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An Exotic Tale
Tuesday 3 August 2004
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Ian Campbell

 Part 1: Illipe - The Uncertain Crop

Ian Campbell is an independent consultant in the field of CBEs and Speciality Fats with particular emphasis on the acquisition and processing of exotic fats. He gained his experience in this field with Unilever in Canada, and Loders & Nucoline/Loders Croklaan in the UK and the Netherlands, where, among other things, he was responsible for the acquisition of raw materials for their CBE business during a period of expanding markets. Development of origin commercialisation of exotic raw materials to reduce the risk of crop deficits was an important element in this acquisition activity.
This is the first of four articles on the history of the supply of exotic fats. Subsequent articles will cover shea, sal and other Indian fats. The final article will give an update on the current supply position.

1 Early Days
Once upon a time when life was much simpler and the European Commission only a politician’s fanciful dream, some bright boffin at one of our much-loved multinationals dreamed up an alternative to cocoa butter for chocolate applications. This concoction, a blend of palm oil fractions and certain exotic fats, was not only chemically equivalent to cocoa butter, but was considerably cheaper. A potential gold mine, with the sweet tooth of the Western consumer driving chocolate consumption ever higher. Such products, unsurprisingly, came to be known as Cocoa Butter Equivalents or CBEs. Our more mature readers may remember the first CBE named Coberine. Legend has it that this product was initially christened “Coburine”, until it was pointed out by one of the sales agents that a “cob” is a type of draught horse and customers might therefore balk at the inclusion of horse urine in their confectionery, when the “u” was hastily substituted by an “e” in the product name. From such inauspicious beginnings a global market developed!
To protect and nurture this infant chocolate ingredient, product and process patents were swiftly established and the appropriate authorities in the UK were successfully lobbied to permit the definition of chocolate to include CBEs up to a level of 5% by weight, to replace fat in chocolate. Palm oil, being available in plenty, our innovative multinational concentrated its considerable resources on identifying and locating those few exotic fats containing the right triglyceride composition, suitable for the production of CBEs.

2 Into Borneo
The first suitable exotic fat to be identified was illipe fat or Borneo tallow. This fat was obtained from the illipe nut collected by the local people in the Malaysian and Indonesian areas of the Island of Borneo - Sarawak and Kalimantan respectively. The fat, which was not in high demand and hence relatively cheap, was used in cooking or candle making or was exported for soap and other industrial applications. Otherwise, the uncollected illipe nuts were left uncollected on the ground, and sustained the vast population of wild boar, whose meat was, and still is, an extremely popular local dish.
To our multinational, all this seemed too good to be true. Not only did the illipe nuts contain high levels of extractable fat (up to 50%) with the desired triglyceride characteristics, but also they were available in abundance. Additionally, the population could be motivated to collect at reasonable cost, thus providing themselves with an additional source of income. Everyone (apart from the wild boar) gained!
The development of an efficient network to commercialise the illipe crop, was a formidable undertaking. Efforts were initially concentrated on Sarawak. Obviously it was impractical to deal directly with the local people and reliable middlemen or agents, having good relationships with them plus the ability to organise the collection and husbandry of the crop, had to be found. It quickly became apparent that, without the co-operation of the resident Chinese traders, illipe commercialisation would not be a viable proposition. These gentlemen controlled the economies in their areas of influence. They were, I suppose, rather similar to the traders who opened up the American West. They would sell a variety of goods to the local people on credit. Items such as chain saws, outboard motors, tools and implements. They in turn, to repay the credit advance, would deliver exportable commodities such as pepper, cocoa or rattan. It was not difficult to surmise that illipe nuts could easily be added to the list.
The major international commodities company doing business with the local Chinese traders was a company named Czarnikow, known primarily for its trading in sugar. Czarnikow was a well-respected name in the field of commodities and, moreover, was located in London with an office in Singapore. They had excellent relationships with the Chinese families in Sarawak and were experienced in commercialising crops such as illipe. A marriage between our intrepid multinational and Czarnikow in the area of illipe was agreed. Czarnikow would persuade their Chinese friends to organise the collection and shipment of illipe nuts. The multinational would provide technical backup and personnel, advise on husbandry (storage, drying ) and also provide drying machines to the Chinese. Thus was the marriage consummated. To provide an incentive for good quality, increasing premiums were paid for lower FFA levels under an agreed basis.

3 An International Supply Chain
A supply chain had been established. The trees generally flower during the September/November period, but are extremely sensitive to the weather. Too heavy rain, too high winds, too dry conditions, all have the potential to destroy the flowers. Flowering indicates a crop of sorts, perhaps good, perhaps bad. It all depends on the subsequent weather. Often there is no flowering. Again this may be due to adverse weather conditions during the summer months. For example, the onset of El Nino will reverse the weather patterns conducive to flowering. Trees rarely flower two years in succession. It seems they need at least one year to recover from their efforts in the previous year. Similarly, no single area can be expected to yield a harvest following a year of plentiful supply.
The fruit forms during December and January, by which time the approximate potential of the crop is established. In those distant times there was little logging in Sarawak and West Kalimantan. Collection by the local villagers was fairly easy. Many of the illipe trees grew on the river banks. There were few roads or tracks and all transport was by water. The fruit would fall to the ground or directly into the water where the villagers would harvest or net them from the water. The nuts were cracked and then the kernels were sun- or smoke-dried to reduce moisture content which could be as high as 40 - 50%. This process reduced the moisture levels to 15 - 20%. This was important as the previous local practice of either soaking the nuts in water for long periods (apparently in the belief that this increased fat levels), or storing them in pits otherwise doubling as urinals, did little to enhance their quality. The nuts were then bagged for the trip down river to the Chinese trader’s warehouse, often via local shopkeepers who had close relationships with these main traders. There they were de-bagged and dried by machine to stabilise the FFA at about 7% by reducing the moisture level to 10% or below. They were re-bagged and shipped down river to the nearest port where they were transferred to coasters destined for Singapore and hence to the UK.
The establishment of prices really started when the size of the potential collection was known. This involved individuals from both our multinational and Czarnikow travelling to the interior of Sarawak to assess this potential. Discussions with the local traders, shopkeepers and the collectors in the long houses, established the crop potential and the price levels which would need to be paid to compete with other collection opportunities such as pepper, cocoa, rattan and later, casual wage rates and logging. Often, pre-collection commitments were made with the Chinese traders for a certain tonnage at an agreed price in order that they could guarantee a price level and tonnage to the local collectors. If demand was strong, then prices were raised to compensate the local villagers for moving deeper into the forest to collect. Often the collectors would camp out for many days in the more inaccessible areas.
Once the commercialisation was under way in Sarawak, our pioneering multinational turned its attention to West Kalimantan, where the potential collection quantities were somewhat larger. Here they were assisted by their local company and contacts in the development of the trade. Associated companies being what they are, this arrangement was generally not satisfactory, and Czarnikow was given the brief to develop reliable contacts in West Kalimantan and Singapore who would organise collection and trade. This they did, following a similar route as in Sarawak, and several reliable suppliers were established.

