and Fitch, and A3 by Moody’s, (higher than Colombia and the same as Mexico). Peru has a relatively low debt to GDP ratio and has consistently run budget surpluses since the 2000s.
High Yield Potential
Peruvian cacao, with proper fertilisation and planting density, can achieve 2.5 to 3.0 tonnes of dry beans per hectare, which compares favourably with average yields of approximately less than 0.6 tonnes per hectare in West Africa. At today’s bulk grade market price of approximately US$3,000 per tonne, this equates to US$7,000 – US$9,000 of revenue per hectare at maturity, without taking account of any premium for single source, ethical operations or quality of product. Cacao crops enjoy peak productivity over a 30 year period. By comparison, palm oil estates have a peak productivity period of approximately 10-14 years.
Unlike other plantation crops, which require an expensive milling unit, cacao requires a straightforward and low cost production process involving fermentation boxes and sundrying.
The Group’s estates are located in the Amazon Basin. This area is well served by low-cost river barge to Pucallpa and on-ward truck transport to the Lima port.