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Cocoa Commodity Essay

Background

Cocoa beans are seeds of the cacao tree, which is a member of the Sterculiaceae family. Contained in a cucumber like fruit; these yellowish, reddish to brownish fruits are divided into five compartments each containing up to 10 seeds (Service). As the fruit begins to ripen, the partitions break down and the seeds are found around the central funicle in a whitish pulp. The cocoa seed (i.e. bean) consists of the seed coat which contains the cocoa kernel. The cocoa kernel is the principal component for the production of cocoa products. There are about 20 known varieties of the Cacao plant, but only two are commonly used in producing cocoa products (Canizaro). The two varieties commonly used are: * High Grade or Criollo Cocoa; which are large, roundish and brown in color. They have a delicately bitter, aromatic flavor and are easily processed.

* Common Grade or Forastero Cocoa; which are small, flattened on the side and have a dark reddish-brown to violet color. They have a sharper flavor and account for nearly 90% of the world’s cocoa harvest. The main areas of cultivation of the cacao tree falls within a narrow belt 10° north and south of the equator because the trees grow well in humid tropical climates with consistent rainfall and a short dry season (Cadbury). Cocoa trees need an even temperature between 21 to 23 degrees centigrade, with a rainfall of 1,000 to 2,500 mm per year to produce cocoa seeds. The main producers of cocoa are: * West Africa Region—Ghana, Nigeria and Cote D’Ivoire. * South America Region—Brazil and Ecuador.

* Asia—Malaysia and Indonesia.
Production Process

Cocoa trees begin to bear fruit when they are around 3-4 years old. Each tree will yield 20-30 pods per year, each pod containing 20-40 seeds which when dried are the cocoa beans of commerce. The harvesting of the cocoa pod is very labor intensive; workers cut the high pods from the trees with large knives attached to poles. The pods are then split open by hand and seeds (i.e. beans) are removed ready to undergo a two part curing process. The two part process includes fermentation of the bean and then they go under a drying process. Methods of fermentation can vary from country to country, but usually only two methods are used; the Heap method or the Box Method. Here is a diagram using either method to illustrate:

Heap Method

The Heap Method is traditionally used on farms in West Africa. Wet cocoa beans, including the pulp, are piled on banana or plantain leaves which have been spread out in a circle on the ground. More leaves are the piled on top to cover the heap and it is left for five to six days, turning the pile to ensure fermentation (Cadbury). During this fermentation process the pulp and astringency of the beans are removed as the sugar in the pulp turns to alcohol, which drains away causing the bean to develop its true chocolate flavor. When fermentation is complete the wet mass of beans is dried usually
by being spread out on mats under the sun.

Box Method

In the West Indies, Latin America and in Malaysia the box method is used on plantations. It involves the use of strong wooden boxes with drainage holes or gaps in the slats in the base of the box. This enables the passage of air and the removal of liquid products of fermentation. This process usually takes six to eight days during which the beans are mixed twice. After fermentation is complete the beans are dried by means of special drying equipment.

Quality

The quality of cocoa is based by the quality of the raw cocoa. Fully ripened cocoa beans that have properly fermented consist of a brown to dark red color and have a very fragile kernel with a bitter flavor. Including the bean’s appearance and odor the beans must also be undamaged, un-germinated and must include no foreign matter or mold. They also can’t be infested with insects or have suffered wetting damage. Nor can they smell sour, musty or smoky. Poor quality cocoa beans that have not been fermented properly are purple in color (under-fermented) or very dark in color (over-fermented). They also have a solid kernel and a very astringent taste. The quality of cocoa beans is assessed according to the following criteria:

* Good Qualities
* Fully ripe, correctly fermented
* Firm beans of uniform size with a dry weight of no less than 1g.
* Loose and undamaged shell
* Light to dark reddish-brown color
* Readily crumbled, fragile Kernel
* Bad Qualities
* Unripe and poorly fermented
* Moldy
* Strong violet color as a result of under-fermentation
* Purple color as a result of over-fermentation
* Firm Kernel
* Insect infested
* Germinated
* Smoky odor due to excessively long drying

Mode of Transport

After the cocoa has been harvested and quality has been assessed, the product should be shipped shortly after harvest, as extended storage (past 6 months) may result in losses due to the high relative humidities in the tropics. Cocoa beans should be placed in bags of jute or sisal usually of a (gross) weight of 60 – 65 kg, rarely of up to 100 kg (Service). Cocoa beans can be transported by ship, truck or railroad.

