WEBVTT - This Is How The Chocolate Market Actually Works 0:00:08.840 --> 0:00:12.639 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:12.840 --> 0:00:16.960 I'm Joe Wisenthal and I'm Tracy allows. You know, Tracy, 0:00:17.320 --> 0:00:21.919 there's some commodities out there that I feel like what 0:00:22.200 --> 0:00:25.960 people talk about them, they don't always take them very 0:00:25.960 --> 0:00:33.720 seriously as commodities, as serious markets. Um, I'm trying to think, now, 0:00:34.280 --> 0:00:38.760 live hogs maybe, well that's probably one. Another one I 0:00:38.760 --> 0:00:42.280 would say is the marijuana industry still, you know, But 0:00:42.320 --> 0:00:45.200 now we're gonna be talking about another commodity about which 0:00:45.280 --> 0:00:48.120 I feel like people often like to make jokes or 0:00:48.960 --> 0:00:55.000 maybe don't realize is very serious business, and that is coco. Coco. 0:00:56.160 --> 0:01:00.560 I love chocolate. Yeah, exactly. See, you've proved my point, 0:01:00.560 --> 0:01:04.440 which is that as soon as the conversation turns to 0:01:04.600 --> 0:01:08.560 cocoa or chocolate, usually people start getting into some sort 0:01:08.560 --> 0:01:11.520 of aesthetic discussion about how worse they love it, and 0:01:11.840 --> 0:01:13.960 you know which you never hear of, say, we're talking 0:01:13.959 --> 0:01:19.559 about copper or palladium. That's right. People don't start talking 0:01:19.600 --> 0:01:22.960 about their favorite like shades of metals when they're talking 0:01:23.000 --> 0:01:25.399 about precious metals. That's very true. Whereas I feel a 0:01:25.480 --> 0:01:27.679 very very strong urge right now to talk about my 0:01:27.720 --> 0:01:30.880 favorite brands of chocolate, but I will resist. Well, it's 0:01:30.920 --> 0:01:34.679 not that it's uh irrelevant perhaps to our conversation, but 0:01:35.240 --> 0:01:38.600 it is good to remind people that there is a serious, 0:01:38.640 --> 0:01:43.440 traded commodity market that underlies the chocolate that they love 0:01:43.800 --> 0:01:47.800 and has some very interesting market dynamics in terms of 0:01:48.040 --> 0:01:51.640 who supplies it, who grows it, who buys it. That 0:01:52.160 --> 0:01:55.920 makes it a perhaps more interesting story than just something 0:01:56.000 --> 0:01:59.240 very sweet and tasty to eat. Well, I'm intrigued. I 0:01:59.280 --> 0:02:01.920 think we should talk about the serious side of chocolate, 0:02:02.000 --> 0:02:04.440 and I will try very very hard not to make 0:02:04.480 --> 0:02:08.240 any jokes. Okay, Well, today we are going to be 0:02:08.400 --> 0:02:11.560 talking to Christy Leslie. She is a professor at the 0:02:11.680 --> 0:02:16.680 University of Washington bothel and she is also the author 0:02:16.720 --> 0:02:20.160 of a book all about the coco market called Coco. 0:02:20.320 --> 0:02:24.600 I've spoken to her on TV on my TV show 0:02:24.840 --> 0:02:27.640 What You Missed that I co host about the incredible 0:02:27.760 --> 0:02:31.239 rally that we've seen this year in the price of coco, 0:02:31.400 --> 0:02:34.040 and I was so fascinated by the dynamics of the 0:02:34.080 --> 0:02:37.680 coco market that I wanted to learn more and really 0:02:37.760 --> 0:02:48.120 dive into how this commodity market really works. Christie, thank 0:02:48.160 --> 0:02:51.080 you very much. For joining us. Yeah, no, thanks for 0:02:51.120 --> 0:02:54.720 having me. It's great to talk again. And um, I 0:02:54.800 --> 0:02:59.680 really appreciate very much your comments about taking coco seriously. 