For the exclusive use of L. Lopez, 2019.

Case: BL0003
Version: 07/07/2017

Case
ISSN: 2470-7899
Pacari:
Premium Organic
Chocolate

Early in the morning, as he usually did, Santiago Peralta, Pacari’s General Manager, arrived at
his office in Quito’s traditional La Floresta neighborhood. As he reviewed the company’s 2015 fi-
nancial statements that Carla Barbotó, Pacari’s President and Santiago’s wife and partner, had
left on his desk, he sat down to look back at the past of Ecuador’s cocoa industry. Historically,
Ecuador had served as a global raw material supplier, and its efforts to add value in this business
chain had proven largely fruitless. “It makes no sense that Ecuador exports dry cocoa and imports
foreign-branded chocolate,” he thought. Santiago also worried about the abject poverty that pla-
gued a large number of farmers he had met when Pacari went into business.

Soon he started thinking about how his business initiative had contributed to changing Ecua-
dor’s cocoa industry. Had he managed to build an Ecuadorian company that created financial,
social, and environmental value in his country? Without a doubt, the Ecuadorian industry had
changed a lot since 2002, when Pacari started its operations. Back then, there were virtually no
well-established players. Now, several business models, with differing visions and goals, compe-
ted in the marketplace.

“Would Pacari make more of an impact if it opened its own stores?” Santiago wondered. That
path could prove more effective to raise sales and increase financial resources to support farmers.

AUTHORSHIP This case was prepared by Professors Alexandra Velasco and Fabrizio Noboa from Universidad San Francisco de Quito. This case
CREDITS is presented by BALAS and was the best case in the BALAS’s conference 2016. Teaching cases are developed solely as the basis for class discus-
sion and are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order
copies or request permission to reproduce materials, contact [email protected].

Copyright © 2018 The Business Association of Latin American Studies - BALAS. No part of this publication may be reproduced, sto-
red in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means --electronic, mechanical, photocopying, recording,
or otherwise-- without the permission of the copyright holder.

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In turn, it might also bring high fixed costs that placed too large a burden on Pacari’s business
model. Clearly, it was a decision that called for in-depth, thoughtful analysis.

COCOA AROUND THE WORLD1

Scientific evidence indicates that the first cacao trees grew naturally in the shade in tropical ra-
inforests in the Amazon and Orinoco basins some 4,000 years ago, while the oldest records of
cocoa drinks date back to the year 1,100 B.C. This “golden bean,” as it was colloquially dubbed in
Ecuador, starred in many stories, legends and rituals associated with several cultures.

As cacao trees grew better in wet conditions, they prevailed in the geographical belt stretching
between 15 and 20 degrees north and south of the Ecuadorian line, where temperatures averaged
25 degrees Celsius and yearly rains ranged between 100 and 200 centimeters. According to the
International Cocoa Organization (ICCO), over 4.3 million tons of cacao beans were produced in
2013-2014, largely in African soil. Leading growers across continents included Ivory Coast, Indo-
nesia, and Ecuador, producing 40%, 8.6%, and 5.4% of the world’s overall output, respectively.

Traditionally, cocoa prices changed on a daily basis. For example, in April 2014, ton prices ran-
ged between $2.999 and $3.091. Prices typically depended on supply and demand, as for all
commodities traded at stock markets and the futures markets in London and New York, but they
also varied as a result of other factors, such bean type, milling efficiency, expectations on planted
areas and harvested tons (determined by weather conditions and other local regulations), as well
as the consolidation or fragmentation of cocoa trade and processing. In Ecuador, official prices
set by stock markets were used as benchmarks, but market conditions were shaped by multiple
complementary variables.

COCOA’S INDUSTRIAL PROCESS2

Cocoa traveled across a complex international network involving players in several continents,
from small farmers who grew it, typically in developing nations, to large multinational companies
usually based in developed countries, where product consumption proved higher (see Exhibit 1).

