Cocoa Production Situation in Leading Cocoa Production Countries - Case Study Example

Big Chocolate Case Name Institution Course Date Big Chocolate Case Introduction This report is dived into two parts. The first part of the report analyses the cocoa production situation in leading cocoa production countries, including Cote d’Ivoire, Indonesia, Dominican Republic, Peru, Mexico, Brazil, Cameroon, Ghana and Nigeria and analysis of macro environmental factors affecting the industries using PESTEL tool. The second part of the report will analyze the factors causing the looming 15 year chocolate production shortage. Cocoa Production in Cote d’Ivoire, Indonesia and Dominican Republic Cote d’Ivoire is the world’s leading cocoa producing country with an annual production capacity of 1.57 million tons as at 2016, which is a decline from the previous year’s 1.75 million tons. This means that Cote d’Ivoire produces 40% of cocoa used in the world. However, poor weather coupled with harmattan conditions has affected the production of cocoa in Cote d’Ivoire with projections indicating the cocoa production in the country will drop by 80,000 tons in 2017 (Verdin 2016). Indonesia is the world’s third largest cocoa producing country with production capacity of about 350,000 tons in 2014/2015. However, this is a sharp decline compared to the previous years’ production of 575,000, 435,000, 500,000 and 575,000 in 2010, 2011, 2012, and 2013 respectively. Indonesia cocoa is growth mainly by small scale farmers with the country’s cocoa grown on approximately 1.5 million hectares of plantations. Like other parts of the world, declining cocoa production is linked to poor weather (Indonesia-Investments 2017). Dominican Republic is a major producer of cocoa. The country is known for producing high-grade, fine flavor and organic cocoa and has an annual production capacity of about 70,000 tons. Cocoa is a huge industry in Dominican Republic and is a major export earner to this nation. Although cocoa production has been increasing in the country, latest projections indicate that cocoa production will plummet slightly in 2017 and 2018 due to bad weather patterns (UNDP 2015). PESTEL: Cocoa Production in Cote d’Ivoire, Indonesia and Dominican Republic Country Cote d’Ivoire Indonesia Dominican Republic Political Country is prone to civil war Country highly volatile during elections that tend to be postponed most of the times. High corruption Country launched new cocoa sector governing body to regulate the industry Land tenure rights a big political issue Cocoa attract 34% tax Enjoys relative political stability as it is being government by a democratic president High corruption rate Cocoa exports attract 10% tax Modern democracy Enjoys political stability Corruption is an issue Low tax on cocoa exports Economic Weak economic growth and outlook Per capita income has declined by 15% since 1999 High unemployment rates Low cocoa yields at 450 kg/ha (Heritage 2017). Positive economic growth with GDP growth of 4.8% in 2016 GDP per capita of $11,126 High unemployment rate of 5.8% $15.5 billion FDI Rising middle-income population (Heritage 2017). Second-largest economy in Central America and Caribbean Upper-middle income developing nation GDP growth of 7% Per capita GDP of $14,984 High unemployment rate at 14.4% (Heritage 2017). Social Social services are lacking with only 28% of cocoa farming villages having a health centre Child labor is high at with 89% of children making the labor force, 9% of which is forced labor High migration Low life expectancy Majority depend on agriculture Majority live in rural areas HIV/Aids an issue Growing literacy rates Minimal incidences of child labor in cocoa farms Average life expectancy (70 years) Majority depend on agriculture Majority live in urban areas Population of 10.8 million people 35% of population are below 15 years while 5% are 65 years and over Average life expectancy of 73 Majority live in urban areas Technology Low technological development Low technological developments in cocoa industry Advancing technologically in cocoa industry Legal High tax rates for cocoa at 34% Relaxed labor laws Low tax rates Tough employment laws to prevent child labor and exploitation Tough labor laws to cub child labor and trafficking in cocoa industry Laws protecting farmers from exploitation have been enacted Environment High rate of deforestation is an issue Declining soil facility is also an issue that the government and civil rights groups are trying to control. Deforestation a concern Declining soil facility an issue Deforestation a concern Declining soil facility an issue Cocoa production in Peru and Mexico Peru is an emerging major player in the cocoa industry. Currently, Peru is the 13th largest cocoa producing country with an annual production capacity of 70,000 tons in 2014, which marked about 5% increase compared to the previous year when production stood at 68,021 tons. This production accounts for about 1.3% of the global cocoa production. The country has about 145,000 hectares of cocoa plantations with the majority of cocoa growth by small scale farmers. However, Peru’s production is expected to increase with the strong support of the government (Held 2015). Mexico is among the world’s cocoa producing countries. However, Mexico’s cocoa production is dismall compared to nations like Peru. However, cocoa production in Mexico has been declining at faster rate. In 2003, cocoa production stood at 50,000 tons and by 