Ebola Highlights the Risks of a Global Chocolate Supply Chain

While Ebola itself is unlikely to travel to the United States any time soon, Ebola represents a significant threat to the global supply chain that may start to hit your pocketbook.

Liberia, Sierra Leone, and Guinea represent the epicentre of the outbreak, and recent strife has seen the borders closed and flights halted from neighbouring Côte d’Ivoire over the last several months.  To date, the Ivory Coast has had no confirmed infections, but expectations are that the disease will continue to spread and may make the jump over the border in the next few months.

Source: Wikimedia Commons

While the economic toll of the virus has been calamitous for the local populations in the three most stricken countries, they are by and large isolated from much of the West.  All three are post-war economies whose exports are largely based around agricultural trade with their neighbours.

Côte d’Ivoire also suffered a civil war in 2011, but despite its political upheaval has been one of the success stories of modern Africa. It is the fourth largest exporter of goods in sub-Saharan Africa, and, potentially more worrying for chocolate lovers, is the world’s top producer of cocoa beans.  Together with its neighbour Ghana, the two nations represent over 55% of world production of the bean.   South America, by comparison, only represents a little over 10% of the globe’s chocolate.  This means even the slightest disruption in farmers' ability to bring cocoa to market could have massive ripple effects for chocolate across the world.

Country	Amount produced	Percentage of world production
Côte d'Ivoire	1.23 million tons	34.7%
Indonesia	489 thousand tons	13.8%
Ghana	746 thousand tons	20.6%
Cameroon	220 thousand tons	5.9%
Nigeria	210 thousand tons	5.9%
Brazil	165 thousand tons	4.7%
Ecuador	130 thousand tons	3.7%
Malaysia	32 thousand tons	0.9%

With ebola continuing to spread unabated, the risk for infection and its impact to the Côte d’Ivoire economy has the futures market for cocoa skyrocketing.  According to this morning’s LA Times, hedge funds are jumping into the game and prices have been increasing for 6 straight months, the longest such streak in over a decade. 

Prices are not quite to the peak hit in early 2011, but this kind of  run-up in prices on the wholesale will soon begin to make its way to the retail sector, meaning that next bar of Dairy Milk could soon set you back quite a bit more than you expected.  This will be something to keep an eye on, as many of the major packaged food companies (Nestle, Hershey, Mondelez) have large chocolate businesses that could be at risk.  Even in the last few years we have see what coffee prices have done to their bottom lines - will chocolate be the next "ugly duckling" to drag down sector growth?  

Investors may need to start keeping much closer tabs on the virus if it begins an eastward expansion over the coming months to avoid unnecessary exposure to what appears to be a huge spike in prices.  It all goes to show that when it comes to devastating diseases like Ebola, in the interconnected modern world there's no such thing as an isolated outbreak. 

Demoulas Market Basket Woes Continue

This story comes from the “so outrageous it has to be true” files.  If you have not been following the news recently (or do not buy groceries on the East Coast) you’ve probably never heard of DeMoulas Market Basket.  I hadn’t either, until I heard a piece about the grocer on NPR earlier this week. 

The company has been losing millions of dollars a week because the entire staff walked out of the company.  Their strike and protests are not caused by a lack of pay for workers, a disagreement about benefits, or an expiring labor contract. 

No, the workers are striking because their CEO was fired.

You read that right.  Thousands of minimum-wage workers have walked off the job to show solidarity with their millionaire former CEO Arthur T. DeMoulas, who was pushed out of the job by his cousin (and president of the board), Arthur S. DeMoulas. 

  

This outcry by the employees is pretty well unprecedented in the modern world.  Despite all of the populist rage across the globe about the excessive wealth held by the “1%”, this group of workers has such loyalty to their former executive that they’re willing to sacrifice their own well-being to support him.

From WBZ-TV, the CBS Boston affiliate:

Joe Schmidt, a manager and Market Basket employee of 27 years, said he didn’t regret his decision, even after a courier knocked on his front door over the weekend with a termination letter.

“I know at the end of the day I did the right thing. I know I can look my children in the eye and tell them, ‘Hey, I took a stand for something,’ and you know that’s far more important than any job will ever be,” he told WBZ-TV.