This international network started with cacao planting, a very delicate process in this industry as
plantation quality largely hinged on weather conditions and their vulnerability to some diseases
and insects. By 2014, most cocoa beans came from small plantations, with an average five-hec-
tare (12.35-acre) area, managed by over 5.5 million small farmers and their families, who often
used outdated practices, including a limited organizational structure as a result of their unstable
financial situation. With adequate care, growers managed to get cacao trees to reach their full pro-
duction capacity in five years and to last nearly ten. Several international agencies believed that
$200 sufficed to train every farmer in this area in order to enhance their productivity.

1
The history of this fruit in Ecuador is based on information provided by the National Association of Cacao Exporters (2015).

p. 2 2
The industry structure described in this section draws from the World Cocoa Foundation’s website (2015).

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While cacao trees could offer ripe fruit year round, farmers typically planned for two harvest a
year to ensure production peaks. With careful pruning, trees did not grow as tall, making fruit
picking easier. Fruits were cut in half; their pulp and shell were discarded, while beans were kept.
On average, farmers expected to draw some 20 to 50 beans per fruit. Next, beans were fermented
and dried. As Santiago Peralta put it, “The greatest challenge for producers lies in proper fermen-
tation, as this is when cocoa gets its flavor. The lack of an adequate environment for bean drying
might lead to severe harvest losses.”

At this part of the value chain, cocoa was packed in crates or stacked up in piles covered by mats
or banana leaves, where they rested for a few days, warming up and undergoing chemical reac-
tions that turned the sugar in the pulp into water, ethylic alcohol, and acetic acid, among others.
Every 24 hours, pile or crate contents were stirred or moved to a new crate to release the carbon
dioxide produced. This fermentation process took 120 to 144 hours and was followed by the dr-
ying process, whereby beans were laid out on a surface to rest in the sun or under solar dryers. For
beans to dry properly, temperatures should not exceed 60 degrees Celsius, and humidity should
remain below 7% to prevent fungi infection.

In September 2015, Cocoa Barometer3 estimated that a cacao grower spent $664 in this section
of the global chain to have the supplies required to produce one ton of the final product, which
he sold at an average price of $1,874 to distributors and intermediaries.4 These players included
small meddlers who visited plantations buying beans to store them in small storage warehouses;
wholesalers, who combined the output from several traders, surely mixing cocoa from several
sources, and, finally, exporters, who sold cocoa at international markets and paid taxes, tariffs,
port storage costs, and, occasionally, bribes to customs officers. In Ecuador, before its shipment
abroad, dry cocoa could go through up to three storage facilities, and it was common for stra-
ins from different sources and qualities were likely to get mixed up. Worldwide, by 2015, the dry
cocoa required to manufacture a ton of chocolate was estimated to sell for an average of $3,038
at this part of the chain. Cocoa Barometer had spotted a number of illegal business practices at
this point, including weighing in tampered scales and fraudulent quality controls, which reduced
sums paid to growers from 5% to 20%.

Dry cocoa was purchased for industrialization, which consisted of additional processes, such as
roasting, milling, and pressing. Once beans were individually inspected, they were roasted and
milled, in order to produce several byproducts, like cocoa nibs at room temperature, or cocoa
liquor at more than 35 degrees Celsius. Both could be refined and sold as unsweetened choco-
late for baking or to manufacture chocolate. Cocoa liquor was later pressed to extract cocoa bu-
tter and to obtain cocoa presscakes. Couverture chocolate, with up to 30% cocoa butter content,

3
Cocoa Barometer was an organization founded by Barometer Consortium members –in turn, a group of nonprofits including Oxfam, Solidari-
dad, HIVOS, and Voice Network.

4
This section draws from Fountain, A.C., and Hütz-Adams, F. (2015). Due to the diverse conditions in which cacao and chocolate are produ-
ced and marketed around the world, the authors have made estimations and projections based on interviews with experts conducted as part of
p. 3 their research.

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came from these byproducts and was typically used by chocolate manufacturers and pastry chefs
as a raw material.