0:03:00.200 --> 0:03:03.840 When I did my PhD by studying cocoa and chocolate, 0:03:04.639 --> 0:03:07.160 it was it was actually pretty difficult to be taken 0:03:07.200 --> 0:03:09.880 seriously as a scholar, at least in the beginning, because 0:03:09.919 --> 0:03:13.400 people immediately wanted, just as you say, to start talking 0:03:13.400 --> 0:03:17.280 about their their favorite chocolate. No imagined like if you 0:03:17.360 --> 0:03:22.720 had written, say, a book about how the soybean market 0:03:23.000 --> 0:03:26.520 or the corn market worked, no one would really question 0:03:26.680 --> 0:03:30.519 that it was serious scholarship and serious business. But of course, 0:03:30.919 --> 0:03:34.400 I guess if you write about chocolate, immediately people think 0:03:34.480 --> 0:03:37.080 maybe it's a bit more of a frivolity or something 0:03:37.120 --> 0:03:41.120 that is, uh yeah, not that serious. I really think so. 0:03:41.600 --> 0:03:44.880 And I think it's because people don't usually have the 0:03:44.960 --> 0:03:49.400 same kind of emotional relationship with soybeans or corn as 0:03:49.480 --> 0:03:54.360 they do with chocolate, and so it's much easier for people, 0:03:54.400 --> 0:03:57.200 I think, to make the transition to thinking about those 0:03:57.360 --> 0:04:02.040 those things as serious traded goods. You know, But we 0:04:02.160 --> 0:04:06.640 have such a strong we're we're passionate, we're collectively passionate 0:04:06.680 --> 0:04:09.640 about chocolate. So you know, the first thing people think 0:04:09.680 --> 0:04:13.200 of is their own personal experience rather than maybe the 0:04:13.680 --> 0:04:19.240 larger economic context. Christie, I just realized something which I 0:04:19.240 --> 0:04:21.680 should have said in the beginning, Where where are we 0:04:21.760 --> 0:04:24.919 talking to? Where are you based right now? So I 0:04:24.960 --> 0:04:29.080 am in Across which is the capital of Ghana and 0:04:29.320 --> 0:04:33.799 in West Africa, And Ghana is the second largest cocoa 0:04:33.800 --> 0:04:37.479 producing country in the world. The first largest is Ivory Coast, 0:04:37.520 --> 0:04:40.960 which is right next door. And there's there's no cocoa 0:04:41.040 --> 0:04:43.600 in Acrow itself. It's a very urban environment, so we 0:04:43.640 --> 0:04:46.159 don't see that many cocoa trees around um, but not 0:04:46.279 --> 0:04:48.480 too far outside there there's quite a bit of cocoa. 0:04:49.080 --> 0:04:52.880 So I mentioned in the beginning that there were some 0:04:53.040 --> 0:04:58.039 interesting aspects with where coco has grown. You mentioned Ghana, 0:04:58.200 --> 0:05:02.520 you mentioned Ivory Coast. What does the global distribution overall 0:05:02.560 --> 0:05:07.600 look like, how significant are these particular markets, what are 0:05:07.640 --> 0:05:10.120 some of the other big ones, and just sort of 0:05:10.200 --> 0:05:14.680 let breakdown where our coco comes from overall. Yeah, that 0:05:14.920 --> 0:05:19.120 it's that's so important to to understanding this market. So 0:05:19.520 --> 0:05:24.160 just the coco is indigenous to the Amazon River basin, 0:05:24.360 --> 0:05:27.919 so it was born in Central and South America. And 0:05:27.920 --> 0:05:30.680 it was first cultivated in Central and South America, and 0:05:30.720 --> 0:05:34.640 that's that's important to know because today countries in that 0:05:34.760 --> 0:05:39.360 region don't actually produce a lot of coco um Today 0:05:39.720 --> 0:05:43.880 West Africa is really the predominant producer region, but by 0:05:43.880 --> 0:05:47.200 by a lot. So about three quarters of all the 0:05:47.200 --> 0:05:49.760 cocoa in the world now comes from Africa, and most 0:05:49.800 --> 0:05:53.080 of that is in West Africa and so Ghana every 0:05:53.160 --> 0:05:56.200 coast is number one, Ghana is number two, and then 0:05:56.720 --> 0:06:00.240 Nigeria and Cameroon also in the region produced quite a 0:06:00.279 --> 0:06:02.640 bit of cocoa as well. So really between these four 0:06:02.680 --> 0:06:06.679 countries we're looking at a vast amount of cocoa. The 0:06:06.800 --> 0:06:12.279 exception is Indonesia, which is the third largest producer in 0:06:12.320 --> 0:06:15.640 the world, about nine or ten percent of all cocoa. 