It used to be that buyers determined the price for the suppliers. But this is the first time suppliers have called buyers to engage on price. The move by Ivory Coast and Ghana has even been called historic.
So why have U.S. senators Sherrod Brown (D-Ohio) and Ron Wyden (D-Oregon) called for a ban on imports of cocoa from Ivory Coast, the major U.S. supplier of cocoa beans? Is it really because of naïve and misguided arguments about forced child labor that is so ingrained in the Ivory Coast cocoa industry that only an import ban can force chocolate companies into eradicating it?
That doesn’t make much sense. The chocolate companies are not only investing millions into sustainability programs that include investments in education, health and improved production practices. They actually support the increase in price per ton and have publicly expressed their commitment to shoring up cocoa farmer’s incomes, which will ultimately result in more equal share in the benefits of trade.
Maybe the logic behind the call for a ban is to support the reputation of U.S. chocolate makers and their shareholders. After all, chocolate is among the most favorite flavors of American consumers. Chocolate and confectionery consumption in the United States has been on an upward trend since 2008, with sales of chocolates at US $22.4 billion in July 2018.
As a whole, the U.S. chocolate market is projected to grow by 1.8 percent each year between 2016 to 2025, putting the expected market value at $20.7 billion by 2025.Furthermore, the U.S. has an estimated 86% of the chocolate products sales market in North America, making it the undisputed leader. The U.S is also the world’s 6th chocolate goods exporter, with a total dollar value of $1.7 billion during 2018.
So maybe it would make some sense for senators Brown and Wyden to be worried about a hike in the prices of cocoa beans from Ivory Coast, which accounts for 60% of U.S. cocoa imports. Of course, trying to pressure one’s main supplier with a trade ban is risky business. If it’s a bluff and the supplier calls it, the U.S. loses 60% of its direct sourcing and puts U.S. chocolate companies in a tight spot, forcing them to look for alternative suppliers who can provide the required quantity and quality with the proven absence of child labor, as misunderstood by the senators. If it’s not a bluff, the import ban is illogical and begets unjust trade.
The thing is, neither Mars nor Cargill, two major U.S. chocolate makers and international corporations, are complaining. In fact Mars, which makes a number of iconic treats including M&M’s, Snickers and Twix, supports the decision by Ivory Coast and Ghana to set a floor price for their cocoa exports.
Mars backs the initiative because, as John Ament, Global Vice President of Cocoa from Mars, told Reuters, “We believe cocoa farmers should earn sufficient income to maintain a decent standard of living.” Ivory Coast and Ghana are crucial sources of cocoa for Mars, using an estimated 430,000 tons of West African cocoa and cocoa derivatives annually.
Cargill Cocoa & Chocolate also supports the floor price because it is committed to working closely with their cocoa boards, suppliers and other stakeholders to ensure a long term and sustainable impact for farmers and the cocoa sector.
The short-term consequences of the price hike are that cocoa processors and chocolate companies will have little choice but to pay the floor price of $2,600 per metric ton Ivory Coast and Ghana choose to set because they have invested huge amounts of money in sustainability programs and are heavily committed to their operations in those two countries. In percentage terms, it will mean a 10-15% price rise in the short-term. In the long-term, analysts say the price hike could encourage cocoa processors to invest elsewhere…or not.
Chocolate makers recognize that if implemented correctly, a hike in minimum price could protect farmers from dire poverty and fluctuations in the cocoa market. They actually see an increase in price favorably. Contrary to the two U.S senators, they understand it is meant to ease pervasive farmer poverty. Poverty has become a blight on the image of chocolate makers and a threat to the sector’s future in West Africa, as young people walk away from a life of backbreaking labor with little reward.
A U.S. ban on cocoa imports from Ivory Coast will not only hurt U.S. chocolate makers and consumers. It will be result in economic strains and eventual additional hardships for all those dependent on cocoa farming in Ivory Coast and will be detrimental to the Ivorian government’s ongoing efforts to decrease economic inequalities and human rights violations, in particular the worst forms of child labor. So perhaps the senator’s call for a cocoa ban is just a knee-jerk reaction to the fact that the U.S. was not consulted on the plan. Do they consider it an “affront” that the governments of two African nations decided to band together to set their terms for trade?
Africa is beginning to overcome major hurdles in its quest to expand trade with industrial countries. It has also just recently created the biggest free trade are in the world: 55 countries merging into a single market of 1.2 billion people with a combined GDP of $2.5 trillion. Ivory Coast and Ghana are both signatories of the African Continental Free Trade Agreement (AfCFTA), which officially went into force on May 30, 2019.
Instead of viewing Africa as an impoverished region that can be bullied into submission because it desperately needs massive aid packages to survive, the United States needs to start viewing Africa as a strong trading partner. There is no place for short-sighted trade barriers based on faulty reasoning. U.S. legislators need to get used to the idea of a new and innovative Africa capable of participating equally in free trade agreements.
As Africa forges a new path for itself, the United States needs to propose solutions for expanding trade relations with and within Africa, not barriers for constraining them. Knowing full well that trade barriers or facilitators reflect political choices, U.S. senators Brown and Wyden would do well to focus on improving, not hindering, public diplomacy towards Africa in order to help the United States become a preferred partner, instead of a browbeater.