Cocoa Processing
Cocoa Processing
Business Model Description
Build and operate facilities and value chains, including storage and farmer productivity, for the growing and processing of cocoa into products for sale on local and international markets.
Expected Impact
Increased income for farmers, enhanced job creation, and higher profit margins as well as exports of higher value products.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Sierra Leone: Eastern Province
Sector Classification
Food and Beverage
Development need
Food security is a significant challenge in the country with 25-50% of the population facing some level of food insecurity (1). Despite the availability of fertile arable land, 75% remains uncultivated, and the country relies heavily (80% of foodstuffs consumed) on import (2). Farmers suffer from low yield and high cost of transport, as well as lack of access to financing. At the same time, agriculture is a critical part of the economy - providing many jobs and the largest portion of GDP (3). The fishery industry also suffers from overfishing, and illegal, unreported, and unregulated (“IUU”) fishing particularly by foreign fleets leading to sustainability challenges (4).
Policy priority
Food security and agriculture are a major focus for the government. Improvements have been made by development partners, national policies, and Apex Bank. The stated objective in the Mid Term National Development Plan includes policy interventions for improving financial access, better inputs, improved mechanization, promotion of research, and others (3). Environmental protection and sustainability are also considered. The Ministry of Agriculture and Forestry is focused on rice self-sufficiency, livestock development, crop diversification, and forestry management from a policy level.
Gender inequalities and marginalization issues
While women are proportionally more employed in agriculture, and there was a recent positive development with land reform so that women can now own land (5), there are significant inequalities in the value chain of higher value agricultural activities and women overall benefit less economically from this sector while also facing more challenges, such as lack of access to information and resources (6). Women are also more affected by malnutrition compared to men (6). In addition, agriculture is a major focus for all regions of Sierra Leone apart from the urban Freetown - which is far more developed than other regions. Rural areas are more marginalised overall with respect to food security, employment and health outcomes, despite being the main places where agricultural activities take place.
Investment opportunities introduction
Improving productivity and commercialization of the agricultural sector is a priority. The Agricultural Transformation Strategy plans to double production of rice, forestry, and livestock, as well as to increase the budgetary allocation to 10% to align with the Maputo Accord and attract external investment. Furthermore, in 2021 several policy shifts were announced by the Ministry of Agriculture and Forestry, aimed at increasing land under cultivation and improving yields through measures such as establishing a US$10 million agriculture credit fund to expand access to finance; e-wallet input delivery; mechanization promotion including through establishment of machine ring centers; and addition of e-extension services. The main opportunities seem to be in value added activities in processing, as well as various technological and mechanisation support activities to improve efficiency, yields, transport, market access and so forth (3).
Key bottlenecks introduction
Farmers suffer from low yield and high cost of transport, as well as lack of access to financing and insurance services. There is a low level of mechanisation and access to tools and equipment, such as irrigation (3). There have also been challenges with land ownership, especially for women (6). The fisheries industry also has a lack of infrastructure and value chain development (4). In terms of agro-processing, the level is low in the country, and there are only a few successful examples (3).
Food and Agriculture
Development need
Agriculture faces many challenges, including lack of mechanization and a high cost of production, lack of access to finance and insurance services, and lack of adequate storage facilities and processing, leading to more post-harvest losses. There is also a lack of access to improved seed, and the linkages between the manufacturing sector and primary sectors, such as agriculture, have been weak (3).
Policy priority
Agriculture is clearly stated as a major priority for the government in the Mid Term National Development Plan (3). In addition, the National Agricultural Transformation Strategy 2019-2023 includes more detailed plans, such as to double production of key crops (7). The Ministry plans for capacity building as well as a USD 10 million agriculture fund (3). There is also significant development agency support, such as from the FAO (8). The Government of Sierra Leone, through the Ministry of Trade and Industry (MTI), is implementing the Sierra Leone Agro-Processing Competitiveness Project with financing from the International Development Association (IDA) of the World Bank Group.
Processed Foods
Pipeline Opportunity
Cocoa Processing
Build and operate facilities and value chains, including storage and farmer productivity, for the growing and processing of cocoa into products for sale on local and international markets.
Business Case
Market Size and Environment
> USD 1 billion
< 5%
Sierra Leone's Cocoa is mainly targeted at export markets, where the global market in 2023 was worth approximately 47 billion USD with a CAGR of 4.4% (11).
The value of cocoa exports in Sierra Leone was 33 million USD in 2019, but nearby regions' total well over one billion USD export value (12, thus leading to an assumption of a potential market of at least 1 billion USD.
