INTERNATIONAL COCOA ORGANIZATION
Dr. Michele Nardella
Senior Econometrician
International Cocoa
Organization
Market concentration and
vertical integration
London, 22 September 2015
Outlines
1. Value added by the global cocoa chain
2. Level of market concentration in the cocoa sector
3. Degree of asymmetry in the transmission of prices along the UK and US chains
4. Concluding remarks
Value Added by the global cocoa chain
$120
$US Billion, const 2013/14
$100
$80
$60
$40
$20
World Retail Value Chocolate Confectionery, 2013/14
World Cocoa Production Value at uiv, 2013/14
Source: Euromonitor, Global Trade Information Services, ICCO
2013/2014
2012/2013
2011/2012
2010/2011
2009/2010
2008/2009
2007/2008
2006/2007
2005/2006
2004/2005
2003/2004
2002/2003
2001/2002
$0
Price in Cocoa Bean Equivalent ($US/tonne, 2014)
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
cocoa beans
cocoa liquor
Source: Euromonitor, Global Trade Information Services, ICCO
chocolate confectionery products
Level of market concentration in the cocoa sector
Retailers
Chocolate Manufacturing
Cocoa Grindings
Cocoa Trading
Cocoa Farming
Brand-name Chocolate Manufacturers
who control in‐house product definition and innovation as well as the related marketing function
Merchant Contractors
who manufacture semi‐finished and finished cocoa products in accordance with the specifications of the brand‐name firms
Market Concentration Economic Inefficiencies
A consolidated industry might price its products & services to a level lower than otherwise would been the case
A vertical integrated enterprises are expected to lower their overall mark‐up because of its double marginalization The structure of the global cocoa chain raises concerns
Retailers
Chocolate Manufacturing
High Barrier to Entries
Cocoa Grindings
High Barrier to Entries
Cocoa Trading
Potential for the exercise of oligopolistic or monopolistic power in cocoa purchasing
Cocoa Farming
Do cocoa stakeholders share the same bargaining power?
If cocoa stakeholders share the same bargaining power, then we will observe a symmetric transmission of price changes in the supply chain
Testing the hypothesis of symmetric price transmission 1. Model the price change in the upstream process ∆
as a function of the positive and negative price variations occurring in the downstream process, and ∆
, respectively
∆
∆
∆
2. If the estimated coefficients are statically equal, of a symmetric transmission. ∆
, then we are in presence UK Cocoa Supply Chain
UK Cocoa Supply Chain
CPI Sugar, Jam, Honey, Syrup, Chocolate & Confectionery,
monthly, UK Office National Statistics
PPI 1082220000: Chocolate & Food Preparations containing
Cocoa (except sweetened), monthly, UK Office National Statistics
ICCO nominal price (£/tonne), monthly, ICCO,
deflated by CPI All Item Index, UK Office National Statistics
2015 JUN
2015 MAR
2014 DEC
2014 SEP
2014 JUN
2014 MAR
2013 DEC
^
2013 SEP
2013 JUN
120
2013 MAR
90
2012 DEC
2012 SEP
2012 JUN
2012 MAR
2011 DEC
2011 SEP
2011 JUN
2011 MAR
2010 DEC
2010 SEP
2010 JUN
2010 MAR
2009 DEC
2009 SEP
2009 JUN
2009 MAR
2008 DEC
PPI Index 2005=100
CPI Confectionery 150
£5,500
140
£5,000
130
£4,500
PPI Chocolate & Chocolate confectionery 110
£3,500
100
£3,000
ICCO Price (£/tonne, const)
£2,500
80
£2,000
70
£1,500
60
£1,000
Real Cocoa Price
160
£6,000
£4,000
∆
Retailers
∆
0.330 ∆
0.173 ∗
0.051
0.147
∆
0.006
∆
∆
Chocolate Manufacturing
∆
∆
0.046
0.069
Cocoa Farming
∆
∆
0.062
US Cocoa Supply Chain
US Cocoa Supply Chain
PPI NDU3113303113301: Confectionery manufacturing from
purchased chocolate, monthly, US Bureau Labour Statistics
PPI WPU02550301: Chocolate and chocolate-type confectionery,
monthly, US Bureau Labour Statistics
ICCO nominal price (US/tonne), monthly, ICCO
CPI All Item Index, US Federal Reserve Bank of St Louis
Jul‐15
Jan‐15
Jul‐14
Jan‐14
Jul‐13
Jan‐13
Jul‐12
Jan‐12
^
Jul‐11
Jan‐11
180
Jul‐10
Jan‐10
Jul‐09
Jan‐09
Jul‐08
Jan‐08
PPI Chocolate confectionery from coverture
$5,000
ICCO Price ($US/tonne, const)
$4,000
160
$3,000
140
120
$2,000
100
$1,000
Real cocoa price
^
Jul‐07
Jan‐07
Jul‐06
240
Jan‐06
Jul‐05
Jan‐05
Jul‐04
Jan‐04
Jul‐03
Jan‐03
200
Jul‐02
Jan‐02
Jul‐01
Jan‐01
Producer price Index
260
$8,000
PPI Chocolate & Chocolate confectionery $7,000
220
$6,000
Chocolate confectionery from coverture
Chocolate Manufacturing
∆
∆
0.060
∆
0.022 ∗∗∗
Cocoa Farming
∆
0.004
0.223
∆
Chocolate and Chocolate‐Type Confectionery
Chocolate Manufacturing
∆
∆
0.059
0.026 ∗∗
Cocoa Farming
∆
∆
0.0005
0.025
∆
Concluding Remarks
1. There is an asymmetric distribution of bargaining power in the global cocoa chain 2. There is no definite legal framework to multinational mergers (i.e. ongoing discussion at WTO)
3. Provide countervailing power to primary producers Retailers’ Market Shares in UK 2015
Tesco, 28.5
Others, 27.7
Morrisons, 10.9
Sainsbury, 16.4
Retailers’ Market Shares in US 2008
Asda, 16.5
Wal‐Mart Stores Inc, 22.80
Source: Retaileconomics
Kroger Co, 7.10
Others, 63.30
Source: Euromonitor International
Safeway Inc, 3.80
Royal Ahold NV, 3.00
Estimated World Retail Shares of Chocolate Manufacturers in 2015
Mars Inc, 14.50
Mondelez International Inc, 14.30
All others, 50.60
Nestlé SA, 12.40
Ferrero Group, 8.20
Source: Euromonitor International, 2015
Estimated Grindings Capacity in West and Central Africa
Barry Callebaut, 24.9
Others, 40.8
Cargill, 15.9
OLAM, 7.4
Source: CCC, COCOBOD, CICC, CAN
ADM, 11.0
Cocoa Trade in West and Central Africa in 2012
Cargill, 13.9
ADM, 10.7
Others, 59.7
Olam, 8.4
Barry Callebaut, 7.3
Source: ECOBANK, 2012
Cocoa trading and Processing in West And Central Africa
29.9
Others
4.2
OLAM
5.4
ADM
7.0
Cargill
Barry
Callebaut
3.7
0.0
50.3
20.4
7.9
3.7
10.9
5.5
8.0
12.5
10.0
15.0
15.9
20.0
Cocoa Trade
Source: CCC, COCOBOD, CICC, CAN, ECOBANK
30.0
Grindings
40.0
50.0
60.0