Interesting Facts About the Cocoa Market

I found many interesting points in a recent Financial Times story about cocoa beans, the main ingredient of chocolate: see Susannah Savage, Chocolate Cartels: The Rise of Cocoa Smuggling, August 2, 2025.

The first set of facts relates to the great “deals” that the states of Ghana and Ivory Coast made with their cocoa farmers. Two-thirds of the world supply of cocoa beans comes from these two countries. The official deal was to protect the farmers against price fluctuations on the world market. The real deal probably aimed to allow each state to establish a monopsony of the domestic cocoa production: it could then pay the farmers less than the world price, resell the beans on the world market, and use the difference to subsidize the urban elite. With a world price of cocoa that reached $10,000 per ton (now down to about $7,000) over the last year and a half, the price paid to farmers only crept up, with a lag, from $1,000 to between $3,000 and $5,000.

An economist won’t be surprised. In rich countries, where farmers make up a very small proportion of the population, they represent concentrated interests that use the state to exploit the rest of the population. In underdeveloped countries like Ghana and Ivory Coast, where farmers represent the bulk of the active population, they are typically exploited by the concentrated interests of urban and government elites. In general, public choice economics has taught us not to idealize the state: it is manned by people no less self-interested than you and I. Catering to organized and vocal interests serves the interests of politicians and their bureaucracy.

A second revealing phenomenon is the rise of smuggling. Given the level of cocoa prices on world markets, farmers sell part of their crops (perhaps a quarter of it in Ghana) to smugglers, who, at some risk, transport it to neighboring countries, out of the reach of the national monopsony, and resell the beans for as much as $9,000 a ton (during the recent peak). From there, the beans are shipped to European processing hubs in Belgium or the Netherlands. Even with the state’s repressive apparatus, it is often impossible to prevent human individuals from trading when doing so is in their best interest. The reflection of a pilot trying to catch moving smugglers gives the flavor of the phenomenon:

“It’s more dangerous to investigate cocoa than arms trafficking,” boasted the pilot, an adviser to the government, who requested anonymity and described it being “like cocaine in Colombia or in the Amazon”.

Adam Smith saw the smuggler as

a person who, though no doubt highly blameable for violating the laws of his country, is frequently incapable of violating those of natural justice, and would have been, in every respect, an excellent citizen, had not the laws of his country made that a crime which nature never meant to be so. … Not many people are scrupulous about smuggling, when, without perjury, they can find any easy and safe opportunity of doing so. To pretend to have any scruple about buying smuggled goods, though a manifest encouragement to the violation of the revenue laws, and to the perjury which almost always attends it, would in most countries be regarded as one of those pedantic pieces of hypocrisy which, instead of gaining credit with any body, serve only to expose the person who affects to practise them, to the suspicion of being a greater knave than most of his neighbours. By this indulgence of the public, the smuggler is often encouraged to continue a trade which he is thus taught to consider as in some measure innocent.

A third phenomenon is official corruption. Less honorable are the government officials who, as the FT reports, take bribes from the smugglers, although we should note that this corruption does allow humble people to trade despite the state’s official restrictions. “Ivorian authorities did not respond to a request for comments,” the journalist notes.

A fourth observation results from a new surveillance activity by governments. The “traceability” of products decreed by the European Union’s controversial Deforestation Regulation may kill the trade in smuggled beans, which will likely lack proper documentation. To the extent that the smugglers find a way around this new restriction, it will reduce the price they can offer to farmers.