Concept Of Demand In Managerial Economics Essay

Question:

Discuss about the Chocolate Makers Fight a Melting Supply of Cocoa.

Answer:

Chocolate Makers Fight a Melting Supply of Cocoa

Last year, chocolate manufacturers experienced pressure to satisfy the increasing demand for chocolate from all over the world. In the article, ‘Chocolate Makers Fight a Melting Supply of Cocoa’ one can identify the concepts of demand and supply for cocoa as the main economic phenomena in the article. Essentially, this piece reports that the demand for cocoa and chocolate has increased substantially in the recent past (Wexler, 2016). On the other hand, the supply of the commodity has been diminishing over the past few years. In turn, this has led to substantial increases in the price of cocoa and associated products despite general decreases in the price of other commodities in the world market.

Fundamentally, the forces of demand and supply work together to influence the general prices of the commodity in the market. Given the diminishing supply of the product, chocolate manufacturers such as Mondelez have taken an active role to boost the productivity of cocoa farms in Ghana in order to secure a steady supply in the future (Wexler, 2016). Markedly, the cocoa manufacturers set aside one billion US dollars to help boost the productivity of cocoa farmers and increase their output (Wexler, 2016). Mainly, this will achieved through increasing farmers information about productive farming practices. In turn, this is expected to create a balance between the demand and supply of the commodity in the world market.

The Concept of Demand

The concept of demand is a fundamental component of economics. Primarily, it pertains to the relationship between the prices of a service or good and the amounts of the commodity that consumers are able, willing and ready to purchase at a given price (Moffatt, 2016). Essentially, the specific quantity desired for a product at a particular price is the quantity demand (“Demand,” 2016). It is noteworthy that the demand for chocolate has been increasing substantially in the recent past. Mainly, one can attribute this to the fact that the number of consumers in India and China has increased (Wexler, 2016).

Predominantly, consumers desire to consume bars and bonbons which were initially regarded as expensive and unaffordable luxuries has increased in the recent past. According to an analysis conducted by Euromonitor International, the global demand for chocolate rose by approximately 0.6 percent (Wexler, 2016). More precisely, the demand for the commodity was estimated at 7.1 million tons as at 2015 (Wexler, 2016). Characteristically, this increase in demand was highest in Asia, which experienced an upsurge in demand by about 5.9 percent (Wexler, 2016).

Graphical illustration of the demand for chocolate as at 2015

Source: (Moffatt, 2016).

Concept of Supply

Just like demand, the concept of supply is a vital phenomenon in contemporary economics. Typically, supply refers to the relationship between the quantity of a commodity that producers are willing, able and ready to offer for sale to consumers at a particular price. Generally, it is the total amount of a service or product that is available for purchase in the market at a given price. Often supply is meant to meet the demand for a product in the commodity. Over the recent past, the supply of cocoa has been diminishing significantly. In turn, this has led to a mismatch between the available supply and demand for the product, thus creating pressure on world prices to rise (Davidson, 2014).


A report by the International Cocoa Organization indicated that the supply of cocoa, the main component in the production of chocolate fell by about 3.9 percent (Wexler, 2016). More precisely, the global production of the product declined by about 4.2 million tons in that year. Likewise, the level of cocoa output in Ghana dwindled by around 18 percent (Wexler, 2016). Mainly, the suppressed level of output is attributed to the increase in disease attacks on cocoa plantations, dry weather, and unfavorable changes in government policy.

In contrast, in the same year, the level of output in Ivory Coast increased by approximately 2.8 percent (Wexler, 2016). Fundamentally, this is because farmers in Ivory Coast received substantial financial aid as well as information to enhance and boost their productivity (Wexlers, 2015). Even so, the overall supply of cocoa in the world market decreased significantly.

Graphical illustration of supply of cocoa

Source: (Moffatt, 2017).

Analysis

In an open market economy, the concepts of demand and supply work together to determine the equilibrium price level. For this reason, the law of demand and supply work intermittently. As such, an increase in the level of demand over and above the available supply of a commodity creates pressure on the price of a product, thereby forcing it to rise (Glanfield, 2014). In the same way, the sustained increase in the demand for cocoa and chocolate in the world market amidst a diminishing supply has brought about substantial increases in the price of chocolate (Glanfield, 2014).

It is imperative to note that the demand for cocoa is estimated to continue outstripping the aggregate supply of the product in the immediate future. Fundamentally, one can attribute this to the fact that the supply of cocoa is relatively inelastic because it takes several years for the cocoa plant to mature and produce pods. In addition to this, most cocoa farms in Ghana and Ivory Coast are characterized by old age trees which have diminishing productivity. As such, these crops have passed their peak production and thus are highly unproductive.

To make matters worse, climate change in the region characterized by below average rainfalls has adversely affected the overall production of cocoa in the Ivory Coast and Ghana. Furthermore, the production of cocoa in Ghana was also affected by the change in the government subsidy program. Cumulatively, these factors have contributed largely to the diminished production of cocoa in the world market. However, efforts by Mondelez and other manufacturers aim at correcting this issue to facilitate an increase in cocoa supply. Over time, the supply of cocoa will meet its demand and keep global chocolate prices in check

References

Concept of Demand in Managerial Economics. MBA Knowledge Base. Retrieved on 29 April. 2017from

Wexxler, A. (2016). Chocolate Makers Fight a Melting Supply of Cocoa. The Wall Street Journal. Retrieved on 29 April. 2017from

Moffatt, A. (2016). The Economics of Demand - Concept Overview. ThoughtCo. Retrieved on 29 April. 2017 from

Davidson, L. (2014). Don’t panic, but we could be running out of chocolate. The Telegraph. Retrieved on 29 April. 2017 from

Cocoa Market Statistics. World Cocoa Foundation. Retrieved on 29 April. 2017 from

Glanfield, E. (2014). Choc horror: It might be Easter but the world is running out of chocolate because demand in China is outstripping cocoa bean production and forcing prices up. Mail Online. Retrieved on 29 April. 2017 from

Moffatt, A. (2017). The Economics of Supply. ThoughtCo. Retrieved on 29 April. 2017 from

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