Cocoa Trading and Coffee Trading

Chocolate and coffee are both enjoyed in various forms the world over, meaning more than three million tons of cocoa beans are consumed annually and two billion cups of coffee consumed around the world on a daily basis. This makes both cocoa and coffee hugely valuable commodities, so much so, that coffee is the second largest export in the world, second only to oil. There are more than fifty coffee-producing countries where earnings from coffee as a commodity play a vital role within those country’s economies.

Cocoa has been cultivated for centuries and is a commodity upon which more than 20 million people directly depend on for their livelihood and consumption of cocoa products is on the rise.

Redstone Commodity Search are UK commodity headhunters work closely with Trading Houses, Merchants, Food Producers, Investment Banks and Hedge Funds within the global cocoa markets. Because of our strong understanding of the international cocoa industry, our soft commodities team is able to provide executive search solutions across the globe including Africa, Asia, Europe, USA and LATAM.

Cocoa Beans

Three main varieties make up the world’s production of cocoa beans: Forastero (about 90%), Criollo (less than 3%), and Trinitario (about 12%). Typically, cacao trees grow in a zone 20° to the north and south of the equator with the majority of the world crop being grown in West Africa.

The beans grow inside pods on the cacao tree. These pods are cut down, typically with machetes, and the beans extracted to be fermented which allows the chocolate flavour to develop. Following this stage, the beans are spread out to dry and are cleaned. Sacks of unprocessed beans are sold to grinding companies which crush the beans, remove the shells (leaving the nib), roast and grind them. The result is cocoa liquor.

Semi-manufactured Products

  • Cocoa liquor / paste (cocoa particles suspended in cocoa butter) – product of milling cocoa nibs. Used in chocolate manufacturing with other ingredients.
  • Cocoa butter – used in the manufacture of chocolate and in cosmetic products.
  • Cocoa press cake – product of pressing cocoa liquor. The product which is left after the cocoa butter has been extracted.
  • Cocoa powder (solids) – used as an ingredient in foodstuffs from flavoured drinks to desserts, cakes and biscuits.

How is Cocoa Traded?

Once the beans have been processed and dried into merchantable cocoa, they are sold by farmers to traders, transported to grinders who make semi-manufactured products. Primary growing regions are Africa, Asia, Latin America and most are grown by small, family-run farms. Approximately 95% of beans are produced on smallholdings under four hectares. Countries which produce the most cocoa include the Ivory Coast, Ghana, Indonesia, Nigeria, Cameroon, Brazil, Ecuador, and Nigeria.

Approximately 90% of cocoa production is exported in the form of beans or semi-manufactured cocoa products. The Netherlands is the largest cocoa processing country by volume while Europe holds 40% of the processing market. The USA and Europe are the largest importers of cocoa and cocoa products.

Beans are traditionally exported in jute bags but in recent years they are increasingly shipped in ‘mega-bulk’ parcels on ships or in containers. Similarly to sugar and coffee, cocoa is also traded in futures contracts on many exchanges in order to manage price risk for consumers and for producers to secure selling or purchase prices.

Who are the Customers?

  • Animal feed manufacturers (husk of pods)
  • Chocolate manufacturers
  • Cosmetics industry
  • Food manufacturers
  • Processors (grinding beans)

How is Coffee Produced?

The raw fruit or cherry from the coffee plant is picked and the fruit or pulp removed leaving the seed (bean). There are two methods used to separate the seed from the fruit:

  • Dry method: the oldest method of processing coffee. The freshly picked fruit is washed and spread out to dry in the sun. They are regularly raked and turned during the day and covered at night to prevent spoiling or the cherries getting wet. This process continues for up to several weeks until the cherries are dried to the optimum moisture content. The dried cherries are stored in silos until they are sent to the mill for further processing. About 90% of the Arabica coffee produced in Mexico is separated in this way
  • Wet method: the skin and pulp are removed from the bean mechanically after harvesting to the bean is dried with only the parchment skin left on. The beans are then separated by weight and transported to large water-filled fermentation tanks where they will remain for anywhere from 12 to 48 hours to remove the layer of mucilage still attached to the parchment. While in the tanks, naturally occurring enzymes will the mucilage to dissolve. They are subsequently rinsed in preparation for drying. The beans are dried to the same water content as the beans in the dry method in order for them to be stored properly. They can be sundried like in the dry method or machine dried in large tumblers. The dried beans from this method are known as parchment coffee

After the drying process, the seeds are hulled. For wet processed coffee, this refers to the removal of the parchment layer while for dry processed coffee it is in reference to removing the entire dried husk of the dried cherries. Some processors may opt to have an additional stage which is polishing where any silver skin remaining on the beans after hulling is removed by machine.

In the final stages, coffee is cleaned and sorted by density of bean and bean size. Any defective beans are removed either by hand or by machinery to ensure that only the finest quality of beans are exported. These milled beans are referred to as green coffee.

How is Coffee Traded?

There are two main types of coffee bean which are traded: Robusta (coffea canephora) and Arabica (coffea arabica). Both are produced in the coffee belt, typically within 1,000 miles of the equator. Brazil is by far the largest producer and exporter of coffee in the world, contributing 30% of the world’s coffee supply. Other top producers include Vietnam, Colombia, Indonesia, Ethiopia and Honduras.

Most coffee production is in developing countries, while most consumption is in industrialised economies. The top coffee importer is the EU followed by the USA, Japan, the Russian Federation and Switzerland. Green coffee (milled beans) are shipped in bulk in lined containers or in either jute or sisal bags loaded in shipping containers. Exporters buy the coffee from farmers, co-operatives or auctions, and then sell on to dealers. It is typically sold to coffee roasters around the world in order to turn the beans into the products sold by retailers.

Coffee trading can be also executed on many exchanges. In order to manage price risk, consumers and producers trade coffee futures to secure selling or purchase prices.

Who are the Customers?

  • Catering organisations
  • Coffee shop chains
  • Independent coffee retailers
  • Roasters
  • Supermarkets