Analysis of Cocoa Production Industry - Hershey Company - Case Study Example

A САSЕ-STUDY in the cocoa industry Name course Code Professor’s Name Institutional Affiliation location date Analysis and Summary of the Cocoa Production Industry Country Cote d’Ivoire Dominican Republic Indonesia Summary About thirty percent of the total world’s cocoa production comes from Ivory Coast, which amounts to approximately 1,448,992 tonnes. Dominican is known internationally for conducting fair financial compensation to cocoa farmers and upholding environmental sustainability. Indonesia had not engaged in the farming of cocoa until 19. Political The government stimulates cocoa farming by giving out more land to reduce scarcity of land. The country has a convenient peaceful and non-corrupt environment for farming and other activities The Overseas Development Institute prefers cocoas from the small-scale farmers to large corporate producers. Economic Cocoa farmers received a higher income of 1100CFA francs compared to 1000CFA francs of the previous season, as compensation for the losses incurred due to bad weather. Cocoa contributes almost two-thirds of the total revenue Dominican is historically known for producing two different kinds of cocoa sanchez (cheaper buttery product) and Hispaniola (wee-fermented bean) The coca industry has been performing well until 2000s. Pod borer insect which damages the Indonesian crop has raised lots of concern regarding the recent failure. Social There are complaints about an alarming increase of child labour and abuse in the country. The country received a ‘Fair-trade’ certification for offering farmers adequate compensation for their harvest. Small holder farmers are reaping better benefits as compared to large scale farmers. Technological Improved planting material and input use is utilized to improve the next season’s produce. The country has invested greatly to support technological production of cocoa to promote environmental sustainability Unlike the small holder farm owners, the large corporate farmers make efficient use of the machinery to achieve high yield. Environmental Besides deforestation and land degradation; other major problems disrupting the cocoa sector in Ivory Coast include infestation of pests and diseases, premature aging of productive trees, lack of credit and agricultural inputs, and reduced land ownership. The government has enforced the policy of environmental sustainability in the production of cocoa. The latest emergence of the pod borer insect has invaded the cocoa farming causing its sudden fall. Legal The country is taking action to fight the abusive trend which has resulted to high rates of illiteracy. Compensation for farmers producing cocoa is done reasonably. The country needs to enact policies to promote fairness between the two scales of farmers. Country Peru Mexico Summary Presently, Peru is among the world’s largest producing countries. Mexico has recorded a yield increase in the cocoa production from 28,000 tonnes in the last record to 30,000 tonnes in the recent season, despite the subsequent fall of produce since 2000. Political A serious scramble for agricultural land happening in Peru is limiting the country’s production capacity for cocoa Hershey and Ferrero, chocolates giants, have been investing heavily in the cocoa production in Mexico. Economic In the recent season, Peru has been reported to make a strong come back in the cocoa producing industry, where it documented 95,000 tonnes of cocoa produce in the season 2015/2016 after being overtaken by cocaine for a while. Farmers have made an economic come back after a long period of low produce. Social Competition over farming land has become a social problem that requires special attention. Despite the high investment made by chocolate giants in Mexico, cocoa farming seems still seems to go down. Technological The country has adopted the current technological methods of farming thus making it among the global producers of cocoa. With the support from Hershey and Ferrero, the country’s cocoa industry uses improved facilities or producing cocoa. Environmental The climate of Peru supports the growth of various cops other than cocoa. A good example of another crop that grows well is the coca which produces cocaine. Research has revealed that pest disease is the main causative factor. However, there have been noticeable improvements since the introduction of new hybrid plants which have proven to be resistant to the diseases. Legal The landless farmers need to be sorted with enough land for them to get earn great yields. The board governing cocoa production in Mexico has a duty to define the actual challenges that are limiting success of the industry. Country Brazil Cameroon Summary