By Corrado Di Maria & Gaetano Grilli
At the University of East Anglia, we are very familiar with bunnies, they keep hopping in front of our bikes when we cycle to work and keep us company from the shadows when we have our lunches on the lawns. I am sure that now, three weeks into the UK lockdown, they are really enjoying the quiet campus and the sunshine. And so they should, as Easter time is the time of the year when bunnies come out, bringing colourful eggs to the nice children, leaving the naughty ones’ baskets empty.
While the idea of the Easter bunny is an old German tradition, and the gift of painted eggs an even older Persian and (Eastern) European one, the exchange of chocolate eggs has more recent roots, dating back to the early 19th century in continental Europe. The first British chocolate eggs, Cadbury Easter Eggs, were only made in 1875. Despite these modest beginnings, nowadays more people (76%, according to a 2017 YouGov survey) associate Easter with chocolate than with the Christian tradition (55%). Thus, Easter is the festivity most associated with chocolate. That’s why it is timely, at this time of the year, to reflect on the Economics of Chocolate.
Chocolate is made from the beans of the cacao tree – Theobroma cacao. The global demand for cacao beans has been booming in recent decades, with the consequence that production worldwide has more than trebled in the last 40 years. Europe is the largest consumer, representing almost 50% to the global consumption of cacao beans. Since cacao trees only grow in a limited geographical zone of about 20◦ to the north and south of the Equator, the increase in demand has been met by a massive expansion of cacao plantations in developing countries. West Africa, home to the world two top producers – Ivory Coast (38%) and Ghana (17%) – contributes almost 70% of the global supply. South American and South-East Asian countries, notably Ecuador and Indonesia, have been trying to get into the action and have been growing production and exports over the past three decades.
Across the world, the majority of the circa 4.5 million cocoa farms are mostly small, family-operated businesses. Traditionally, cacao trees have been grown in natural or secondary forests, or in the shade of other crops as the biodiverse environment protects trees from disease. Cacao trees take up to 5 years to produce fruits and peak production level is achieved after about 15 years. Subsequently production declines and the trees decay at around 40 years. Cacao farming is a hard, labour intensive and risky activity. Cacao producers worldwide suffer from structural poverty, lack of basic services and are severely exposed to price volatility.
In recent years, the introduction of new cacao hybrids has led to the diffusion of mono- culture methods – so-called full-sun cultivation – whereby cacao trees can be planted in direct sun or thinned forest. This practice leads to greater yields in a shorter period, albeit at the cost of lower quality. Moreover, cacao trees with no shade tend to accumulate more weeds and are more susceptible to diseases. To produce economically in full-sun, farmers resort to large amounts of herbicides and pesticides. Unfortunately, the herbicides used damage the land and the health of the farmers applying the herbicides, and excessive spraying of pesticides causes the weeds and insects to build up resistance, further reducing the economic prospects of the farmers. Structural poverty and a lack of support for farming families also means that in West Africa alone it is estimated that more than 2 million children are working in cacao fields. Finally, monoculture farming contributes to deforestation, biodiversity loss, soil and water degradation, and weakens both the sustainability and the resilience of the whole industry.
This short sketch of the basics of cacao farming shows that there is much more to chocolate than its shine and pleasant taste, and that tackling some of the issues mentioned above might make a big difference for some of the poorest and most vulnerable people on the planet. From an economist point of view it is clear that developing a sustainable agro-system for cacao requires the correction of a number of externalities, so as to lead to a ‘fair’ price for cacao, i.e. one which would reward socially and environmentally sound behaviour on the part of the farmers, appropriate risk-sharing arrangements between large buyers and small producers, and socially and environmentally aware choices by consumers, especially in rich countries.
In our work in Colombia within the GROW Colombia project together with economists at the Centre for Social and Economic Research on the Global Environment (CSERGE), we are working to understand whether a more socially and environmentally friendly cacao value chain is possible as a viable alternative to existing production and consumption patterns, as well as identifying appropriate interventions to support this transition.
