The Supply of its Key ingredient

• The supply of cocoa has remained consistent over the years

  • Has been concentrated in West Africa, Cote d’Ivorie and Ghana accounts for 60% of cocoa production

  • Mostly all produced on family farms

  • reliant on smallholder farmers reliant on family and informal labour

• These small scale producers then sell to cocoa companies who sell to chocolate companies and then to retailers

  • Chocolate Companies: Hershey’s, Nestle, MARS, etc.

    • They set the market price for cocoa

Global Value Chain Approach

Global Value Chain Approach: The act of linking the activities that firms are involved with, an not just what they themselves own. This includes linking the activities of firms that bring a product from conception to consumption.

• Brand name recognition is just as important as generating sales

• Politicizes transnational production as it highlights how the activities in the chain are coordinated

Marketing Boards

Marketing Boards: help organizations create, plan, and implement result-driven marketing strategies

• Goes against Liberal ideology

• Currently, lead firms of profit in the chocolate industry are processors and manufacturers, due to their control of technological and brand-name rents

  • Small scale farmers producing the cocoa have been unable to negotiate collectively over cocoa prices, therefore making less money

Producers of Chocolate (and their workers) Live in Poverty

• Cheap Child labour (often kids of the farmers) is seen as a structural necessity caused by the fact that cocoa farmers cannot afford to pay decent wages, which leads to more poverty

  • Gets very small portion of money made off profit

• This has become worse since the dismantling of the state marketing boards in the 1980s

  • Liberal vs Economic Nationalist approach

  • Monopolizing the sale of a commodity

  • Creates greater marketing power

  • Can increase the profit of a commodity, then gives that greater profit back to the producers

Solutions:

State Marketing boards - buying from producer and then selling said product to buyers

• Producers themselves weren’t keen on it

• Ended up failing

Private Governance: Rules and standards agreed, monitored and enforced by non-state actors, typically companies, which act as an alternative or compliment to public regulation by the state.

• Media sensationalized high prevalence of Child Slavery/Labour on cocoa farms, but led to further discussion on how companies turn a blind eye to who is producing their cocoa

• Companies took this up when there was a risk of “this product used child labour” on their products

• Came up with the Cocoa Protocol

  • eliminated “worst forms” of child labour in the sector

• lead to questioning of its authenticity

  • Companies cannot be trusted to self-regulate as it conflicts with their interest of profit

Packback Question: Have any attempts been made by cocoa producers to band together to protest low prices and increase their bargaining power against manufacturers?

• Producer Cooperative: Producers could form a cooperative and use that quantity to become a better bargainer against bigger countries

• Have to be a very big cooperative to meet power

• International agreement between producer and buyer nations

Voluntary Industry Self Regulation

Third Party Certification: A voluntary in house standard, but the standards are way higher and the standards are checked by an independent third party

• Inspectors come and see if your claim are true

  • If you don’t meet the standards, you cant put the third party certification logo on your product

• Labels that guarantee certain minimum production conditions

• Example of Third Party Certification: Fair Trade (Company)

  • pay the producer a minimum price

    • Must be above the market price

  • Guarantee a long term relationship with the producer

  • Producers will always be small-scale that are bought from

  • environmental criteria (larger rainforest canopy, pesticides, etc)

• Different Third Party Certifications are very different

  • What hides behind the label is opaque - What is the difference in standards between the two labels?

  • One certification may have very different standards than another

• Solution that focuses on exposing the disastrous that exist in the global value supply chain

  • if product doesn’t have the label, means the company is exploiting people/environment

• Consumer driven solution

Mandatory State Monitored Labelling: Production conditions could be part of the information provided to consumers the same way an information label is provided

• ex. cut down a few trees, used a few slaves written on the product

• Allow Consumers to easily select between products/companies that are good or bad

  • Will reduce Commodity Fetishism - exposes production conditions

• Big companies would lobby against this

West African Governments have pledged to coordinate cocoa to drive up prices

• OPEC: Organization of the Petroleum Exporting Countries

  • Formed a cartel that controls how much oil they are going to supply per year

  • Manipulate that quantity to drive up prices

  • Worked very well for the OPEC nations, very rich after the 1970s

  • Other commodities have tried to follow this example

Solutions Analyzed

Voluntary Industry self Regulation

1. Doesn’t do very much

   • PR with consumers, more this than improve the well being of producers

2. Aimed at the state

   • More of a defensive move by companies

3. There is problem of Transparency

   • who is conducting inspections?

   • are promises being lived up to?

4. Continued supply from producers

   • Producers will continue to leave the industry

   • what might be the current best interest of the firm may not be in the best interest of the cocoa industry in the long term

Third Party Certification

• Standards might be super low

• Race to the bottom (Standard wise)

• FairTrade USA

  • Are lower than Fairtrade (don’t need to be in a cooperative, no minimum price)

  • A bunch of companies sign up for it, lots of sales and profit

  • may result in higher-standard labels to lower their standers

  • can point out lower standards, but must be a successful marketing scheme so people can distinguish the difference between good and bad labels

• Relying on consumer demand means kind people pay while selfish do not

  • some people may simply not care

  • Falls just on people who are nice

Cartels:

• Tend to fall apart

• Agree to shrink production to drive the price up

• creates a problem for people in the cartel

  • ex constrains the production of cocoa

  • an incentive to cheat on the quota, might want to sell more than the quota to make more money

  • will compromise the price conditions

• creates opportunities for people outside the cartel

  • more people will want to produce that product to make more money

  • rely on maintaining the price of the product invites new sellers into the industry

• creates conditions of their own failure