4 More CBE Producers
Meanwhile, back in the UK, the situation with regard to CBEs was changing. Patents were expiring, opening up the opportunity for increased competition within a growing market. Scandinavian authorities were persuaded to follow the UK vegetable fats route and processes were established for CBE production. As did their ancestors, the Vikings invaded the UK market, much to the delight of the large chocolate producers, and provided alternative sources of CBEs. Thus far the UK, Sweden, Denmark and Eire had permitted vegetable fats in chocolate. The rest of Europe turned up their collective noses at the eagerness of these countries to “contaminate” the “purity” of chocolate.
Our inscrutable friends in Japan were not so dismissive. They adopted the inclusion of vegetable fats in chocolate with enthusiasm. For some time they had been disputing patents with our UK multinational, and they were not to be thwarted. Inscrutable they might be but certainly not tardy. Factories were erected, the Japanese consumer prepared, cosy relationships were established and in no time at all the Japanese market was sewn up. No opportunities there for the invasive Vikings or, indeed, anyone else.

5 Names
Time to name names I guess. No surprises here. Loders & Nucoline (Unilever) dominated the UK market. Aarhus supplied local markets and moved rapidly to compete with Unilever in the UK. The growing, and protected, Japanese market was the domain of Fuji Oils. There we have it. Three main players to divide the world between them. In those distant times there were some small export markets which all fiercely competed for, while treating each other with gentlemanly respect in their larger domestic markets. Cocoa butter prices were firm, palm oil was relatively cheap and CBEs could be sold at a discount to cocoa butter and still command large profits. The future looked rosy.
The only fly in this utopian ointment was the variability of illipe supplies. Crops were infrequent, prices were volatile and large strategic stocks had to be maintained to hedge risk. Never mind, this major inconvenience had been recognised during the time of the patent wars, and another source of the right triglyceride profile had been identified. This was shea from West Africa - another saga.

 Part 2: Shea - The Plentiful Crop

1 Early Days
During the early 1970s a combination of growing CBE markets and the uncertainty associated with illipe crops of varying sizes led CBE manufacturers to explore alternative sources of so called SOS fats. Shea from West Africa was finally identified as the best alternative. This raw material was more difficult to process than illipe, as solvent fractionation was required to produce the stearin used in CBE recipes. However, this apparent drawback was a major advantage in the long-term development of the CBE market, as solvent fractionation was extremely expensive and sophisticated (for its time). This acted as a barrier to entry into the market by would be competitors and ensured a rather cosy monopoly, certainly in the large UK and Japanese markets. The presence of at least two exotic fats in recipes and the mystery of “solvent” fractionation also gave the CBEs an aura of “technical mystique” not associated with the competing commodity of common cocoa butter which the CBE producers unashamedly exploited
The CBE market was growing so fast and potential margins so mouth watering, that our big three producers (Loders & Nucoline, Aarhus and Fuji) could not quite believe their good fortune. It really was a seller’s market and the sellers called the shots! In the large UK market only three main grades of CBEs were available, defined by their varying discounts to cocoa butter. This limited product range meant long and low cost production runs - a further contribution to margins. There was a major shift in strategy from “market development of CBEs” to “acquisition of exotic raw materials”. Shea was key to this strategy.
Shea trees were to be found in the sub-Saharan belt stretching from Guinea in the West to Chad in the East. The potential crop of shea nuts (kernels) was estimated at one million tonnes per annum, most of which was left to rot on the ground. Here was an unused and abundant source of SOS fat just waiting to be gathered in. Manna from Heaven!
Up to that time, the major use of shea butter was local. The nuts were collected by the village women on their way to their work in the fields, placed in heaps and then collected in baskets on the return route. They were roasted or boiled to facilitate the removal of shell and then ground by stones to produce crude butter - again by the village women (and children) - where were the men? Although the oil or butter content of the kernel was close to 50%, this primitive process could only yield 10 to 15%.
This artisan butter had many applications, some real, some illusory. Its main edible application was as cooking oil, sometimes combined with crude (red) palm oil. This is an acquired taste as the author can testify, but is still in popular use throughout West Africa. Cosmetic applications were many. In particular it was used to soften the skin of the village women and their babies to keep their skin moist in the hot dry sun. Medicinally, its use included application to the joints to ease arthritis or rheumatism. Candles and soap were made from it. Those readers who may be follicly challenged will be interested to know that frequent application to the affected area was said to promote abundant hair growth. On a more mystical note, it was also believed by some misguided, and now sadly departed, members of a rebel movement (in Uganda?), that smearing their bodies with shea butter would protect them from the weapons of their enemies. A shortage of manpower led to the failure of the rebellion.

