In 2010, Emily Stone, then a shareholder advocate for the investment advisory firm Green Century Capital Management, realized that the chocolate supply chain was ripe for disruption.
Cacao is generally sold as a commodity. As such, the quality of a given bean was not being rewarded in the price paid to farmers. It seemed to Stone that the fair trade system didn't go far enough.
By tapping a new generation of “bean to bar” chocolate makers, Stone was able to raise the funds to create a new, more equitable, supply chain structure for farmers in Belize. The company, now called Uncommon Cacao, is a holding company for two businesses operating in Belize and Guatemala. They've just closed $1.6 million in Series A funding.
“I wanted to work from the bottom up, from the farmer level up, to create a better solution [than fair trade], and I wanted it to be focused on quality,” Stone said in an interview for this new episode of Returns on Investment.
Working with John Kohler, director of impact capital at Santa Clara University’s Miller Center for Social Entrepreneurship, Uncommon Cacao pioneered a new financing structure called the “Variable Payment Obligation,” (formerly known as a “demand dividend”) in order to expand their operations. (See, “Sweet Deal: How One Company Found a Way to Support Cacao Farmers.”)
“What excited me about the demand dividend was that it was a way to bring impact at this critical time without having to sell equity, which I wasn’t ready to do yet,” Stone says. “It was a loan, but the repayment was based on free cash flow. So, as an agricultural business if we had a bad season or if we had a great season, we could pay the loan based on our bottom line, of how the company was doing.”
Such resiliency will be increasingly important as climate change forces farmers, distributors, and commodity traders to alter their practices to reflect the new normal of climate volatility. One way to mitigate the effects of such volatility is to get more money into the hands of smallholder farmers. Generating more income and institutional support for those at the base of the supply chain puts them in a better position to adapt.