Becoming the ‘Swiss’ of cocoa and pepper

What words come to mind when names such as Lindt, Rolex and Davos are mentioned? I am certain they will include quality and premium. Switzerland, a country that is about one-eighth the land size and one quarter the population of Malaysia, is well-known for making top quality products in small quantities.

In fact, the Swissness Worldwide 2016 study conducted by the Institute of Marketing at the University of St Gallen revealed that people around the world are willing to pay up to 100% more for a Swiss product, from chocolates and cheese to watches and cosmetics or even a skiing holiday.

So, what is the connection between ‘Swissness’ and cocoa and pepper, our smaller siblings in Malaysian commodities? Actually, there are quite a few.

Dwarfed by giants

Malaysia is only the fifth largest grower of pepper, also known as the ‘King of Spice’, after Vietnam, Indonesia, India and Brazil, with 7.4% global production share in 2016. Vietnam is the single largest producer with about 35% share.

The commodity has made steady progress in Malaysia. Total planted area has increased from 14,147ha in 2010 to 16,768ha in 2016. Correspondingly, production increased from 24,277 tonnes to 29,245 tonnes, supported by an increase in yield from 4.4 tonnes per hectare to 5.6 tonnes per hectare.

If pepper is disadvantaged in terms of production, cocoa is even more so. Theobroma, cocoa’s botanical name, is Greek for ‘food of the gods’ but in Malaysia, it does not deserve the attention it rightly deserves.

From its peak total planted area of 414,236ha in 1989, cocoa cultivated land has shrunk to 17,368ha in 2016. Production has reduced from 247,000 tonnes in 1990 to only 1,757 tonnes in 2016. Cote d’Ivoire and Ghana combined accounts for 58% of total global production.

However, it is important to keep in mind that these changes have taken place due to economics and practicality. Many cocoa growers switched to oil palm because it is seen as a more “stable” crop. However, by trade volume, the cocoa industry is a RM10bil industry.

Silver linings

Paradoxically, while export quantum of pepper has decreased from 14,077 tonnes in 2010 to 12,199 tonnes in 2016, due in part to growing domestic consumption, export value has increased from RM199.3mil to RM490.17mil correspondingly. This was driven by demand outpacing supply since 2006 resulting in a bull run on pepper prices that peaked in 2015.

As for cocoa, export grew by almost nine folds from RM0.638bil in 1992 to RM5.736bil in 2016. While our domestic production has gone down, we still retain many advantages and for example, grinding of the cocoa beans at source, especially in Africa, has not developed due to political and business risks. Europe and East Asia still account for substantial grinding activities to feed manufacturing needs.

The good news is there has been a Malaysian resurgence as a competitive location to process higher quality African and South American beans.

Cocoa players in Malaysia remain relevant as the processing knowledge has been built over the years and we are respected globally as quality producers of cocoa ingredients. It is no coincidence that leading global chocolate and cocoa product players such as Barry Callebaut, Mondelez and Hershey’s have sizable manufacturing operations in Malaysia.

Protect the smallholders

Both pepper and cocoa are practically smallholder crops, dominant in Sabah and Sarawak. About 98.5% of our pepper are produced in Sarawak while two-thirds of cocoa are produced in Sabah and Sarawak. Fundamentally, we need to have a critical mass of cultivated land area to compete for a larger market share and retain our downstream competitiveness.

Under the 10th Malaysia Plan, RM43.9mil was allocated to plant and rehabilitate a total of 4,984ha of pepper, benefiting 33,068 farmers, primarily in Sarawak while a further budget of RM39mil to cover 1,500ha and benefit 7,500 planters was planned under the 11th Malaysia Plan.

Meanwhile, smallholders in Sabah are the main recipients of cocoa new planting grants amounting to RM57.2mil for 7,567ha and benefiting 7,849 planters under the 10th Malaysia Plan. For the current 11th Malaysia Plan, RM12.8mil has been budgeted to plant 1,600ha for 1,600 planters.

Go premium

The increase in upstream supply must be coupled with focus on high-quality and premium products. Taking a leaf out of Switzerland, more is being done to promote our well-known Saraspice pepper brand and research into further diversification of pepper products.

With continued growth in the emerging markets compared to the flat trajectory in mature markets, the opportunity remains for us to attract the premium confectionery players from Europe to be based here and we are aggressively courting them. I have also exhorted local players to be more ambitious and not preclude the possibility of taking stakes in one or more premium brands, as part of the go premium strategy.

Another growing, albeit nascent trend, is the bean-to-bar segment. Just like craft beer or speciality coffee, these artisanal products can be handcrafted from unique tasting and high-quality cocoa beans from Latin American, Africa and even our own backyard.

Rather than taking on our larger competitors directly on volume, we must take the more premium road, which can be more rewarding. It is time to put some ‘Swissness’ into our cocoa and pepper products.

  • Datuk Seri Mah Siew Keong is Minister of Plantation Industries and Commodities. Commodities Today and Beyond is his op-ed to share his views, hope and vision for commodities with everyday Malaysians.

Government , Mah Siew Keong