2 Into Africa
However, we digress. Demand for shea was increasing from Europe and Japan and the trade was mainly handled by European-based dealers (the name Fischel springs to mind). Scandinavian and Japanese CBE producers were quick to establish trading relationships with these dealers to mop up most of the available shea. Unilever, who by that time had formed ISD (International Specialities Division) encompassing Loders & Nucoline and a recently acquired Croklaan, were slow to react and found themselves with a potential shortage of this critical material. There was just not enough to go around. Their needs were high compared with their competitors and they were not prepared to rely on the European trade to stimulate further the commercialisation of shea. Following their successful formula for development of illipe, they decided to go direct to origin for their supplies. Difficulties abounded. There were problems associated with a rather “fluid” political climate in West Africa. Regimes had a habit of changing without warning and imposing restrictions on trading and exports. How to motivate villagers to collect? How to develop an effective domestic trading and logistic network? How to maintain good relations with Government ministers to ensure continuity of supply? ISD turned to TPS (Tropical Product Sales), a Unilever trading company located in Brussels, with commercial contacts throughout West Africa. TPS identified those countries with the greatest potential as Upper Volta (now Burkina Faso), Mali and Nigeria.
At that time, Upper Volta had the West African version of a Marxist government. Virtually all trading for export was controlled by a marketing board known as Caisse de Stabilisation or more simply as the Caistab. This board controlled commodity prices and logistics. In short, the collectors were paid a price established by the Caistab who, with the assistance of the Finance Ministry, contracted with interested parties for export. TPS, on behalf of ISD, proposed an annual contract with the Caistab/Upper Volta government for shea nuts. Following an assessment of crop size, quantity and price would be discussed and agreed, together with quality incentives, measured by oil content and FFA levels. Technical assistance was provided on the ground to local dealers to ensure proper treatment and storage to stabilise quality. All parties were happy with the arrangement, which greatly increased the availability of shea. The villagers received an additional income from their collection, at guaranteed prices. The Upper Volta government gained revenue from their increased exports (At one point shea was their largest export commodity). ISD secured their requirements of shea. All very well, but the phrase “all your eggs in one basket” comes to mind. “Pas de problem” as the locals are wont to say. Unfortunately as some of you will know from bitter experience, “pas de problem” can often be translated as “start worrying!”
This cosy arrangement predictably fell foul of a combination of political instability, broken promises and changing political alliances. Furthermore, local and European traders were agitating for their share of the action as demand by Aarhus and Fuji increased. For ISD there were fewer and fewer eggs in the proverbial basket. No matter. TPS did not let the grass grow under their feet and wasted no time by turning to neighbouring Mali to supplement supplies. Here the trade was free from government interference. An influential local trader was identified and annual contracts agreed upon - again sizeable. The addition of generous pre-financing completed the deal. This was fine as long as the collection well exceeded the contract quantity. Pas de problem! However, again, this idyllic situation did not last. A couple of over optimistic crop estimates with attendant difficulties in recovery of pre-financing and quality (high moisture), brought this arrangement to an early demise.
All was not lost, as TPS, wise in the ways of West Africa, had meantime been developing alternative sources in Ivory Coast (where the trade was liberalised), and Togo, Benin and Ghana (marketing boards). Upper Volta, where the trade had now been partially liberalised, also again yielded potential, as did Nigeria where the collection and trading of shea was dealt with by the (infamous) Groundnut Board who had one spectacularly successful season followed by one equally unspectacular. History really does repeat itself!
As in Mali, a key element of the TPS development strategy was the provision of pre-financing - money up front prior to export - later copied by their competitors. A pre-season contract would be agreed with a reliable supplier as to price and quality terms. Sometimes the volume was fixed in advance, but more often a maximum tonnage was agreed or there was even no limit set. TPS would agree to pay, say, 70% of the FOB value against the security of warehouse warrants, with the balance, including adjustment for quality premiums/penalties, payable against documents upon shipment. The supplier would use this contract with his local bank in Abidjan (who would obtain further assurances from TPS European bank) as security for advance of credit, to be used to pay the collectors. This bridged the financing gap borne by the trader from time of payment to the village collector to receipt of monies from his customer upon presentation of documents on shipment, sometimes up to three months. There was no shortage of shea nuts but certainly an acute shortage of financing. Shea nuts would not flow in quantity down to the port without the prior flow of cash in the opposite direction. In this way TPS built up a reliable and loyal network of suppliers.

