Big Chocolate - Production Situations in Cote d Ivoire, Indonesia, and Dominican Republic Cocoa - Example

Running header: Big Chocolate Big Chocolate Course Name Professor’s Name Institutional Affiliation City and State Where Institution is Located Date Analysis and summary of the Cote d ivoire, Indonesia and Dominican Republic cocoa production situations Cote d ivoire or Ivory Coast is the world’s top cocoa producer and accounts for 30% of the world’s total production. The country’s cocoa contributes to 2/3 of its foreign trade revenue. However, there have been concerns of child labor with children working for as long as a 100 hour week long with the harsh working conditions including physical abuse and no education. Owing to the low prices, the farmers are poor and hardly afford to eat chocolate. On the other hand, Indonesia is the third largest cocoa producer in the world (Anga, 2016). However, production is greatly hampered by pod borer insects which is a major concern. Cocoa production in Indonesia is mainly by small scale farmers. Cocoa production in Dominican Republic which the world’s tenth largest producer is considered the most ethical globally with government support for production in environmentally sustainable manner. The country leads in “fair trade certified” cocoa production for adequately compensating farmers. PESTLE Analysis Ivory Coast Political environment -The government supports cocoa farming as it is the biggest foreign exchange earner for the country -The government regulates prices for instance in 2015, it awarded a 10% price increase to farmers Economic environment -The cocoa prices are still viewed low with famers abandoning cocoa farming for better crops. Despite being the producers, most farmers hardly afford cocoa products -There is little access to credit for farmers which has contributed to declining production Social -Cocoa is mostly produced by old small scale farmers -cocoa production has been blamed for child labor in poor working conditions. Technological -There is very low absorption of modern technology in cocoa farming with most cocoa trees being aged. Legal -there are very few legal issues that affect cocoa farming in Ivory coast. The law regarding such issues as child labor are hardly applied hence the rampant application of child labor in the industry. Environmental -Cocoa production has largely been affected by changing climatic conditions. -cocoa production has been blamed for massive environmental degradation owing to massive clearance of forests for cocoa farming. This is worsened by increased use of chemicals. Indonesia Political -a lot of government support with the government launching USD 350 million program to boost production. USD 10 million has been used to distribute free seedlings by the government. Government also imposes tax on imports to support local production. Economic -Production greatly affected by global prices. However, farmers have increasingly abandoned cocoa farming for other better priced crops such as rubber. However, Cocoa is the fourth largest foreign exchange earner for the country. Social -Cocoa farming is mostly by small scale farmers. Production declining owing to aged trees and farmers. Technological -There has been slow adoption of technology in production with production being hampered by little application of technology while most of Indonesia’s cocoa is exported as raw beans. Legal -Legal measures have been taken to protect the industry from imports by introducing taxes. Environmental -Production affected by climate change. For instance, it declined in 2016 due to drought resulting from Elnino. The pod borer is a major concern as it has led to declining production. Dominican Republic Political factors -due to its economic importance to the country, there is a lot of government support to this sector in terms of funds and infrastructural investments. The government offers support for production in environmentally sustainable manner and sets prices that adequately compensate farmers. Economic Cocoa is of significant economic importance to DR in terms of creation of thousands of jobs and its contribution to the nation’s GDP. Social The crop is mainly grown by small scale farmers who despite the government support are still poor since the prices set by the government are still below the global average. The farmers are also affected by lack of infrastructure and this hinders production. Technological Technology has been adequately applied in production of cocoa mainly for export where two types of cocoa-Sanchez and Hispanio are exported. Legal Legal requirements regarding environment and protection from child labor are largely applied. Environmental Production affected by crop diseases as well as extreme weather conditions such as hurricanes which destroy crops. Coffee production in Peru and Mexico Peru is the ninth largest cocoa producer in the world. However, its production has been hindered by fierce competition over agricultural land with Coca that fetches better prices. On the other hand, Mexico which is also a major producer has also seen heavy investments by chocolate multinationals in terms of production, infrastructure and technology. However, production is often hindered by diseases such as frosty pod rot although new hybrid resistant plants are being introduced. PESTLE Analysis Peru Political There is a lot of political will to support cocoa production as it is an important foreign exchange earner. The government’s antinarcotic policy in conjunction with USAID have program to improve production as an alternative to Coca. It also provides technical support to farmers. Economic Cocoa prices largely dependent on international market prices. However, the prices are still low and many farmers abandoned cocoa farming for Coca which fetches better prices. However, government through ACP facilitates access to