0:06:16.040 --> 0:06:19.640 And what you see in Indonesia though, is a bit 0:06:19.680 --> 0:06:23.839 different kind of coco processing, and so the beans that 0:06:23.880 --> 0:06:29.159 come from Indonesia are typically not fermented, and that means 0:06:29.200 --> 0:06:31.760 they can be used only in a in a different 0:06:31.800 --> 0:06:34.839 way in the chocolate making process. So so when you're 0:06:34.839 --> 0:06:38.839 looking at this foundation of the chocolate industry, we really 0:06:38.839 --> 0:06:42.039 have to look at Africa. So how did that happen? 0:06:42.120 --> 0:06:45.400 How did West Africa become the place for the majority 0:06:45.440 --> 0:06:49.920 of the world's coco production. It's an interesting story. You know. 0:06:50.040 --> 0:06:53.559 Partly it is to do with colonialism, and so when 0:06:54.320 --> 0:06:59.000 Portugal and Spain decolonized the America's, when they when they 0:06:59.160 --> 0:07:03.200 relinquish their on ease there, it sort of coincided with 0:07:03.600 --> 0:07:08.400 a massive drop in production in the America's and that 0:07:08.480 --> 0:07:10.440 was for a number of reasons. So you had two 0:07:10.440 --> 0:07:12.800 things happening at the you know, around the same time 0:07:13.000 --> 0:07:17.240 was was Portuguese and Spanish colonization and then subsequent d 0:07:17.360 --> 0:07:20.800 colonization loss of production in the Americas. And at the 0:07:20.840 --> 0:07:23.080 same around the same time were a little bit later 0:07:23.480 --> 0:07:28.200 Britain and France colonizing Africa. The thing that was happening 0:07:28.480 --> 0:07:31.520 not maybe in the background would not be the right 0:07:31.560 --> 0:07:33.400 way to describe it, but the thing that was happening 0:07:33.400 --> 0:07:36.960 in Europe at the time was that the chocolate industry 0:07:37.080 --> 0:07:41.120 was born and it was growing. So you can imagine 0:07:41.200 --> 0:07:45.679 the new chocolate companies, Cadburry among them, you know, Hershey 0:07:45.760 --> 0:07:49.720 a little bit later, had just discovered that they could 0:07:49.760 --> 0:07:54.280 sell chocolate, you know, and that it was extremely popular 0:07:54.320 --> 0:07:57.360 with people. Um people started to develop a taste for 0:07:57.400 --> 0:07:59.480 it in Europe. I mean, we're looking at a situation 0:07:59.520 --> 0:08:02.920 where they US cann't get the beans from the Americas 0:08:03.040 --> 0:08:07.040 to the same volumes as as they produced previously, and 0:08:07.440 --> 0:08:10.680 turned to Africa where there was a lot of enthusiasm 0:08:10.800 --> 0:08:14.400 for this new crop. Uh, coco was making people more 0:08:14.480 --> 0:08:17.760 money here than than other export crops they were growing 0:08:17.760 --> 0:08:21.280 at the time. The climate was really suitable for cocoa, 0:08:21.760 --> 0:08:24.000 and you know, between the two of them, France and 0:08:24.000 --> 0:08:27.200 Britain could exert a lot of colonial power. And so 0:08:27.320 --> 0:08:29.960 you see this massive global shift. I mean, I just 0:08:30.000 --> 0:08:32.520 described that to you in in a minute or two, 0:08:32.559 --> 0:08:35.840 but really it happened over over decades, if not a 0:08:35.920 --> 0:08:38.840 century or more. So it wasn't an overnight shift. But 0:08:38.920 --> 0:08:42.880 that's the basics of it. So, Christie, the first time 0:08:42.920 --> 0:08:45.800 we talked, and we were talking about the incredible rally 0:08:46.080 --> 0:08:51.120 that we had seen in coco prices this year, how 0:08:51.200 --> 0:08:56.440 much of the pricing of coco is essentially just a 0:08:56.520 --> 0:09:00.679 function of the weather conditions at any given time in 0:09:00.720 --> 0:09:04.679 West Africa. Yeah, it would It would be impossible for 0:09:04.720 --> 0:09:07.240 me to quantify it, so I couldn't put in an 0:09:07.240 --> 0:09:11.400 exact figure on how much