3 Commercial Realities
Meanwhile, ISD’s Scandinavian and Japanese competitors had not been sitting on their collective hands. The latter organised their buying activities in Ivory Coast where they traded locally with a number of West African suppliers. The former had continued to develop their relationships with the major European and local traders, who established their own supply networks and contacts in the various shea-producing countries. This initial thrust by ISD plus those activities by their competitors effectively completed the commercialisation of shea nuts in West Africa by the early 1980s. Demand was high from ISD, Aarhus, Fuji and now Karlshamns and Kaneka.
The road to this level of commercialisation rather mirrored the reality of West African highways. Uneven, bumpy in the extreme, full of potholes and strewn with wrecks of those who had been unable to safely navigate the hazards. A clash of European and West African business cultures inevitably led to disputes and problems of one sort or another. To a European buyer “the contract” is sacrosanct. There can be no argument. A contract is a contract is a contract - period. To the African trader, on the other hand, who has to balance the uncertainties of collection, varying local prices, changing loyalties, weather influence and transport logistics, the contract is more of a letter of intent. Providing all goes well, he will certainly fulfil his contract. He relies on his profit from the contract to finance his next venture and so on. Any major loss on a contract might well sink him. If local prices rise above the contract selling price, or if collection is curtailed resulting in a contract shortfall, then he expects his buyer to understand and share the pain. He expects to renegotiate a higher selling price or a carry over of tonnage shortfall to the next crop.
TPS and European traders, experienced in the ways of West Africa, understood this. It took some time for their CBE-producing clients to accept this “African” approach to business. In the meantime relationships between end buyers and suppliers were fragile, to say the least. Arguments and disputes over perceived intentions were numerous and some relationships sustained permanent damage. Quality became a major issue. Shea nuts are not homogeneous and samples taken at ports of shipment were often not representative of the parcel on arrival at destination. Constant disputes over quality premiums or penalties were common place. All this, of course, interfered with the smooth flow of shea nuts - not helpful at a time when the CBE market was on the increase.
Many local traders perished in the labyrinth of financing. They overreached themselves and could not pay their debts to the banks. Some fell out of political favour or changing governments directed their patronage elsewhere. Some were too greedy or corrupt and were abandoned by their clients or their banks. Others were just too naive or inexperienced.
The hazards to the CBE producers were not always caused by the local West African traders. The European traders were certainly not blameless and, not to be left out, tried to capitalise in poor crop scenarios, by forming a cartel, cornering the market and driving up prices to the vulnerable CBE producers. Not entirely successfully, as it turned out, but a major problem at the time. This rather shortsighted action certainly contributed to their eventual demise.
All this had a knock-on effect and added to the uncertainty of the end buyers - the CBE producers. With the expanding CBE markets, they could not afford to be caught short and reacted by amassing large strategic stocks - twelve months or more, and increasing their “on the ground” information. Both ISD and Aarhus had their own man travelling in West Africa for much of the year. This representative would gauge the political wind, maintain important contacts in government or marketing boards, obtain and report on competitive activity (exports, prices etc.), maintain good relationships with loyal traders and generally ensure his bosses were aware of any threats to their interests or opportunities to capitalise upon.
Travel was not easy. Flights could be delayed for days and planes were often quite unsafe. Borders were frequently closed, preventing entry or trapping foreigners within the country. Hotels, although pre-booked, would give rooms away to those prepared to “pay”. Corruption at airport Customs was endemic. Travel by road entailed frequent stops at checkpoints as local militia sought to supplement their meagre or non-existent pay with “tolls”. These “shea travellers” deserve an honourable mention in any story concerning the commercialisation of shea. The information flow and relationships they established were critical to both ISD’s and Aarhus’ acquisition strategies, which accounted for close to 70% of all shea nut exports.

4 Increased Demand
During the early 1980s there were two important developments in Global CBE markets. Firstly a breakthrough had been achieved in USSR and Eastern Bloc markets - particularly in Russia where the traditional “sweet tooth” had finally overcome Communist suspicion of all things Western. The Iron Curtain was breached to the extent of some 14,000 tonnes of CBEs. Secondly, the “supercoating” concept had taken off in the UK market. This was where cocoa butter contained in confectionery coatings was replaced with up to 100% CBE, and marketed as a “brand” with no reference to “chocolate”. This avoided conflict with the legal definition of “chocolate”. A neat trick you will agree! The global CBE market reached annual levels of over 50,000 tonnes. There was even more pressure to increase acquisition of shea nuts. ISD was rebranded Loders Croklaan.
In West Africa, events were taking a different turn. Upper Volta was rebranded Burkina Faso. The number of traders proliferated. Governments encouraged the erection of shea processing factories to produce crude butter for export. Shea nuts were diverted to these factories at the expense of exports making it more difficult for CBE producers to secure supplies. These factories, with one exception, were all based on expelling only, with crude butter yields of some 33% at best, as opposed to those in Europe and Japan whose integrated expelling/extraction facilities yielded close to 48%. Not helpful to the overall availability of shea butter. Governments had woken up to the potential of shea and, governments being governments, could not resist interfering in the trade to the detriment of all concerned. We, in Europe, can perhaps sympathise with our West African colleagues in this regard.
To help meet demand further investigations were made into sources of SOS material, and here India rode to the rescue on a chariot of sal. More about this in a future article. However, this was the era when a number of raw materials were investigated, which probably merit mention here. Aceituno oil from Central America was one promising product and used by Unilever in the early years. Problem was they would not pay a high enough price for collectors to brave the dangers of the forest. Other more lucrative and safer activities were available to the local people. Allanblackia nuts from East Africa seemed ideal. They were similar to illipe nuts and could be collected as a second activity by tea plantation workers. Not enough tea plantations to warrant the effort, although a limited quantity was eventually exported to UK and processed. Pentadesma from West Africa had promise, but following a season’s collection of some five or six bags in Sierra Leone, it was not difficult to come to a termination decision. China contributed a product known as Chinese vegetable tallow which grew in the wild and which had properties similar to an excellent palm mid-fraction. Sadly the nut was found to contain two oils, a toxic industrial oil in the mesocarp and vegetable tallow in the kernel, which tended to get intermixed during processing. Not the best feedstock for an edible product. So, no alternative but back to shea.
Up to the mid 1980s the supply of shea roughly equated with demand, large strategic stocks held by CBE producers acting as a buffer to cover any deficits. Prices had remained stable and all seemed rosy. However this rosy scenario was rudely interrupted by a disastrous crop - only about 10-15% of the average. Prices had increased by two to three times by the time the dust had settled and local traders had demanded and been paid their ransom. As strategic stocks were depleted, CBE producers had to cope with extreme shortage of exotic material, to the point where they were even reduced to extending their products with expensive cocoa butter.
Driven by the high prices, the following season’s collection was a record - two to three times normal. Local traders paid high prices to collectors to secure the large tonnage required by the CBE trade. Although CBE producers paid the high prices at the start of the season, once they became aware of the sheer size of the collection, they quickly lowered their buying prices dramatically. Prices more than halved - a disaster for the local traders, who were left with high-priced stocks and an inability to repay financing to the banks. A supreme example of negative equity. The buyers secured all they needed to rebuild their strategic stocks, leaving a large unsold surplus to be sold on local markets at distress prices. Only some of the larger traders survived.