By 2010, five companies held over 50% of the world’s chocolate byproduct market: Cargill led with
a 14.5-% share; ADM followed with 13.9%; Barry Callebaut, with 12.2%, while Petra Foods and
Bloomer completed the list, with 7% and 5.3%, respectively. These five companies supplied cocoa
liquor for large multinationals manufacturing chocolate. On average, Cocoa Barometer estima-
ted that the supplies required at this stage to produce a ton of end product were sold for $4,434.

Cocoa byproducts, purchased largely by developed countries, then moved on to the manufac-
turing phase, which involved chefs, bakers, and large multinationals.5 To turn it into chocola-
te, cocoa liquor was mixed with cocoa butter, sugar, milk, and, in some cases, other ingredients,
such as fruits, walnuts, or fillings. Mixes were poured onto pans to mold the end product into the
shapes ready for sale. In 2010, five large companies also concentrated the bulk of chocolate ma-
nufacturing, with Kraft holding 14.9% of the market, Mars coming in second with 14.5%, Nestlé
with a 7.9% share, Hershey with 4.6%, and Ferrero with 4,5 %. Cocoa Barometer estimated that
these companies’ marketing budget, focused on brand positioning, exceeded $8 billion a year.

A ton of end product at this stage was sold to marketing channels at an estimated $10,858, rea-
ching consumers for $ 18,917 a ton (see Exhibit 2 for a description of costs and selling prices of
supplies required per end product ton in every step of the global chain).

In turn, in 2009-2011, the market witnessed a healthy competition among four major initiati-
ves, led by Fairtrade Labelling Organization, Rainforest Alliance, Organic, and UTZ, to promote
certified cocoa production. These efforts intended to address growing demands from the general
public for fairer, more sustainable and environmentally-responsible value chains. While choco-
late manufacturers claimed that certified cocoa supply did not meet the current demand, certif-
ying organizations’ data said otherwise (Fountain and Hütz-Adams, 2015). Ultimately, although
these initiatives set out to protect small farmers, the evidence showing the added value captured
at this stage, as well as the nutritional quality of products containing certified or organic cocoa,
did not prove conclusive (Sidwell, 2008).

Indeed, consumers were clearly leaning towards products with more value added, more socially
responsible and traceable, as proven by their preference for origin-labeled chocolates, associated
with cocoa-producing areas, and their attention to planting and harvesting processes. These con-
sumer demands resembled those faced by coffee manufacturers and marketers. Some companies,
like Nestlé viewed Ecuador as the source for the development of gourmet products, traditionally
lacking in their portfolios (Hosafci, 2014). Despite its efforts, this Swiss multinational had fai-
led to manufacture chocolates whose quality matched those produced by some local companies.

5
This means that a chocolate manufacturer from an emerging country, or chefs, bakers and institutional customers usually imported coverture
p. 4 chocolate.

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CHOCOLATE CONSUMPTION6
Chocolates manufactured around the world were typically divided into several categories: ta-
blets, bars, candy in bags, candy in boxes, and chocolates with toys. The market featured strong
seasonal components, with consumption peaking around specific dates, such as St. Valentine’s
Day, Easter, and Christmas.

Final prices often fluctuated with cocoa prices, but consumers tended to pay for price increases.
In high-consumption markets, the preference for origin-certified bars and gourmet products fo-
llowed a growing trend, but it still accounted for a small share in the global chocolate market.
Santiago estimated that, by 2014, 60% of overall chocolate consumption continued to focus on
products mixed with milk, while the rest concentrated on dark and pure chocolate.

In developing countries, including those where cacao was grown, actual consumption patterns
differed, as price –rather than quality– influenced purchase choices. For instance, while the Eu-
ropean palate appreciated bittersweet, pure chocolate, Latin American consumers tended to pre-
fer milk chocolate bars, often with walnuts, fillings and fruit.

