All posts by cliff420

Chocolate is too Cheap

Being a cocoa farmer in West Africa is a difficult and very unpredictable job. Farmers have to deal with a lot of unpredictability market prices, weather, and the political situation. Most other farmers have to deal with similar factors, but the history of the cocoa industry makes it a special case and can explain why the industry has not managed to solve problems that have plagued its since its inception. I think that in order to improve the condition of small farmers in West Africa they should be more involved in the added value part of making chocolate and we should try to fix the obvious fact the chocolate is too cheap.

The Western world was first introduced to chocolate during the Spanish exploration and conquest of the New World. The traditional recipe for cocoa drink used in the Aztec empire was not very popular back in Europe, so the Europeans quickly went about using the cocoa beans to make products that were better received by the European palette (Coe 112). Since chocolate was discovered by the Spanish most of the early chocolate came from Spanish colonies, which utilized a lot of slave labor. Specifically the encomienda system allowed the Spanish the comply with the religious order not to enslave the native Americans, while treating them like slaves and exploiting their labor. This initial reliance on slave labor to keep costs down set the tone for the cacao growing industry for the next couple of hundred years.

In the early 19th century the slave trade was winding down and it was becoming much more expensive to grow cacao in the Americas. To solve this problem countries looked to place with similar climates and less strict labor rules. They settled West Africa as a place that had the right climate and a population that was easy to exploit and increase profit margins. Even though labor laws have gotten tougher West Africa still produces 70% of the world’s cacao (Coe 197). To see how reluctant the chocolate industry was to move away from slavery we only have to look at the example of Cadburys chocolate in the early 20th century. Cadburys is an English chocolate company that was buy cacao from the islands of Sao Tome and Principe at the time, which were Portuguese colonies. There was allegations of slave labor, so the company hired a detective to try to figure out what was going on. The detective found that there was not traditional slave trading going on, but the working conditions on the plantations were very bad and the death rate was much higher than it should have been. This was however a very tricky situation, because that industry was supported by the portuguese government and accusing them of using slave labor would have hurt diplomatic relations between the UK and Portugal (Higgs 146).

After one trip to Sao Tome Cadbury decided to visit Ghana because of the chocolate production there. The chocolate production in Ghana was on a much smaller scale than in the Portuguese colonies and at the times was not enough to satisfy the demand of the company, but it seemed promising. In 1909, Cadbury bought some land in the area and set up a factory (Higgs 148). This is where we can really start looking at the modern day cocoa growing process in the area, because the Gahan had a lot of small family owned farms and Cadbury moving his factory their changed them from a low production region to the one of the largest suppliers of cacao in the world.

The situation there nowadays is not very good though, many farmers live in poverty and are unable to support their farms and families from the money that they make from cacao. The industry in Ghana is also very highly regulated so much so that the government even sets the price of cacao in the country (Munshi). This creates a problem because if the government sponsors farmers and guarantees that their product will be sold at a specific price it creates no incentive to decrease supply. These heavy handed government policies could be creating a global oversupply driving down prices and costing even more money for the government because they would have to pay the subsidies to the farmers to make up the difference.

To try to stabilize the global price Ghana and the Ivory Coast are trying to form a cartel that would decide production numbers and use that to try to prevent an oversupply (Bloomberg). Although both of these countries regulate cacao differently they both set a minimum price that the farmers will receive, which again could create more of an oversupply. These governments are also not always willing to work together. Recently the Ivorian government was unable to convince the Ghana government to decrease their cacao prices to decrease the amount of smuggling between the two countries. Internally these countries are not the most stable either. Although the Ivorian government has tried to control supply many farmers are illegally expanding into protected forests to grow more cacao (Bloomberg). Simply using the government to force people to stop doing something is rarely effective. A much more effective plan to encourage the people to do certain things is to provide incentives for doing them.

Many of the problems facing the cacao industry are also faced by other agricultural industries. The price of commodities is very unpredictable and you generally do not have very high margins because you are only providing the raw materials for many other products. Because of this volatility many government subsidise farms, and farm equipment. There are a wide range of strategies that governments can use to subsidise farms from paying farmers not to use their land to destroying supply in order to keep prices high (Econlib). These policies make sense for some crops that are grown on large plantations where individual farms can decrease production and not take a massive hit to their livelihood. Chocolate production in Ghana is a different scenario though because the farms are generally small, family owned, and only produce one crop. Programs such as this will completely devastate these small farms.