is the weather I tend 0:09:11.800 --> 0:09:16.760 to put more faith in the weather as the driver 0:09:17.000 --> 0:09:22.360 than maybe some other analysts. I just don't see other 0:09:22.720 --> 0:09:27.480 factors contributing as much, unless unless it's politics. Really, so 0:09:27.880 --> 0:09:32.240 the other another big driver of price is the political 0:09:32.320 --> 0:09:35.160 situation in this part of the world. So, for example, 0:09:35.600 --> 0:09:39.480 during periods of conflict and Ivory Coast, even though Coco 0:09:39.640 --> 0:09:43.520 still moved out of the country, sometimes in very large quantities, 0:09:44.000 --> 0:09:49.080 the when there was conflict in the possibility that Coco 0:09:49.240 --> 0:09:52.200 might not be getting out of Ivory Coast, then we 0:09:52.280 --> 0:09:55.040 saw that drive the price up as well. So you know, 0:09:55.200 --> 0:09:59.719 really it's any anything that that shortened supply, anything that 0:10:00.280 --> 0:10:06.360 supply potentially less, and really that's weather and and and 0:10:06.520 --> 0:10:10.080 politics for the most part. So if I had a 0:10:10.160 --> 0:10:13.600 really good weather forecasting machine, would I be able to 0:10:13.640 --> 0:10:18.240 almost perfectly predict the cocoa price. No, because we're at 0:10:18.240 --> 0:10:20.640 the end of the day, we're dealing with people and 0:10:20.720 --> 0:10:24.760 so people, you know, the price doesn't happen kind of magically. 0:10:24.840 --> 0:10:28.719 It happens, but you know, because people, traders and companies 0:10:28.760 --> 0:10:32.520 are making decisions about whether to buy your sell coco right, 0:10:32.760 --> 0:10:35.160 and so you know, they take into account much more 0:10:35.200 --> 0:10:38.760 than the weather and um one of the other things 0:10:38.800 --> 0:10:41.960 that they take into account obviously is demand, and so 0:10:42.320 --> 0:10:46.640 we can we would also need to bring that input 0:10:46.720 --> 0:10:49.440 in as well, and demand can be of course another 0:10:49.600 --> 0:10:52.240 big price driver. The thing is about chocolate is that 0:10:52.320 --> 0:10:56.000 demand doesn't tend to diminish that much. It's it's kind 0:10:56.000 --> 0:10:59.959 of steadily grows over time, and especially when when new 0:11:00.040 --> 0:11:02.880 markets and Asia started to develop, and there we really 0:11:02.880 --> 0:11:06.880 mean China and India, we had an even kind of 0:11:06.920 --> 0:11:11.120 bigger boost in demand. And so you know, demand influences price. 0:11:11.360 --> 0:11:14.120 If if the big companies say they're not processing as 0:11:14.160 --> 0:11:17.880 much coco one year or to the next, that can 0:11:17.920 --> 0:11:21.440 also make a difference on price. But overall, you know, 0:11:21.520 --> 0:11:24.880 it's a pretty people still like to eat chocolate and 0:11:24.920 --> 0:11:28.360 that's not going away. Christie. Would we think of the 0:11:28.400 --> 0:11:31.160 price of a commodity? I think sometimes we think that 0:11:31.160 --> 0:11:34.160 that price arrives kind of by magic, or at least 0:11:34.240 --> 0:11:37.280 I do. I sit at my Bloomberg terminal, I start 0:11:37.440 --> 0:11:40.880 typing in coco. It brings up a cocoa future and 0:11:40.920 --> 0:11:43.000 I can look at it on a chart. But of 0:11:43.000 --> 0:11:46.320 course that price has to be derived from real people 0:11:46.559 --> 0:11:50.920 making real transactions on the ground, buyers and sellers walk 0:11:51.000 --> 0:11:54.280 us through the market structure a little bit. So a 0:11:54.320 --> 0:11:58.840 farmer in Ghana grows coco, then what what is the 0:11:59.160 --> 0:12:02.600 sort of supply chain at which the clearing price of 0:12:02.640 --> 0:12:05.960 cocoa is set? Yeah, you know, and interestingly, you know, 0:12:06.000 --> 0:12:09.480 the prices set on the futurest market, which is not 0:12:09.640 --> 0:12:12.360 people operating