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Publication | 5 August 2020

Comparative study on the distribution of value in European chocolate chains

On average 70% of the total value and 90% of the total margins generated from cocoa farmers to end consumers accrue to the two last actors in the chain: brands and retailers.

Upstream, only 18.6% of the total value and less than 7.5% of the total margin are generated by actors in cocoa producing countries (from cocoa cultivation up to bean exports).

The research shows that the 3 main factors linked to “downstream” actors (retailers and brands) have a very significant impact on this distribution of value and costs:

  • the type of brand (national brand Vs private label),
  • the marketing mix (basic, cooking, premium), and
  • the products’ performance (best-sellers Vs other products).

In contrast, all upstream factors analysed have a quite limited impact, if any, on the distribution of value and costs from cocoa farmers to end consumers, whether it is:

  • the country of origin (even when highlighted on the packaging of the finished good),
  • the percentage of cocoa in the final product (for the same marketing mix),
  • the country of first processing.

These findings can be largely explained by fact that the majority of value creation in the chain is linked to intangible leverages (marketing segmentation, brand reputation...) which are essentially managed by brands and retailers and largely prevail over the origin/terroir and the specific work of farmers which are rarely valued at the consumer end of the chain.

The case studies of Côte d’Ivoire and Ghana show that stronger regulation systems enable more stable prices for producers country-wide, especially in times of negative price shocks, but are most often associated with a lower share of export value accruing to cocoa farmers.

In Ecuador, the fact that the cocoa sector is liberalised leaves room for greater potential of differentiation of cocoa production, but is associated with a quite polarised producer base between the farmers who can achieve it and all the others.

At the end of the chain, the combined share of value for retailers and brands has increased in 2014-2016, thereby transmitting to consumers the cocoa world price increase; it has continued to build up until 2018 despite the fall in cocoa world prices in 2016-2018, achieving a growth of +15% compared to 2014.

Whatever the certification scheme analysed, the overall value distribution from raw material to end consumption is not profoundly changed, except in certain cases where multiple certification schemes are attained (in particular the combination of organic and fair trade). Beyond the requirements of these certifications, changes in value distribution seem to be strongly linked to:

  • greater partnership relationships between actors all along the chain (farmers, cooperatives, processors, brands, retailers),
  • greater value creation associated with the growing demand from certain consumers who are ready to pay more for “green and fair” chocolate made from cocoa of identified origins.

The modelling shows that the cost transmission of the LID introduced at origin by Côte d’Ivoire and Ghana could result in a consumer price increase of +1.5% for milk chocolate tablets and +2.0% for dark chocolate tablets.

These economic issues and their implications would need to be discussed more in-depth through an inclusive process among all stakeholders of the cocoa sector (public authorities, farmers, processors, brands, retailers, consumers and NGOs), based on informed/objectified data so as to enable them to understand each other’s perspectives

In order to support this move, 3 main proposals are made:

  1. Expand the current study to include other important cocoa producing countries and consuming markets, and build-up on it to develop a permanent ‘observatory’ tool on the distribution of value and costs in the cocoa sector hosted by an existing institution in order to facilitate a multi-stakeholder discussion at the national and global levels through the sharing of objectified and cross-checked data.
  2. Secure and promote the development of tripartite agreements between farmers’ organisations, industry players and retailers that aim at guaranteeing decent prices for producers and protecting the environment.
  3. Promote and strengthen farmers’ organisations in producing countries and help develop their capacity to differentiate cocoa varieties and improve their quality, their access to credit improve their quality, their access to credit and their capacity to invest (in their business and their communities)