It is among the largest cocoa producing countries in America. Though the produce is expected to go down in the coming ten years. Brazil is also a net importer of cocoa beans. It is one of the largest producers of cocoa in West Africa. The country recorded about 275,000 metric tons of cocoa beans in 2013. However, cocoa production in Cameroon is currently under threat due to poor management of the crop. Political Brazil practices democracy but corruption is the main issue in the country. Mismanagement and corruption in the country is disrupting the smooth functioning of the cocoa industry. Economic Production of cocoa in Brazil has dropped consistently in the recent years. Since 1998, the country has been making constant imports of cocoa, given that the volume cocoa produced cannot meet the market demand. The country is famous for its high potential of producing cocoa. Otherwise, the recent misconduct in the management of the cocoa plantations has placed the industry in a risky position. Social Corruption is causing farmers to battle with high costs of production and their general standards of living. The country’s produce is dependent on trees that were planted in the old age, thus hampering its real capacity of production. Most farmers have small pieces of land to carry out farming activities. Technological The cocoa industry is technologically paralyzed, hence the low production. The country utilizes technologically advanced facilities to achieve huge production. Environmental A publication made by Bahia revealed a 39% decrease in the output for the season 2015-2016, caused by poor weather conditions. Due to high rainfall in the planting season and the (black pod) disease, huge yield losses are incurred in the shaded cocoa plantations. Legal The government of Brazil is faced with a responsibility of eliminating the challenges brought up by fraud. The government has intervened to curb the damage which may only be minimized by exceedingly regular spraying with copper fungicides, which turns out to be very expensive to farmers. Country Ghana Nigeria Summary In Ghana, cocoa is a treasure. It accounts for a sixth of the country’s GDP. Almost three-quarters of Ghanaian farmers are smallholders cocoa farmers. The Nigeria focus of 2013-14 was to raise its production volume of cocoa from 367, 000 to 421,300 tonnes. Political Despite the absence of corporate control Mismanagement of the farms is limiting the overall improvement of the total yield. Economic The country boasts a constant produces of approximately 835466 tonnes of cocoa. However, farmers often battle with the high operational costs that are towering the cocoa industry of Ghana Favorably, the high global prices, advanced technology in the sector of agriculture plus overwhelming demand of the crop has steered massive growth in the cocoa industry of Nigeria. Social The overstretched costs of production have raised the standards of living. Hence, farmers are forced to find better market in Ivory coast. Despite the encouraging developments, Oxfam report that Nigerian cocoa industry has a high rate of gender inequality. Women who perform the same harvesting roles as men are paid unfairly. Technological Being the world’s leading producer of cocoa, farmers have embraced improved methods and materials to increase their produce. Minimal use of farm input, scarcity and high costs of useful chemicals, and poor transport network that link major cocoa production areas. Environmental The sector experiences a considerable percentage low average yield caused by the age of most cocoa fields. Many old cocoa fields, which also reduce the total yield, create a need for replanting of old farms Legal To counteract the aging problem, COCOBOD announced a National Cocoa Rehabilitation Programme, in which, 20 million cocoa seedlings were to be supplied to farmers for free The Cocoa Transformation Action Plan offered to improve this situation and to lift up the production to 500,000 tons shortly The Hershey Company Milton Hershey, who was a candy-manufacturer, founded the Hershey Group Company in 1894. Hershey was originally based in Lancaster, Pennsylvania. Its initial slogan was, ‘A palatable confection and a most nourishing food.’ When it was founded in 1894, the company concentrated on producing sweet chocolate as a coating for caramel. In the same year, it began manufacturing powdered cocoa. By 1895, it was producing 114 types of chocolate in different shapes and sizes, and it proceeded to establish a milk-processing plant in 1896. Later in 1899, the company developed a formula for creating milk chocolate and strived to maintain low costs by upholding massive production in 1900. Hershey then expanded its range of products and the popular Hershey’s KISSES chocolate entered the market. By 1921, the firm had launched wrapping machines to speed up its operations. This development accelerated its growth to enable it acquire the H.B Reese Candy Company. Hershey’s first consumer advertisement was featured in the newspapers in 1970. Later, after several years of successful production, Milton Hershey Trust School arranged to sell the company and then withdrew the plan (Apple & Otis, 2013). Hershey’s Holdings and Current Market Situation The tremendous growth of Hershey explains its current strength in its acquisition of various companies. The company currently aims at achieving the consistence creation of new products into the market. Hershey’s global branches export its products and conserve its licensing deals with other partners across the world. It is the leading manufacturer of chocolate and non-chocolate products in North America in addition to being a reputable producing leader in the gum and mint group. It owns stores in more than 70 countries across the world and has recruited 14,000 employees. The company makes nearly 6.6 million dollars in profits with China and Mexico being its main international markets. Harshey is also planning to focus on its competitive advantage present in Canada and the U.S. (Apple & Otis, 2013). Five Forces Analysis in Chocolate/Cocoa Industry Bargaining power of suppliers. Apple and Otis (2013) provide an in-depth discussion of Porter’s Five Forces influencing the current world-wide shortage of chocolate and cocoa in the market. Importantly, the industry has few substitutes for the raw materials that are provided by the limited suppliers. Cocoa beans do well in a tropical climate and such regions are usually prone to natural catastrophes such as hurricanes, which greatly limits the number of suppliers. Manufacturers depend on the few suppliers to avail the quality of cocoa that is in accordance with food regulations and consumer tastes to create the advantages related to the bargaining power for the cocoa products. The Bargaining Power of Buyers. There is a wide range of chocolate and cocoa products produced by the several international firms with Hershey being one of the largest. Each of these companies has a powerful brand recognition and customer loyalty, which raises the buyers' switching cost. In addition, cocoa buyers mostly have limited knowledge about the market and the products. All these factors result in a moderate bargaining power by buyers enabling Hershey to adjust its profits as it may deem appropriate. Little Threat from New Entrants. New cocoa companies are required to undergo expensive inspections and comply with the numerous regulations on food products as applied by the governments. The cocoa industry as well requires large amounts of capital for a successful venture given that industry’s associated labour, equipment, raw materials, and other operational costs are relatively very high. Hershey’s products claim a relatively strong customer loyalty, which intimidates new firms from joining the industry to compete with it. Moderately high threat of substitute products and services. Consumers can replace the chocolate and cocoa products with flavourings. In addition, buyers can choose other snacks or substitutes such as non-chocolate candies, ice cream, fruits and potato chips. Given that many people consider chocolate to be unhealthy, there is a high chance of the customers turning to substitute products, which poses a threat to the cocoa companies including Hershey. High intensity of rivalry among competitors in an industry. There are several powerful companies that dominate the chocolate industry. The powerful companies give rise to stiff competition. The firms consistently engage in advertising wars and heavily invest in the invention of new lines of products. These factors along with the associated high storage costs and high costs of maintaining the cocoa processing equipment explain why only firms with a stable financial base such as Hershey can thrive in the industry. References Apple, A. & Otis, C. C., 2013. Hershey’s CaseSynopsis. Simon Fraser University. Accessed at http://www.sfu.ca/~sheppard/478/syn/1137/G_2_1137.pdf Coffee Network, 2016. ICCO: Global Cocoa Production for 2015-2016. Accessed at http://www.coffeenetwork.com/Portal/Documents/News/2016-12/735/ICCO%20quarterly%20bulletin%20dec%2020%202016.doc Wessel, M. & Quist-Wessel, P. M. F., 2015. Cocoa production in West Africa, a review and analysis of recent developments. Wageningen Journal of Life Sciences, 74-75. Accessed at http://www.sciencedirect.com/science/article/pii/S1573521415000160 World Atlas. (2016). Top 10 Cocoa Producing Countries. Accessed at http://www.World Atlas.com/articles/top-10-cocoa-producing-countries.html Read More