2005, it had declined to about 36,366 tons, which declined further in 2006 to just about 26,705 tons. In 2007, the trend continued with production declining to 23,878 tons and today, cocoa production in the country is estimated at about 20,000 tons only. The decline in cocoa production is linked mainly to outbreak of diseases, especially frosty pod rot disease and aging trees (Cocoa-Mexico 2016). PESTEL: Peru and Mexico Peru Mexico Political Modern democracy and enjoys political stability Corruption is high as it ranked 83rd out of 176 with a perception index of 38 Cocoa industry highly regulated and tax rates on exports has been increasing Enjoys political stability Cocoa industry heavily regulated Corruption perception index is low Economic Moderate free economy GDP growth rate of 6.4% Per capita GDP of $10,900 Low inflation Large budget surplus High rates of unemployment at 7.7& and poverty rate at 31.3% Economy largely depends on agriculture (Heritage 2017). GDP growth of 2.2% in 2015 Per capita GDP of $18,500 in 2015 High FDI flow High unemployment rates (Heritage 2017). Social Approximately 30 million people Average life expectancy of 73.98 as at 2011 Majority lives in urban areas Roman catholic is the main religion High population of about 122.3 million people Majority of people are youths High life expectancy of 77 years Technology Increased technological adoption in the cocoa industry Advanced in terms of technology, especially in cocoa industry Legal High tax rates for cocoa Tough labor laws Tough labor laws to protect farmers and employees Tough environmental laws Environment Destruction of Amazon and other rain forests is an issue Destruction of forests and declining soil facility is an issue Tough environmental laws Cocoa Production in Brazil and Cameroon Brazil is among the world’s largest producers of cocoa. In 2013, cocoa production stood at 256,186 tons. However, production has been falling exponentially and projections indicate that production will fall by 15.7% to just about 243,000 tons by 2022/2023 and 216,000 by 2023/2024. Additionally, plantations under cocoa are also expected to decrease to 679,000 by 2023/2024 (Pekit 2014). Cameroon has been among the world’s leading cocoa producers. In 2013, its cocoa production stood at 275,000 tons. However, poor management of cocoa farms affects production capacity. For instance, as much as there was a growth in production in 2016 compared to 2015 with production of 269,495 tons, which accounted for 16% growth, this still less compared to 2013 and early years. Nonetheless, the government of Cameroon intends to increase annual production to 600,000 tons by 2020 (The World Bank 2017). PESTEL: Brazil and Cameroon Brazil Cameroon Political Enjoys political stability High corruption remains a challenge as it ranks 72nd out of 180 countries Cocoa industry is highly regulated Relative political stability but situation remains fluid Boko Haram is a threat to security High corruption a big issue Cocoa industry regulated Economic One of the fastest emerging economies with GDP per capita of $15,615 Although the country experience increasing middle-income earners, the economy remain bleak after recording a negative growth of -3.8% in 2016 Inflation and unemployment remains high at 9% and 7.2% respectively (Heritage 2017). Stagnant GDP per capita of $1,328.64 GDP growth of 5.6% in 2016 Low inflation at 1.6% High unemployment and poverty (Heritage 2017). Social Population of 204.5 million 20% of population is illiterate High life expectancy Population of 23.3 million people Population made up mainly of youths HIV an issue Low life expectancy Technology Advanced in terms of technology in the cocoa industry Low technological developments Legal Tough labor laws Tough environmental laws Tough labor laws Tough environmental laws Environment Destruction of Amazon an issue Government has enacted laws to protect environment Forest destruction a challenge Declining soil facility an issue Cocoa Production in Ghana and Nigeria Nigeria is a major cocoa producing country. In 2013, Nigeria’s production capacity stood at 367,000 tons. However, cocoa production in Nigeria has reduced to just 250,000 tons with the decline expected to continue due to poor management of cocoa farms coupled with increased droughts and pests. Currently, about 650 hectares of land are covered by cocoa plantations with Ondo state being the biggest cocoa producer (Buhari 2016). Ghana is the world’s second largest cocoa producing country with a production capacity of 900,000 tons in 2010. This marked a significant growth compared to 2000 when Ghana produced only about 450 tons (GBN 2015). However, since 2010, cocoa production has been declining year-after-year and this is a trend that industry analysts project to continue. PESTEL: Ghana and Nigeria Nigeria Ghana Political Have stable government having had a peaceful election recently won by an opposition candidate One of the most corrupt countries in the world Boko Haram a security threat Cocoa industry highly regulated and tax rates on exports has been increasing Stable political having just had a presidential elections won by an opposition Low corruption index Cocoa industry regulated Economic Largest economy in Africa Middle-income economy GDP per capita of $6,108 and growth rate of 207% in 2016. High inflation of 9% High unemployment at 5.8% (Heritage 2017). Emerging economy in Africa with GDP per capita of $4,266 GDP growth of 3.5% in 2016 High inflation