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Do you love chocolates?
I spent some time digging into the process through which it reaches the end consumer.
I discovered a colonial-era supply chain, a failed cartel, and the ways in which COVID will shape lives long after it ends.
Thread (1/16) https://evolvingeconomy.substack.com/p/leaving-a-bitter-taste
I spent some time digging into the process through which it reaches the end consumer.
I discovered a colonial-era supply chain, a failed cartel, and the ways in which COVID will shape lives long after it ends.
Thread (1/16) https://evolvingeconomy.substack.com/p/leaving-a-bitter-taste
(2/16)
~3/4th of global cocoa produce comes from West Africa (WA). Ivory Coast and Ghana produce 60% of the global supply. Over 2 million farmers are dependent on the crop in these two countries alone.
How did cocoa end up in WA?
~3/4th of global cocoa produce comes from West Africa (WA). Ivory Coast and Ghana produce 60% of the global supply. Over 2 million farmers are dependent on the crop in these two countries alone.
How did cocoa end up in WA?
(3/16)
Tetteh Quarshie was born to a poor family in southeast Ghana. His industriousness led him to become the first blacksmith of his town and he eventually got the opportunity to visit the island of Fernando Po in South America.
What was special about those islands?
Tetteh Quarshie was born to a poor family in southeast Ghana. His industriousness led him to become the first blacksmith of his town and he eventually got the opportunity to visit the island of Fernando Po in South America.
What was special about those islands?
(4/16)
You see, due to the exploits of Christopher Columbus, the Spanish discovered the joys of a certain South American bean - cocoa.
To meet the rising demand across Europe's elite, Spanish colonies with tropical climate were cultivated with Theobroma Cacao - the cocoa tree
You see, due to the exploits of Christopher Columbus, the Spanish discovered the joys of a certain South American bean - cocoa.
To meet the rising demand across Europe's elite, Spanish colonies with tropical climate were cultivated with Theobroma Cacao - the cocoa tree
(5/16)
One such island was Fernando Po (Today in Equatorial Guinea). In 1876, breaking the existing law, Tetteh is rumored to have gotten 6 beans back to Ghana, hidden in his blacksmithing box.
Rest, as they say, is history.
One such island was Fernando Po (Today in Equatorial Guinea). In 1876, breaking the existing law, Tetteh is rumored to have gotten 6 beans back to Ghana, hidden in his blacksmithing box.
Rest, as they say, is history.
(6/16)
Over 90% of the farmers cultivating the crop in WA own less than 5 hectares of land. Given the small size, investments in mechanization are unviable.
There are multiple distributors who ultimately sell to the government which then sells out to large processors
Over 90% of the farmers cultivating the crop in WA own less than 5 hectares of land. Given the small size, investments in mechanization are unviable.
There are multiple distributors who ultimately sell to the government which then sells out to large processors
(7/16)
The problem is, most of the value is after the beans are processed. Chocolate is a ~$110B industry. The farmers are estimated to get less than 6% of that share.
The living wage is pegged at $2.8/day. An average cocoa farmer in WA makes barely over 50 cents a day!
The problem is, most of the value is after the beans are processed. Chocolate is a ~$110B industry. The farmers are estimated to get less than 6% of that share.
The living wage is pegged at $2.8/day. An average cocoa farmer in WA makes barely over 50 cents a day!
(8/16)
So, there is a perfect storm of smallholder farmers earning a pittance, unable to invest in mechanization and increase productivity, and the supply chains capturing the majority of the value in the global north.
What do the farmers do to support themselves?
So, there is a perfect storm of smallholder farmers earning a pittance, unable to invest in mechanization and increase productivity, and the supply chains capturing the majority of the value in the global north.
What do the farmers do to support themselves?
(9/16)
Many employ their children in their plantations.
The WA belt is racked by issues of children working in their family farms carrying out often hazardous tasks. The last estimate pegged the number of child laborers in the region at 2.1 million.
Many employ their children in their plantations.
The WA belt is racked by issues of children working in their family farms carrying out often hazardous tasks. The last estimate pegged the number of child laborers in the region at 2.1 million.
(10/16)
If OPEC countries with ~35% of global oil supply can control the market price, why can't WA countries who control >60% of supply?
Following this rationale, Ghana and Ivory Coast set up a cartel. An OPEC for cocoa - COPEC
If OPEC countries with ~35% of global oil supply can control the market price, why can't WA countries who control >60% of supply?
Following this rationale, Ghana and Ivory Coast set up a cartel. An OPEC for cocoa - COPEC
(11/16)
COPEC proposed a $400/ton premium over the global price to ensure that farmers were paid a living wage.
Concerns aside (how do you turn off the tap for a crop that takes years to plant to control the price?), the proposal was accepted by global chocolate majors
COPEC proposed a $400/ton premium over the global price to ensure that farmers were paid a living wage.
Concerns aside (how do you turn off the tap for a crop that takes years to plant to control the price?), the proposal was accepted by global chocolate majors
(12/16)
And then COVID hit.
Europe is the epicenter of demand. An avg Swiss eats 9 kg of chocolate/year. For a Brit, it's ~8 kg (it is 200 gms in India).
Chocolate is an impulse purchase. Lockdowns and shuttering of duty-free (Airport Toblerones) has cratered the demand
And then COVID hit.
Europe is the epicenter of demand. An avg Swiss eats 9 kg of chocolate/year. For a Brit, it's ~8 kg (it is 200 gms in India).
Chocolate is an impulse purchase. Lockdowns and shuttering of duty-free (Airport Toblerones) has cratered the demand
(13/16)
Expectedly, the price of cocoa has crashed to a multi-year low. What does it mean for farmers?
Hunger for many living just on the right side of the line of sustenance and increased instance of child labor resulting in drop-offs from schools
Expectedly, the price of cocoa has crashed to a multi-year low. What does it mean for farmers?
Hunger for many living just on the right side of the line of sustenance and increased instance of child labor resulting in drop-offs from schools
(14/16)
The initial pulse check confirms this to be true. COPEC has come undone and a large number of farmers are starting at poverty and children at hazardous farm activities as incomes crash.
What's the way out?
The initial pulse check confirms this to be true. COPEC has come undone and a large number of farmers are starting at poverty and children at hazardous farm activities as incomes crash.
What's the way out?
(15/16)
Unfortunately, no easy answers here. Over time, farmers have to plant more crops to diversify their income. Consumer pressure has forced chocolate majors to work towards eliminating child labor in the supply chain, that too needs to continue
Unfortunately, no easy answers here. Over time, farmers have to plant more crops to diversify their income. Consumer pressure has forced chocolate majors to work towards eliminating child labor in the supply chain, that too needs to continue
(16/16)
Ultimately, the solution might be lesser production of cocoa, and consumer willingness to pay a higher price for confectionaries.
A bargain I would be happy to make so that the joy of chocolate is not for the privileged alone <fin>
Ultimately, the solution might be lesser production of cocoa, and consumer willingness to pay a higher price for confectionaries.
A bargain I would be happy to make so that the joy of chocolate is not for the privileged alone <fin>