Alternatives to the dominant cacao monoculture do exist, and agro-forestry farming systems represent a promising substitute. Cacao agro-forests retain a diverse and complex shade canopy with the potential of functioning as buffer zones in natural areas, enhancing landscape connectivity, and serving as a natural habitat for plant and animal biodiversity. In addition to ecosystem benefits, cacao agro-forests can lead to significant livelihood gains to smallholder farmers, improving food security and supporting income diversification. Promoting cacao agro-forestry can, therefore, make a real difference and represent a paradigm shift to transition from intensive farming to more sustainable systems, tack- ling deforestation and pollution, as well as social and economic inequalities. Colombian farmers, however, are sceptical about agro-forestry as they wrongly believe that shade canopy increases the incidence of disease infections by increasing humidity. Moreover, the costs associated with the switch to sustainable cacao farming can be substantial, as more workers and a broader range of skills are needed to manage the farms.
In recognition of these challenges, the GROW Colombia team takes a holistic view of the environmental, economic, and social aspects to foster a secure, sustainable, long-term productive cacao farming in Colombia. We have been working on several interlinked research and capacity-building streams on both the supply – and the demand-side of the cacao value chain.
The study and the preservation of the unique genetic diversity of Colombian wild cacao plants is essential to support the cacao production system in the long-run, respond to market requirements, climate change and other environmental issues. Indeed, the Colombian germplasm includes all the variants of cacao found throughout its native range. Colombia is home to 50% of all the species of Theobroma and is thus the main centre of diversity for Theobroma species generally, and T. cacao specifically. This natural wealth can place Colombian farmers in a favourable position on markets for specialty, certified, and high- quality cacao products.
Innovative genetic materials and farming practices such as agroforestry, need to be matched, however, with the farmers’ willingness to engage in sustainable patterns of production. Thus, it is crucial to understand both the farmers’ preferences for the different practices used for improving crop productivity, as well as identifying means to influence their production choices.
Our engagement with Colombian farming communities suggests that currently there are insufficient incentives for farmers to realistically consider sustainable cacao farming. The main stumbling block is the price commanded by specialty cacao varieties, which does not appropriately reflect the farmers’ additional costs in growing sustainable cacao. One issue is, of course, the fact that smallholders do not have sufficient market power in dealing with large buyers. Cacao growers need to get organized in sellers’ groups and cooperatives to extract higher margins from the buyers they interact with. In this process, however, we, the consumers in rich, developed markets, have a key role to play. Our purchasing choices have the ability to drive demand for high quality, fairly-traded, sustainably-farmed cacao, provided that we display sufficient willingness to pay higher premia for products that not only taste better – Colombian cacao is famed for his taste and aroma – but also enable the social and environmental improvements made possible from growing sustainable cacao beans in rural Colombia.
To ascertain to what extent such a market for sustainable cacao-based products exists and where interventions might be needed to develop it, we designed and administered two choice experiments to representative samples of Colombian and British consumers. Our preliminary results show that while consumers in both countries are generally willing to pay a premium for chocolate produced with cacao that is sustainably farmed and sourced, several interesting differences emerge. Importantly, Colombians favour, and are willing to pay significantly more than British consumers for social and environmental sustainability aspects. Specifically, Colombians are willing to pay more for chocolate that is produced through agro-forestry systems, is organic, avoids deforestation, and fairly rewards workers. In contrast, British consumers are keener to pay more for chocolate meeting their personal taste – with a preference for milk chocolate – than for ‘public good-type’ characteristics, such as the fair treatment of workers or agro-forestry practices. At the same time, British consumers exhibit a much more limited awareness of the social and environmental impacts of chocolate production than their Colombian counterparts. Our work so far thus suggests that raising awareness among British consumers of the real costs of Chocolate consumption for both the environment and the farmers in developing countries might lead to an increase in their willingness to pay for sustainable cacao.
As our work in Colombia continues, we hope that appropriate information campaigns and simple tools like an ‘agro-forestry’ label may drive the small changes in behaviour – i.e. choosing the ‘right’ type of chocolate – that would fuel significant, positive change for cacao farmers in countries like Colombia.
There seems to be relatively easy ways for all of us to take responsibility for our consumption patterns, make a big difference, and to ensure that even the UEA (Easter) bunnies are proud of us.
Banner Photo by Daniel Cheung on Unsplash