Strategic analysis of the cocoa industry
About the industry
Chocolate is a multi-billion dollar industry, it is one of the largest selling sweet treats in the world. From 6-60 almost everyone seems to enjoy chocolate. Coco beans are processed and used to make chocolate, the demand for the product never seems to drop but the issue that has been surfaced is the supply of the cocoa beans. Due to several reasons like natural calamities, crop diseases etc this shortage in supply has manifested. Ivory Coast is the biggest supplier of cocoa beans in the world. Companies like Nestle or Cadbury gather their supply from Ivory Coast. But it has been issued in a report that there will be significant global shortage of cocoa beans supply by 2020. Anthony Ward also known as “chocofinger” in the industry is the founder of Armajaro Asset Management. The company is known to be one of the market leaders in the cocoa market. In 2010, Ward cornered a considerable amount of the world’s cocoa supply. The holding is so enormous that it had threatened leading manufacturers of chocolate to increase the price of some of their most popular items. Since then, there have been several speculations regarding the supply of cocoa in the market (Leake and Cooper 2010).
With the help of PESTEL analysis of Ghana and Nigeria cocoa production situations the cocoa market can be determined. Both Ghana and Nigeria has been significant contributor of cocoa in the world, Ghana being the second largest and Nigeria being the fourth (Goldberg 2015).
Ghana: Generations of people has been involved in the production of the cocoa beans in this country. The Dutch missionaries at the beginning of the 19thcentury introduced the Cocoa beans to Ghana by. In the 19th century Ghana was regarded as the largest producer supplying up to 30-40 percent of the world’s cocoa. Coco beans have a significant role in the livelihood of the people as well as have a major impact on the economy of the country (Cocobod.gh 2018). The crop is known as the “King” and the image of the crop is on the currency as well (refer to the appendix). Cocoa is the major cash crop in the country but the production process have seen major setbacks due to the several reasons such as weather conditions, declining area of cultivation, low yields per hectare, there has been several diseases that has been reported in the past decade. There is another issue with the process where recommendations from researchers have not been implemented (Goldberg 2015). On the other hand it is argued that this shortage is not only due to the above stated factors but also due to lack of management and proper planning (Goldberg 2015).
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PESTEL |
Ghana |
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Political |
The government of the country has been sporting the farmers as this is the major cash crop in the country. In 1947, the government realized the potential of the crop and established the CMB (Cocoa Marketing Board). This institution is the main author for looking after the cocoa industry. There is a Ghana Cocoa Board that looks after the quality of the production. Research and development investment is also looked after by the government (Goldberg 2015). |
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Economy |
Aforementioned cocoa beans are the major cash crop and thus it has impacted the economy of the country significantly. Approximately 800,000 farm families who are spread over six out of the ten regions of Ghana have been employed in this industry. This industry has contributed $2 billion in foreign exchange annually and is a major contributor to Government Revenue and GDP (1). |
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Social |
There are generations of people who have been involved in this business, most farmers own their land. Chocolate is not only a part of the economy but is also a major part of the culture in Ghana. Western, Central, Brong Ahafo, Eastern, Ashanti and the Volta regions are the major regions where cocoa is cultivated (Läderach et al. 2013). |
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Technological |
The Ghana Cocoa board is responsible for any development of the industry. Cocoa Research Institute of Ghana (CRIG), the Seed Production Unit (SPU) and the Cocoa Swollen Shoot Virus Disease Control Unit (CSSVDCU) are the pre-harvest institutions which deal with the challenges faced by the farmers during faring process. Quality Control Division (QCD) and the Cocoa Marketing Company (CMC) is the authorities that deal with post harvest matters. Digital Green is a program by the World cocoa foundation it involves in helping and supporting the farmers growing cocoa beans. |
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Environmental |
Many farmers in the country has adapted sustainable means of production, the government also has taken several sustainable actions with the help of the cocoa board. |
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Legal |
. The government has mandated the sale of cocoa through government bodies thus this has helped in fixing a price for the farmers who grow the crop. The rules and regulations favor the industry in Ghana supporting the farmers (Goldberg 2015). |
Firms such as Barry Callebut, Cargill, Mondelez, and Hershey
Nigeria: Stands fourth in the production list however, Cocoa beans production has been on a major decline in the country (Agronewsng.com 2018). This decline is because of inconsistent production patterns, disease and pest infections in the crops, furthermore low levels of automation with dependence on cutlass and hoe agriculture and declining quality of cocoa fields are some of the factors responsible for the decline (Worldatlas.com 2018)
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PESTEL |
Nigeria |
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Political |
The Ministry of Agriculture and Rural Development have invested in The Cocoa Transformation Plan in order to combat the decline. |
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Economy |
The crop plays an important role in the export income of the economy |
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Social |
A significant gender biased issue regarding remuneration of the people working in cocoa industry has been reported. |
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Technological |
In order to keep up with the quality of the production there has been incorporation of several technology in the past decade |
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Environmental |
The government is investing in research and development in adapting sustainable production techniques in the country. |
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Legal |
There are no strict legal barriers in the industry though the government is incorporating rules so that the farmers and the people involved in this industry are motivated (Agronewsng.com 2018). |
About the company
Barry Callebaut is a leading organisation that manufactures high-quality chocolate and cocoa products. The organisation was set up in 1996 as a result of a merger between the French company Cacao Barry and the Belgian chocolate producer Callebaut, thus the name of the company is also explained. Headquartered in Switzerland, the organisation has been divided in four regions for operation EMEA (Europe, Middle East, Africa), Region Americas and Region Asia Pacific as well as Global Cocoa business which is regarded as a separate segment as well (refer the appendix). The organisation is known for being innovative and supporting development in the process. The revenue of the company is approximately reported to be 6,676.8 million in 2016. The company mainly operates in the B2B sector. The company severs a clientel of some of the renowned organisations in the industry like Mondelez, Hershey, Unilever and several other firms in the industry (Barry-callebaut.com 2018).