When transported in a container, the cargo needs to be in a ventilated container so it is in compliance with lower limits for the water content of goods, packaging and flooring. The wooden flooring of the containers must be absolutely clean and dry. Water content should be 12%, corresponding to a lumber equilibrium moisture content of 70%, so that the flooring does not constitute an additional source of water vapor to dampen the cocoa cargo and container atmosphere (Service).

The cocoa beans may also be covered with paper which readily absorbs any moisture. Also given the high value of cocoa, a two layer anti-condensation film should be used to provide addition protection against dripping sweat. Another option is by transporting on flat racks in ventilated holds. This option is a more cost effective alternative to the costly ventilated containers.

Uses of Cocoa

Primary Use of Cocoa

Secondary Use
Possible Substitute

When people think of cocoa, the first things that may come to mind is chocolate or in the spirit of colder weather, hot chocolate. Chocolate and confectionary sweets are the most common uses of cocoa, but many do not know that cocoa can be a great source for dietary reasons. The processed chocolate bars will not give the same effect for dietary purposes but it has been proven that the darker the chocolate, the healthier it is. Raw cocoa beans are sometimes eaten for their flavonoids which according to studies conducted by Eric Dung can improve cardio vascular health. North America has undergone many changes in the last decade especially placing an emphasis on healthy living.

Cocoa has been proven to help lower cholesterol, reduce blood pressure, and reduce the risk for heart disease according to Suzanne Steinbaum; director of women and heart disease at Lenox Hill Hospital. Cocoa also reduces cravings for those attempting to diet and want to reduce the amount of food one may be eating. The smell of cocoa is so rich and aromatic that it actually helps satisfy hunger cravings. Cocoa can help repair skin as well according to dermatologist Ava Shamban, MD. Cocoa is loaded with antioxidants that help repair skin cells and neutralize harmful radicals.

Cocoa has also made its way into pharmaceuticals. The oils extracted from cocoa beans become a solid at room temperature but melts within the body so this oil has been used to encapsulate certain drugs. Cosmetics have also found the wonders of cocoa. There exists within cocoa a natural compound that naturally prevents anything it is used with from becoming rancid. Makeup and soaps use cocoa in their products to keep the product from spoiling and can last for years.

Demand

The demand for cocoa has increased from new markets for cocoa products and increased sales in existing markets. The reduction of tariffs to places like Korea and Peru make it easier to compete in the market to hold and increase market share. Other influencing factors include the climate to grow cocoa, resources, technology and sustainable practices in parts of the world with little to no education. There has been a lot of attention given to child labor practices and the need to improve the process and quality of life of cocoa farmers. As sales have increased over the years, cocoa yields are not growing fast enough has motivated big chocolate manufactures to protect their interests and invest in the future of cocoa. Chocolate sales reached over $100 billion in 2011. While sales have been increasing the disparity between cocoa yields and the world’s need for cocoa will only be exacerbated if nothing is done. Farmers face various challenges in growing this crop that directly impact their ability to meet demand.