In Ecuador, with a total population of 16 million, 4,340 tons of chocolate, valued at USD 93 mi-
llion, were sold in 2014. Ferrero topped exports of chocolate finished in Ecuadorian territory,
with sales in excess of $ 15 million. In turn, that same year, Switzerland’s chocolate market tota-
led 73,267 tons valued at over USD 1.9 billion, while, in the United States, 1.4 million tons were
sold for an overall value of more than USD 17.6 billion.

COCOA IN ECUADOR’S ECONOMY7

Ecuadorian cocoa was a leading national export since 1789. Starting in 1830, affluent families in
Vinces’ area, in the Los Ríos Province, promoted cacao planting and used cocoa proceeds to open the
first banks in that region. Cocoa supported the growth of Ecuador’s economy, and the country re-
mained the world’s largest cacao producer from 1880 to 1915. In 1920, fruit-damaging diseases, like
frosty pod and witches’ broom, caused a 30-% sales drop that harmed Ecuador’s economy. By 2014,
cocoa ranked fourth among Ecuadorian non-oil exports, following bananas, shrimp, and flowers.

Cacao’s planting area had varied extensively throughout Ecuador’s history. Originally, cacao
trees dominated large areas in plantations owned by wealthy families. Years later, as a result of
farm ownership reforms, those large establishments were divided into thousands of small plots
assigned to the families that used to work at large plantations. By 2000, most of Ecuador’s ca-
cao crops in Ecuador belonged to those farmers’ heirs, who sometimes chose to use their land to
plant other, more profitable and less risky crops.

6
This section draws from several country analyses by Euromonitor International (2015).

p. 5 7
This section draws largely from Ecuador’s National Association of Cacao Exporters (2015) and El Agro magazine (2015).

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Ecuadorian cocoa was considered special because of its organoleptic traits. Apparently, many
years before, some cacao trees grew naturally in Ecuador’s Amazonia; while, over time, these
trees were lost or their beans got mixed up with beans from countries like Venezuela, the original
strains were eventually recovered. The Arriba Nacional cacao that prevailed in the country had a
sweet, flowery smell, like a fresh perfume combining jasmine, roses and lilies. This type of beans,
coming from native trees, tasted very different from the acid, sharp Forastero cocoa that domi-
nated Africa. As such, the ICCO granted Ecuador’s Arriba Nacional cacao the fine aroma cocoa
label, shared by only 5% of the world’s overall output. By 2014, Ecuador led this segment, with a
63% share of the global market. Similarly, in Ecuador, a little over 2.5% of all beans carried the
organic certification. Finally, Ecuador exported nearly all of its harvested cacao to industrialized
countries as a raw material –that is, fermented, dry beans– and, on average, collected $3.30 per
kilo in 2014. Cocoa liquor, butter, powder and chocolate bars only 9% of Ecuador’s cacao exports
(see Exhibit 3).

Around 2007, Ecuador’s national government executed a number of public policies to promote
the country’s cacao industry, including funding research on the most productive Forastero cacao
strains, workshops for Arriba Nacional dry cocoa, and soft loans for small growers. At the same
time, several private initiatives were launched to try to rescue the fine aroma native cocoa and to
position Ecuador’s chocolate industry as a world leader. As a result of its unique geographic fea-
tures, Ecuador combined the altitude, latitude, humidity, and soil types that allowed for growing
several cacao strains with differing flavors, even across its provinces. For example, beans from
Esmeraldas and Los Ríos differed from those grown in Manabí. These private efforts intended to
prevent the mix of cocoa from different origins to preserve their delicate, distinctive flavors and
Arriba Nacional cacao’s uniqueness. Along with Pacari, other private companies working on this
included República del Cacao and Caoni.

República del Cacao8

República del Cacao was a family business owned by the Chiribogas, Ecuadorian entrepreneurs
with over 50 years of experience in confectionary brand development in and outside the coun-
try. This company started operating in 2007, with the intent to safeguard fine aroma, Arriba Na-
cional cocoa against the proliferation of high-productivity, plague-resistant cacao varieties that
yielded lesser quality cocoa.