of 17.2% High unemployment at 6.3% (Heritage 2017). Social Population of 178.7 million Majority are young people Average life expectancy High literacy rates HIV an issue Population of 27 million people Population made up mainly of youths HIV an issue Average life expectancy Technology Advancing in terms of technology in the cocoa industry Advancing technologically Legal Tough labor laws Tough environmental laws Tough labor laws Tough environmental laws Environment Destruction of forests an issue Government has enacted laws to protect environment Forest destruction a challenge Declining soil facility an issue Part 2 Barry Callebut Company Overview Barry Callebut is a Swiss leading supplier chocolate and cocoa product producer. The company was founded in 1996 through a merger of Cacao Barry and Callebaut and has since grown to become a worldwide company operating in more than 30 nations across the globe. Currently, Cacao Barry and Callebaut controls about 25% of the world’s cocoa processing market share (Bandy 2013). Powers Five Forces Model Rivalry among Existing competitors (High): Competition is high in the chocolate business as Cacao Barry and Callebaut has to compete with established rivals such as Gargill and ADM (Bandy 2013). Competition is also high because of little differentiation of products offered by the companies in terms of quality and price. Threat of New Entrants (High): threat of new entrants into the chocolate business is high because entry into the industry requires little capital to enter. Besides, the industry is highly fragmented which makes entry easy. Buyer Power (Low): Buyer power is low because buyers of lack of many chocolate businesses to choose from. Chocolates also lack a direct substitute, forcing customers to buy only chocolate bars (Ford et al. 2014). Supplier Power (High): Suppliers of cocoa used for the manufacturer of chocolate bars have a higher bargaining power over prices because of limited supply available caused by declining cocoa production. The industry is also associated with low switching costs which give suppliers greater bargaining power. Threat of Substitution (Low): Chocolate does not have direct substitutes and this makes the threat low. The factors contributing to the impending 15 year chocolate production shortage The world is facing the danger of experiencing a huge shortage and this is a reality. The main factor responsible for the looming shortage of chocolate production is the fact that people are eating more chocolate than farmers can produce (Tidy 2013). As can be seen in the previous analysis (Cote d’Ivoire, Indonesia, Dominican Republic, Peru, Mexico, Brazil, Cameroon, Ghana and Nigeria), all these major cocoa producing countries are experiencing faster decline in cocoa production a trend that is expected to continue into the future. Accordingly, this means that less chocolate is being produced, which cannot meet the demand in the market. Ford et al. (2014) predict that the world could run out of chocolates in the near future should the production of cocoa continue to shrink worldwide. References Bandy, L 2013, ADM, Cargill and Barry Callebaut: The fight to Control Cocoa, viewed 18 March 2017 http://blog.euromonitor.com/2013/10/adm-cargill-and-barry-callebaut-the-fight-to-control-cocoa.html Buhari, S 2016, Why Nigerian cocoa production is on steady decline. Daily Trust 16 Dec., viewed 18 March 2017 http://www.dailytrust.com.ng/news/agriculture/why-nigerian-cocoa-production-is-on-steady-decline/176228.html Cocoa-Mexico 2016, Cocoa problematic in Mexico and opportunities, viewed 18 March 2017 http://www.cacaomexico.org/?page_id=207&lang=en Ford, T., Vit, J., Neate, R., Branigan, T., & Saner, E 2014, The cocoa crisis: why the world’s stash of chocolate is melting away. The Guardian 21 Nov., viewed 18 March 2017 https://www.theguardian.com/lifeandstyle/2014/nov/21/cocoa-crisis-world-chocolate-stash-melting-away GBN 2015, The sad story of Ghana’s cocoa industry and the way forward, viewed 18 March 2017 https://www.ghanabusinessnews.com/2015/06/22/the-sad-story-of-ghanas-cocoa-industry-and-the-way-forward/ Held, S 2015, Peru cacao up, but risks on the horizon, viewed 18 March 2017 http://organicwellnessnews.com/en/peru-cacao-up-but-risks-on-the-horizon/ Heritage 2017, 2017 index of economic freedom, viewed 18 March 2017 http://www.heritage.org/index/country/ghana Indonesia-Investments 2017, Cocoa, viewed 18 March 2017 http://www.indonesia-investments.com/business/commodities/cocoa/item241? Pekit, V 2014, Uncertain future for Brazilian cocoa production, viewed 18 March 2017 http://www.confectionerynews.com/Commodities/Brazil-s-cocoa-production-to-fall-next-decade The World Bank 2017, Cameroon: Overview, viewed 18 March 2017 http://www.worldbank.org/en/country/cameroon/overview Tidy, A 2013, Choc horror! Cocoa shortage, rising prices threaten chocolate bars. NBC 18 Oct., viewed 18 March 2017 http://www.nbcnews.com/business/warning-cocoa-shortage-rising-prices-threaten-chocolate-bars-8C11418435 UNDP 2015, Dominican Republic commits to strengthening cocoa sector for 40,000 farmers, viewed 18 March 18, 2017 http://www.undp.org/content/undp/en/home/presscenter/pressreleases/2015/06/17/rep-blica-dominicana-se-compromete-a-fortalecer-el-sector-del-cacao-.html Verdin, M 2016, Cote d'Ivoire cocoa prospects 'much more favorable' for 2016-17, viewed 18 March 2017 http://www.agrimoney.com/news/cote-divoire-cocoa-prospects-much-more-favourable-for-2016-17--9888.html Read More