The World Cocoa Foundation states that farmers are dealing with aging trees that aren’t producing as much as well as a loss of 30 to 40 percent of their crop due to infestation and disease. These aren’t big industrialized farms that one can see in America; almost 90 percent of cocoa comes from small farms in Africa, Asia and the Americas. For these farmers to help reach the demand for manufacturers active involvement from these companies is needed to ensure sustainability. According to the Fair Trade Foundation the demand for cocoa has been rising approximately 3 percent a year for the last 100 years (3). Production for the 2011/2012 grow season was 3,987 million tons (World Cocoa, 2). By 2020 there will be an estimated 1.5 million ton shortage of cocoa (Bloudoff-Indelicato, Climate Wire, 1). One of the reasons for the increase in demand can be attributed to the rising wealth in China.

According to Agrimoney.com there has been a “growing shift towards Western-style diets and cocoa powder-based products such as ice creams, biscuits and other confectionary”. As the country’s lifestyle and culture changes with the increase in disposable income, the middle class are developing a taste for chocolate. China’s chocolate sales are expected to grow 19 percent to $1.2 billion this year (CNNFreedom Project). China isn’t the only Asian country hungry for chocolate. Falling just below China is Indonesia with a 25 percent increase to $1.1 billion and India will most likely see a 7 percent increase as well. If Asian markets keep growing as predicted they could very well have 20 percent of the global market by 2016 (CNN Freedom Project).

Changes in export costs also make it more profitable and easier to ship cocoa products to various countries. President Obama’s National Export initiative plans to double U.S. exports within 5 years. To help achieve this goal the negotiation of free trade agreements aid American companies to meet the growing demand for cocoa products. Korea is the third largest exporter for U.S. candies with U.S. brands accounting for 16 percent of the chocolate sector. However American companies are at a disadvantage due to the FTA agreement that was signed to incrementally reduce tariffs and are still paying between 5 to 8 percent tariffs. Some other global competitors seemed to have negotiated better free trade agreements and have seen a decrease on tariffs into Korea.

Currently the U.S. companies have paid duties in excess of $18 million since the agreement was signed in 2008 (National Confectioners Association, 2). This will make it difficult for American companies to compete with global competitors because their costs of getting their product to market are greater. However, with the free trade agreements signed with various other countries will enhance exports into Korea to meet the increasing demand of chocolate. In 2011, imports of chocolate and other candies were up 30 percent from 2010 totaling $339 million (Korea Product Brief). The dramatic increase in imports is promising for chocolate manufacturers to try and increase their customer base in a rapidly expanding market.

Starting October 31, 2012, Panama is eliminating tariffs on more than 86 percent of U.S. consumer and industrial goods (Poe). This includes chocolates and cocoa inputs which will help American companies continue to hang onto their 42 percent ($27 million) market share for candy, gum and chocolate exports. Panama’s growing economy is expected to keep growing 5 to 8 percent each year through 2017 in conjunction with the implementation of the free trade agreement Panama could become an important importer of cocoa products for American companies.

Changes in cocoa production

While fair trade and organic cocoa represent a small portion of the cocoa market at 0.5 percent there has been some growth in these sectors. Fair trade cocoa is cocoa from farmers that are compensated a fair amount for their product according to faritadeusa.org they also teach farmers sustainable processes and assist in quality of life improvement. Global sales have seen an uptick in fair trade cocoa from 14,000 tons in 2009 to 35,000 in 2010. This increase is attributed to the growth in the United Kingdom. The United States has also shown an increase of fair trade cocoa imports by 67 percent from 2009 to 2010 (fairtrade cocoa review, 8).

With the looming cocoa shortage in the near future, cocoa users are realizing how important it is to be an active partner in sustainable cocoa practices. Manufacturers around the world want to protect their cocoa interests and ensure that there will be enough cocoa to keep up with the rising desire for cocoa products. Various companies have announced their plans and involvement in supporting sustainable cocoa practices as well as providing the farmers the assistance and education needed to ensure a bright cocoa future.

According to their company websites the following companies have announced their commitments to provide the cocoa industry a promising future in the years to come.