Since inception, the company sought to build a community that gathered the best cocoa in Ecua-
dor and position it as an international leader in the fine chocolate segment. To this end, República
del Cacao worked on the field with nearly 3,000 farmers, georeferencing their plantations. The
company used a little over 10% of its net profits to contribute to enhancing plantation producti-
vity and producing better raw materials with training courses, farm-held workshops on the best
manufacturing practices, and donations of advanced technology tools and machinery.

8
Authors’ interpretation of the information provided by Gonzalo Chiriboga, República del Cacao’s General Manager, during a personal inter-
p. 6 view held in October 2015.

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Additionally, the company owned a storage facility at Vinces, where it received beans for fermen-
tation and drying, carrying out both processes to avoid intermediaries. It manufactured chocolate
at a plant located in Quito that it had built in 2003 and expanded in 2013 and 2015. At every one
of these critical sites, a sensory panel consisting of 60 experts tasted bean quality and stability.
In 2014, the company raked in a 54% gross margin of its sales.9

República del Cacao marketed a broad product line at 30 wholly-owned boutique stores –20 in
Ecuador and 10 abroad, located at airports, shopping malls, and high-transit urban areas– which
brought in nearly USD 2.7 million in sales in Ecuador and USD 1.8 million abroad.10 The com-
pany estimated its administrative and marketing expenses, along with its store operating costs,
at 44% of its revenues. It also sold chocolate for industrial purposes in the domestic market, pos-
ting sales for slightly USD 1 million in 2014.

A key section at these stores housed a special display called “Entrepreneur’s Corner,” where en-
trepreneurs with cocoa-related ventures showcased their products and history in order to edu-
cate local consumers on the “golden bean’s” culture.

Company products included origin-labeled and 100%-pure chocolate, as well as products that
incorporated milk, flavors, and several fruits into bars, candy and truffles. República del Cacao
had received international awards from organizations specializing in fine chocolate and gourmet
lifestyles (Gayot, Cacao Authority, and Beatobar.be), as well as local institutions (Ecuador Cho-
colate Award).

In order to build a global competitive standing for the company, in 2012, the Chiriboga family
entered into an equity agreement with the Bongrains, a family that owned the French group ca-
lled Savencia Gourmet, with operations in over 70 countries and a renowned brand portfolio that
included globally noted brands such as Valrhona, La Maison du Chocolat, and Villars. In 2014,
the company reported chocolate exports to the tune of over $730,000.11

Caoni12

Caoni belonged to a group of investors –most of them Ecuadorian. Its origins dated back to 2006,
when three partners, amazed at cacao farmers’ work and the quality of their crops, decided to
venture into the chocolate business to produce a totally natural, fine chocolate with exotic flavors.
Caoni’s product lines included milk chocolate, origin-labeled dark chocolate, dark Amazonia cho-
colate, white chocolate, and a line of professional products. Amazonia and white chocolate pro-
ducts were mixed with passion fruit, macadamia nuts, goldenberries, and chips.

9
All financial data on the companies mentioned in this case have been drawn from EMIS Professional Database, Euromonitor Institutional In-
vestor.

10
Sales from boutique stores abroad were reported independently in every country.

11
All data on exports by the companies mentioned in this case have been drawn from InfoAduanas de CobusGroup’s database.

12
This section draws from secondary and public sources, as well as from the interview held with Roberto Bauer, Caoni’s General Manager, in
p. 7 January 2017.

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A Belgian chef elaborated the recipes for Caoni’s products, and its chocolates were manufactu-
red by a company based in Guayaquil, with a monthly capacity for 50 metric tons.13 As Roberto
Bauer noted,

It is very complicated to have a wholly-owned production plant in Ecuador. Most cho-

colate bar ingredients are commodities, and some, like sugar, have fixed prices that do
not follow market standards. In such a tough international market, we need to work very
hard to make Ecuador competitive.

