Thursday, June 6, 2019

Chocolate bars

Picture taken in the Dallas-Ft Worth airport.
Guess how much of that $2.59 goes back to the person who grew the cocoa beans.

About two cents.

Cocoa prices for the last three months. Image from HERE
The current spot price for 1000 kg (2200 pounds) of cocoa beans on the NASDAQ is $2427. The farmer in the Côte d'Ivoire or Ghana got significantly less because there were middlemen between the NASDAQ commodity and the check written to the farmer in the country of origin.

A typical chocolate bar runs between 12%-to-20% cocoa. Using the 20% number, 1.55 ounces represents 0.019 pounds of cocoa.

Belladonna's friend from Ghana made the statement that Nestle and Hershey are rolling in money. At first I objected because they incur very large expenses.

But if they are making any profit at all, that must look like a huge amount of money to somebody from Ghana. Hershey spends an average of 8% of their revenue on advertising. At that rate they are spending four times more on advertising than they spend for the ingredient that defines their product, assuming Hersey wholesales their 1.55 oz chocolate bar for a buck.

But that is modern life. STP oil treatment pays more for the bottle than for the contents and they spend much, much more on advertising than the do for the cost of the bottle AND the contents. There is rent to pay. Politicians to donate to. Pay and bonuses to spring for. Transportation costs. Costs of air conditioning warehouses. The costs of delivering a consistently uniform product from Nome, Alaska to Miami, Florida are huge.

The Fair Trade movement doesn't help most farmers. The cost of administering the program often absorb all of the increased revenue. And the manufactures use the same cost models as their non-Fair Trade competitors. They might pay four cents for the cocoa in their candy bar but charge $5 for the bar.

Agriculture is one of the few industries that pays retail for all of their inputs and gets paid wholesale for their products.

Another way to look at this cost structure is to ask how much of the costs that get layered into the delivery are truly "value added"?

A purist would claim that a link in the delivery chain cannot add cost without adding value but that is poppycock. Does the organized crime protection racket add any value to the products delivered by a store? Nope. They add cost because they can. They can hold the entire process hostage and producers fold it in with all the other costs and it simply disappears.

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