5 Disaster Strikes!
But, times they were a changing. In 1985 cocoa butter prices had peaked at over £4,000 per tonne. Supercoating was in full swing and the Russian sweet tooth was eager for more. CBE margins were excellent and had attracted other players such as van de Mortele and Asahi Denka. There they all were, surfing the crest of the CBE wave as it rolled majestically on its way. But waves have to break at some point, and sadly, there was to be no exception. Cocoa butter and consequently CBE prices declined sharply throughout the last half of the 80’s. As CBE discounts to cocoa butter, which had been as high as £1,000 per tonne, declined, the supercoating concept became unattractive and chocolate producers reverted to the “chocolate” designation on their packaging, a major blow to the UK CBE market.
Milk Fat Replacers (MFRs) were introduced to the UK chocolate producers, utilising the 5% legislation to replace milk fat in chocolate rather than what was now, less expensive cocoa butter. These products were mainly palm oil based and used little or no exotic fats; a further blow to CBEs and to exotics consumption.
Finally, the coup de grace. Russia ran out of hard currency and could not meet their contract commitments. The USSR CBE market vanished almost overnight. CBE producers, who had bought shea and other exotics on the assumption that the USSR market would continue to fill their coffers, were suddenly left with huge surplus stocks of exotics.
The effect on shea consumption was tragic and by the end of the 80’s early 90’s prices touched levels which barely allowed any return to the collecting villagers. The boom times were over. There was a complete shake out in progress. The trade was more or less completely liberalised throughout West Africa as governments saw the light and embraced the capitalist concept, or as some commentators rather cynically put it, off loaded this rather unwelcome burden on to the private sector. The road was littered with the victims of the price collapse and the number of surviving traders was declining rapidly. The European traders were also declining as CBE producers turned to origin traders to avoid paying middlemen margins. It became, and still is, a buyer’s market. CBE producers could now call the shots. Contract terms were adjusted to measure quality on arrival at destination (rather than on shipment). Maximum FFA levels were imposed on arrival with rejection a viable option, exercised on occasion. Consumption stabilised at levels well short of collection potential and prices remained depressed.

6 Aftermath
So there we are, by the early to mid 1990s, with declining CBE markets, surplus CBE production capacity, and depressed demand for exotics, all within the sad scenario of some of the lowest cocoa prices in history. But, our bloodied band of CBE producers was not defeated. A recipe of cost reduction, innovation and sheer determination would secure their survival in this much reduced but more mature market. As we shall see.
Meanwhile the parallel story of the development of our final exotic fat needs telling. “Sal - The Indian Connection” will be the subject of my next article. Stay tuned!

 Part 3: Sal - The Indian Connection

1 Background
Those of you with the stamina to wade through my previous article “Shea - The Plentiful Crop” without nodding off, will recollect that the late 1970s and early 1980s were characterised by a surge in demand for CBEs, which in turn drove the search for further sources of SOS material to complement illipe and shea. Those of you who lacked the staying power, or who missed it for whatever reason, should log on to the Britannia web site to update. Suffice to say that the extra demand was driven mainly by developments in the UK (supercoating) and USSR (final acceptance of CBEs).
Where was this SOS material to come from? Sources from Malaysia, Indonesia and West Africa were exhausted. Where else, but from India, the land which had already given us a completely new exotic and varied cuisine. There, in the forests of Orissa and Madhya Pradesh, grew the sal tree, revered by the gods and a source of oil for the production of soap and vanaspati. Sal oil was a domestic commodity. It did not seem to have any major export potential. Only the meal, which had no nutritional value, was exported to Europe as a filler for bulking out animal feed. The oil did however contain high levels of SOS, which needless to say, greatly interested our expanding CBE producers.
History is hazy at this point. As with all history, there are many interpretations of events depending on the bias of the narrator. The author can only describe his recollection of the beginnings of sal as an established fat for CBEs from his own bias or viewpoint, that of a buyer and then a trader of the commodity during from early 1980s to the present day. So to the task!

2 Into India
The sal fruit, which has wings, falls to the ground from the tree, and is collected from the forest floor by the local people, prior to the arrival of the monsoon in mid June. The local people take the fruit to godowns where it is spread on the ground to dry.
Following drying, the seed is burned or scorched to remove the wings and the resulting seed is then winnowed to remove the shell. The kernel is then stored in dry conditions at the government godown, awaiting transport to buyers. The bulk of the seed, perhaps 70-80%, comes from Orrissa State, with 10-15% from Madhya Pradesh State.
The commercial procedure starts with an assessment of the potential collection followed by an auction. Potential buyers (extractors) bid their best prices for any seed and this forms the basis of the price guaranteed to the collectors. This procedure is conducted by the state governments, who sell the collected seed to the extractors. The extractors process the seed into oil (13%) and meal (87%). There are about five main extractors who handle the bulk of the available sal seed.
The size of the crop varies, but there is always a crop of sorts. Since 1977, collection has ranged from 170,000 tonnes to 20,000 tonnes with an average of 60-80,000 tonnes. More recently, the size of the collection has been decreasing, as has the quality.
During the late seventies and early eighties, the two main international buyers of sal oil were Mitsui (for Asahi Denka) and ISD (Unilever). Both initially purchased crude sal oil but quickly moved to the refined version as the refining process in India had evolved to handle high FFA material with minimal losses. Sal stearin came later. Both buyers then used their sophisticated fractionation facilities to produce stearin for inclusion in CBEs. Oil for Japan was purchased directly from Indian extractors, but ISD, capitalising on the rather dubious multinational benefits offered by Unilever, made a decision to buy through their sister company, Hindustan Lever. Having no extraction facilities, they were forced to buy crude oil on the open market. They did, of course, have refining. Predictably, quality and price problems abounded, as competing interests intervened.
Such problems were not unique to Unilever. Quality of sal was, and still is, an issue. Increasing epoxy- and hydroxy-stearic acid levels were identified with poor quality and associated with long storage of seed and oil. Varying and sometimes high pesticide levels were found to be present. These problems stemmed directly from the treatment of the seed during collection and storage, where the harvest was held for long periods of time in inadequate storage facilities awaiting sale and transport to the extractors. Nor were the extractors blameless. Used to producing a purely commodity oil they now had to adjust to the quality realities of the CBE market. Not an easy transition. A trading system evolved whereby oil was shipped against contract only on the approval of the buyer’s analysis and acceptance of pre-shipment samples.
Two examples relative to the quality issues spring to mind. The abortive attempt by Cadbury to incorporate sal oil directly into chocolate recipes in the UK that foundered on the poor quality supplied by their Indian associate, resulting in a virtual veto on the use of sal in the UK CBE market. The well intentioned, but ill thought out attempt by Hindustan Lever to solve all quality problems in one fell swoop by construction of an extremely expensive silica refining plant, which made sal oil so expensive that it became completely uncompetitive. The gleaming new process was rapidly mothballed.
During the early years, price levels were also a problem. The Indian government was no different from any other government in that they could not resist the temptation to impose some control over the trade, supposedly to protect domestic oil markets. This control took the form of an “export floor price”, which artificially inflated prices relative to competing shea and illipe. It became more and more difficult to justify the purchase of sal oil under these circumstances, and, with the exception of our inscrutable Japanese friends who could obviously live with such problems, sal became a marginal purchase in circumstances of shea or illipe shortage. Opportunity lost perhaps!