Even at the current prices these small farms can barely produce enough cacao to keep themselves fed and clothed. A UK study found that on average woman are making less that three dollars a day farming cacao. Even though the cost of living in Ghana is lower it is not that low and less than three dollars a day is lower middle class for Ghana (Leissle 91). The lack of information that the farmers used to have was also a problem. Someone could come to their village and tell them a much lower price for cacao than the market price and buy the cacao for below market value. This has improved over recent years as the internet has become more accessible farmers can be more informed if they are getting a fair price for their product or not. The opening up of the market in Ghana has also created competition amongst buyers in some places, which is always good for farmers because this drives up prices and gives them a choice of who to sell to. Currently Ghana also sets a price floor so if short term volatility drives the price of cacao below a certain set price then then government will make up the difference and keep the farmers in business (Leissle 76).

Many people believe though that direct government intervention is not the correct way to solve this problem. Many NGOs are trying to tackle the problem of low incomes for cacao farmers. One specific NGO that I want to look at it the Day Chocolate Company. This NGO gives farmers shares in the company so that they are invested in the success of the company. These shares also give the farmers two seats on the board so they can have a say in which direction the company goes in the future (Doherty 4). The farmers are part of a union called the Kuapa Kokoo Farmers Union. This union was created in 1993 as a cooperative buying company with the goal of getting higher prices for cacao and  to promote social projects. In 1997 the union voted to set up the Day Chocolate company whose goal was to create a chocolate bar to be sold in western markets (Doherty 5). This would greatly increase their profits because most of the value of the chocolate comes from the processing not the raw ingredients.

The question is then did they succeed. Well looking at the numbers they went from less than a quarter of a million pounds in sales in 1999 to over five million pounds in sales in 2004. This seems like a very successful company and as they earned more from sales then began to buy more beans and fair trade prices. This has provided more that 2 million dollars of extra fair trade premiums, part of which has been paid to as extra income to farmers (Doherty 8). This is great news for farmers because they can not have to worry as much about essentials and they could have time to engage in activities other than farming.

All of these programs that help cacao farmers are great, but if the market price of cacao is not enough to cover the costs of farming it then the whole system is unsustainable. The best way to solve this would be to raise the market price of cacao and the best way to do that is to restrict the supply. That can be done through government regulation, but that might not work so well on small family farms that cannot really decrease production. I think that the best way to sustainably decrease cacao production is to have companies unrelated to chocolate open up factories or create some kind of jobs in the area. This would encourage people to move away from growing cacao because these jobs could pay more and be a more stable source of income compared to farming. This would then decrease the amount of people farming and decrease the global supply. This would raise prices and the people who would still be growing the cacao would be getting a high income for the same amount of beans.

Another plan that could create more stability for cacao farmers would be to move away from small family owned farms to larger farms that could adapt to and predict demand better than small farms and could negotiate better or at least stable prices with buyers. These farmer could then employ former cacao farmers with a salary, so the people with cacao growing expertise would be growing the cacao and the people with business expertise would be manage the business side of the enterprise.

This move away from small farms may already be happening without any outside interference. In West Africa the younger generation does not want to be cacao farmers and the older generation is not going to be able to keep farming for much longer (Barclay). While the chocolate industry sees this as a bad thing, obviously because their costs will increase, this could actually be a very good thing for the people of West Africa because many of them could try to move to more profitable and sustainable jobs and the people that remain will end up having higher incomes because of the decrease in supply.

