As the world’s largest source of cacao beans, Ivory Coast is a prime destination for bean importers as exemplified by the company’s 20 years history for the production of its old fine chocolates lines and the newly conceived fair chocolates line. Nonetheless, recent challenges due to political unrest and the government’s price setting strategy to shield farmers from disruptive market forces have disrupted the market and called to question the need for a new alternative source. Despite this, our company brings in cacao beans from Ivory Coast through the Port of Savannah due to their quality and favorable prices. Considering the uninviting political conditions and escalating instability of the Ivory Coast, we must explore options for alternate sources for the beans, such as Ghana, Nigeria and Cameroon. These three countries are among the ten highest global producers of cacao beans and have the ability to ship through the Port of Savannah.
Though the Ivory Coast government intervention works to warn farmers of exploitation, the set price of the cacao bean combined with the political instability hurts business because of security issues and dwindling investors’ confidence in the government’s commitment to protect their interests (Giller, 2017). Ultimately, purchasing cacao beans from the Ivory Coast is a costly business endeavor because of the miscellaneous costs incurred in hiring local private security during transportation and storage.
Additionally, the current markup price set by the government exceeds acceptable market prices also factoring in the additional transport, security, and storage costs and importation costs both in Ivory Coast and the U.S. (Giller, 2017). Continuing business in this manner may force our company to raise prices, especially for our fine chocolate and newly laiunching brands above the acceptable market levels. Purchasing cacao beans from the Ivory Coast could mean reduced business and sales for our business due to dwindling demand and price hikes.
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Since we aim to enter the fair trade chocolate market, sourcing quality beans at a favorable price is a key. Gaining a competitive advantage over other chocolate sellers requires purchasing quality fair trade chocolate at an attractive price (Giller, 2017). As opposed to selling a few products at high prices, our business can adopt the strategy of selling chocolates at smaller margins but on a large scale effort to have a better profit margin. The result market capitalization will give us a larger market share than the other chocolate competition.
Utilizing this strategy in the persistently growing Belgian and American markets will drive the new chocolate line success as a whole. Purchasing beans from politically-stable markets where the government permits the forces of demand and supply to dictate the prices of cacao beans is a factor we must consider we look for alternative options to source the raw material (Giller, 2017). Our market entry strategy into the fair trade chocolates business will consider the bottom-line in order to avoid launching a product which prices deter clients due to a “stuffy” brand or unaffordability. Overall, high quality yet cheap cacao bean purchasing are key factors to our fair trade chocolate line’s success in the market.
Fair Trade in a New Line of Chocolate Brand into the Belgian Market
Fair trade refers to the practice of purchasing raw materials at above market prices to make sure the profits of the business trickle all the way down to the source. In this case, fair trade in a new chocolate line would aim at ensure that cacao farmers and laborers in the supplying countries enjoy an above-market profit for their product. Though this social and moral cause is a strategic reputation-building move for our business, it increases the cost of producing our final product. Since our latest product is the fair trade line of chocolate, fair trade may prove to be more costly than beneficial. Currently, a kilogram of cacao beans retails at about $2.23. Interestingly, this accounts for a mere 6% of the entire production chain’s value that trickles down to the farmer.
Countries such as Indonesia enjoy a larger share of the production chain’s value trickling down to the farmer due to elaborate government and industry techniques that make sure farmers share more of the revenue. The current price reaching the farmers, especially in African producing countries, is at a 10% decline from 1980 when farmers enjoyed a larger market share and high profits (Giller, 2017).
Rather than purchasing cacao beans at a high price, we also have another option. The chocolate production line is riddled with intermediaries and middle men who take a larger share of the revenue than the farmers. With a industry valued at over $80 billion, overpaying for a fair trade product isn’t necessarily the only solution (Giller, 2017). Instead, we should focus on a more elaborate plan to purchase cacao beans directly from farmers or co-ops, modeled from other companies in other agricultural sectors. This type of direct-buy fair trade strategy is a sure way to give our company a market advantage.