Indicative Return
15% - 20%
15% - 20%
Capitol Foods, which opened the first cocoa processing facility in 2021, is expecting to increase their profits by 20% from processing cocoa in Sierra Leone and not just exporting the unprocessed bean (12).
Studies done in South America show an average IRR of 24% (13) for developing cocoa monoculture.
Lastly, a study in Sierra Leone shows the unprocessed type of cocoa sold for butter is 25% less profitable than the processed type for chocolate (14). A mid-range estimate of IRR was therefore placed at 15-20%.
Investment Timeframe
Medium Term (5–10 years)
Processing of cocoa can leverage existing production, but will require improvements and many of the plantations are quite old (14), while additional production capacity may take longer with 4-6 years for trees to reach maturity (25). Timeline expectations are therefore in line with immediate processing capacity but tempered by expectations of longer investment timeframes in Sierra Leone than more developed contexts (21).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Market - High Level of Competition
Impact Case
Sustainable Development Need
Cocoa farmers in Sierra Leone are mostly smallholders farming on 1-2.5 ha with very low average production of approximately 142 kg/ha in 2019, meaning farmers' incomes are very low, leaving them poor, vulnerable to shocks and food insecure (14).
Due to poor quality, Sierra Leone cocoa beans sold in the world market as cocoa butter raw material previously with a resulting price discount of approximately 25% over cocoa used for chocolate production. Cocoa beans are mostly fermented, dried and exported only and market is dominated by middlemen and agents resulting in reduced profit margins for producers (14).
Individual farmers pay high costs for inputs and have poor access to inputs and tools (14).
Gender & Marginalisation
"Women and youth manage about a quarter of cocoa plantations but have limited land rights and access to extension services, training and credits due to socio-cultural constraints (14). Although engaged at every stage of cocoa production they are also underrepresented in farmer's organisations, public meetings and leadership roles."
Expected Development Outcome
Cocoa processing, including through building processing factories and supply chains as well as supporting farmers to improve productivity, can create jobs and access new market opportunities to reduce rural poverty (14). This can also mean a steadier market and better pricing for producers.
Gender & Marginalisation
Investment into cocoa processing does not automatically address the needs of women, youth and other marginalised groups. However, processors can work with such groups within their supply chains.
Primary SDGs addressed
2.3.2 Average income of small-scale food producers, by sex and indigenous status
National average income is 1,004 USD while median income is 765 USD in 2023 (16).
The target set out in the Cocoa Value Chain Policy of 2019 is that of doubling farmers’ income, however, there is no year set by which this is to be achieved (14).
8.5.2 Unemployment rate, by sex, age and persons with disabilities
The broad unemployment rate was 9.1% in 2014, with significant variations across regions. Men were more unemployed than women, at 5% versus 3.7% for women. The rate of unemployment for disabled people was 1.4%. Youth unemployment was 5.9%. (22)
The target for unemployment reduction was 2% in 2019 (23).
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Corporates
Outcome Risks
Selling cocoa directly to one or a few processors may lead to increased dependence on one market for the smallholder farmers, which can be a problem if that processor fails, or even for price negotiation.
Cocoa farmers usually clear tropical forests to plant new cocoa trees rather than reusing the same land which has resulted in deforestation elsewhere in West Africa (17) and could result the same in Sierra Leone.
As there are many middle men and agents now selling unprocessed beans for export, the competition from more processing may mean less opportunities for them.
If some of the cultural challenges with women and youth leadership are not addressed directly, there is a risk these groups will be left even further behind with development of cocoa value chains.
Impact Risks
While investing in cocoa processing is expected to improve farmer incomes, the overall challenges faced by farmers in general as well as cocoa farmers in particular in Sierra Leone are significant and could create problems with production, which would then compromise realisation of the income improvement (14).
Climate change is a threat to cocoa farming in West Africa as cocoa trees are sensitive to heat and drought, and could thus lead to increasing challenges with growing cacao in the region as a whole (17). Less cocoa as input would compromise the stability of processing supply.
EU traceability rules are changing and will make it harder for those working in tree based commodities, such as palm and cocoa.
Although some land tenure challenges have been recently addressed, there are still many social and cultural barriers for women farming in Sierra Leone.
Impact Classification
What
Cocoa processing increases income, facilitates income diversification, and enhances nutritional security, consequently, decreasing poverty and food insecurity.
