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Ep.002 - Doing Good While Doing Well - Matt Whiteman
Episode 221st October 2020 • The Spaceship Podcast • Laura Francois & Clement Hochart
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[00:00:00] Matt: We don't live in a world right now where governments habitually make sensible, ambitious decisions about the public goods we need to create and then efficiently go about creating them. So, if we could pass those mandates to private companies who can do good while also doing well, if you can create a business model where doing the right thing is profitable, then you've won.

Clement: What does chocolate have to do with peacebuilding? Apparently, a lot. On today's show, we take a trip to Colombia in South America, where cacao is growing in the same places where they grow cocaine. In 2018, the demand for cocaine was higher than any other time in history- and the violence associated with this drug is hard to ignore. Colombian small farmers face the dilemma, either growing illicit crops to survive because they are more lucrative, or farming legal crops in poverty.

So many of these farmers [00:01:00] live below the poverty line.

That's where chocolate comes in. Today, we speak to Matt Whiteman, the co-founder of Choco4Peace, a social enterprise tackling this huge, systemic problem - one piece of chocolate at a time.

Laura: Matt has a long history in the international development space, from working to help finance sustainable agriculture to ethical approaches to international volunteer engagements. But over the last few years, Matt and his co-founder Sergio have been running Choco4Peace, connecting cocoa farmers in Colombia with global markets.

They're also leveraging blockchain technology so that all interactions are recorded in real time.

So, basically, a chocolate fan like me can trace the origins of the cacao in their chocolate bar back to the farms where it was produced. But it's not just about technology or delicious chocolate.  (Yes, I'm already hungry.)

At its [00:02:00] core, Matt's mission is about looking at the crisis of peace in Colombia in a whole new way. So here's Matt.

So Matt, I'd love to start off by you just introducing to us what it is that you do in your own words. Um, and I consider you an impact entrepreneur, but. You know, how, how would you describe what it is that you do?

Matt: Great. Thank you, Laura. And thank you, Clement. So, I'm with a startup called Choco4Peace.

That's chocolate for peace. And the place I normally start these conversations is around the idea of dignity and it's something that I'd wager that most people listening to my voice kind of take for granted on a daily basis. The most undignified thing I can think of that I've ever done was like, forget my towel when I'm taking a shower and have to sort of scoot across my living room, but -

Laura: How undignified.

Matt: Nobody wants [00:03:00] to see that. So. But, our organization works with ex-cocaine producers and war victims in Colombia who have made the transition from cacao, which is the base ingredient in chocolate. And we support them with access to international markets and fair prices, technology and finance. So that's, that's what we do, but you know, it involves confronting that idea of, of dignity and the lack of dignity face to face because, you know, often the people we're working with, they are forced to engage in illegal activity - such as the production of cocaine - often for the same people that have murdered their families. And this is a decision that they have to make in order to survive. So we're engaged in that space and trying to lift farmers out of poverty, build peace in rural communities in Colombia. And, as I said, built lives with dignity.

Laura: Can you expand a bit further around this problem in Colombia? Um, can you tell us a bit more about... what do you [00:04:00] feel is like the central driver to this problem?

Matt: Sure. Yeah. And there's a bit of important historical context here. So, Colombia was at war... a civil war for 52 years, with a number of different armed groups.

The most notorious one that people would probably have heard of is the revolutionary armed forces of Columbia or the FARC. And there were a number of others, but, anyway, in 2016, the FARC signed a peace agreement with the government of Columbia. And that effort was awarded the Nobel peace prize, but that conflict killed about 220,000 people and displaced millions.

But we like to say peace doesn't come from signatures on a piece of paper in a capital city. It comes from... actions on the ground. And so, a lot of the things that were included in that peace building plan have not really trickled down to many areas of the country and conflict persists. I mean, obviously [00:05:00] conflict is a very, very complex thing, but during the conflict, many of these illegal armed groups would coerce farmers to produce coca, which is the base ingredient in cocaine.

And these groups would then tax the harvests and then funnel the proceeds into their violent campaigns. And so what we see is that the production and trafficking of cocaine has destabilized the entire American region. It's an incredibly violent endeavor. And you know, it's obviously been popularized in a lot of our media.

You think about the netflix show 'Narcos,' right? And last year there was a lot of media attention towards migrants that were coming from countries that were affected by the trade. You know, most of the migrants who were pushing North to the U.S. border to seek asylum were from Honduras and El Salvador, which are two of the first points of entry for Colombian cocaine before it travels north [00:06:00] over land through Mexico to the United States.

So, anyway, the reality now is that cacao, the base ingredient in chocolate is grown by approximately 65,000 families in Columbia. And the majority of those, about 90%, are small holders. So producing on three hectares of land or less, and most of those farmers, but 73% of small cacao farmers in Colombia live below the poverty line. And that means they earn $2 per day or less. And so the dilemma that these farmers now face is that they either have to continue to farm legal crops, like cacao in poverty, or they have to return to illegal activities like the production of cocaine, prostitution, or joining an illegal armed group in order to survive.