* Mars – 14.6% global market share in 2010
* 2020 – all cocoa will come from certified cocoa
* 2011- purchased 10% of cocoa used from certified sources
* Nestle – 12.6% global market share in 2010
* Invest 110 million in sustainability, farmer training, social conditions, plant expertise
* Commitment to purchase sustainable products
* Kraft – 8.3% of global market share in 2010
* 5 year partnership with Bill and Melinda Gates Foundation to improve cocoa production and supply chain efficiency in West Africa
* 2011 largest buyer of cocoa beans from certified Fairtrade farms and Rainforest Alliance Certified Farms
* Ferrero – 7.3% of global market share in 2010

* In 2011 pledged to use only sustainable cocoa by 2020 * Hershey – 6.7% of global market share in 2010
* Over the next 5 years will invest $10 million in West Africa to improve farming processes and communities * In 2012 U.S. consumers will be able to purchase Bliss products that are produced with 100 percent certified cocoa Implications of shortage

Cocoa shortages would have a huge impact globally. It will affect every member in the cocoa supply chain. Farmers will produce less and receive even less money to be able to live off of. The farmers will have even less to invest into their trees continuing to increase the deficit in cocoa production versus demand. The incentive to continue cocoa farming would decrease and may drive farmers to cities to seek other employment or pursue more lucrative farming opportunities. In an effort to combat the drug war in Columbia, farmers were enticed with trading coca (cocaine plant) growing for cocoa partly due to the high prices cocoa was selling for in the late 2000s (cocoa was selling for $3,520/ton in 2010 according to indxmundi.com). It is hard to convert coca farmers to start producing cocoa if the opportunity cost of growing cocoa is less than the opportunity cost of not growing cocaine plants.

Not only does a cocoa shortage have a direct impact on the farmer’s lives, but also on their community because the monies from coca plants helps guerilla groups that the government has been fighting for years ( Weissmann). Companies that are dependent on cocoa for their income will face challenges in trying to make quality products that consumers have come to expect at a certain price. Some of the increase in purchasing costs will most likely trickle down to the consumer in order to protect the companies’ profit margin. Also companies may look elsewhere to save money, which can result in less cocoa production jobs. There are close to 50 million people that depend on cocoa for their source of income if nothing is done to help increase cocoa production it will take its toll on many people’s lives and their countries’ financial stability (Fairtrade and cocoa, 2).

Supply

The world of cocoa beans is centralized in none other than West Africa. In fact the top 5 cocoa bean producing countries are all located in West Africa; countries being The Ivory Coast (Cote d Ivoire), Indonesia, Ghana, Nigeria, and Cameroon in that particular order. The Ivory Coast has been the dominant producer of cocoa beans with production totaling nearly 1,242,300 metric tons of cocoa beans. This equates to about 29.3% of the world’s total cocoa beans. Indonesia is nowhere near the Ivory Coast in production, only totaling about 810,100 metric tons of cocoa beans a year accounting for about 19.1%. Ghana is close behind, producing about 632,037 metric tons of cocoa beans accounting for 14.9% of the world’s total. Nigeria follows with 427,800 metric tons accounting for 10.1%. Cameroon rounds out the top 5 accounting for 6.2% of the world cocoa bean total producing about 264,077 metric tons a year. All these countries producing cocoa beans have experienced increases in production with the exception of Ghana who faced a decline in productivity from the year before.

Those countries in West Africa account for nearly two-thirds of the world are the leading producers in terms of metric tons distributed to other companies for processing. With nearly two-thirds of the world’s cocoa producers in West Africa, they are close to monopolizing the cocoa industry. Processors of cocoa beans can find the best producers of cocoa beans in one area and these producers are more than willing to supply at the right price. Over forty percent of the world’s cocoa is consumed in Europe and the remaining percent is distributed across the world globally. Cocoa is the main ingredient in what is universally known as the world’s most popular sweet, chocolate. There are about five-six million cocoa farmers worldwide, many in West Africa. 40-50 million people depend on cocoa for their livelihoods as people especially in West Africa depend on the jobs that cocoa farms provide for the people who live in the area. The economics behind cocoa production is the livelihood for millions of West Africans. If the cocoa tree is taken away then the locals in West Africa may resort to the coca plant which is a base root for cocaine production.