Who
Smallholder farmers will benefit from increased demand and better pricing as well as support services. Others in the community where the processing takes place will have more job opportunities.
Risk
While investing cocoa processing should lead to more income for farmers, the many challenges faced by farmers currently pose key risks if not addressed. In addition, climate change is a significant risk for cocoa production.
Contribution
Cocoa processing allows for more value to remain in the country over export of unprocessed beans, resulting in more economic benefit in country, including improved incomes as well as jobs created.
Impact Thesis
Increased income for farmers, enhanced job creation, and higher profit margins as well as exports of higher value products.
Enabling Environment
Policy Environment
National Cocoa Value Chain Policy of 2019 (14) outlines a specific plan of action for the cocoa sector, with a key outline of challenges faced, mention of processing activities as a key future opportunity, and awareness of climate challenges.
The Mid Term National Development Plan 2019 - 2023 (3) has agriculture as a key policy area, and within this specifically mentions development of agricultural value chains and agro-processing. The goal is to move up the value chain into more industrial activities, as per the proposed cacao processing.
National Agricultural Transformation Strategy 2019-2023 (7) plans to put agriculture at the centre of economic development and improve value chains as well as linkages between smallholder farmers and larger investments, cacao processing would qualify under. It also specifically mentions the cacao opportunity.
Financial Environment
Fiscal incentive: Any business registered in Sierra Leone and having at least 20% Sierra Leonean ownership shall be entitled to corporate tax exemption including exemption from corporate income tax plus 50% exemption from withholding taxes on dividends paid by agribusiness companies and complete exemption from import duty on agricultural machinery. (18).
Financial incentive: The Apex Bank and its Community Banks established in key rural areas targets smallholder farming groups, and micro and small-scale entrepreneurs, including women and youths, for financing (19).
Other incentives: The Sierra Leone Agribusiness Development Fund (managed by KPMG) was created to address financing and technical assistance challenges faced by agribusinesses that have plans to work with smallholder farmers in out-grower schemes (20).
Regulatory Environment
The Customary Land Rights Act, no. 20 of 2022 (5) provides for the protection of customary land rights, the elimination of discrimination under customary law, and the management and administration of land subject to customary law. This law now guarantees women’s equal rights and access to land and bans industrial development (mining, plantations, farming, and housing) in protected, conserved or ecologically sensitive areas (wetlands, wildlife habitats, steep slopes and old growth or virgin forests).
Sierra Leone’s Income Tax and Finance Acts include income tax exemptions for 10 years from agricultural activities; exemption from import duty on farm machinery, agro-processing equipment, agro-chemicals and other key inputs; 125% tax deduction for expenses on Research and Development, training and export promotion (24).
Marketplace Participants
Private Sector
Capitol Foods, Tradin Organic, Lizard Earth, PRONATE, West African Rice Company, KPMG, Etico.
Government
Ministry of Agriculture and Forestry, Ministry of Trade and Industry, Sierra Leone Investment and Export Promotion Agency, Produce Monitoring Board, Sierra Leone Agricultural Research Institute, Sierra Leone Standard Bureau, Sierra Leone Chamber of Agriculture, Sierra Leone Chamber of Commerce Industry and Agriculture, Sierra Leone Produce Marketing Company, Cocoa, Coffee and Cashew Working Group.
Multilaterals
World Bank, European Union (EU), International Fund for Agriculture Development (IFAD), Food and Agriculture Organisation (FAO), World Food Programme (WFP), African Development Bank (AfDB).
Non-Profit
Welthungerhilfe, GIZ, Solidaridad, Ngoleagorbu Cocoa Farmers' Union, Commercial Agricultural Producers and Processors Association.
Target Locations
Sierra Leone: Eastern Province
References
- (1) International Monatery Fund. 2022. Sierra Leone: 2022 Article IV Consultation and Fifth Review. Accessed from: https://www.imf.org/en/Publications/CR/Issues/2022/07/29/Sierra-Leone-2022-Article-IV-Consultation-and-Fifth-Review-under-the-Extended-Credit-521569
- (2) International Trade Administration. 2021. Sierra Leone - Country Commercial Guide. Accessed from: https://www.trade.gov/country-commercial-guides/sierra-leone-market-overview
- (3) Government of Sierra Leone. 2019. Sierra Leone’s Medium-Term National Development Plan 2019 - 2023. Accessed from: https://www.slurc.org/uploads/1/0/9/7/109761391/sierra_leone_national_development_plan.pdf
- (4) Government of Sierra Leone. 2021. Updated Nationally Determined Contribution (NDC). Accessed from: https://unfccc.int/sites/default/files/NDC/2022-06/210804%202125%20SL%20NDC%20%281%29.pdf
- (5) Government of Sierra Leone. 2022. Customary Land Rights Act. Accessed from https://faolex.fao.org/docs/pdf/sie212374.pdf
- (6) Food and Agriculture Organisation. 2018. Country Gender Assessment Series: National gender profile of agriculture and rural livelihoods, Sierra Leone. Accessed from: https://www.fao.org/documents/card/en/c/I9554EN/
- (7) National Agricultural Transformation. Strategy 2019-2023. Please note, Ministry website has been offline. Accessed information indirectly via: https://www.investinginsierraleone.com/agriculture-and-fisheries/#:~:text=In%20light%20of%20rises%20in,of%20Sierra%20Leone's%20economic%20development.
