Why Isn't More Chocolate Produced at Origin?
Posted by Jeff Stern on 19th Jul 2017
So to expand on my previous post, here are some additional thoughts on why more chocolate isn't being made at origin. While there are a few companies with ownership of farms and production, and a few niche integrated companies, this is the rare exception. In most cases, cacao beans are still transported halfway around the world for production and consumption. If more chocolate were produced at origin, this would allow much tighter integration between cacao farmers, cooperatives, and large farms, and production. So why hasn’t this occurred?
At The Farm Level-Cacao is an inherently challenging crop, its harvesting and processing is not easily mechanized, and it requires extensive manual labor and care. All harvesting must be done by hand and pods are still split open and emptied manually in most cases. Taking on farm management is a business in and of itself. And because harvests take place one or two times a year over extended periods, beans are not always available were a chocolate factory to sit nearby. This means that in a fully integrated operation machinery might be idle for several months of the year while cacao is not available. The status quo permits chocolate factories to run year round by concentrating worldwide cacao production into a few hundred factories near end consumers.
At The Country Level-Many cacao producing countries do not provide stable political or economic climates for the large investment in machinery and infrastructure required for a chocolate factory. High tariffs, arbitrary rules and regulations, lack of know-how, and inadequate or costly financing terms make starting a chocolate business, large or small, challenging if not unfeasible. These hurdles are even more costly for a small manufacturer because of a lack of economy of scale. Thus, there are a number of producers of semi-processed cocoa products (butter, powder, liquor) in many cacao producing countries, but a few chocolate companies. But on a global scale, most cacao beans are not processed at origin, and total chocolate processed in the country of origin is but a small per cent of total world production.
For Marketing Reasons-The majority of the world’s chocolate is consumed in Europe, the US, and increasingly Asia. Chocolate makers need to be close to their markets to better understand consumer tastes and desires. It is much easier to transport a perishable and delicate finished good where transport and infrastructure networks are strong than to bring a delicate and perishable finished good from abroad. On the same note, transporting a non-perishable commodity (cacao beans) in large quantities via ship to production centers is much easier than transporting chocolate. Packaging, labeling, and other product requirements are also more easily met in the developed world.
For Business Reasons-The current system lets farmers take the risks for the potentially wild price changes a commodity like cacao faces. Producers also must bear the risks of weather and other circumstances that affect cacao production. Large chocolate makers and commodities buyers can use sophisticated financing instruments and contracts to manage risk. Most of the value added to cacao beans is captured by chocolate makers and little returns is provided at the farm level.
To go beyond the risks any business faces in a fickle consumer market and assume additional risks including unstable political and economic climates, weather, disease, and other factors that can affect production would be self-destructive for most major and minor players in the chocolate industry. A large and geographically varied number of vertically integrated companies both large and small, with control of cacao from farming to final chocolate production, is probably a very unlikely scenario.
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