on the ground. And so you know, the 0:12:12.720 --> 0:12:16.640 people trading futures are not coco farmers. So there's two 0:12:16.679 --> 0:12:20.400 future markets for cocoa in New York and London, and 0:12:20.600 --> 0:12:23.360 the people making those decisions are definitely not the on 0:12:23.440 --> 0:12:26.760 the ground traders, their futures traders, and so they're sitting 0:12:26.760 --> 0:12:30.440 at desks in New York and London and making these decisions. Um, 0:12:30.559 --> 0:12:32.360 so the price is set in a bit more of 0:12:32.360 --> 0:12:37.679 a top down fashion. However, those traders rely on reports 0:12:37.920 --> 0:12:41.040 from people who are on the ground. And so those reports, 0:12:41.040 --> 0:12:43.480 of course are you know, about everything we've been talking about, 0:12:43.520 --> 0:12:48.480 the weather, the productivity of trees, the farmer enthusiasm, the politics. Right, 0:12:48.760 --> 0:12:51.800 so the information from the ground feeds into those those 0:12:51.800 --> 0:12:54.280 traders sitting at their desk in London and New York. 0:12:54.400 --> 0:12:56.880 But then the price is really set at that level. 0:12:57.640 --> 0:13:00.720 I'll answer your question and talking through the the steps 0:13:00.760 --> 0:13:03.520 and just with the caveat that they're they're different in 0:13:03.559 --> 0:13:06.480 Ghana to where they in other countries. And the reason 0:13:06.640 --> 0:13:11.440 is because Ghana has a very highly regulated market where 0:13:11.440 --> 0:13:16.160 the government controls many aspects of the trade of cocoa. 0:13:16.320 --> 0:13:18.440 And so the first thing that a farmer would do 0:13:19.280 --> 0:13:23.480 is they sell to a buyer. In Ghana, there are 0:13:23.679 --> 0:13:27.439 licensed buying companies and so there's you know, maybe two 0:13:27.480 --> 0:13:30.240 dozen of them that operate in the country, maybe ten 0:13:30.320 --> 0:13:33.199 or twelve of them are significant in terms of market share, 0:13:33.720 --> 0:13:39.160 and those buyers tend to farmers organized in their villages 0:13:39.520 --> 0:13:43.120 and decide more or less together which of those buyers 0:13:43.160 --> 0:13:45.920 they're going to sell to. In the case of Ghana, 0:13:46.360 --> 0:13:52.240 those buying companies then sell their cocoa to Ghana Cocoa Board, 0:13:52.520 --> 0:13:57.280 which is a government body, and then Coco Board exports that. 0:13:57.760 --> 0:13:59.800 So Ghana has a little bit of a different structure 0:13:59.880 --> 0:14:01.640 that some of the other places which are not as 0:14:01.720 --> 0:14:07.640 highly regulated. So is the majority of coco production in Africa? Then? 0:14:08.040 --> 0:14:11.160 Is that still mostly done on an independent basis? Do 0:14:11.240 --> 0:14:15.839 we not have big corporate plantations? And if not, why 0:14:15.960 --> 0:14:18.640 hasn't that happened? Because you would assume that you know, 0:14:18.720 --> 0:14:21.560 companies that are demanding large amounts of cocoa would try 0:14:21.560 --> 0:14:25.440 to secure their supply. Yeah, that's a great question. There's 0:14:25.640 --> 0:14:29.960 very little plantation agriculture in cocoa, and so you tend 0:14:30.040 --> 0:14:32.960 not to see the big kind of corporate plantations that 0:14:33.040 --> 0:14:35.880 you that you're talking about. They they exist, they're they're 0:14:35.920 --> 0:14:39.160 around um and they might not even be owned by 0:14:39.160 --> 0:14:41.800 a big chocolate company. They might just be owned by 0:14:41.840 --> 0:14:47.920 a wealthy individual or a private company. But the estimates vary. 0:14:48.080 --> 0:14:50.680 Of all cocoa is grown by smallholders, and so we're 0:14:50.680 --> 0:14:54.480 talking about individual farmers who may farm their on land 0:14:54.640 --> 0:14:56.960 or rent it out to someone else to farm, but 0:14:57.200 --> 0:15:00.160 very very very small amounts. And