The socioeconomic conditions of many chocolate farmers in West Africa are extremely poor and while many programs are trying to fix these conditions they are not addressing the main problem that market price of chocolate is not high enough to properly cover the costs of cultivating it. Most government programs that are trying to guarantee a minimum price are very expensive and create an oversupply, which drives the price down even further. Most programs run by NGOs are trying to do a similar thing which addresses the symptoms not the underlying problems of the cacao growing industry. The Day Chocolate company is taking a different approach, which might just work. By vertically integrating the company and making the growers be shareholders they can reap the benefits of being involved in the the value added steps of making chocolate. Farmers also benefit from the stability of the price of chocolate bars. One final thing that might help chocolate farmers is to encourage some of them to move into other industries to constrict the supply of chocolate and raise the market price to a level where it pays for the costs of growing it and provides a decent income. This last plan fixes the underlying problem of farmers in West Africa living below the poverty line, but it would also be the most unpopular because countries such as Ghana would decrease their exports and the global price of chocolate would go up significantly.

Works Cited

Bloomberg.com, Bloomberg, http://www.bloomberg.com/news/articles/2018-06-04/why-african-cocoa-growers-are-having-an-opec-moment-quicktake.

“Agricultural Subsidy Programs.” Econlib, http://www.econlib.org/library/Enc/AgriculturalSubsidyPrograms.html.

Barclay, Eliza. “Why The World Might Be Running Out Of Cocoa Farmers.” NPR, NPR, 3 July 2015, http://www.npr.org/sections/thesalt/2015/07/03/419243305/why-the-world-might-be-running-out-of-cocoa-farmers.

Coe, Sophie D., and Michael D. Coe. The True History of Chocolate. Thames and Hudson, 2019.

Doherty, Bob, and Sophi Tranchell. “New Thinking in International Trade? A Case Study of The Day Chocolate Company.” Sustainable Development, vol. 13, no. 3, 2005, pp. 166–176., doi:10.1002/sd.273.

Higgs, Catherine. Chocolate Islands: Cocoa, Slavery, and Colonial Africa. Ohio University Press, 2013.

Leissle, Kristy. Cocoa. Polity Press, 2018.

Munshi, Neil. “Cocoa Prices Leave Bitter Taste for Ghana’s Farmers.” Financial Times, Financial Times, 8 Oct. 2018, http://www.ft.com/content/a06abe2a-c1ab-11e8-84cd-9e601db069b8.

The Intertwined History of Chocolate and Slavery

Slavery has played a role in the European production of Chocolate since the inception of the industry. Although slavery and the acceptance of slavery has changed quite a bit since the Spanish first instituted the encomienda system to provide cheap labor for the production of chocolate, it still remains a major cost cutting measure that some chocolate farmers employ to produce cacao at market rates. In recent years some consumers have become increasingly concerned about the ethics of the food and products that they consume, which has opened the door more expensive fully vertically integrated chocolate producers that can guarantee that their products are ethically produced. These companies are generally small because their business model generally requires their chocolate to be more expensive than their bigger competitors. As consumers become more ethically conscious about what they consumer bigger companies could adopt this business model and still be able to compete in the market.

The first Europeans to make chocolate where the Spanish in their Central and South American colonies. Since the process of picking and processing the cacao was very labor intensive the Spaniards relied on several different forms of slave labor. Initially they the used Native Americans through the Encomienda system (Sampeck, 44). This was because the natives already had many of the skills required to harvest and process cacao and there were plenty of them living in the area. In the encomienda system the natives technically were not slaves, in the sense that the land owners did not own them, but the landowners were the only place that the natives could get living essentials and the only way to get those were to work the landowners land (Sampeck, 45). During this time slavery was generally accepted and the Europeans were also trying to convert the natives to Christianity, so they thought that they were doing them a favor.

The encomienda system fell out of favor quite soon though, because many of the natives were killed by disease and there were not enough of them to work the farms. The production remained in Central America at the time, but the labor shifted to enslaved Africans (Sampeck, 45). Since enslaved Africans were constantly being shipped in their numbers were not being decreased by European diseases or the high mortality rate while working on plantations. They also did not run away as much because they did not know the land as well as the natives did.

As Chocolate production became more globalized the amount of slaves used in its production increased. Between the years 1500 and 1900 between 10 and 15 million slaves were transported across the Atlantic to the Americas. 60% percent of the slaves went to the Caribbean where English colonies produced quite a bit of sugar, which is an important ingredient in chocolate. After the slaves arrived they were generally expected to survive only 8 (Sampeck, 47). In the beginning this system was very profitable and was moral tolerated. The fact that this system was profitable tells you that a single slave cost less than 8 years worth of wages, although such a number it completely ridiculous it is worth remembering that these slaves were made to work extremely long hours without much rest in between.

Rugendas, Johann Moritz. Punitions Publiques Sur La Place – Stª Anna. commons.wikimedia.org/wiki/File:Johann_Moritz_Rugendas_in_Brazil.jpg.

In the early 1800 the world began to slowly phase out and abolish slavery. At this time to keep chocolate production profitable producers moved production to places that had a similar climate to Central America, but had more cheap labor. The Portuguese colony of Sao Tome and Principe became the biggest producer of cacao in the world during the early 1900 and this is where we can see a company struggling between competing in the Chocolate market and utilized slave labor to do it (Satre, 13). The labor used on this island was not the traditional slave labor that was common in American colonies, this labor instead was indentured servants with exploitative contracts. This was an important distinction because slavery was illegal in Portugal, but these workers were technically free and could return home as soon as their contracts expired. None of these workers ever chose to return home. A large plantation on the island even admitted to having a 25 percent child mortality rate (Satre, 11). The Cadbury company was a large chocolate company in England run by quakers, who supported many anti-slavery causes. This company bought 45% of its cacao from the island of Sao Tome and Principe. After the company heard about the possible use of slave labor in the production of their chocolate they send a person to investigate that claim (Satre, 13). After extensive investigation Cadbury eventually concluded that the working conditions at their chocolate supplier were unacceptable, but when they confronted the Portuguese they were told that they were free to buy their chocolate elsewhere. The problem with that is that Cadbury would have to pay more for the same product (Satre, 24). Although the company might have been able to afford this increase in costs Cadbury decided that the slavery in Sao Tome and Principe was not as bad as American slavery and certain farmers there promised to improve conditions. However as the social climate changed and the evidence of slavery in Sao Tome and Principe mounted Cadbury eventually decided to boycott them (Higgs, 153). Although slavery was not generally accepted at the time people did not feel very strongly about exploitative labor practices.

Koppehel, Sebastian. Tony’s Chocolonely. commons.wikimedia.org/wiki/File:Tony’s_Chocolonely_01.jpg.

In modern times consumers feel very strongly about slavery and exploitative labor practices, so companies cannot admit to knowing about slavery and keep buying from those same suppliers. However there are about 2 million children working in hazardous conditions in West Africa in the Cocoa industry. Many small craft companies such as Tony’s Chocolonely are controlling their entire supply chain to make sure that the chocolate is ethically produced (Appiah). This increases costs for the company, but in today’s woke culture people are willing to pay significantly more for products and are cruelty free and ethically sourced. Currently this is only profitable for small companies that are trying to make a statement, but as priorities change more larger companies might be able to take control of their supply chains and provide ethically sourced chocolate.

Fair Trade. commons.wikimedia.org/wiki/File:FairTrade-Logo.svg.

Slave labor has played a major role in the history of the chocolate industry. Without slaves chocolate would have been a much more expensive commodity and might not have risen to the same popularity that it enjoys today. As the culture changes more companies are trying to make ethical chocolate that does not require and coercive labor practices and slavery. At this point this is mainly done by small companies, but as this trend grown larger companies are starting to consider imposing stricter standards on their supply chains.

Works Cited

Appiah, Lidz-Ama. “Slave-Free Chocolate: Not-so-Guilty Pleasure.” CNN, Cable News Network, 7 June 2017, http://www.cnn.com/2017/06/02/world/tonys-chocolonely-slavery-free-chocolate/index.html.

Higgs, Catherine. Chocolate Islands: Cocoa, Slavery, and Colonial Africa. Ohio University Press, 2013.

Martin, Carla D., and Kathryn E. Sampeck. “The Bitter and Sweet of Chocolate in Europe.” Socio.hu, no. special issue 3, 2015, pp. 37–60., doi:10.18030/socio.hu.2015en.37.

Satre, Lowell Joseph. Chocolate on Trial: Slavery, Politics, and the Ethics of Business. Ohio Univ. Press, 2006.