The Chocolate War - Case Study Example

The Chocolate War Ouedrago’s farm is in Za, a village in the fertile west-central region of the Ivory Coast, a West African nation long considered a bastion of peace and relative prosperity. But in September 2002, a civil war erupted that has left the country politically divided and economically devastated. Chocolate lovers everywhere ought to be paying close attention. The Ivory Coast provides 40% of the world’s supply of cocoa, the key ingredient in chocolate, and war and ongoing political instability have badly disrupted the industry.

The cocoa harvest, normally about 1.3 million tons a year, was cut by more than a third in 2002. During the height of fighting in January 2003, the price of cocoa on world commodity exchanges more than doubled surpassing $2,700 a ton. While it has fallen back to about $1,700 a ton now that a tentative peace prevails, it remains historically high. (Cocoa was trading for about $1,000 a ton before the outbreak of the war). Chocolate companies have already passed some of the added cost to the consumers.

In 2003, Nestle increased its chocolate prices by 10% while Hershey’s and Mars raised the wholesale price of some of their most popular candy bars y a similar amount. Swiss chocolate maker, Lindt, Kellogg’s Keebler, and Kraft’s Nabisco have also raised prices. The war has also set back attempts by the world’s large chocolate companies to curb the use of child labor and help improve the lives of the people in the Ivory Coast by teaching them new farming techniques and business practices.

Worse still for the Ivory Coast, where the incomes of six million people – about 35% of the population – are linked to cocoa farming, is that chocolate companies may begin rethinking their reliance on the country amid fears of continuing political instability. “If things don’t improve,” says Anne Prendergast, an analyst with the commodities trading firm Refco in New York, “over the next five years one may see a gradual erosion of production from the Ivory Coast.” In the succeeding weeks the rebels and the government have made progress toward peace.

The next several months are critical. If the Ivory Coast can begin to mend its shredded political and social fabric, it may be able to undo the damage already don to its cocoa economy. But if unrest continues, the situation could become dire for both the country’s cocoa farmers and the world’s chocolate companies. The war turned any of the major cocoa centers in the western part of the Ivory Coast in the battlefields. Farmers abandoned their crops to flee the rebel advance. Iberian mercenaries fighting alongside the rebels seized the entire northern half of the country before French peacekeepers intervened to separate the warring sides.

The prospect of further political problems spooks international chocolate executives. So far, no chocolate company has pulled out. “We are confident in the middle to long term future of the country,” insists Oliver Desponds, head of Ivory Coast operations for Nestle. In private, however, cocoa executives acknowledge they have given serious thought to moving elsewhere. In an effort to increase the supply of cocoa harvests to satisfy the increasing demand for cocoa and to also combat blight, the international chocolate industry has been trying to improve the conditions of the Ivory Coast’s 650,000 cocoa farmers.

The World Cocoa Foundations – with additional funding from the U.S. Agency for International Development – is sponsoring a series of schools to teach planters better farming practices. This article provides insights regarding the decrease in supply of cocoa in different countries leading to increase and price of the commodity and increase in the demand for cocoa. REFERENCE:Bade, R., & Parkin, M. (2001). Foundations of microeconomics.Addison Wesley Paperback . Kahn, Jeremy (2003).The Chocolate War. Fortune.