Present market position and industry analysis
The company holds a position among the top manufactures of chocolate products in the world. As the organisation serves the B2B sector, the chocolate that is supplied by the company is like an ingredient to the consumer (Han 2016). The figures that are supplied in Appendix 4 shows a rise in the sales and revenue of the company. The organization has gone on record to inform the industry regarding the shortage of cocoa supply (Ford et al. 2014).
With the help of Porter’s Five Force analysis an industry overview of the cocoa production can be determined.
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Threats of New Entrants |
Chocolate industry is lucrative and is also been profitable for investment by many organisations which make it even more attractive. One of the major challenges that an organisation aiming to enter the market will face is the bulk of capital that is required to compete with the existing cooperates. Another aspect that a new company should consider is that there are records of warning regarding a major shortage in the production of cocoa beans by 2020 (Ford et al. 2014). A new organisation requires time to stabilize and hence this shortage will negatively impact the company. |
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Bargaining Power of Suppliers |
There is a number of suppliers of Cocoa beans in the industry, the bargaining power of the suppliers are low in this case, the organisations have contracts with the suppliers. But with the shortage in supply the power of the suppliers have increased significantly (Barry-callebaut.com 2018). |
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Bargaining Power of Buyers |
The buyers in this industry do not have a significant switching cost as there are no direct substitutes of the product. There are a number of companies operating in the industry but if there is a shortage in supply all the organisations will be forced to spike up the prices of the products. In that case the bargaining power of the buyers will decrease. |
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Threats of Substitute Products or Services |
Other dessert items are considered as the substitute, white chocolate, fruit pulp, toffees or other confectionery items which are not made of chocolate are the substitute. Sugar is the major substitute (Barry-callebaut.com 2018). |
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Rivals or competition in the market |
There is intense competition in the market Cargill, Mondelez International, Hershey Foods Corp, Ferrero Group etc. |
Reference list:
Agronewsng.com 2018. COCOA PRODUCTION IN NIGERIA; FIGURES. [online] agronewsng.com. Available at: https://agronewsng.com/cocoa-production-nigeria-investment-data-statistics/ [Accessed 28 Mar. 2018].
Barry-callebaut.com 2018. About Us. [online] barry-callebaut.com. Available at: https://www.barry-callebaut.com/about-us [Accessed 28 Mar. 2018].
Cocobod.gh 2018. Cocoa. [online] cocobod.gh. Available at: https://www.cocobod.gh/home_section.php?sec=1 [Accessed 28 Mar. 2018].
Ford,, T., Vit,, J., Neate,, R., Branigan and, T. and Saner, E., 2014. The cocoa crisis: why the world’s stash of chocolate is melting away. [online] Theguardian.com. Available at: https://www.theguardian.com/lifeandstyle/2014/nov/21/cocoa-crisis-world-chocolate-stash-melting-away [Accessed 28 Mar. 2018].
Goldberg, S., 2015. Ghana’s Inept Policies Driving Cocoa Shortage. [online] Wallstreetdaily.com. Available at: https://www.wallstreetdaily.com/2015/06/29/ghana-cocoa-shortage/ [Accessed 28 Mar. 2018].
Han, E., 2016. Bitter battle: chocolate makers fighting to save the world’s cocoa supply. [online] Smh.com.au. Available at: https://www.smh.com.au/business/companies/bitter-battle-chocolate-makers-fighting-to-save-the-worlds-cocoa-supply-20160323-gnpfg4.html [Accessed 28 Mar. 2018].
Läderach, P., Martinez-Valle, A., Schroth, G. and Castro, N., 2013. Predicting the future climatic suitability for cocoa farming of the world’s leading producer countries, Ghana and Côte d’Ivoire. Climatic change, 119(3-4), pp.841-854.
Leake, C. and Cooper, R., 2010. Choc finger: Meet the real-life Willy Wonka who’s just bought an incredible £658m of cocoa beans. [online] dailymail.co.uk. Available at: https://www.dailymail.co.uk/news/article-1295608/Choc-finger-Meet-real-life-Willy-Wonka-Anthony-Ward-whos-just-bought-incredible-658m-cocoa-beans-.html [Accessed 28 Mar. 2018].
Worldatlas.com 2018. Top 10 Cocoa Producing Countries. [online] Worldatlas.com. Available at: https://www.worldatlas.com/articles/top-10-cocoa-producing-countries.html [Accessed 28 Mar. 2018].
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