Executive Summary
Maya Mountain Cacao (rebranded as Uncommon Cacao) is a fast-growing Latin American social enterprise headed by Emily Stone. The company is operating in the bean to bar segment where approximately 25 companies are working. In spite of rapidly expanding sales, the company is not making a profit. Moreover, the supplies are also shortage and it is unable to fulfill the orders which it is still receiving at an increased pace. Governance is also an issue as the business is rapidly expanding. Moreover, the company has social and environmental objectives and wants to fulfill those while conducting business. In order to address these problems, the company needs to improve the production and continue with the expansion in order to be profitable as the company is not as profitable as yet. Also, it has already started limited level of brokerage and distribution activities and the company wants to expand those in order to increase profitability and improve control over its supply chain. Then, the company also needs to make a decision about its profit sharing model in order to improve the lives of the farmers as well as improving productivity and changing the governance structure and possibly hiring someone else in order to assist with the management.
The first priority of the company is to increase production and in this regard, the option to secure supplies from Guatemala seems to be the best option. This option is not only cost efficient, will provide immediate production boost and supplies but is also less costly than the option of setting up farms. And as a matter of fact, it can still teach and demonstrate employee and others with the collaboration of some farmers. Moreover, it is also suggested that the company should only focus on increasing its production and the core activity instead of diversifying into brokerage and distribution as it is not only costly but would be less beneficial in the wake of shortage of supplies. Also, the current governance structure should be altered and so the company is suggested to change the profit-sharing plan and governance structure as it would result in greater production and better profitability of the company along with fulfilling its community development objective.
Introduction
Emily Stone is head of fast-growing Latin American social enterprise, Maya Mountain Cacao (MMC). With increasing revenues, a yield-increasing training program, and an expanding wait list for the limited supply of MMC’s cacao, the prospects for continued growth appeared strong for the year ahead.
However, the company is facing some serious problems, particularly regarding the product shortage and increasing profitability as the company is making losses at the moment. The stone has to make few important decisions immediately regarding the expansion of the operations and productivity improvements as the company is not expected to make profits in even the next year in the absence of any production increase as the existing facilities are unable to fulfill the production needs. Then the management needs to decide about a new opportunity regarding diversifying its operations to either start model farming in Belize or expand operations to Guatemala. The second option is to diversify the operations and starting brokerage and distribution to the small but highly profitable customers. The third choice is regarding the change in the governance structure and profit sharing plan with the company and employees.
The paper will evaluate these options and their pros and cons and then made a decision regarding each alternative. The decision criteria would be that the decision made should increase the profitability of the company and increase the community well being.
Expansion and Production Improvements
With the company well positioned to further flourished in 2014, as evident from the projections for 2014 shown in exhibit 1, its largest challenge was to connect increased cacao supply levels with its wait-listed buyers to better balance supply and demand because the production from Belize is not sufficient to fulfill the demand for the company’s chocolate, the company needs to expand its productions and operations. In this regard, the company that is rebranded as “Uncommon Cocoa” has two options. It can either chose to source supplies from Guatemala or setup its own farms to produce Cocoa as well as training farmers.
Entering into Guatemala is in line with its mission regarding social and environmental impact, that is,
- Providing fair prices and a stable market to farmers, conducting technical assistance for bean
cultivation, and opening up access to financing opportunities for cacao farmers.
- Catalyzing inclusive, indigenous-focused overall growth in cacao origins.
- Preventing deforestation by encouraging the planting of cacao trees and the reduction of slash-and-burn crop production.
This investment will also fit well with the company’s existing portfolio of companies. However, for that purpose, the company would also need to higher leadership for the new subsidiary, Cacao Verapaz. Another advantage would be that this option will fulfill the long-term demand for the Uncommon Cocoa and the company can then focus on other facets of the business.