so, you know, to 0:15:00.160 --> 0:15:03.120 to get back to to Joe's question from earlier, there's 0:15:03.240 --> 0:15:07.120 there's five million estimated coca farmers in the world. Each 0:15:07.200 --> 0:15:10.600 one of them is selling to a buyer, and of 0:15:10.640 --> 0:15:13.640 course there are fewer numbers of buyers, but still a 0:15:13.680 --> 0:15:17.000 lot um. And then from there on up we start 0:15:17.040 --> 0:15:20.520 to see the trading structure narrow really really quickly. So 0:15:20.560 --> 0:15:24.680 we're talking about millions of farmers at the base, probably 0:15:24.760 --> 0:15:27.720 millions of traders also who they're selling to and then 0:15:27.720 --> 0:15:29.760 when we start to see the number of actors involved 0:15:29.840 --> 0:15:33.200 kind of diminished pretty rapidly. I want to ask another 0:15:33.320 --> 0:15:36.480 question about the supply side of that is the degree 0:15:36.480 --> 0:15:38.800 of labor intensiveness of the crop. I know there's some 0:15:38.880 --> 0:15:42.080 crops like grains, where you don't need a lot of labor, 0:15:42.280 --> 0:15:45.280 can be done with a lot of machinery. How how 0:15:45.360 --> 0:15:50.440 labor intensive is the actual planting and collecting of cocoa. 0:15:50.760 --> 0:15:54.920 It's really it's it's really labor intensive. And and it's 0:15:55.000 --> 0:15:58.280 such a good question because I think, you know, if 0:15:58.320 --> 0:16:00.680 you think about the crops that we you know, grow 0:16:00.920 --> 0:16:05.800 in America, wheat and soy and even corn, they can 0:16:05.840 --> 0:16:09.520 be macoganized, mechanized so much more easily, you know, And 0:16:09.560 --> 0:16:12.800 so wheat is a really nice comparison because you know, 0:16:12.880 --> 0:16:16.080 wheat's been basically engineered to all grow at the same 0:16:16.120 --> 0:16:19.400 height and all ripen at the same time, so that 0:16:19.520 --> 0:16:23.360 a harvesting machine can just go through that field and 0:16:23.720 --> 0:16:27.880 cut off all of the ripe, you know, wheat grains, 0:16:28.600 --> 0:16:31.600 you know, at the same time. The opposite is true 0:16:31.640 --> 0:16:35.560 for cocos. So you know, the trees do not the pods. 0:16:35.720 --> 0:16:38.240 The cocoa pods do not all ripen at the same 0:16:38.320 --> 0:16:43.280 time the tree. They ripen pretty much year round. There's 0:16:43.360 --> 0:16:46.760 no real way to mechanize the harvest. It's got to 0:16:46.800 --> 0:16:49.760 be done by hand. So each of those cocoa pods 0:16:49.960 --> 0:16:52.840 is pretty big. Some of them can get almost as 0:16:52.840 --> 0:16:55.280 big as like an American football, and they're around the 0:16:55.280 --> 0:16:58.840 same they're about the same shape, and so they grow 0:16:58.960 --> 0:17:02.160 on the trunk, they grow on some of the larger branches, 0:17:02.400 --> 0:17:05.560 and and you can imagine you've got these big pods 0:17:05.600 --> 0:17:09.000 sticking out from all around the tree, including on the trunk. 0:17:09.560 --> 0:17:12.040 I mean, how could you mechanize that? And so so 0:17:12.280 --> 0:17:15.399 really it's the labor of harvest. It's the labor of 0:17:15.480 --> 0:17:18.679 breaking open those pods and scooping the seeds out, you know, 0:17:18.760 --> 0:17:20.920 and of course all of the farm labor that goes 0:17:20.960 --> 0:17:25.000 into it. So imagine you're in a tropical rainforest. That's 0:17:25.320 --> 0:17:29.880 coco's home, that's where it's it's indigenous to rainforest. That's 0:17:29.920 --> 0:17:33.760 not easy environmental work, and everything wants to grow there, everything, 0:17:33.920 --> 0:17:36.960 and so you know, a lot of cocoa farm labor 0:17:37.320 --> 0:17:40.960 is just keeping the farm clean, you know, doing the weeding, 0:17:41.160 --> 0:17:45.680 which is not like pulling out a dandelion flower. We're 0:17:45.720 --> 0:17:49.600 talking about some pretty hafty weeds