credit while strengthening producer cooperatives. Social Production is mainly by small scale farmers. The main threat to its production being Coca which produces cocaine and hence many produce it for its better monetary value and as a drug. Local consumption is also very low at below 10%. Production is also hampered by massive lack of infrastructure (Worldatlas.com, 2017). Technological There is slow application of technology with ACP targeting to transfer technology to 15000 producers with better crop varieties. Legal There are no legal requirements for cocoa production although the government is coming up with policies to boost production and limit Coca production. Environmental Production is at times hampered by unfavorable climate. Deforestation and use of chemicals are still major environmental issues. However, the country is slowly adopting organic cocoa production aimed at improving environmental sustainability. Mexico Political In a bid to boost the declining production, the federal government has implemented programs designed to increase production per hectare while conducting research on whether the number of trees per hectare can be increased Economic -the need for higher returns has led to declining production with farmers replacing cocoa with other more profitable crops or selling their land to Pemex Social Production is mainly by small scale farmers while consumption is relatively high at 6-7kg per person annually and Mexico has to import cocoa for surplus consumption Technological -there has been low application of technology which is part of the cause of decline in production though multinationals such as Hershey’s have invested highly in technology with an aim to boost production. Legal -There are few legal requirements for the sector Environmental -production has been greatly hampered by diseases and pests such as moniliasis, witch broom and black spot. There have also been concern that production is not environmentally sustainable due to use of chemicals and failing to use practices that promote water conservation. Brazil and Cameroon Production of cocoa in Brazil has dipped despite its being in high demand with the country being a net importer. The government also forecasts a 5.7% decline in production owing to unfavorable climatic conditions. In Cameroon, production has been declining owing to poor management, lack of space and the fact that aged plants have not been renewed for long. Political The government is supportive of the sector and has been in discussion with stakeholders on policies to increase output to 400,000 tones in ten years’ time. Economic Cocoa fetches good prices in Brazil given the high demand and the declining production. Cocoa is a strong foreign exchange earner for the country as it exports finished cocoa products. Social Production is mainly by small scale farmers while most trees are aged thus hampering production. Consumption in Brazil is high while the country exports a lot of cocoa products making it a net importer of cocoa beans. Technological There has been a considerable technological advances in the sector with new disease resistant crops being developed while the sector has been mechanized. Legal There are no major legal factors that affect cocoa production in Brazil Environmental Production has greatly declined owing to unfavorable climatic conditions such as drought as well as the spread of devastating witches broom fungus that killed thousands of trees. Cameroon Political There is lack of government support for the sector and the sector has been privatized without sensitizing farmers on the benefits of privatization. The national marketing board has collapsed owing to corruption. Economic The sector though an important foreign exchange earner has been characterized by poor and falling prices as prices are dictated to farmers by buyers. Social Cocoa is mainly produced by small scale farmers who are aged. Production has been hampered by rural exodus of the youths and working age population who leave villages for better opportunities in town. Thus child labor is rampant in the farms. Technological There is little use of technology in the sector which has also hampered production Legal There is lack of will to enact legal policies that would protect the sector Environmental Cocoa farming is associated with massive deforestation and use of chemicals resulting to climate change. However, farmers are increasingly adopting sustainable farming. Ghana and Nigeria The Nigerian government has put in policies to increase production to take advantage of rising global prices, demand and increased availability of cutting edge agricultural production technology. However, the sector has been blamed for lack of gender equality on the farms with child labor being widely practiced. In Ghana, coffee is highly valued and is king. It is farmed by small holdings majority. However, the sector is affected by high operational costs owing to lack of corporate control with cocoa being smuggled into Ivory Coast where it fetches better prices. Nigeria Political There is a lot of government support with the government putting in policies to increase production Economic Though it is a valuable foreign exchange earners, it seems to have lacked attention after the discovery of oil. The prices are largely dependent on global prices though production is hampered by lack of access to credit by farmers, market fluctuations and inconsistent policy implementations. Social It is mainly produced by aged small scale farmers since youths are impatient to produce it owing to the long periods it takes to mature. Technological The government has put in place policies for adoption of modern technologies in cocoa farming. Legal There are no legal handles to farming cocoa in Nigeria Environmental Production is at times hampered by climatic changes as well as pests and diseases. Ghana