VZCZCXRO4526
RR RUEHGR
DE RUEHKG #0772/01 2471809
ZNR UUUUU ZZH
R 031809Z SEP 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6728
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 000772 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CAR (ACADIEUX)(VDEPIRRO) 
WHA/EPSC (MROONEY) 
SANTO DOMINGO FOR FCS AND FAS 
 
E.O. 12958:  N/A 
TAGS: EAGR ECON SENV EINV AID ETRD JM XL
SUBJECT: JAMAICAN COCOA INDUSTRY: REFORM NEEDED, BUT OPPORTUNITY 
EXISTS 
 
SUMMARY 
------- 
 
¶1. (SBU) On August 20, 2008 USAID in association with the Ministry 
of Agriculture held a workshop to present findings from a 2008 
USAID-funded assessment of the Jamaican cocoa industry.  The 
assessment found that Jamaica's cocoa beans are some of the finest 
in the world and are in high demand as a flavor in premium cocoa 
products.  Although there are significant economic opportunities to 
be derived from cocoa production, Jamaica's cocoa industry continues 
to languish under the stranglehold of its rent-seeking national 
cocoa board, with production on a downward trajectory.  Given the 
underlying political imperatives, there appears to be reluctance to 
change the board arrangement; appointments to these boards are often 
extended as a reward for years of commitment to party politics. 
However, for the industry to be resuscitated there is immediate need 
for restructuring of the entire industry, to include devolution of 
the pricing mechanism from the board.  In closing comments, Minister 
of Agriculture Christopher Tufton indicated he was willing to do 
whatever is needed turn the sector around; hopefully this will 
include doing away with the board -- a precondition for any future 
USG, and probably private sector, investment.  End summary. 
 
USAID Assessment of Cocoa Industry 
---------------------------------- 
 
¶2. (SBU) The USAID funded assessment indicates that even though 
there are attractive international prices, local production 
continues on a downward trajectory.  Output of cocoa beans plunged 
from a one-time peak of 2,500 metric tons in 1993 to 800 metric tons 
in 2007.  At this level, Jamaica is producing far below its capacity 
and missing opportunities in the international market for its high 
quality beans.  It is also a little known fact that Jamaica's cocoa 
beans have a premium quality status similar to that of world famous 
Blue Mountain coffee.  Jamaican cocoa is some of the finest in the 
world and commands a high price for use in premium products.  Like 
coffee, the quality is attributed to sound genetic selection, ideal 
climatic conditions, and meticulous fermentation, drying, and 
polishing.  With almost 15,000 farmers involved in the industry, 
output per person is negligible, suggesting production has been 
relegated to subsistence level.  It is little surprise that current 
yields are just about one quarter of the economically feasible level 
of 400 kilograms per acre per year.  The low yields are attributable 
to: 1) very low prices; 2) recurrent hurricane damage; 3) farm 
neglect; 4) pest and diseases; and, 5) generally poor agronomic 
practices influenced by high input cost and inadequate extension 
services. 
 
Cocoa Board, A Major Bottleneck 
------------------------------- 
 
¶3. (SBU) Jamaica's cocoa industry fails to realize the economic 
opportunities that exist in the export market because the sector 
continues to languish under the stranglehold of its rent seeking 
cocoa board.  With the exception of primary production, the board, a 
relic of Jamaica's 1970s failed socialist experiment, continues to 
control every other aspect of the industry --- from collection and 
transportation to processing and international marketing.  This 
heavy involvement in the non-regulatory aspects of the industry is 
largely driven by the board's desire to control the pricing 
mechanism and by extension extract economic rent.  This control is 
even more paramount in the current environment, given that 
international prices, on which Jamaica fetches a premium, are at an 
all time high.  But this windfall has not trickled down to the 
farmers who shoulder the weight of production.  In fact, farmers 
complained during the workshop that they felt "shafted" by the 
board, which now allocates only 40 percent of the total revenues to 
them.  Remarkably, this is actually a dramatic increase of 50 
percent on the previous pay out. 
 