3 Other Indian Fats
It is worth digressing from our central sal theme to mention a couple of other SOS-rich fats developed for export during the early 1980s - mango kernel oil and kokum.
Mango kernel oil developed much in the same way as sal oil. Up to 1980, the kernels were processed by extractors to produce oil (13%) and meal (87%). The oil was used mainly in soap manufacture and the meal was exported for use in animal feed. Unlike sal, where the fruit is collected from the forest floor, collection of mango kernels is incredibly laborious. The mango, valuable for its fruit rather than its kernel, is collected and dispersed throughout India to canning and fruit processing factories and village sites, and to the general population. This makes the logistics of collection fragmented and expensive and obviously limits potential collection. The discarded kernels are collected from these sources. Much of the collection is made by villagers from their own localities, who are organised by a resident entrepreneur. The reward to the villagers for their efforts is extremely poor and this is an additional factor limiting collection. The kernels are sold on to extractors for processing.
Mango kernel oil had been investigated by the CBE producers and found to contain relatively good SOS levels, although lower than sal. This lower SOS level coupled with a general price premium, has resulted in only about 40% of production being exported, despite much fewer quality problems. An average of 500 tonnes is exported each year, going to Europe and Japan.
Kokum fat, the other regular export for CBE production, is unique. It contains very high SOS levels and in most respects is equivalent to shea stearin. Hence it can be directly included in the CBE recipe in its refined state. Sounds like CBE Utopia! However, quantities are extremely small. Low crops, even lower collection, poor yields and difficulty in processing, all lead to an export of no more than 100-200 tonnes per year. Nevertheless, it is important for use as an additive to CBE recipes to improve overall quality.
Other Indian exotic fats, such as Mowrah and Dhupa, were researched but discarded for a variety of reasons - price, limited quantity, unreliability, low SOS levels etc. None measured up to the potential of sal. There are numerous Indian fats, but as yet no viable alternative to sal has emerged.

4 Further Developments
The fortunes of sal were influenced by two factors. The removal of the export floor price and the application of dry fractionation.
The floor price had smothered the potential for sal relative to shea and illipe. During the late eighties, the Indian government relaxed their protectionist trade policies and sal oil prices dropped to competitive levels. However, misfortune intervened in the form of the lowest shea prices in history, coinciding with the dramatic plunge in cocoa prices. Both Loders Croklaan and Mitsui were still the main buyers, but in Europe the poor quality image persisted and the inclusion of sal was limited to CBEs for export. Hence, the benefits of lower pricing were lost.
The dry fractionation of sal for production of sal stearin was a most important innovation from a number of viewpoints. It breached the solvent fractionation barrier. Until this point, the major CBE producers had been secure in the knowledge that their expensive and sophisticated solvent fractionation process was required to produce a stearin suitable for inclusion in CBE recipes. Now an inexpensive dry fractionation process, available “off the shelf”, could produce an acceptable CBE component, which, moreover was readily available on the open market. Suddenly the barriers to entry came tumbling down. What about illipe butter, you will say? Surely this had breached the entry barriers much earlier? True, but only to a marginal extent. Illipe crops were extremely variable and unreliable, and availability and price levels of the butter were volatile. Much too risky to develop a CBE business on the basis of such an unreliable single SOS component. The way was now open to develop a CBE business with relatively low capital cost based on readily available CBE components available in the open market.
Dry fractionated stearin yields were almost twice those of shea stearin, although it must be admitted that inclusion levels in CBE were somewhat higher. Secondary fractions or olein values were much higher in a protected Indian market than in a free-trading Europe, thus boosting process returns. Finally, important for the extractors in India, it increased the value of exports, if not the quantity.
Sad to say, all too late. Continued low cocoa butter prices and Eastern Bloc monetary problems had plunged the CBE market into the doldrums. Whereas the previous entry barrier had been the prohibitive cost of solvent fractionation, the modern equivalent was the sheer unprofitablility of the CBE market. The fat margins had disappeared. Chocolate producers were quite content to remain with cheap cocoa butter and the main markets declined or at best were static. The only possible expansion opportunity would be if the EU speedily harmonised the inclusion of vegetable fats in chocolate.