This may also lead into more complications resulting in food riots from people not being able to feed themselves, and drug trafficking which can also have implications for human trafficking as well. There are certain conditions that may hinder or halt cocoa bean production. Like many commodities, cocoa is considered a soft commodity; we can only continue to produce if we are careful with our product. Overharvesting is a major issue in the world of cocoa beans. In the early days of cocoa production, less cocoa beans were used to create milk and white chocolate was highly desired in the less conscientious health world of the mid to late 1900’s. In recent years there has been a major switch in preferences by consumers becoming more health conscientious. Most particularly in the Europe and North American markets has the demand for darker, healthier chocolate become more apparent. Due to these changes there has been an unprecedented cocoa consumption as more cocoa beans are being used to create dark chocolate in the last 5 years or so.

In a study done by the Scientific American news article, a study revealed that further climate changes can cause West Africa to become too hot to grow cocoa beans. If this were to occur, domestic and international economies would be impacted immensely. The cocoa production farms have attributed to lowering the spikes in poverty, drug trafficking, and food riots by providing many with a legitimate means of making money and providing for themselves and their families. It has been projected that by 2060 over half the cocoa producing countries will become too hot. The cocoa industry is valued around $5.1 billion and with West Africa housing the top 5 producers. This includes the top two producers in the Ivory Coast, and Indonesia which account for more than half of the three million tons sold annually according to the World Cocoa Foundation. In 2020, predictions indicate a 1.5 million ton shortage.

Weather predictions believe that El Nino could cause more problems for producers, consumers, and those who rely on the cocoa farms. As cocoa shortages increase, there are bound to be increases in demand for cocoa as more and more markets continue to buy into the commodity. In recent years, Europe and North America have been the largest buyers of cocoa. New countries however, are beginning to see the potential in cocoa and have begun to make their moves and are buying into a commodity that maybe wasn’t as sought after before. China and South Korea are buying into the commodity, which will make it harder for buyers to contract the amount desired if shortages continue and weather proves to be the deciding factor impacting West Africa. The hope now is that scientists can come up with a drought resistant strain of cocoa bean able to withstand the heat; however farmers are taking it upon themselves to develop farming techniques to help the cocoa beans survive harsher conditions.

Re-creating optimal conditions is such as temperature is easy, however re-creating the taste is nearly impossible. Change the landscape, or geographical location of where the cocoa beans are harvest, and the taste changes considerably. The need to keep cocoa producers in West Africa has become an important issue for many of West Africa’s population who depend on cocoa production for their livelihoods. West Africa currently holds the best location for cocoa production in terms of elevation, climate, and temperatures that give the cocoa beans its distinct look, taste, and aroma that attracts so many. Moving the production to another country such as Asia or Russia, who generally have cooler temperatures can impact the taste and quality of the overall product. West Africa’s location is great because it is near the equator which keeps the temperatures and weather conditions relatively warm. Conditions like these are difficult to find, if not impossible to find anywhere else.

Also child labor has been a constant issue in West Africa. This is especially true in regards to the production of cocoa. This issue has been predominantly an issue in the Ivory Coast, who is the leading supplier of cocoa to many different companies in Europe, and North America. With cocoa prices remaining relatively low, the need to lower labor costs becomes a necessity as production struggles to survive; thus children are employed to work the crops for cheap. According to the International Cocoa Organization, it has been estimated that more than 109,000 children work in the Ivory Coast’s cocoa industry and are working under the worst conditions.