Caoni made strong efforts to position its brands both domestically and internationally. The com-
pany only exported chocolate for end consumers, largely in Chile, Argentina and Brazil. However,
over 95% of its products catered to the local market. In 2014, the company posted over $650.000
in sales, with a 43% gross margin and net profit of 5% of revenues.

To show its commitment to community development, Caoni entered into a partnership with the
Working Youth Center, an initiative created by the Society of Jesus in 1964 to support low-inco-
me families to ensure, further and reformulate working children’s overall development. Caoni’s
origin-labeled, dark chocolates had received Ecuador Chocolate Awards, while three of its milk
and fruit products had been awarded one and two stars by the World Chocolate Awards.

PACARI’S BUSINESS MODEL14

Starting with Pacari’s very first sale in April 2008, Carla and Santiago strove to build a company
that embodied their dream to enhance and showcase Ecuador’s finest product: cocoa. Pacari
means “nature” or “dawn” in Quechua. Santiago pointed out, “Our company is committed to pro-
ducing quality chocolate, using only Ecuador’s finest, superior quality ingredients.” He referred
to “Arriba Nacional” cacao, and Pacari’s commitment hinged on the company’s careful, dedica-
ted efforts to monitor every step in its value chain.

Working with Farmers

Santiago used to say that the first credit awarded to Pacari was not granted by a bank but by far-
mers. During the company’s early years, an important U.S. client fell behind on its payments for
several months, jeopardizing Pacari’s liquidity and its ability to pay growers. As the company stru-
ggled to stay afloat and continue its operations, its suppliers chose to wait for Pacari to get back
on its feet. They told Santiago, “Don’t worry about us; we can wait: we have chickens and crops
to maintain our livelihood. You will pay us when you can.” Since then, the company decided to
find ways to repay farmers’ generosity.
13
This company, Tulicorp, started operating in 2000. Its business model hinged on strategic partnerships to manufacture products for over ten
brands, exporting to more than 20 countries around the world. To this end, it relied on dry cacao suppliers in several locations in Ecuador, who
sold their product for Tulicorp to press and mill in its facilities. According to Ecuador’s Corporate Bureau, the company posted revenues of
nearly $ 1.3 million in 2014, with net earnings at 2% of sales, and a gross margin of 25%. InfoAduanas data reported chocolate bar exports for
slightly over $ 960,000 that year.

p. 8
14
Authors’ interpretation of the information provided by Carla Barbotó and Santiago Peralta at an interview held in October 2015.

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From inception, Pacari chose to manufacture its products with organic raw materials, buying only
from farms certified according to the USDA Organic standards or Europe’s 2091/91 organic re-
gulation. Maintaining these certifications cost $50,000 a year. The company made its purchases
from two-to-five-hectare (five-to-12-acre) small farms located in the Los Ríos, Manabí, Guayas,
and Esmeraldas provinces. In June 2014, approximately 3,500 families worked at these farms.
Working with small growers, Pacari managed to keep a more stringent control over bean quality
–for instance, assuring bean maturity or natural cacao pollination to safeguard seed genetics and
flavor, as well as to prevent mixes with cocoa from other origins. Also, the company encouraged
farmers to follow the notion of natural limitation, striking a balance between environmental care
and profitability by means of sustainable land exploitation.

Pacari often helped growers to control humidity during the fermentation process and offered
micro-loans to support farmers’ use of drying facilities. It also provided technical assistance, for
example training growers on cacao plant grafting to naturally prevent “lazy growth” –large trees
with relatively low output rate.

Additionally, the company supported farming schools in the two Ecuadorian regions where it
sourced its cacao, offering an organic methodology curriculum and donating IT labs. Technology
donations were made possible as a result of company clients’ and partners’ support. Over time,
these processes helped farmers to improve product quality and to secure better prices for their
output. Once, a grower called Santiago to report that another Ecuadorian company had approa-
ched him to purchase his cacao. “Go ahead, sell your product, but ask for a fair price. If this com-
pany pays it, it means that it wants to do business properly and values quality,” Santiago replied.
Months later, he learned that Pacari’s competitor had paid the price asked by the farmer.