So that's what I mean when we talk about dignity, this is the central... It's a very complex problem, but that's the result.

Laura: So, I guess long story short, one of the big issues is the fact [00:07:00] that we're just not paying enough to harvest cacao. We're not paying enough for our chocolate, which is moving people to these last resorts, including cocaine.

Matt: Yeah. Cacao is traded as a commodity on the stock exchange. And so you have enormous companies... think about Nestle or Mars or Mondelez, you know, and they all obviously have a vested interest in keeping the price of their raw materials low, because how much does a Kit Kat bar costs at the corner store? It's like a dollar.

And there's not actually that much cacao in there. It's mostly sugar. It gets a little more complicated because the cacao that gets produced in Latin American countries, like Colombia is actually genetically different from the majority of cacao that gets produced in the world, which most of which comes from West Africa.

In Colombia, it's much more naturally floral and fruity and flavorful, and you don't have to add as much sugar and other crap in order to make it taste good. And so it tends [00:08:00] to get sold as something called Fino de Aroma cacao. It's higher quality. But most Colombian farmers don't have access to international markets, to the craft chocolate makers that understand the value of this product and are willing to pay for it.

The craft chocolate market is very, very small. It's about 5% of the total chocolate market around the world. And so. It's difficult for farmers to, as you say, command, the prices that they deserve, that their product is worth. So, you know, most farmers would make perhaps 90 cents for every kilogram of cacao that they sell.

Anyway, when you end up doing the math, this is the system that ends up keeping farmers in poverty.

Clement:  Have you tried to solve this problem through charity and through other ways? And do you see any difference? In solving it through business instead of charity or government.

Matt: Yeah. Yeah. So my business partner, Sergio and I met [00:09:00] in another organization that was a not-for-profit organization and we were doing access to finance services for small holder farmers in sustainable agriculture and forestry in emerging economies. So it was a nonprofit model and it worked for a while. It was a wonderful organization that was doing really important work, but the nonprofit model is an inherently difficult model to sustain financially. So many of these organizations spend such a ridiculous percentage of their resources, just trying to get more resources that their ability to actually do the job efficiently is very low.

There tends to not be a great attention to financial sustainability, because nonprofits are not meant to, usually, create profit generating activities. They're doing other kinds of... they're creating public goods. Sometimes those things are divorced from that kind of financial sustainability component. I also come from a family of civil servants.

I was born and raised in Ottawa. Capital city here in Canada. And I have a lot [00:10:00] of really, really smart friends working as policy people in various ministries, and they've become very jaded, very fast because it often doesn't matter how smart they are or how intelligently they craft a policy recommendation for their minister.

If there are some other political motivation to the decision that gets made in the end, then it doesn't matter, you know, how many good policy memos you write. Often that kind of advice doesn't get taken. So, on the other hand, I had never really worked for a for-profit company, at least not as an adult.

 For now, I believe that for profit companies can and should be engaged in the creation of public goods and they should be incentivized to do so. And also smartly regulated because private companies tend to be able to do that kind of thing more efficiently than governments can. But, we don't live in a world right now where governments habitually make sensible, ambitious decisions about the public goods we need to create, and then... effficiently go [00:11:00] about creating them. So, if we could pass those mandates to private companies who can do good while also doing well. If you can, if you can create a business model where doing the right thing is profitable. Then you've won.

Clement: Yeah. And I like the fact that you kind of replace a business with another business, but the two are farming - I liked the correlation between the solution and the problem.

 I'm curious to ask you, what was the, the insights that directly led you and your cofounder to say, "we need to sell chocolate!"

Matt:  Yeah. Yeah. Good question. So the problem that we're trying to solve has a name like in various turns, our company looks like a chocolate company. It looks like an international development company. It looks like a blockchain company.

But actually what we're trying to do is mitigate investment risk. So there's this thing called the small holder [00:12:00] agricultural financing gap. And... what this is, is there are approximately, I don't know, 450 million small holder farmers around the world.

Most of them lack access to finance. And I'm happy to go into more detail about why that is, but in aggregate, that gap in financing is equivalent to about a half a trillion dollars. And... these are the people that grow our food.

And the result of these farmers not having access to finances is that they can't improve their farming practices. They can't get access to the resources they need, they can't get training. The negative consequences are these farmers remain in poverty. It's very difficult to escape the poverty trap if you can't tech up. And so you end up with these undesirable social behaviors, but you also, if you're trying to farm crops without a sort of integrated agroforestry strategy that takes into account biodiversity and soil health and all that kind of thing, then.

[00:13:00] You know, you end up exhausting, your resources, your land productivity goes down. And a lot of what we see is that. You know, cacao trees age out, start to decrease in productivity after about 25 years. And so farmers will often abandon their farms, cut down a new swath of rainforest and start over again. So this kind of thing is, is one of the causes of deforestation that we're seeing in the Amazon.