The second option is Belize’s first organic forestry demonstration farm that would aim to set aside more than 100 acres of farmland to help achieve several company objectives. This form would be pretty costly to setup. Moreover, all the stated benefits like training of the farmers and using it for demonstration purpose. However, this objective can also be fulfilled at a smaller farm, and even on the existing facilities of other farmers with whom the company is working. Moreover, it is expected to breakeven by 2022, which is apparently unacceptable considering the rapid growth the company has enjoyed and the increased profitability it needs in order to breakeven.
Establishing further control in the value chain
The second decision that Stone is required to take is regarding establishing further control in the value chainbyestablishing a distribution and brokerage division. This would give greater control of the distribution and brokerage processes, and she knew that adding these capabilities to the company would give it more leverage at the negotiating table that would improve the company’s profitability. Moreover, the current sale arrangements are limiting the abilities of Uncommon Cocoa to capture the revenue upside of smaller yet high-value customers along with maintaining transparency in its value chain. This is because the orders of less than a single metric ton were being distributed by Taza directly. By establishing its own arm for distributing purpose, the company can avoid the inherent conflict of interest from competitors that would buy cacao sourced by Taza.
However, in spite of seemingly attractive, this option has inherent weaknesses. The Uncommon Cocoa is unable to meet its current demand and so in such a situation, expanding without arranging for the supplies is not suggested. Then it would also require finances which is difficult to arrange for the company. Then, it is other than the core activity for the company and would require more time of the top management which is already scarce. The other option is to changing the governance structure to allow for the joint management with the ETAC. However, again, it would require finances and some of the Stone’s time as well.Therefore, at the moment, it is not suggested that the company undertake this venture. Instead, all the focus of the company should focus on increasing the cocoa production so that it can fulfill the current demands. This option can be pursued in the future.
Altering the company’s share and governance structure
Another step that is under consideration is to change the company’s share and governance structure. This profit sharing structure would link the salaries of the employees to the profits or takeaways of the farmers while the private investors would be earning profits through the global operations of the company. It is expected to improve the cash flows to the farmers which would, in turn, improve the production of Cocoa as well as the community well being, an important objective of Uncommon Cocoa. As this new profit-sharing scheme is in line with the company’s social impact objective and would also result in increase in the production, with the company able to work even more closely with the farmers, the company should act on this alternative.
Another important decision a company needs to make is regarding the governance structure. Currently, it is difficult for the stone to carry out all the activities in an effective manner and therefore, the company needs to hire some manager to look after the Cacao Verapaz. The company is already considering some structural changes. The company wants to the new governance structure would consist of discrete governance bodies to allow for representation by different levels of stakeholders. The changes are expected to take full effect by 2019.
Conclusion and Recommendations
Maya Mountain Cacao is a fast-growing Latin American social enterprise headed by Stone. The company is at a position where it is unable to fulfill the customers’ orders because of lower production. Moreover, the business is rapidly expanding and it is difficult for Stone to look after all the facets of the business. Then, the company also wants a positive social impact and thus the well being of underpaid or underprivileged farmers.To sort out this issue, the company needs to improve the production and continue with the expansion in order to be profitable as the company is not profitable as yet. Moreover, the company also has an opportunity to establish further control on its value chain by entering into a joint venture with a distribution and brokerage partner for distribution and brokerage. Then, the company also needs to make a decision about its profit sharing model in order to improve the lives of the farmers as well as improving productivity and changing the governance structure and possibly hiring someone else in order to assist with the management.
In order to expand the operations and productions, it is suggested that the company should source supplies from Guatemala. This is not only cost efficient, will provide immediate production boost and supplies but is also less costly than the option of setting up farms. It can get the benefits that it wants to gain from farming from existing farms at Belize. Whereas, it is suggested that the company should only focus on increasing its production and the core activity instead of diversifying into brokerage and distribution as it is not only costly but would be less beneficial in the wake of shortage of supplies. In the end, the company should change the profit-sharing plan and governance structure as it would result in greater production and better profitability of the company along with fulfilling its community development objective.
Reference
Maya Mountain Cacao: Optimizing Operations for Buyers and the Indigenous (2015). William Davidson Institute. case 1-429-427
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