5 The European Union and CBEs
Alas, a forlorn hope! Speed and EU decisions are contradictory terms as we all know. The EU bureaucrats we all love and cherish would require consensus before moving on such a critical issue, and consensus, as we all know, takes time … and more time … and more time … This delay was justified on a number of dubious grounds by certain members claiming to protect the EU consumer from the folly of making his or her choice or alternatively to protect the underdeveloped countries of West Africa from the errors of their export policies.
Dire warnings of reduced chocolate quality associated with CBEs were broadcast to all and sundry. New and ever more bizarre names were touted for this impure brown stuff. Labels should be enlarged to include all of these questionable CBE components, in order that the consumer, who obviously painstakingly reads all label detail before buying, would know exactly that what he or she was about to consume, was not “pure chocolate”. All good altruistic stuff, and incidentally, had the effect of delaying a final decision.
A bit cynical perhaps? OK. Let’s show how compassionate we can be to our West African brethren who rely so heavily on their cocoa exports to Europe. Allow CBEs in chocolate and you will decimate their exports. Cocoa exports will dramatically decrease, creating hardship to all concerned. Protecting our own industries you say? Shame on you to think we, dedicated promoters of free trade, would do such a thing. Whoops! Forgot that our main cocoa producers Ivory Coast, Ghana and Nigeria also export shea; and Burkina and Mali who export shea but no cocoa? Two of the poorest countries in the world. Sorry, forgot about them too. After all you can’t keep everyone happy all of the time. Further delays in prospect.
Bit of poetic license here? Perhaps, but one must somehow counteract the frustration experienced by the Speciality Fats industry, over close to a decade, as the search for consensus on EU chocolate legislation continued on its long and tedious journey.
But yet again I digress.

6 Aftermath
By the mid 90s the CBE industry faced several challenges. A low cocoa butter price scenario with a consequent squeeze on margins. A depressed global CBE market with the retraction in Eastern Bloc markets and the replacement of CBEs by MFRs (Milk Fat Replacers) in the UK. Potential CBE market expansion delayed by the inability of the EU to agree on CBE or vegetable fat inclusion in chocolate. On the other hand, although times were difficult, there were some opportunities:
The acceptance by the chocolate industry of sal stearin as a CBE component, with consequently reduced capital and operating costs to the CBE producer;
The historically wide availability and low prices for shea and sal resulting from the global SOS material surplus;
The continued support by the chocolate manufacturers to the CBE producers, and their willingness to explore alternative SOS based products for varying chocolate applications.
There are, of course, some winners in these turgid market circumstances:
The chocolate producer benefits from lower raw material prices;
The end consumer benefits from lower chocolate prices.
More participants lose however, sometimes those who can least afford it:
Collectors get much lower prices for the nuts or butter;
Middlemen have their margins squeezed as quantities and prices are reduced by buyers;
Poor exporting countries face lower export revenues;
CBE producers barely cover processing costs to remain competitive and employees lose their jobs as facilities are closed down to cut costs.
It takes a brave man to see an opportunity in such markets and to put his money where his mouth is. Enter Britannia! An Exotic Tale continues. Tune in for the final (riveting?) instalment.

 Part 4: Wrap Up

1 Background
Thank you dear readers for your patience. The tale is almost done. There only remains to follow the fortunes of our players through to the new millennium and the present day.
We have seen the development of SOS sources through illipe, shea and sal, plus some sundry exotics, into the mid 1990s. The open market availability of SOS exotics has expanded to an embarrassment of riches, encompassing shea nuts/butter and some stearin, illipe nuts and butter, sal oil and stearin, mango stearin and kokum, just at the same time as the CBE market has gone into decline or at best plateaued. Both Loders Croklaan and Fuji Oils earlier even invested in enzymatic interesterification processes to produce SOS material from expensive high oleic sunflower oil, in order to increase supplies. Fuji still uses the process for this purpose, further reducing the demand for SOS exotics.
The latter half of the 1990s was a time for regrouping by all involved in the CBE business. Cocoa prices remained depressed, maintaining the disincentive for chocolate producers to increase CBE consumption. Consequently the prices of CBE raw materials remained historically low on average, with availability well in surplus to consumption.
The only support to price levels came from trends in global weather patterns and deforestation. El Nino adversely affected illipe crops, as did the burning of forests in Indonesia. Unpredictable monsoons and rainfall led to several poor sal crops in India. Only the West African shea crop seemed more resilient, although there were transport and collection problems from time to time.

2 Consequences
The reactions of the players to this scenario were varied.
CBE producers squeezed prices of raw materials in an effort to maintain acceptable CBE margins in the face of low cocoa butter price levels. The supply surplus allowed them to call the tune in what was an ongoing buyer’s market. This obviously had a knock-on effect, with collectors at the receiving end. In Borneo, the local people had already turned to the logging industry to support their increasing standard of living. The logging companies paid good wages and the local people were developing an appetite for the material trappings of (decadent?) Western society. For this they needed cash. If they could not get cash from the collection of crops such as illipe or cocoa, then they would cut down the illipe trees (supposedly a protected species, but prized for its high quality) and sell the timber. Hence, by the millennium, most of the illipe trees growing on the banks of the rivers, which provided the means of easy transport, were no more. Henceforward, only a particularly large illipe crop or a collapse in the market for timber would yield a decent collection.
In India, to protect the collectors, the state governments endeavoured to hold or increase prices paid at auction for the sal seed. Auctions were delayed, quality was spoiled, and export prices generally declined. Extractors’ margins were squeezed and most suffered severe financial difficulties. Some went out of business.
In the West Africa sub-Saharan belt, collectors, who had few alternatives to shea collection, suffered considerably reduced incomes. Dealers in shea moved out of the trade, which could no longer support the requisite financing, leaving only a small number of players to divide up the remaining meagre spoils.
Apart from squeezing price levels of SOS materials, the major CBE producers reacted in a number of ways to handle what had become a rather unprofitable business. Depending on their view of future prospects, actions varied from investment to improve processing efficiency to complete factory closure (Loders Croklaan UK - 1995). Survival was the name of the game and reduction of cost was seen as critical.
Closure of the Loders Croklaan UK facility in 1995 coincided with the creation of a new company - Britannia Food Ingredients. As the objective author of an epistle to be published on the Britannia website, I perhaps enter a potential minefield. No matter, I carry on regardless with the time honoured cop out that “all opinions are my own and may not necessarily coincide with those of my publishers”.
Britannia seemed to be the only enterprise to see opportunity in such a depressing CBE market. They were, of course, by no means intending to put all their eggs in the CBE basket. Opportunities in the broader areas of speciality fats and cocoa butter were a major target. However, to concentrate on CBEs, their approach was both innovative and inadvertently opportune.
As a new company, Britannia were not saddled with the history of expensive processing equipment and a consequent high fixed cost structure as were most of their potential competitors. They could, and did, create a structure compatible with the prevailing market circumstances. A whole range of fully processed CBE components was available on the open market. Better to concentrate and invest in flexible deodorising and blending facilities and innovative technical expertise to provide each customer with a range of products suited to his particular requirements.
The withdrawal of all UK production facilities by Loders Croklaan was particularly fortuitous, as domestic chocolate producers cast around for a local CBE producer able to offer prompt supply. A slice of good fortune perhaps, but as they say, luck often favours the brave. CBE margins were still poor, but survival in anticipation of better times to come was assured.
All this did not improve the overall demand for SOS exotics, of course. It did, however help to stabilise the situation and certainly encouraged producers at origin to invest in the downstream processing of SOS exotics, not all successfully, I might add. A word of warning here. Downstream processing will not necessarily stop with the production of CBE components for sale on the open market. The next step is the production of CBEs. A repeat of history?