So in this previous organization, we were trying to solve this, this small holder agricultural financing gap. And there are lots of different organizations that are trying to do this. And we had started with knowing, okay, well, in order to finance these farmers, you need to mitigate the risk to the investor.

And so how do you do that? And we had conducted a research project with a large number of different stakeholders from development finance institutions, small and medium enterprises themselves, second floor banks, academic institutions, NGOs, private companies, et cetera.

And what that research told us was that.... [00:14:00] obviously poverty is a very complex issue, but one of the main reasons that the small holder farmers remain in poverty is because they lack access to a variety of socioeconomic services. They need access to international markets. They need to be paid fair prices. They need technology, they need capacity building and other kinds of education, specifically technical assistance to improve the quality and quantity of their crops.

And they need access to finance. And they need access to good governance and policy frameworks. Then we said, okay, this seems to be what these farmers need in order to succeed. What is the best way to deliver all of those socioeconomic services in an integrated way? So we didn't, we didn't start by thinking about chocolate from the beginning, but my cofounder Sergio is Colombian and he grew up during a war.

So there was obviously a strong personal connection for him there. But, um, you [00:15:00] know, the Colombian government, as part of the peace building process created a crop substitution program to incentivize farmers, to transition away from the production of cocaine and towards the production of legal crops. One of the key crops that they identified in the peace building process was cacao and Colombia has outstanding quality in terms of cacao, but they're actually a net importer. So Colombia consumes more chocolate than it produces.

And so we saw an opportunity there. We know that the craft chocolate market is growing. It's grown consistently. Uh, and so we said, look, chocolate is sexier than onions. Why don't we explore a business opportunity here? And the solution that we came up with is obviously applicable beyond just cacao.

You know, you can use this for any commodity in any geography, but that's where we began.

Laura: This is so interesting and it sounds like there were so many different, I don't want to say iterations of solutioning, but as you were mapping out, [00:16:00] what are the needs and what are the specific things that these farmers are lacking in terms of access.

And I mean, you've had all of this experience before you even decided "chocolate is the way." Do you have any suggestions or, or do you have any feedback about that process for, let's say an entrepreneur who may be doing that for the first time and looking at a really complex problem and trying to identify what part of that problem, what part of that system they could leverage to have the most amount of impact as an entrepreneur through business and not necessarily having to rely, as you said, on policy and handouts and nonprofits.

Matt: That's a good question.

Laura: I know it's a big loaded one, but I figured, I figured why not go there?

Matt: Well, I can't take credit for the idea for the company. I was there to support Sergio with the research project that he was leading. And we were obviously all, as a team, thinking about this [00:17:00] access to finance problem. But, the core of the idea was not mine. I was brought on as a cofounder about six months into the process.

And my responsibility was to build partnerships internationally with an ecosystem of stakeholders that were going to enable us to get the job done. But going back to your question, when we were growing up, we were always sort of asked, what do you want to be when you grow up? And I remember reading a quotations from somebody whose name escapes me, but they said, that's the wrong question to ask the question we should be asking is what kind of problems do you want to solve?

And then if you think about it like a project manager, what's the problem that I want to solve? And, what are the things that are standing in the way of the world that I want to live in? And then you just work backwards from there. So if you think about a moonshot solution, what would it take? And allow yourself to dream a little bit.

What would it take for me to solve this massive problem? Okay, well obviously political will, that's a really tough one to solve, but it's not impossible if you find the [00:18:00] right people who hold the levers and make decisions, and you have an honest conversation about...and try and build consensus around the problem that exists in the solution.

You may not always agree on the solution. You may not have any ideas, but the solution, but if you can identify what the problem is, then together, you bring a bunch of brains together and you can workshop the problem and there's lots and lots of smart people out there that have been thinking about these kinds of things.

Maybe those kinds of people know what barriers stand in the way of the problem. And maybe the innovation that you can bring as an entrepreneur is to find some creative, new way of moving one of those barriers out of the way.

Laura: Hmm. I really like that idea. Cause you're right. You know, it's probable that you aren't the only person thinking about that problem or you're probably not the first person to take a crack at it.

So you have to also think of it almost like holistically in that sense.

Matt: Exactly. Yeah. Yeah.

Laura:  So what makes you, I mean, not to put you on the spot, but you are on the spot in this very moment. What makes you think that [00:19:00] you could help solve this problem? You as Matt, you know, I love this idea of we should be asking what types of problems do we want to solve, or what types of challenges are we interested in?

Um, how does this relate back to your... call it a "North star" or your why in life?

Matt: Yeah. Uh, I, I don't think I can solve this problem. This is something that many, many smarter people than me have been banging their heads against a brick wall, trying to solve for more years than I've been a professional. But what I can do is I can use my emotional intelligence and my head, my heart, and my hands.

I can use those tools to bring...