Political The government through Ghana Cocoa Board is very supportive of the sector through technology acquisition, research and marketing. Economic Cocoa is a great contributor to Ghana’s GDP accounting to about 8% of the GDP. It is marketed by licensed buying companies who sell to COCOBOD a government agency. It is a leading employer with six million people depending on the sector. The cocoa prices are largely dependent on global markets however, farmers smuggle it to Ivory coast where it fetches better prices. Social Production affected by rural urban migration of the youth and hence production is largely by the aged (Akhtar, 2016). Technological There is limited application of technology and most of the production is exported as cocoa beans. Environmental Production is hampered by changing climatic conditions and has also been blamed for environmental degradation due to use of chemicals and deforestation. Legal There are no legal requirements that hamper its production though there are regulations that govern cocoa marketing. Report for Barry Callebut assessing on the factors contributing to the impending 15 years chocolate production shortage: Synopsis Barry Callebaut is one the largest cocoa producers and grinders in the world with its annual production hitting 1.7 million cocoa tones. The company came into being in 996 after the merger of Callebaut and Cacao Barry. It is headquartered in Zurich Switzerland and has operations in 30 countries worldwide. It sells its products to multinationals as well as branded consumer goods manufacturers. The company also researches on cocoa recipes (barry-callebaut.com, 2017). The company is a market leader and has acquired more than twenty companies since its inception. The following table represents the company’s five forces analysis that shows its position in the market; Bargaining power of suppliers: High The resources used by the company are differentiated and hence suppliers have a lot of power. There are no substitutes for the supplies and while suppliers are many, there also many competitors for the company. The suppliers have to deliver high quality cocoa beans that have to meet food regulations and consumer tastes and preferences. Bargaining power of buyers-Low The company offers differentiated chocolate and cocoa products. The industry has large players with strong brand identification and customer loyalty thus increasing buyer’s switching costs. Buyers also lack complete information about the market and the products. Threat of new entrants-Low Entering the industry requires huge capital investments which may deter entrance. Furthermore, there is high customer loyalty and entrants may find it hard to attract new customers. There are also high switching costs and many government regulations that decrease competitors who enter the industry. Threat of substitutes : Moderate Consumers nowadays may use flavorings instead of cocoa or chocolate. There are also many other alternatives to cocoa and chocolate products and hence consumers may find it easy to switch to substitutes. Rivalry among competitors: High The industry has multiple competitors and hence has intense rivalry. Causes of the decline in chocolate production There are many reasons behind the projected chocolate shortage globally in the next fifteen years. It is worth noting that about half of the cocoa beans being produced in such countries as Ivory Coast fail to meet quality standards which will lead to chocolate shortage as cocoa is the main ingredient for chocolate. This is despite the growing demand for cocoa globally and hence due to shortage in production, there will be shortage for chocolate (Wexler, 2016). The declining level of cocoa production and hence chocolate production is attributed to unfavorable climatic conditions where some producing nations experience prolonged droughts thus resulting in declining production. In some countries such as Brazil, production is affected by pests and diseases which has cut production by a big margin. On the other hand, some countries such as Nigeria and Cameroon are experiencing declining cocoa production since their coco trees are aged leading to low production. The young in such countries are Ghana, Nigeria and Cameroon have shunned cocoa production for better opportunities in cities while others in Peru and Mexico are opting for more profitable crops thus worsening the situation. It is worth noting that since cocoa is the main ingredient for chocolate, its declining production is also expected to result in declining production of chocolate in the next fifteen years (Bowers and Bailey, 2017). It is worth noting that cocoa trees take a long time to mature and before the current challenges in cocoa production are solved, we can only expect shortage in chocolate production while its demand will keep rising. References: Anga, J2016, Latest developments in the global Cocoa market, Retrieved on 26th March 2017, from; http://unctad.org/meetings/en/Presentation/SUC%20MYEM2015%20Jean- Marc%20Anga.pdf Worldatlas.com, 2017, Top 10 Cocoa producing countries, Retrieved on 26th March 2017, from; http://www.worldatlas.com/articles/top-10-cocoa-producing-countries.html barry-callebaut.com, 2017, Barry Callebaut, Retrieved on 26th March 2016, from; https://www.barry-callebaut.com/ Akhtar, K2016, Cocoa industry searches for solutions to production woes, Retrieved on 26th March 2017, from; http://www.cbc.ca/news/business/cocoa-chocolate-production-sustainability-1.3409155 Wexler, A2016, Chocolate makers fight at melting supply of Cocoa, Retrieved on 26th March 2016, from; https://www.wsj.com/articles/chocolate-makers-fight-a-melting-supply-of-cocoa- 1452738616 Bowers, H&, Bailey, A2017, The impact of plant diseases on world chocolate production, Retrieved on 26th March 2017, from; http://www.plantmanagementnetwork.org/pub/php/review/cacao/ Read More