Not only are the conditions terrible by traditional standards but many as 10,000 of these kids are victims of human trafficking or enslavement. In 2010, a 10 million dollar program was given to the world’s top cocoa growing region in the Ivory Coast and Ghana who share a common cash crop. This program intended to prevent and stop the use of child labor on cocoa farms but faces many difficulties in its pursuit to end child labor in West Africa. By giving these companies the money to boost their revenue they can afford to not have child labor as a way to mitigate costs.

Children are put to work carrying heavy loads, spraying toxic chemicals, and in danger of severely hurting themselves in the process of producing and harvesting crops. In a recent report in 2011 by BBC News, there was little change to the situation with child labor on the Ivory Coast. Companies who buy from the Ivory Coast and any production plant in West Africa are being asked to take more responsibility and getting more involved with the production from which they are buying from. Simply paying for cocoa beans is not enough. The emphasis here is corporate social responsibility. West Africa is undoubtedly in need of development and European and North America companies are the best possible source for development in West Africa. Roads, schools, hospitals, and social areas for the youth to gather would significantly help the people of West Africa. Companies such as Kraft foods, Mars Inc., Nestle, Ferrero Group, and Hershey Foods Corp are all major players in the cocoa industry who buy and process the cocoa beans into chocolate. The main distribution channel for the cocoa industry is the retail channel.

Cocoa beans are harvested and sold by the metric tons to companies such as Kraft, Nestle, Ferrero, and Hershey’s. These companies then process the beans and manufacture the final chocolate product in their factories which are then distributed to retail stores across the country. A primary value driver for chocolates and other confectionary sweets is taste. Despite the recent recession, the cocoa and chocolate industry continued to grow and expand. People love chocolate and demand for chocolate has continued to grow. This demand and love for chocolate is beginning to make its way into highly populated areas such as China and India where the middle class is large, strong, and growing. Chocolate has been considered an affordable luxury. Despite rising health concerns chocolate is still in high demand, more specifically dark chocolate. The producers of cocoa beans like the Ivory
Coast produce a commodity that is in high demand due to its versatility.

Chocolate has many uses including, foods like desserts, sweets, and candy, medicine, and cosmetics. Dark chocolate has been proved to be part of a healthy diet. It is known to lower blood pressure and cholesterol, and has eight times the antioxidants of strawberries. In the chocolate and confectionary sweets industry, there are many long standing traditions that make chocolate such a strong industry. For decades, chocolates have been a staple of gift giving, like flower shops who focus on the sale of flowers, themed chocolates and delivery. Companies such as Costco, who sell in bulk, sell assortments of chocolate and charge by the pound. Premium or high end chocolate has been increasing in sales since the economy has been making strikes in recovery from the recession. On site baking has become more popular now as the smell of chocolate acts as free advertising. The chocolate and cocoa industry has remained strong and resilient from effects of the economy and the recent recession. Currently West Africa is producing cocoa under unstable political conditions.

The turmoil and civil war on the Ivory Coast has left the country divided and suffering. Despite accusations that the Ivory Coast production of cocoa beans has been providing weapons and funding for both sides of the civil war, the production has been a ray of hope for the country. Due to the jobs provided for the people living in West Africa, crime rates and drug trafficking has declined, allowing people to work for a living that provides them the opportunity to live a life free of drugs and violence that has torn the land apart. The turmoil from the civil war on the Ivory Coast has caused prices to rise. Despite the rise in prices, companies continue to buy but at some point in the rise in prices, companies will pass.

In January the price for a ton of cocoa was a little over $2,300. In September prices peaked at the highest it has ever been this year at just over $2,600. The price fell just slight at $2,463.54 a ton in October. With the turmoil in West Africa causing unstable political governments and civil war tearing the country apart, prices are expected to rise. This data was courtesy from the international cocoa organization. Strategy to reduce cost and/or assure supply

With any commodity in the 21st century, constant usage and harvesting are issues that if not monitored can lead to shortages in supply, or possibly depletion of the commodity. There are bound to be problems somewhere along the timeline that can affect the condition of the commodity. Cocoa is no different in that there is constant threat of the commodity becoming scarce globally. Regardless of the recent recession and the recovering economy, cocoa is one of the few commodities around that wasn’t affected to a great extent as other commodities.

