As the world’s largest producer of cacao beans, the Ivory Coast is a prime location for international chocolate businesses to invest in and export products. With our 20 years of history in the fine chocolate industry, we can successfully launch a newly conceived fair trade chocolate line. However, recent challenges due to political unrest in the Ivory Coast and the government’s price setting strategy to shield farmers from disruptive market forces have disrupted the chocolate market and called into question the need for a new alternative source of cacao beans.
Despite this, our company brings in cacao beans from Ivory Coast through the Port of Savannah due to their quality and favorably low 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 (Essegbey, 2012). 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.
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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 launching 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.Since we are looking to enter the fair trade chocolate market, purchasing high-quality cacao beans at a favorable price is a key to our success.
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 production 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 our new fair trade chocolate line’s 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 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 for a new chocolate line would aim to ensure that cacao farmers in the supplying countries enjoy a decent profit for their production and labor.
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, a mere 6% of the entire production chain’s value 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. As an 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 strategy is a surer 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 actors, 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 trickling 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 directly offering a farmer as much as $5,000 per metric ton for their product, resulting in the companies and retailers also seeing higher profits (Ford, 2017; Giller, 2017). Nevertheless, the lack of clear-cut policies and strategies to caution farmers from exploitation has given intermediaries, chocolate companies, and retailers the upper hand. Our company needs a strategy to help it purchase high-quality yet cheaper beans and still earn the farmer more money. Unfortunately, the current market makes it difficult to practice fair trade due to the bureaucracy in the chocolate production process.
Our company could instead focus on buying the beans through a sister or affiliated company already established in Europe that works directly with farmers to reduce the costs and expenses rather than investing our own money into cacao bean farms. Such a strategy gives farmers an assured market price all year through avoids the shocks and waves of the market due to price volatility. Additionally, it serves as a corporate social responsibility strategy which could help us build a network of trustworthy and reliable partners to help promote fair trade in the chocolate industry. Working with farmers through an already-established social conscious partner will help us learn the market trends in both African production companies and European consumer countries like Belgium.
If we decide to pull production from the Ivory Coast, we must discuss the downside and minimize any negative business or brand consequences. First, farmers will lose trust in our company — we may be seen as a business that abandons them when the business conditions shift. As the world’s largest producer of cacao beans, the Ivory Coast is quintessential to still maintain a relationship with this country’s market, if possible. Hastily deciding to source the beans from an alternative ultimately hurts our standing in the Ivory Coast as a reliable buyer or investor of cacao beans. When the political climate cools down, we can strive to rebuild our reputation and networks established previously.
Additionally, the Ivory Coast produces the world’s best or most favored cacao beans as attested to the presence of large chocolate companies like Nestle and Cadbury in the country (Ford, 2017). Changing sources could reduce the quality of beans our utilizes in its production of chocolates. A reduction in beans quality would ultimately culminate in lower-quality chocolate compared to other competition in Belgium thus possibly losing us clientele. Ultimately, we should choose to remain in the Ivory Coast, utilize an existing intermediary or charity organization that exists to help the industry, and then look to market our new fair trade line of chocolate products.
