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The economics of chocolate

Cocoa and chocolate have a long history in Central America but a relatively short history in the rest of the world. For thousands of years tribes and empires in Central America produced cocoa and consumed drinks based on it. It was only when the Spanish arrived in those regions that the rest of the world learned about it. Initially, cocoa production stayed in the original production regions, but with the local population decimated by war and imported diseases, slave labor was imported from Africa.

The ‘First Great Chocolate Boom’ occurred at the end of the 19th and early 20th century. The industrial revolution turned chocolate from a drink to a solid food full of energy and raised incomes of the poor. As a result, chocolate consumption increased rapidly in Europe and North America.

As the popularity of chocolate grew, production spread across the world to satisfy increasing demand. Interestingly, cocoa only arrived in West Africa in the early 20th century. But by the 1960s West Africa dominated global cocoa production, and in particular Ghana and Ivory Coast have become the world’s leading cocoa producers and exporters.

Not surprisingly, given the growth in trade of cocoa and consumption of chocolate, governments have intervened in the markets through various types of regulations. The early regulations (in the 16th–19th centuries) focused mostly on extracting revenue from cocoa production and trade through, for example, taxes on cocoa trade and the sales of monopoly rights for chocolate production.

The world is currently experiencing a ‘Second Great Chocolate Boom.’

More recent regulations have focused mostly on quality and safety. With growing demand for chocolate in the 19th century, chocolate producers substituted cocoa with cheaper raw materials, going from various starchy products and fats to poisonous ingredients. Scientific inventions of the 18th and 19th centuries allowed better testing of the chocolate ingredients.  Public outrage against the use of unhealthy ingredients (now scientifically proven), led to a series of safety regulations on which specific ingredients were not allowed in chocolate – and in countries such as France and Belgium also in a legal definition of ‘chocolate’.

Chocolate consumption has many fascinating aspects. It is bought both for the pleasure of consumption and as a gift. It has been considered a healthy food, a sinful indulgence, an aphrodisiac, and the cause of obesity.

For much of history, chocolate (or cocoa drinks more generally) was praised for its positive effects on health and nutrition (and other benefits for the human body). As people were poor, hungry, and short of energy, chocolate drinks and later chocolate bars became an important additional source of nutrition.

In recent years, chocolate consumption is often associated with negative health issues, such as obesity.  Recent research has shown that its health potential is closely linked to the composition of the final product and, not surprisingly, to the quantity consumed: darker, lower-fat, and lower-sugar varieties, consumed in a balanced diet are more likely to be healthy than the opposite consumption pattern.

Cocoabean
Fresh Cacao from São Tomé & Príncipe, by Everjean. CC-BY-2.0 via Flickr

In today’s high income societies where hunger is an exception, food is cheap, and obesity is on the rise, systematic overconsumption of chocolate – often associated with impulsive consumption and lack of self-control – is more associated with health problems. New research in behavioral engineering is targeted to help consumers deal with situational influences, and change behavior in a sustainable way, i.e. by ‘nudging’ them to change their consumption behavior and resisting the lure of chocolate.

One of the intriguing aspects of chocolate is its ‘quality’. Different from many other foods (such as cheese or wine) perceived chocolate quality is not related to the location where the raw material is grown or produced, but to the chocolate manufacturing process and location.

Some countries, such as Switzerland and Belgium are associated with prestigious traditions of chocolate manufacturing. However, perceptions do not always fit reality. ‘Belgian chocolates’, such as pralines and truffles, are now world famous but until 1960, Belgium imported more chocolate than it exported. Since then its “Belgian chocolates” have conquered the world – while the world has taken over the Belgian chocolate (companies). Most “Belgian chocolates” are now owned by international holdings – and a sizeable amount is produced outside the country.

Moreover, consumer perceptions of ‘quality’ are strongly influenced by consumer experiences with their local chocolate – this includes the smoothness of Swiss chocolate from long conching, the milkiness of British chocolate, and the preference of American consumers for chocolate that Europeans consider inferior.

In fact, the integration of the UK, Ireland and Denmark into the (precursor of the) European Union, which included France and Belgium in 1973 resulted in a ‘Chocolate War’ which lasted for 30 years. Disputes between the old and the new member states of the definition of “Chocolate” (and its ingredients) made that British chocolate was banned from much of the EU continent for three decades.

Ethical concerns about chocolate have been triggered by the specific structure of the global cocoa-chocolate value chain. For most of the past century, the value chain was characterized by a South-to-North orientation, with most of the raw material (cocoa beans) produced in developing countries (‘the South’) and most chocolate manufacturing and consumption in the richer countries (‘the North’). Another characteristic is that cocoa production in the South is almost exclusively by smallholders, while cocoa grinding and (first stage) chocolate manufacturing processes are often dominated by very large companies.

The cocoa-chocolate value chain has undergone significant transformations in recent years. First, in the 1960s through the 1980s the cocoa production and marketing in developing countries was strongly state regulated, often dominated by (para-)statal companies and state regulated prices and trade, etc. In recent years there has been substantial liberalizations of these sectors and the market plays a much larger role in price setting and trading, often resulting in new hybrid forms of ‘public-private governance’ of the world’s cocoa farmers.

Second, these new regulatory systems are reinforced by consumer awareness around labour conditions and low incomes in African smallholder production related to structural imbalances in the value chain. Consumer concerns and civil society campaigns around poor socio-economic conditions of producers (such as child labor) have affected companies’ strategies and responses. These involved (a) sustainability initiatives with civil society and governments, (b) certification initiatives including Fairtrade, Rainforest Alliance and Utz, and (c) various forms of Corporate Social Responsibility (CSR) activities.

The world is currently experiencing a ‘Second Great Chocolate Boom’. Rapidly growing demand is now not coming from ‘the North’, but from rapidly growing developing and emerging countries, including China, India and also Africa. The unprecedented growth of the past decades, the associated urbanization, and the huge size of their economies have turned China and India into major growth markets for chocolate. While consumption is highest in China, and the growth is strong, the country with – by far – the highest growth rates in chocolate consumption is India. In addition, significant African growth of the past 15 years is now also translating into growing chocolate consumption on the continent where most of the cocoa beans are produced.

Headline image: Fresh Cacao from São Tomé & Príncipe, by Everjean. CC-BY-2.0 via Flickr.

Recent Comments

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  3. Gallet

    When will the book “The economics of chocolate” be published ?

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