To begin the 2012 year cocoa per ton cost buyers a little over $2,300. From January through August, the price of cocoa faced many ups and down but never going any lower than the price point in January. In September the price peaked at its highest price point for U.S. companies’ purchasing cocoa beans per ton at over $2,600. Since then it has dropped slightly but is expected to rise according to the International Cocoa Organization (ICCO). Here is a graph illustrating the price changes for the year (Data courtesy of International Cocoa Organization).

According to the scientific American news, the cocoa industry is already reporting a 1.5 million ton shortage within the next 10 years or so. What could this potentially do to the price of cocoa in the coming months? Years? If shortages continue to increase than prices can only go up with each coming month. Now while the supply of cocoa decreases, global demand has been projected to rise for a commodity that is becoming more valuable and scarce by the order. The cocoa industry has a strong position in the market as a commodity that is versatile in its uses.

The cocoa industry deals with futures contracts which basically means that the buyer agrees to pay for the shipment based on the price of the product the day the contract was made official. Commodity pricing constantly fluxuates monthly, therefore a futures contract protects both parties from any undue damage from prices increasing or decreasing. Reports from several sources including the Huffington Post, and commodity help HQ, have high hopes for the future of cocoa in terms of it being able to sustain itself. Numbers at this time last year are up and there isn’t a reason to really worry about the state of the cocoa industry. Placing an order for cocoa is very similar to writing a math equation.

A simple cocoa contract consists of many key specifications. Each contract must state the ticker symbol, contract size or how much cocoa is being ordered; usually in metric tons, deliverable grades which depends on the growth of the country or climate and is divided into three grades. Countries such as the ones in West Africa; Ghana, Nigeria, Ivory Coast, and Sierra Leone are the main crops and receive a grade A classification. Classifications of B or C are smaller and cheaper, such as Venezuela, Malaysia and Haiti. Next the trader or buyer must specific contract months, which are specified by letter coding for each month; for example May is coded K. Next the trading hours must be specified, last trading day, last delivery day, price quotes, tick size which indicates what the size of the order is, and daily price limits. An example formula can read “CC8K @ 1363”. The CC is the ticker symbol, the 8 indicates the year (2008), K tells us the month which is May, and the number indicates the dollar amount per metric ton. Say the order size was 10 metric tons, the size would be multiplied by the dollar amount per ton.

When it comes to possibilities of making cocoa in house, for many companies it becomes a daunting task and nearly impossible to simulate the conditions that allow cocoa trees to grow optimally. It is nearly impossible to produce the same cocoa beans as the beans grown in West Africa. Near the equator where it’s optimally warm, the conditions are right, the soil is ripe to grow cocoa beans in which give the bean a distinct taste. Moving production anywhere else may change the taste and alter the quality. Temperatures for healthy growth range from 69-90 degrees Fahrenheit. Temperatures lower than 59 can become fatal for the plant. Also adding to the tough conditions is that cocoa trees need no more than 2000 millimeters of annual rainfall. These conditions can leave the tree vulnerable to climate changes.

In a study done by the Scientific American news site, scientists are predicting that by 2060 half of the cocoa producing countries may become too hot. The heat is not the only problem in this situation; it’s the pollinators of the trees that become affected as well. Bees and butterflies are common pollinators and cocoa flowers can be pollinated by midges, small flies or by hand. However these climate shifts in temperature could leave the country without bee colonies. In 1983-1984, cocoa production had reached a respectable level of 1.5 million tons. In twenty years this number doubled. The troubling fact to be considered here was that the number hadn’t doubled because of any technological advancement but because more land was acquired.

