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United Cacao shares soar on plan which may double sales

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Shares in United Cacao jumped 8% after the two-year-old group revealed plans to accelerate its growth as a cocoa producer through signing up small farmers to supply beans to the group.

United Cacao, which is targeting planting 3,250 hectares of its own land in Peru with cocoa trees, said that it hoped to persuade local growers over at least the same growing area to grow the CCN-51 variety that it prizes.

The scheme, called Programa Alianza Producción Estratégica Cacao, or Papec, would see United Cacao extend low-cost financing to allow small farmers plant CCN-51, and would then purchase beans for fermentation and drying, at a company plant to be opened later this year.

The scheme, which United Cacao chairman Dennis Melka termed an "incredibly powerful initiative", will allow the group "to significantly increase its revenues over the long-term by expanding its planted area… to a total of 6,500 hectares.

Local farmers' representative Jaime Javier Garcia local farmers association, said that Papec would "take hundreds of families out of poverty in the years ahead".

Palm precedent

The model of tying in local farmers is already common in the palm oil sector, which Mr Melka gained experience of in his previous role as head of Asian Plantations, the Malaysian-based group bought by Felda Global Ventures last year.

Smallholders will receive cash for the purchase of seedlings, fertiliser and equipment, with the loan paid back from revenues generated from the sale of cocoa beans to United Cacao.

The scheme's initial target is to extend financing for 150 families to plant a hectare each, by the end of 2015.

United Cacao loans will be secured against the land of farmers signing up to Papec, over which the group is in talks with banks over funding support.

Market reaction

At broker VSA Capital Edward Hugo flagged the costs of Papec which, even for the first 150 hectares signed up, would mean a capital commitment of some $1.4m, assuming development costs of about $9,000 per hectare.

And "initial revenue contribution from this scheme will likely be up to three years away given the time taken from planting to first harvest", Mr Hugo said.

However, the scheme did have the potential for doubling United Cacao's revenue potential, assuming sowings on 3,250 hectares, although with lower profitability potential.

"Given United Cacao will be purchasing wet beans at a specific percentage of the world price, margins will of course be much lower (at circa 25%) than from its own production (at 50-60%)," Mr Hugo said.

United Cacao shares closed up 7.9% at 207p in London.

By Agrimoney.com

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