“In a way, underdevelopment is a paradox. Many parts of the world that are naturally rich are actually poor, and parts that are not so well off in wealth of soil and subsoil are enjoying the highest standards of living.”
- Walter Rodney
Introduction
Not sure what picked your curiosity and led you to this article, perhaps interest in cocoa or interest in data science, whatever it is, I’m sure it is related to why I decided to do this analysis. I come from Cameroon, which is also a cocoa exporter, and we also make our own chocolate, it’s just not as popular as Belgian chocolate, but definitely taste better to me.
Growing up I always heard my dad mention how unfair exported cocoa prices were and was not worth the investment. So I decided to dig the data and find the truth for myself, and figured I would share my findings with other curious minds. Enjoy, and please do leave feedback and/or your own opinion on this.
1. CURRENT STATE
A 20 year look-back on cocoa trade data showed me that about 70% of the world’s cocoa supply in the last 20 years comes from Africa, with about 50% supplied by Ivory Coast and Ghana alone. While the the biggest importers of this cocoa was Europe, with the Netherlands, Germany and the European Union making up about 80% of the total import.
A simplified model of the current chocolate pipeline following trade data ( both value and volume) and focusing on the largest exporting and importing countries looks like this:
2. A PROBLEM
Following the journey of cocoa to its main end product ‘Chocolate’ have led me to four (4) main findings;
I. Despite cocoa being the most important ingredient of chocolate, (making up ~75% of chocolate’s content), it only makes up about 20% of the chocolate pipeline trade value.
II. Cocoa has a higher impact on its exporters’ GDP than chocolate does on its exporters’ GDP yet the profit they make from cocoa is sub-optimal.
III. Africa is missing out on the ROI of the chocolate business.
The charts below show the imported value in USD of cocoa imported by Germany, Belgium and the Netherlands, next to the export value in USD of chocolate produced by these countries, and this alone shows how profitable the chocolate business is, for very little investment in cocoa.
IV. Europe gains a lot more cultural recognition for making chocolate and even for cocoa than Africa does for growing cocoa.
First, naturally chocolate being directly consumed makes it easily popular than Cocoa, but what is more interesting is that even searches for cocoa are associated with non-African countries, as shown in the google trends charts below, despite ~70% of cocoa, coming from Africa.
3. SOLUTIONS
Looking back at the effects of trade reforms in Ivory Coast and Ghana, as well as cocoa shortages that happened between 2012 and 2013 (shown in charts below), we can infer two things that will happen if Ivory Coast and Ghana were to either increase the price of cocoa beans or cease to export cocoa beans and make their own chocolate.
1
If Ghana whom in 2019 contributed ~23% of the total cocoa export, stops exporting cocoa and starts making its own chocolate, we can expect chocolate export from Europe to go down by 13.8% within two years following Ghana’s decision, after expiration of most future contracts. This will also lead to an increase by 100 bps in Ghana’s cocoa GDP contribution while leaving Europe’s biggest chocolate exporters’ GDP almost intact.
2
If Cocoa is priced more fairly, say twice its current price, Europe will still achieve an ROI of ~71% on chocolate with barely a dent on its GDP.
ASSUMPTIONS
Some assumptions I made during my analysis to keep in mind as you read this include:
4. WHAT’S NEXT
Completing this analysis left me wondering if it’s possible to find these same trends in other Goods where Africa is the majority exporter to Western Countries.
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Huge Thanks to my mentor Boris Vassilev for guiding me through this analysis and reviewing my work! Thanks to all my friends and peers who helped review this!
More Detailed Analysis
2017 Cocoa/Chocolate Missing Trade Data Imputation (Using Python Pandas to impute missing values from time series data)
Github:
Sources & References
Data Sources:
References: