Throwback Thursday: Choconomics

Originally published in Rutgers University-Camden School of Business's newspaper, Minding Your Busine$$, Spring 2011.

Chocolate is big business. Approximately $5 billion worth of chocolate is mostly produced by four companies. The term, “Big Chocolate” has come about to describe the oligopoly composed of Mars, Incorporated, Nestlé, The Hershey Company and the newest member, Kraft Foods Inc. Kraft became a member of “Big Chocolate” after buying out Cadbury PLC in March 2010.

An average of three million tons of cocoa is produced annually. So where does all that chocolate come from? A majority of it comes from the Ivory Coast. The Ivory Coast, in Western Africa, is the world’s biggest producer of cocoa.

According to the International Cocoa Organization, a drought has affected West Africa and the Ivory Coast is suffering from political unrest. As a result, cocoa production has fallen by 5.5% per year since 2005. Also since November 2005, cocoa prices have risen by 44%.

Could this be signs of a chocolate shortage? The experts say not to worry. The markets have a sufficient supply to placate your hunger. A shift in consumer preference has been identified as the cause of this change in the industry. The demand has transitioned from milk chocolate to dark chocolate for the health benefits associated with it. For dark chocolate, more cocoa must be produced to make the product. Manufacturers are very happy to satisfy the new demand for dark chocolate provides a much higher mark-up.

As a result from the good news about dark chocolate, it has become the fastest growing segment in the United States. Retail sales of chocolate in the U.S. have climbed by 3% every year since 2000. Across the Atlantic, in the United Kingdom, the craving for dark chocolate has completely overtaken the market.

           

http://www.commodityalmanac.com/futures-fast-facts/cocoa-map.gif

 

Below is a map of the cocoa producing regions of the world obtained from CommidityAlamanac.com.