Pacari sought to bolster local economies to benefit communities and everyone involved in the
production process. Accordingly, its business relationships were based on trust and commitment,
as the company paid a premium price to farmers in order to ensure their compliance with sustai-
nable and organic practices. In fact, while a kilo of non-certified dried cacao fetched an average
price of $1.90, Pacari paid $4.00 per kilo of certified, organic, Nacional Arriba cacao. Farmers
took pride in selling their crops to this company, as they knew these raw materials were used to
manufacture a world-renowned chocolate in Ecuador.

While, at first, Santiago and Carla handled bean purchases, later other company employees were
trained to do that. The company purchased directly from farmers, using its own vehicles to trans-
port the beans and storing at Pacari’s warehouses in Quito. Despite the emergence of other com-
panies looking for superior quality cocoa, Santiago believed that bean supply still exceed demand
greatly.

Industrialization and Manufacturing

Pacari baked and milled the beans with its own equipment, producing cocoa liquor and other
p. 9 byproducts. Its product portfolio included chocolate bars, powder cocoa, and products for bakers

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and chocolatiers. In late 2014, its exports added up to over $ 1.5 million, and important Italian
and Croatian players received awards for using couverture chocolate manufactured by Pacari.

In the chocolate bar market, the company chose to focus on the premium, dark chocolate seg-
ment, concentrating particularly in origin-labeled chocolates with traditional Ecuadorian flavors,
such as lemon beebrush, pepper, goldenberries, and roses. Santiago reported that Pacari’s pe-
ppermint-flavored chocolate was favored by U.S. talk-show hostess and actress Oprah Winfrey.
Among other efforts, the company created a cooperative at Cotacachi, engaging 100 Quechua
women from an isolated community and training them to grow and dehydrate organic golden-
berries. These fruits were used to manufacture some of Pacari’s best-selling bars and chocolates.

Pacari manufactured its products at a wholly-owned plant. “To compete at the world’s major
gourmet chocolate leagues, you need to control the entire process,” sentenced Santiago. By late
2014, the company sold its products to over 27 countries, and Europe stood as its largest export
market, led by Italy, the Netherlands, and Switzerland. Its bar exports totaled a little over $1.5
million in 2014.

Marketing

While Pacari intended to export its products to the demanding international market, its bars and
powder cocoa were also sold at Ecuador’s largest retail chain, Supermaxi, where both products’
sales exceeded USD 2.5 million in late 2014. In September that year, customers paid, on avera-
ge, $2.01 for a 50-gram Pacari bar, $2.27 for a similar Caoni bar, and $6.73 for a 75-gram Repú-
blica del Cacao bar. Both domestically and internationally, product sales featured the same gross
profit margin, around 31% in late 2014, but the cash turnover rate proved lower in the domestic
market, while administrative and marketing expenses neared 25% of sales.

The company’s consumer insights indicated that its customers may qualify as gourmet foodies,
as they appreciated knowing where products came from; vegans, who watched their sugar intake;
people with a focus on a healthy lifestyle (such as yogis), and tourists looking for a local brand
and product when they visited Ecuador.

In 2012-2015, Pacari’s chocolate bars boasted over 116 Gold, Silver and Bronze prizes from the In-
ternational Chocolate Awards, a private initiative launched by chocolate experts and connoisseurs
that blind-tasted products from around the world. Also, in 2014, the company won, for the fourth
consecutive year, the Ecuadorian Exporters Federation’s award for the best Medium-Sized Ex-
porting Company and was recognized for actively driving change in Ecuador’s productive matrix.