that that need constant 0:17:49.640 --> 0:17:54.600 removal and and maintenance. So I think pretty labor intensive 0:17:54.680 --> 0:17:58.240 is the short answer to your question. So before we 0:17:58.280 --> 0:18:00.800 move on to the demand side, have one more question 0:18:00.840 --> 0:18:05.600 on production related to your point about labor intensiveness. You 0:18:05.680 --> 0:18:08.719 mentioned that the price of cocoa, it's set on the 0:18:08.720 --> 0:18:12.520 futures market way out in the west, but the people 0:18:12.560 --> 0:18:16.520 setting that price rely on on the ground reports about production. 0:18:17.000 --> 0:18:19.919 I'm just wondering how much of the futures prices that 0:18:19.960 --> 0:18:24.560 are set actually trickled down to cash payments for the farmers. 0:18:24.640 --> 0:18:27.320 Is it possible that there's a big rise in the 0:18:27.320 --> 0:18:31.800 futures price for coco, but that doesn't necessarily entirely filter 0:18:31.960 --> 0:18:35.960 down to the farmers. There is a relationship, and so 0:18:36.440 --> 0:18:38.680 you know, if we take on out of the equation, 0:18:38.760 --> 0:18:41.760 because here in Ghana, the government sets the producer price 0:18:41.840 --> 0:18:44.280 every year and so they say how much the farmers 0:18:44.320 --> 0:18:48.280 are going to get. And while that price does generally 0:18:48.400 --> 0:18:52.400 follow the futures price because they set the price per season, 0:18:52.880 --> 0:18:57.040 which is October through March, ish is the is the 0:18:57.080 --> 0:19:00.800 productive pie. You know, the futures price might change a 0:19:00.840 --> 0:19:03.720 lot during the season, but that price is fixed for 0:19:03.760 --> 0:19:08.520 the duration. There's a similar situation Ivy Coast where they 0:19:08.560 --> 0:19:11.800 set a minimum price. It's not as enforced. It's not 0:19:11.840 --> 0:19:14.600 as enforced as well as it isn't gonna um. But 0:19:15.160 --> 0:19:19.359 in all of these cases you have the futurist price 0:19:19.600 --> 0:19:24.200 setting the that's the starting point, right, and over time, 0:19:24.320 --> 0:19:27.359 as the futurist price moves up and down, we see 0:19:27.800 --> 0:19:30.919 what we call farm gate prices, which is the price 0:19:31.000 --> 0:19:33.800 that the farmer actually receives, you know, when she or 0:19:33.880 --> 0:19:37.600 she settles their coca. We see farm gate prices also 0:19:37.760 --> 0:19:40.640 move with the futurist price, but as you can imagine, 0:19:40.800 --> 0:19:45.280 it doesn't happen instantaneously. And it's also because we're dealing 0:19:45.280 --> 0:19:48.439 with five million cocoa farmers in the world and no 0:19:48.880 --> 0:19:52.920 real mandate to collect all the price information from them. 0:19:52.960 --> 0:19:56.040 It's a little bit challenging to say exactly how much 0:19:56.400 --> 0:20:00.480 farm gate price changes and when it changes when the 0:20:00.520 --> 0:20:04.800 futures price changes, but generally, over time we do see 0:20:04.840 --> 0:20:08.439 the two following each other. All right, let's talk a 0:20:08.480 --> 0:20:11.600 little bit about who is buying the cocoa. So we've 0:20:11.760 --> 0:20:15.760 established that so much of the world's coco comes from 0:20:15.800 --> 0:20:21.640 a few specific locations, highly concentrated. The buying is also, 0:20:21.800 --> 0:20:26.840 I imagine pretty concentrated. I what percent of the world's 0:20:26.880 --> 0:20:31.120 coco is bought by a few big sweets companies like 0:20:31.280 --> 0:20:36.160 nest Lee and uh Cadbury. I imagine that that we're 0:20:36.160 --> 0:20:39.840 all familiar with, oh, most of it. So, you know, 0:20:39.880 --> 0:20:41.800 if we look at the structure of the industry, I said, 0:20:41.840 --> 0:20:44.200 it narrows on the way up, and so you've got 0:20:44.200 --> 0:20:46.720 millions of cocoa farmers. But then at the other end, 0:20:46.960 --> 0:20:50.199 you just got a very few companies who predominate. And 0:20:50.240 --> 0:20:53.680 so of course there are lots of chocolate companies, there 0:20:53.720 --> 0:20:56.640 are lots of coco processors. But when we look at 0:20:56.680 --> 0:20:59.920 the big ones, the ones with the really the signific 0:21:00.160 --> 0:21:04.400 get market share in anyway, what we call them mature 0:21:04.520 --> 0:21:08.720 chocolate markets, which are the kind of oldest industrial chocolate markets. 