Recently, chocolate has been near and dear to my heart. From the coffee-chocolate flavored beer at Blue Lab last night at the FD fund raiser, to the inappropriate “Sophia’s Chocolate” nickname a friend of mine just incurred from his fraternity composite, chocolate has been on my mind. But the world could be facing a severe chocolate shortage by 2020, says a March 14th Business Week article.
Aztecs believed that the god Quetzalcoatl was cast away by the other gods for sharing chocolate with humans, and cocoa beans were used as currency by the Aztecs who required it as a form of tax or tribute to lands they ruled over. When the chocolate craze hit Europe, it drove the slave market, as growing the beans is labor intensive, slow, and all around unpleasant. This brings us to today’s issue:
Demand for chocolate continues to grow, the industry expanding handsomely. The worldwide increase of the middle class has added many more consumers who have the disposable income to buy chocolate (considered a luxury good).
“China, India and other developing nations are gradually finding their sweet-tooths. Brazil, itself a producer, is nibbling itself into the band of top-consuming countries. Europe and the U.S. consume almost 70 percent of the world’s cocoa; West Africa now accounts for more than 70 percent of global cocoa production. Between 2002 and 2010, increased cocoa consumption in Europe and the U.S. made up 46 percent of global growth, or 337,000 metric tons, according to the International Cocoa Association.” –Bloomberg
Cocoa farmers (who mostly are located in remote parts of West Africa and Southeast Asia) on the other hand are hurting, being some of the poorest farmers in the world, with declining crops yield, income, and quality of life. They don’t have access to the training and tools needed to sustain the increases in productivity necessary to meet future demand. Governments and research have largely not invested in cocoa for the necessary advancements in cocoa farming (particularly compared to soy, wheat, and corn), resulting in little modernization in the farming techniques (still using machetes rather than plows). Rehabilitation of farming practices and increased technologies can more than triple crop and income for these poor farmers. Here again, we see an increase in technology necessary for a rotation upward of productivity, and these farmers could really use it.
Furthermore, though a social issue, modern cocoa farming has led to child-trafficking, child-labor, slavery, conflict financing, to name just a few specifics of a generally bad working condition for the farmers. 
Further: businessweek.com 2014-03-14,
bloomberg 2013-03-28 and an interesting site on child labor and slavery associated with cocoa farming) plus the rainforest alliance and World Cocoa Foundation
3 Comments
This is a tough situation, especially because in the case of easily produced goods like chocolate capital and labor are easily substituted although such capital investments can be hard to justify when cheap labor is plentiful. On top of this if these farmers were able to produce triple the amount of chocolate prices would certainly fall. While in the long run cheaper prices might encourage more demand through exposure in emerging markets like India and China I would be willing to bet that those farmers could ill afford to take a hit in their wages.
The exploitation of labor used in chocolate production is obviously an issue. Makers and producers should team up in order to make sure that these farmers have the ability to produce more. Investing in capital which can increase profits for growers and workers at the bottom of the chocolate process can then begin to commensurate to other production processes which are more productive. If there are kinks at any point in the entire process, we shall soon come upon dead weight loss and a disequilibrium.
Macroeconomics! – if an economy is awash in chocolate, then two issues arise. One is the curse of an excess of resources causing a currency to appreciate. The other is the temptation of governments to act as monopsonists, buying at a low price from farmers and then trying to sell at a higher price in global markets.
In the background, as others noted, is the ease of entry (over a multi-year time frame) such that production earns zero economic profits. Note that the exploitation can be self-exploitation, smallholders who on a family basis provide more labor inputs than is economically rational. Check out cocoa in Ecuador and in Ghana – remember that it is a New World plant!
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