The Ivory Coast is one of the most unstable countries in the world not just politically but economically. Civil war has divided the landscape and because of the lack of growth the country has remained third world. Lack of education, jobs, and healthy outlets have left many West Africans to turn to drug dealing and human trafficking. With the extra land acquired for the cocoa trees, labor was short and there were plenty of children to put to work. The world is looking to put an end to child labor in cocoa producing countries. The cocoa industry has quite the road ahead of them towards recovery as an industry and as a nation for which they work in.

Realistically there is no suitable substitute for this commodity. With nearly 70% of the world’s cocoa produced in West Africa, which includes the Ivory Coast, Indonesia, Ghana, Nigeria, and Cameroon. With climate changes making weather conditions too hot, which will indefinitely affect the top three producers of cocoa beans in the Ivory Coast and Indonesia, and Ghana, it will become difficult for countries to get their cocoa. Before when it was just Europe and North America, supplies could take such a hit; but with developing middle class countries like China, and South Korea coming into the mix it will be tougher to acquire what is needed. Shortages lead to price increases, and at some point companies will simply pass on the commodity and move onto other things until prices fall.

There are several solutions to the problems environmentally, politically, and agriculturally in West Africa. Corporations who buy cocoa from these countries may need to step in to help the growth of the country by providing access to education, hospitals, all the essentials that help societies grow. Corporations may give money to these countries to help production and attempt to prevent child labor practices but it will never be enough. Political instability , civil war, and child labor are all issues connected to the well being of communities tied to West Africa. Another solution is possibly a pipe dream but a realistic attempt at countering climate changes that could affect the cocoa trees.

Scientists are working on creating heat resistant beans to counter the rise in temperatures so that crops can be more resilient and yield more. Moving crops to cooler climates in Russia and Asia have also been considered to balance the additional heat. One other solution is to help the farmers directly. Teach the farmers techniques; show them methods that they can use on their farms. Help provide proper and modern tools and technology to make the entire farming process easier for everyone. It is difficult to say what is right and what is wrong in this instance but something needs to be done if European and American companies wish to satisfy a rising demand with such a versatile commodity.

Commodity HQ, a trading a commodity research site predicts that the futures for cocoa is strong and has been soaring compared to last year’s performance. Cocoa is one of the most popular soft commodities in the market. Regardless of the drop in futures and the effects of the most recent recession, cocoa has remained strong and resilient to any effects. By the end of 2011, cocoa futures have experienced a 41% drop. Comparing this year’s numbers to last year there is already a 7.6% increase and this number for this year has continued to soar. When looking at the production of cocoa, the Ivory Coast is the leader as they double the production of their next best competitor in Indonesia. The clientele who buy cocoa from West African countries like the Ivory Coast and Indonesia are modern, well developed countries like the U.S. whereas West Africa is still very much third world.

As demand continues to grow as demonstrated with China and South Korea entering the cocoa market along with the U.S. and Europe, this list is only going to grow as the commodity becomes more popular. As weather conditions affect the production of cocoa, civil war on the Ivory Coast, child labor, and over harvesting effect the commodity, shortages will occur. When shortages occur, prices rise exponentially, which leaves one to wonder how far can the price increase before companies around the world decide to call it quits and pull out of the cocoa industry? People love chocolate, and that is not an understatement. Cocoa, cocoa powder, chocolate, and cocoa butter are all variations of the original plant. The future of cocoa looks very bright. The only external factors that may affect the commodity are the political strife’s, climate changes, and practices in production.

Works Cited
Cadbury. Cocoa and Chocolate. 2012. 26 October 2012 <http://www.worldagroforestry.org/treesandmarkets/inaforesta/documents/cocoa%20and%20chocolate/cocoa%20and%20chocolate.pdf>. Canizaro, Mark. All About Chocolate. 2002. 26 October 2012 <http://www.xocoatl.org/variety.htm>. Service, Transport Information. Cocoa Beans. 2012. 26 10 2012 <http://www.tis-gdv.de/tis_e/ware/genuss/kakao/kakao.htm>.


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