3 Relief and Reality
Relief from this rather gloomy scenario came in the unlikely form of the EU. The dogged persistence of the industry finally triumphed and agreement was reached on the inclusion of certain vegetable fats in products labelled as chocolate. The list of these fats was restricted to those traditionally used in CBE production, such as palm, shea, illipe, sal and mango kernel. Enzymatically produced components were excluded.
All manner of estimates of the impact of this new legislation on demand for SOS exotics were issued by all manner of pundits. Demand would increase by 30%, 50%, even 100%, all on the basis that the great majority of chocolate producers could not wait to spend their hard earned profits on new labels and processes to supply a European consumer clamouring for this exciting chocolate product. Additional CBE producers, based on the Britannia model, would magically appear to satisfy this rapidly expanding demand. All this created great excitement in thecountries of origin, and fuelled predictionsof increasing volumes and prices for SOS exotics.
This euphoria was, needless to say, short lived, as reality caught up with fantasy. Cocoa butter prices remained depressed and there was little or no incentive for chocolate producers to convert. Demand for SOS exotics remained low, and there was generally a world surplus. No new CBE producers arrived on the scene. And so it was as we moved into the new millennium.
The year 2002 has brought some relief for CBE producers. The price of cocoa has almost doubled in the last year and, following a period of weakness, butter ratios have recently firmed. PPP Cocoa butter prices have recovered to a more respectable level of around £2,300 - £2400 per tonne and may go even higher - short term. For the collectors, traders and processors at origin however, there remains little to rejoice over. Supply continues to exceed demand and prices remain depressed. Despite some poor sal and shea crops, the recent large illipe collection ( the timber market was depressed) achieved extremely low prices, and proved difficult to dispose of at the latter end of the season. Unilever decided that Loders Croklaan did not fit their new strategy, and that sterling founding member who pioneered CBEs way back in the mid twentieth century, was sold.
My intention in “An Exotic Tale” was to tell the story of SOS exotic development and progress over half a century or so. In addition, my narrative has covered at length such matters as CBE market trends, cocoa prices, government intervention (meddling?), legislation and even weather, all of which have played their part in influencing the development of SOS exotics. We are almost done now, but my tale would not be complete without some glimpse into the future of SOS exotic supply prospects.

4 The Future
We know global chocolate consumption will increase, mainly in the developing countries. Whether or not this will result in an increase in the CBE market really depends on the long-term price of cocoa butter; more accurately, the chocolate industry’s perception of this trend. If prices are expected to maintain at present levels or above, then the incentive to move to CBE inclusion will be there, and demand for SOS exotics will increase. If the perception is that cocoa butter prices will decline, then the CBE market will not show significant growth and demand for SOS exotics will remain depressed. On balance one might expect cocoa prices to increase with growing chocolate consumption and aging cocoa plantations, leading to firmer prices over time. So some growth in the demand for SOS exotics perhaps?
What of supply prospects to meet this demand? Will crops be collected? Indeed, will there be crops to collect? For collectors, times are changing. There is a migration from the villages to the towns and cities to find work, throughout the developing countries, and Borneo, Africa and India are no different. Old traditions, associated with forest conservation are fast disappearing as trees are cut down and sold for cash or burned to increase farmland. All to acquire those material possessions deemed essential to improved living standards.
This would argue for decreasing availability of collectors (and collection). Some of these trends are best illustrated in Borneo where a combination of deforestation, low prices and fluctuating weather pattern have, in recent years, resulted in a series of poor and infrequent crop collections. Many collectors no longer rely on income from this source. It is an occasional windfall to be gathered on top of their ongoing activities. Illipe fat is not really used very much locally. Hence the only incentive for collection is the export potential. On the basis of recent history, a windfall can be expected only once in every six years. Not much there to provide annual support for the family. Better to cut down the trees for timber or head to the towns for work.
On the other hand, in West Africa and India, shea and sal oils are used by the edible and soap industries. Their governments protect these industries by often imposing punitive tariffs on imports of competing oils such as palm from Malaysia or Indonesia. This creates a basic level of demand and supports continued collection, thus providing continuing export potential. Obviously the maintenance of import tariffs is key to the interests of the collectors, until alternative sources of income can be created. Should these tariffs be reduced or eliminated as a result of Global free trade agreements, the incentive to collect will probably disappear, and the movement of the local people away from the villages will accelerate.
In the longer term only a willingness of buyers to pay higher prices is likely to ensure a continuing supply of SOS exotics and I come back to my earlier comment that it all depends on the perception of future cocoa butter price trends.

5 Conclusion
Well there you have it. The end of “An Exotic Tale” is nigh. I hope I have managed to convey most of the factors which influenced the commercial development of SOS exotics. I hope also I have given you a flavour of the players and their role in the SOS game, particularly of the collectors with whom the “buck seems often to stop”. I have probably not been as objective as I should have been and you, dear readers, have been subjected to my views and prejudices, for which I do not apologise. Please feel free to e-mail me with any questions or (constructive) comments.
Thank you for your patience.