Crisis in the chocolate market There are concerns that the price of chocolate could rise significantly in the next few years. This is because of increasing demand for chocolate, particularly in emerging countries, and supply problems in the countries that produce cocoa beans. Cocoa beans, the main ingredient in chocolate, are grown mainly in the west coast of Africa by small farms using labour-intensive methods. In 2012 Côte d'Ivoire (Ivory Coast) produced 37% of the world's output of cocoa beans, followed by Indonesia which produced 13%. Côte d'Ivoire is becoming well known for supplying good quality cocoa beans. Concentrating on supplying the product its resources are most suited to has increased output in the country. Gross Domestic Product per head rose to US1240 in 2013. Some farmers and farm workers, however, still live on less than US2 a day. In Indonesia, the income of most cocoa farmers and farm workers increased along with the rise in the country's average income between 2013 and 2014. Their purchasing power was, however, affected by the consumer prices index rising from 108.0 in 2013 to 115.2 in 2014. While people's medical care in Indonesia is improving with more doctors per head, the government is seeking to raise education standards. Among the problems being experienced by cocoa bean producers are an ageing labour force, with the industry experiencing difficulties attracting young farmers and farm workers. The industry also regularly experiences problems caused by pests and diseases, including black pod disease. At the same time people in Asia, particularly China, are eating more chocolate and drinking more chocolate drinks. People in the United States of America and the European Union are also eating more chocolate, although concerns about the health effects of eating large quantities of chocolate are beginning to affect demand. For many people, however, chocolate is addictive. Chocolate producers seek to take advantage of this by increasing the gap between revenue and costs. Most chocolate producers come from developed countries and most are public limited companies trying to keep their shareholders happy. These producers take advantage of their market power to keep the price they pay for cocoa beans relatively low whilst the price they charge to consumers who buy their chocolate is kept relatively high.

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [2] • A rise in incomes/increase in purchasing power (1) improved medical care/an increase in doctors per head (1).
2. [2] • It suggests it is price-inelastic (1) as it is addictive (2).
3. [4] • Low incomes of cocoa bean farmers (1) mean they cannot afford capital equipment (1).
4. • Small size of cocoa bean farms (1) makes it impractical to use much capital equipment (1).
5. • Low wages of cocoa bean farm workers (1) makes it more cost effective to employ labour rather than capital/high cost of capital equipment (1).
6. • Lack of education/unskilled/older workers (1) may not know how to use capital equipment (1).
7. [3] • 6.67% / 6.7% / 6.6% / 6.666666% (3)
8. • Correct working: 7.2/108 x 100/115.2 – 108 x 100/108 or 6.67/6.7/6.6/6.66666/
9. • 1.067 or version of (2)
10. • 7.2/7.2% (1).
11. [4] • A country can specialise in what it is best at producing/increase efficiency/increase productivity (1) so leading to higher output/higher income (1). Maximum mark = 2.
12. • A country can gain a good reputation in producing the product/produce a high quality product (1) this may increase demand for the product (1). Maximum mark = 2.
13. [5] Up to 3 marks for why it might:
14. • Demand is increasing/high demand (1) as incomes are rising/population increasing (1)
15. • Sellers may raise price as demand is inelastic (1) market power enables producers to raise price (1)
16. • Supply may fall/low supply (1) due to pests and disease (1).
17. • Farmers may switch to other products (1).
18. • Farmers and farm workers may become less productive (1) becoming older (1).
19. Up to 3 marks for why it might not:
20. • Farms may be merged (1) enabling greater advantage to be taken of economies of scale (1) lowering average costs (1).
21. • Concerns about obesity/diabetes/health effects (1) may reduce demand for chocolate (1)
22. • If more producers enter the market (1). This will increase competitive pressure/increase supply which will drive down price (1)
23. • Up to a maximum of 2 marks for showing relevant shifts in demand and supply curves in place of statements about e.g. increase in demand.
24. [4] • Profit maximisation (1) chocolate producers are seeking to increase the gap between revenue and cost/low costs and high prices (1) to satisfy shareholders (1) shareholders want a good return on their shares (1) Attract more shareholders (1) higher profits could be reinvested (1).
25. [6] Up to 4 marks for why it might:
26. • Enables producers to specialise/expand (1) selling to a large market (1) can take advantage of economies of scale (1).
27. • May be able to purchase raw materials more cheaply from foreign suppliers (1) lowering costs of production/increase efficiency/not having to pay tariffs on e.g. imported raw materials (1) buy better quality raw materials (1).
28. • May be able to import new technology (1) ideas on new production methods (1) which could lower costs of production (1).
29. Up to 4 marks for why it might not:
30. • Increases competition from other producers (1) if cannot compete due to higher costs may go out of business (1) may need protection to survive (1).
31. • If there is inflation in the countries they import from (1) will raise costs of production (1).
32. • Will not be able to compete when there is dumping (1) will go out of business (1).
33. Note: the focus of the question is on the benefits to producers and not consumers.