We’ve seen how the Ivory Coast’s weather was too wet and then it became too dry. We know also that cocoa yields plunged because of black pod disease and older trees past their prime. Then, perpetuating the price trajectory, speculators have further boosted cocoa futures.
And now, we have a fourth reason for rising chocolate prices.
European Cocoa Regulation
Thinking of the future of our planet, European regulators established new criteria for the cocoa beans they are willing to import from the Ivory Coast after December 30. With the goal of preserving the earth’s rainforests, they said growers cannot use cleared rainforest land. Consequently, regulators have tried to identify the forbidden land by visiting close to 1.5 million farms with GPS equipment. As you might imagine, the task is gargantuan. For large farms, it requires GPS coordinates that show the size of the whole farms while smaller growers need just one point.
Displaying tree loss, the pink area is the problem:
Predictably, the new rules will elevate the cost of chocolate even more.
Our Bottom Line: Opportunity Cost
Like all decisions, chocolate regulation has an opportunity cost. Defined as the next best alternative, the opportunity cost of a decision is what you sacrificed. Because “choosing is refusing,” the opportunity cost of having pizza for lunch might be a sandwich. Similarly, the opportunity cost of washing dinner dishes could be a Netflix video.
With European chocolate regulations, we can consider the sacrificed extra spending we cannot do elsewhere. A supply curve best illustrates what precipitated the need for the choice. As you can see, because the diminished supply created by regulations shifts the curve upward and to the left, equilibrium price rises:
Returning to where we began, we saw that cocoa bean prices were already rising. So, we now have to decide whether we should further skyrocket them upward for a very good reason.
And, are we willing to pay even more for our M&Ms?
My sources and more: Thanks to WSJ for the update on cocoa regulation.