- (8) Food and Agriculture Organisation. Website. https://www.fao.org/sierra-leone/programmes-and-projects/ru/
- (9) African Business. 2021. Sierra Leone gets first cocoa factory. Accessed from: https://african.business/2021/11/energy-resources/sierra-leone-gets-first-cocoa-factory
- (10) Tradin Organic Website. Accessed from: https://www.tradinorganic.com/sourcing/own-projects/sierra-leone-organic-cocoa-beans
- (11) Global Newswire. 2023. Accessed from: https://www.globenewswire.com/news-release/2023/03/29/2637062/0/en/Global-Cocoa-and-Chocolate-Market-Size-To-Worth-USD-68-2-Billion-By-2030-CAGR-of-4-37.html#:~:text=The%20Global%20Cocoa%20and%20Chocolate,published%20by%20Spherical%20Insights%20%26%20Consulting.
- (12) African Business. 2021. Sierra Leone gets first cocoa factory. Accessed from: https://african.business/2021/11/energy-resources/sierra-leone-gets-first-cocoa-factory
- (13) Feed the Future. 2020. Climate smart cocoa investment opportunities: Central America and the Carribean. Accessed from: http://cci.alianza-cac.net/media/archivosCuadernos/Climate_Smart_Cocoa_Investment_opportunities_Central_America_Caribbean_V1.pdf
- (14) Ministry of Agriculture and Forestry. 2019. National cocoa value chain policy. Accessed from: https://bafs.org.sl/wp-content/uploads/2021/02/SL-Cocoa-Value-Chain-Policy-2019-.pdf
- (16) World Population Review. 2023. Accessed from: https://worldpopulationreview.com/country-rankings/median-income-by-country
- (17) World Wildlife Fund. 2017. Bittersweet: chocolate's impact on the environment. Accessed from: https://www.worldwildlife.org/magazine/issues/spring-2017/articles/bittersweet-chocolate-s-impact-on-the-environment "18) SLIEPA. Available incentives. Accessed from: //www.sliepa.gov.sl/invest-in-sierra-leone/all-incentives "
- (19) Emmanuel S. Gbakie, Brima Kamara and Patrick A.F. Dumbuya. 2017. New Rural Finance Institutions in Sierra Leone. Accessed from: https://cgspace.cgiar.org/bitstream/handle/10568/97182/EC3_Gbakie.pdf?sequence=1&isAllowed=y
- (20) KPMG Website. Accessed from: https://kpmg.com/ke/en/home/services/advisory/international-development-advisory-services/our-sectors-idas/agribusiness-sector/sierra-leone-agribusiness-development-fund.html "21) UNDP Stakeholder Consultations, May 15, 2023, April 25, 2023, May 12, 2023, and June 1, 2023 "
- (22) World Bank. 2016. Findings from the 2014 Labor Force Survey in Sierra Leone. https://openknowledge.worldbank.org/server/api/core/bitstreams/df404b14-bcbb-5696-b5df-76d5981280e3/content
- (23) Government of Sierra Leone. 2021. VNR REPORT ON SDGs IN SIERRA LEONE. Accessed from: https://sustainabledevelopment.un.org/content/documents/279542021_VNR_Report_Sierra_Leone.pdf
- (24) SLIEPA Website. Available incentives in Sierra Leone. Accessed from: https://www.sliepa.gov.sl/invest-in-sierra-leone/all-incentives
- (25) De Zaan website. Accessed from: https://dezaan.com/en/manufacturing/know-cocoa/cultivation#:~:text=Today%2C%20cocoa%20trees%20are%20productive,tree%20and%20the%20thicker%20branches