How Government Meddles in Your Easter Chocolate
It’s Easter time again, which means it’s time to talk about chocolate. Simaran Sethi at the Los Angeles Times this week highlights the plight of cacao farmers:
What wasn’t factored into the celebration [over falling chocolate prices] is the deep suffering of the subsistence farmers who grow cacao, the seeds of a pod-shaped fruit that, once harvested, become the cocoa traded on the commodities market and destined for the chocolate eggs and bunnies that fill most Easter baskets.
It’s become somewhat obligatory in recent years to mention cacao farmers every Easter as consumers buy chocolate in especially large quantities. In 2015, for example, on Easter 2015, The Guardian noted:
In west Africa, cocoa workers scratch a living on small farms, usually no bigger than five hectares. Years of low incomes, uncertainty over land rights and ageing cocoa trees passing their most productive years have shaped an industry ravaged by poverty and child labour.1
Cacao Farms: The Latest “Sweatshop”
Basically, the cacao farm has become a sweatshop in the eyes of some Western op-ed writers. Cacao farms, we are told, are ravaged by slave-level wages, by child labor, and by other horrors. But, as The Guardian admits, workers are freely moving from other areas of west Africa (where cacao is primarily grown in Africa) into the cacao belt specifically:
While some young Ghanaians are flocking to cities, he says, there are signs that people in the poorer north are willing to move south to grow cocoa.
In other words, workers are voluntarily uprooting themselves to go work on cacao farms. Why? Because it’s seen as a step up from whatever else the workers were doing.
This doesn’t mean being a cacao farmer is a wonderful and fulfilling experience. It just means that being a cacao farmer is less bad than not being one.
Benjamin Powell, author of Out of Poverty: Sweatshops in the Global Economy, has noted that sweatshops
provide the least-bad option for the workers who work in them. But sweatshops are better than just the least-bad option. Sweatshops bring with them the proximate causes of economic development — capital, technology, and the opportunity to build human capital. If countries respect private property rights and economic freedoms, these proximate causes of development lead to higher productivity, which eventually leads to higher pay and better working conditions.
Western Governments Push Down African Wages Through Tariffs
Unfortunately for the west African workers, this “capital, technology, and opportunity” that Powell mentions is being artificially restricted by government intervention in the cacao trade.
Specifically, governments in the West — i.e., in the United States and Europe — tend to encourage only the importation of unprocessed cacao while punishing any higher-productivity cacao processing. That is, Western government will allow for tariff-free importation of cacao — the cacao beans — while slapping taxes on cocoa powder and cocoa butter. According to the UN’s Food and Agriculture Organization:
- Cocoa producing countries limit themselves to mainly exporting beans -rather than manufactured cocoa, or chocolate products- mostly because of tariff escalation. The EU has a bound rate of 0 percent for cocoa beans, but a 7.7 percent, and 15 percent ad valorem duty on cocoa powder and chocolate crumb containing cocoa butter respectively;
- Similarly, Japan applies a bound rate of 0 percent for un-processed cocoa beans, but charges a 10 percent tax for cocoa paste wholly or partly defatted, and a 29.8 percent duty on cocoa powder containing added sugar;
- The US has no ad valorem on cocoa beans, but imposes a duty of 0.52 cents/Kg for cocoa powder -with no added sugar- and tariffs could go up to 52.8 cents/Kg for imported chocolate products containing cocoa butter.
Thus, thanks to government intervention, it becomes less profitable to invest in capital that could be used to process cacao beans in Africa. These activities, of course, would likely provide to workers higher productivity, because their labor would then benefit from the facilities, machines, and capital that would bring them higher wages.
Instead, thanks to Western taxes, there’s less reason for either African or Western capitalists to invest in processing cacao, and thus provide more competition for existing industries and firms. And, of course, Western consumers pay higher prices as a result.
As Calestous Juma has noted this problem goes well beyond cacao and applies to other crops such as coffee. But in all these cases, the result is the same:
The impact of such charges [i.e., tariffs] goes well beyond lost export opportunities. They suppress technological innovation and industrial development among African countries. The practice denies the continent the ability to acquire, adopt and diffuse technologies used in food processing. It explains to some extent the low level of investment in Africa’s food processing enterprises.
If humanitarians in the US and the West are concerned about workers in Africa, they could perhaps best assuage their consciences for demanding a lowering of tariffs imposed against West African farmers and innovators.
Moreover, the result of all this protectionism against food processing in Africa (and other low-income areas) is to make food more expensive for Western consumers. As demand for chocolate has increased, prices have increased too. But prices of processed chocolate goods are higher than they would be otherwise.
Whatever You Do, Don’t Boycott Chocolate
But there’s some good news to report, too. It appears that we’ve largely moved beyond the old-school demands that we boycott whatever goods are made by especially unfortunate low-income workers.
Sethi’s article in the LA Times, for example, avoids calling for any sort of boycott and recognizes that cacao farmers are helped when consumers buy more chocolate. As demand goes up, Sethi writes, so do cacao prices. And then wages go up, too.
This is a welcome departure from the bad old days of anti-sweatshop rhetoric when we were told to boycott goods and services that were manufactured in a way that appears especially unpleasant to Western eyes. Obviously, boycotting cacao would only relegate cacao farmers to even worse poverty than they already endure. This nugget of wisdom was consistently lost on many activists of the past such as Cesar Chavez of the United Farm Workers union. Chavez encouraged consumers to boycott foods picked by his union members — if farm owners did not cave to union demands. Not buying grapes, however, never accomplished much more than making grape pickers’ wages fall as demand fell.
So, yes, to help cacao farmers, we should indeed buy more chocolate. But we should also recognize that those workers are locked out of a variety of related higher-wage industries by protectionist governments in the wealthy West.
1.There seems to be little agreement as to the proper usage of “cocoa” and “cacao.” Usage also appears to differ from country to country.
This article appeared at the Mises Wire at: https://mises.org/blog/how-government-meddles-your-easter-chocolate