Reading the various quotes about “Artie T”, you don’t really get the feeling that he’s doing anything out of the ordinary – he is visible to his employees, he knows people by name, he makes visits to each and every one of the stores on a regular basis, and he has built a culture of excellence across all levels.  Any decent leaders should do those things (and, as a leader, you may think you’re doing them, but you won’t actually know unless you ask). 

What makes Arthur T DeMoulas stand out, as far as I can tell, is the sense of ownership he has created in his people.  Over and over you see quotes like the following:

Market Basket employee Linda Kulis said she is “100 percent sure” she will lose her job but remains committed to take a stand to support DeMoulas.

“This is our company,” Kulis said. “We’ve all worked here. We’ve all built it. Together.”

“We’ve all built it together.”  These people aren’t just out protesting to protect their boss – they’re out three protesting to protect their team.

And that is the real question that you should be asking yourself.  As a leader, what are you doing to build a team that has this spirit of camaraderie, mutual respect, and shared sacrifice?  If you were fired tomorrow, would anyone come with you?

The Sweet Act - A (Small) Step Forward

This past Wednesday, Congresswoman Rosa DeLauro from Connecticut introduced a bill to the House of Representatives that would place a tax on beverages, to the tune of 1¢ per 4.2 grams of sweetener. 

The tax revenues garnered from the new law would be used to pay for a variety of social service programs aimed at preventing and treating obesity, diabetes, and other lifestyle diseases associated

Here’s give you an idea of what that would translate to for the consumer:

Product	Grams of Sugar	Proposed Tax
Red Bull (8 oz can)	27	$0.06
Coca-Cola Classic (12 oz can)	39	$0.09
Minute Maid Orange Juice (16 oz)	48	$0.11
Mountain Dew (20 oz bottle)	124	$0.30
Coca-Cola 2 Litre	216	$0.51
Coca-Cola Case (24 cans)	936	$2.23
Sugar content obtained from SugarStacks http://www.sugarstacks.com/beverages.htm

A ten-cent tax on a can of soda might not make or break anyone’s buying decision, but there is a lot of merit to the idea of creating a sin tax for “junk food” if you’re trying to cut down on the obesity epidemic in America. 

The law (available as a PDF here) spends page after page describing findings about the current state of the nation when it comes to bad eating habits and the health risks associated with them.  Ms. DeLauro’s goal is admirable, but you have to wonder why, if she wants to go after obesity as a whole, she is restricting her tax only to sweetened beverages? And why does it only go after sugar? 

Weight gain, after all, is a matter of calories – the body is like a giant engine that burns them for fuel; if you put in more than the engine can burn, it gets stored to for later as fat.  It doesn’t matter if those calories come from sugar, protein, fats, or other non-sugar carbohydrates.

If the goal here is to reduce obesity, the logical next step would be a tax on calories, and it should apply across all prepared foods, not just beverages.  Now, taxing every calorie would be ridiculous, but you could set a certain allowance by serving size.  Let’s call it a 250-calorie “allowance” on serving size.  Anything over 250 in a single serving and you get slapped with a 1¢ tax per 10 calories. 

Here’s a sampling of what this kind of “calorie” tax would look like for a variety of foods (including the sodas listed above):

Product	Calories	Proposed Tax
McDonald’s Big Mac	550	0.30
Taco Bell Chicken Ranch Fully Loaded Taco Salad	960	0.71
Applebee’s Quesadilla Burger	1440	1.19
Red Robin "Monster Meal" (Burger and Fries)	3540	3.29
Coca-Cola Classic (12 oz can)	156	0.00
Minute Maid Orange Juice (16 oz)	192	0.00
Mountain Dew (20 oz bottle)	496	0.25

So, the small time sugary drinks would escape the tax, but the big offenders – the massive, gut-busting meals that make up a chunk of the 85-90% of kids daily calories that do not come from soda would get hit.  And, in some cases, hit hard.  Yes, you can have your burger and fries that exceed the entire recommended daily allowance in a single sitting, but it’s not going to be the easy option on your pocket book!

For what it’s worth, The SWEET act is pretty well doomed for failure given the current makeup of the House of Representatives, which would be loath to add anything to the Affordable Care Act.  But, rest assured, this will certainly not be the last salvo in the war on obesity in the United States, and food companies need to understand that they are going to be in the crosshairs at some point.  Healthy serving sizes are going to be the only safe path forward – what are you doing to reorient your brand portfolio more towards them?