Chocolate and cacao bean companies take 70% of the revenue share, intermediaries 7%, and retailers 17%. Farmers enjoy the remaining measly 6%, which barely covers their costs and expenses (Zamierowski, 2016). Though premium-quality cacao is a fair trade commodity selling at $2.5 per kg, the same amount barely benefits farmers, which necessitates companies to instigate welfare programs to cover education costs and encourage humane working conditions and environments (Zamierowski, 2016). Considering these above factors, engaging in fair trade gives our company a marketing advantage over the competition and could offer more profits for cacao bean farms. Unfortunately, it adds to the company’s costs, but the excess 7% not trickleing down to the intermediaries can then go to the farmers. Our company gains access to quality beans over competitors and stays in line with our new product launch intention — to promote fair profits for farmers, humane working conditions, and end child labor.
Intermediaries in the chocolate business is just one way in which cacao bean farmers and laborers are kept from earning higher profits. Chocolate companies can be more ethical by offering the farmer as much as $5,000 per metric ton in which the companies and retailers would also see high profits (Ford, 2017; Giller, 2017). Nonetheless, the lack of clear-cut policies and strategies to caution farmers from exploitation has accorded intermediaries, chocolates and cacao companies and retailers the upper hand in revenue making. The company needs a strategy to help it procure quality cheap beans favorably and still earn the farmer more money.
The current fair trade policies in the market barely give companies a marketing advantage due to the bureaucracy in the chocolates production process. The company ought to instead focus on buying the beans through a sister or affiliated company that works directly with farmers to reduce the costs and expenses. Such a strategy gives farmers an assured market price all year through irrespective of the shocks and waves in the market due to price volatility. Additionally, it serves as a corporate social responsibility strategy whose fruits will see the company build an army of trustworthy and reliable farmers to produce cacao for its fair line. Working with farmers also directly helps the company influence the quality of beans produced in the farm as it can involve scientists and experts through seminars to teach farmers best farming practices for increased quantity and quality. The company cannot engage in fair trade for its fair line of chocolates, especially considering the average $1 price per bar compared to the $7-$14 average price per bar for fine chocolates (Tan, 2017).
Albeit an alternative is needed to caution the company from possible cacao shortages and exorbitance, discussing the potential of an alternative will see the company lose its standing in Ivory Coast. Firstly, farmers will lose trust in the company as one that easily abandons them when the business conditions shift a little not in its favor. As the world’s largest producer of cacao, the country is quintessential to the country enjoying a constant supply of quality beans, on demand at fair prices and in large quantities. Therefore, hastily deciding to source the beans from an alternative ultimately hurts the company’s standing in the country as a reliable buyer of cacao beans. When temperatures and the political milieu cools down, the company will labor to rebuild its reputation and networks already established across the entire state. The resources already invested in these networks and established sources will be wasted by even considering an alternative.
Additionally, Ivory Coast produces the world’s best beans as attested to Nestle and Cadbury producing their beans here (Ford, 2017). Changing sources, as such, will only reduce the quality of beans the company utilizes in its production of chocolates. A reduction in beans quality will culminate in lower quality fair chocolates compared to competition in Belgium, losing the company clientele.
References
- Essegbey, G. O., & Ofori-Gyamfi, E. (2012). Ghana cocoa industry – An analysis from the innovation system perspective. Technology and investment, 3(4), 276.
- Ford, T. (2017). Ivory Coast’s cocoa farmers face financial crisis. The BBC. Retrieved from https://www.bbc.com/news/business-39081453. Accessed 26 Jan 2019.
- Giller, M. (2017). Bean-to-Bar Chocolate: America’s Craft Chocolate Revolution: The Origins, the Makers, and the Mind-Blowing Flavors. Storey Publishing.
- Tan, H. (2017). Dark times for cocoa as prices hit 4-year lows, CNBC. Retrieved from https://www.cnbc.com/2017/02/05/cocoa-prices-at-4-year-lows-health-conscious- consumers-slowing-global-appetite-for-chocolate.html. Accessed 27 Jan 2019.
- Zamierowski, N. (2016). What’s a fair price? Medium – Conscious Cacao Stories. Retrieved from https://medium.com/conscious-cacao-stories/whats-a-fair-price-for-cacao-beans- b30268e06b80. Accessed 25 Jan 2019.