¶4. (SBU) One farmer told emboffs that his return on his last cocoa 
crop was a mere USD 40.  At such modest profit levels, it is 
virtually impossible for coca fields to be resuscitated and 
production levels to increase.  The price signal to farmers acts as 
a disincentive to new investment, further suppressing production and 
productivity levels.  There are also indications that the board 
falls short on managerial and technical competencies as evidenced by 
comments made by senior board representatives during the workshop. 
The board spent a significant amount of time trying to defend their 
role and value to the industry even in the face of strong evidence 
to the contrary.  In particular, with the exception of the board, it 
was generally accepted that there was a clear conflict between the 
regulatory and commercial aspects of board functions, a potential 
avenue for corruption. 

 
 
Ministry of Agriculture Unwilling to Curb the Board 
--------------------------------------------- ------- 
 
¶5. (SBU) Although the Ministry of Agriculture (MOA) is a partner in 
the assessment, the top echelon of the ministry was visibly absent 
for the technical discussions and the technocrats in attendance 
remained silent on the continuing value of the cocoa board.  MOA 
officials voiced criticism of the board to emboffs and USAID staff, 
but are reticent to make their concerns public.  The reluctance of 
the MOA to address the issues of the cocoa board is understandable, 
given the underlying political imperatives, with appointments to 
these boards often serving as a reward for years of commitment to 
party politics.  And this scenario is not unique to the cocoa 
industry, but is consistent with all commodity boards, including 
citrus, banana, coffee and sugar.  This systemic approach to 
commodity board appointments is a means of institutionalizing 
patronage and firming up political support. 
 
Farmers Lose in the End 
----------------------- 
 
¶6. (SBU) While political actors extract rewards from the industry, 
the cocoa farmers remain on the economic fringe and future 
investment in the sector is hindered.  The declining benefits to 
primary producers also have precipitated an exodus of farmers from 
the industry.  The few that remain must supplement their income with 
other economic activities.  When asked about the payout required to 
achieve financial viability, farmers told emboffs that 60 percent of 
current market price would be a good starting point.  And while this 
might appear to be a major premium on the existing price, it is 
still well below the 80 percent paid to Caribbean neighbors and 
recommended in the cocoa assessment.  A common concern expressed by 
farmers was the desire to end the cocoa board's stranglehold on 
marketing and processing and act solely as a regulator.  Farmers 
told emboffs that this move not only would strengthen cash flows, 
but also would lead to an influx of new investors along the value 
chain. 
 
Good Regional Alternatives Exist 
-------------------------------- 
 
¶7. (SBU) The recommendation to revise the role of the board appears 
to be in sync with the picture painted by a leading Caribbean 
industry expert Ken Mortin Whiteman of JHB International Trade and 
Finance, who attended the work shop.  He explained that across the 
Caribbean and Latin America the cocoa industry largely has been 
deregulated, with the board assuming a purely regulatory function. 
He dismissed the position of the Jamaican board, when they argued 
that farmers had to produce at least 300 metric tons for direct 
export to be viable.  In fact, there are farmers in Trinidad and 
Tobago who produce and export as little as 30 metric tons allowing 
them to realize the entire gains from the export trade.  However, he 
did agree that independent quality control was pivotal to the 
integrity of the industry and in particular to export trade. 
 
Comment 
------- 
 
¶8. (SBU) Although challenges loom, they are largely board- created, 
and the potential economic benefits to be gained from a de-regulated 
cocoa industry are significant.  International cocoa prices are 
projected to remain high, and Jamaica already benefits from positive 
branding for premium coffee that could be used to market premium 
cocoa.  It is an imperative that the GOJ moves swiftly to create an 
enabling structure, shifting the balance of power from the board to 
producers.  But this is easier said than done, and any move in this 
direction will require a willingness to challenge those with 
political strength on the board. Given the GOJ's history of 
appeasement, it is not likely that any radical departure from the 
existing structure will take place, although Minister Tufton has 
indicated he is willing to take the issue head-on.  Embassy/USAID 
agree that privatization of the sector by eliminating the control of 
the board is a precondition to USG, and probably, private sector 
investment.  At best, the GOJ might agree to decrease the board's 
influence on the pricing mechanism, but this may not be enough to 
reinvigorate the sector and attract new investment.  End Comment. 
HEG