MOVING FORWARD
As they savored a Pacari beebrush-flavored chocolate bar, gold-prize winner at the 2014 Interna-
tional Chocolate Awards del 2014, Santiago and Carla pondered the company’s contribution to
p. 10 Ecuador’s cacao industry transformation. Had they managed make their dream come true, buil-

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ding a company that created economic, social and environmental value? Had the time come to
become more aggressive to bring greater profits for farmers and to keep more of the company’s
income in Ecuador? Would a chain of wholly-owned stores help Pacari to accomplish this goal?
They both knew that they would not let financial concerns turn their focus away from Pacari’s
core purpose. “Companies that work in this business only to make money lost their way long ago.
It’s like the story of a Portuguese fellow who traveled to Paris by land, and, obsessed with getting
there as fast as possible, he failed to notice he had gone through Coimbra, Salamanca and Or-
leans –all very beautiful cities. To us, enjoying the journey is what matters the most. This is what
we try to do at Pacari every day.”

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Exhibit 1: Major Chocolate Consu-

mers (per-capita yearly pounds)

Exhibits’
Section France 9.3

United States 9.5

Netherlands 10.4

Australia 10.8

Sweden 11.9

Norway 14.6

United Kingdom 16.3

Ireland 16.3

Germany 17.4

Switzerland 19.8

0 5 10 15 20 25

Source: Elaborated by the authors, based on Euromonitor International (2015).

Exhibit 2: Supply Costs and Selling

Values per Ton of End Product, 2014

Cost Selling Value

Farmers $ 664 $ 1,874
Transport, taxes, and tariffs $ 1,874 $ 3,038
Industrialization $ 3,038 $ 4,434
Manufacturers $ 4,434 $ 10,858
Retailers $10,858 $ 18,917
Source: Elaborated by the authors, based on Fountain, A.C., and Hütz-Adams, F. (2015).

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Exhibit 3: Ecuador’s Exports –Ca-

cao Beans, Semi-Elaborated Products,
and End Products - (USD FOB values)

Exhibits’
Section 2009 2015
Cacao beans $ 323,892,684.35 $ 785,106,420.39
Intermediate products $ 3,957,952.51 $ 21,080,185.12
End products $ 30,028,632.85 $ 56,768,285.99
$ 357,879,269.71 $ 862,954,891.50
Source: Elaborated by the authors, based on InfoAduanas Cobus 1.0. (2017).

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Cas0: BL0003

SOURCES
≈ Asociación Nacional de Exportadores de Cacao (2015), Historia del Cacao, available
at http://www.anecacao.com/es/quienes-somos/historia-del-cacao.html, accessed
on September 18, 2015.
≈ Barbotó C. and Peralta, S. (2014), Pacari’s President and General Manager, respecti-
vely. Personal interview held by the authors on October 1, 2015.
≈ Bauer, R. (2017), Caoni’s General Manager. Personal interview held by the authors on
January 26, 2017.
≈ Chiriboga G. (2016), República del Cacao’ s General Manager. Personal interview held
by the authors on July 13, 2016.
≈ EMIS Professional (2017), Professional database. Bogotá: Euromonitor Institutional
Investor.
≈ Euromonitor International (2015), several studies, Santiago de Chile: Passport.
≈ Fountain, A.C. and Hütz-Adams, F. (2015), Cocoa Barometer 2015-USA Edition, avai-
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≈ Hosafci, Pinar (2014), Single-Origin Chocolate: The Future of Premium Chocolate
Confectionery Foretold, Santiago de Chile: Passport.
≈ Hütz-Adams, F. and Fountain, A.C. (2012), Cocoa Barometer 2012, available at http://
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≈ InfoAduanas Cobus 1.0 (2017). Professional database. Buenos Aires: CobusGroup Com-
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≈ International Cocoa Organization (2015), institutional website, accessed several times
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≈ El Agro magazine (2013), El cacao en la economía del Ecuador, available at http://
www.revistaelagro.com/2013/03/20/el-cacao-en-la-economia-del-ecuador/, acces-
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≈ Sidwell, M. (2008). Unfair Trade, London: Adam Smith Institute.
≈ World Cocoa Foundation (2015), institutional website, “Cocoa Value Chain,” availa-
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on September 18, 2015.

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