0:21:08.760 --> 0:21:11.640 In ub in North America, we're looking at five chocolate 0:21:11.640 --> 0:21:16.000 companies and three processors, you know, and so between these 0:21:16.040 --> 0:21:19.840 companies they are really doing most of the buying. That's 0:21:19.840 --> 0:21:22.240 not just they're not the only ones, obviously, but they're 0:21:22.240 --> 0:21:27.600 the biggest ones. So those are the fundamental sources of demand. 0:21:27.720 --> 0:21:30.679 Those big chocolate companies buying up coco. But are there 0:21:30.720 --> 0:21:35.840 speculative sources of demand or speculative entities that are also 0:21:35.920 --> 0:21:39.120 having an impact on price, Because when it comes to commodities, 0:21:39.160 --> 0:21:42.560 one of the conversations that we're always having is, you know, 0:21:42.720 --> 0:21:45.960 the paper versus physical price and the degree to which 0:21:45.960 --> 0:21:51.040 speculative traders are actually impacting prices away from actual on 0:21:51.080 --> 0:21:55.159 the ground demand. The futures market for coco is definitely 0:21:55.280 --> 0:22:00.480 populated by by speculators as well as hedger you know, 0:22:00.600 --> 0:22:03.320 when we say hedgers on that market, we're talking about 0:22:03.320 --> 0:22:07.080 the big chocolate companies and the big processors who are 0:22:07.080 --> 0:22:10.720 hedging their bets against a future price rise by buying, 0:22:10.960 --> 0:22:15.120 you know, on the futures market. But absolutely speculators are 0:22:15.160 --> 0:22:19.359 active in Coco futures. And the reason for that is because, 0:22:19.480 --> 0:22:21.600 I mean, as we've been talking about this whole time, 0:22:21.720 --> 0:22:25.520 coco is a commodity. It's price is volatile, and any 0:22:25.560 --> 0:22:29.440 time you have a volatile price for for a good, 0:22:29.880 --> 0:22:32.840 you've got the opportunity to place a bet on it 0:22:33.000 --> 0:22:37.520 and potentially have a pretty big payoff. And so for sure, 0:22:37.640 --> 0:22:41.000 I mean, Coco is very popular amongst speculators and in 0:22:41.040 --> 0:22:44.520 those cases, they rely on the same information coming from 0:22:44.560 --> 0:22:46.920 the ground. You know, they also need to be informed 0:22:46.960 --> 0:22:50.920 about about disease outbreaks amongst coco trees, which we haven't 0:22:50.920 --> 0:22:53.240 really talked about. They need to be informed about whether 0:22:53.359 --> 0:22:56.160 they need to be informed about politics. They're using all 0:22:56.160 --> 0:22:59.800 that same information, but not because they want to make chocolate, 0:22:59.840 --> 0:23:02.720 but because they want to make a well educated guess 0:23:02.960 --> 0:23:04.960 on what's going to happen to that price. And so 0:23:05.040 --> 0:23:09.399 for sure, for sure, you know, with various commodities, of course, 0:23:09.440 --> 0:23:12.520 there are certain data points that people look at to 0:23:12.680 --> 0:23:17.399 sort of establish the fundamentals of supply and demand. With 0:23:17.920 --> 0:23:22.600 corn and we we might look at acreage or or plantings, 0:23:22.640 --> 0:23:26.160 and with oil, people might look at the latest rig 0:23:26.200 --> 0:23:29.639 count data in the US. I know in the cocoa 0:23:29.760 --> 0:23:33.320 market because I see the headlines from time to time. Uh, 0:23:33.359 --> 0:23:37.680 there's something called the grindings data and what but I 0:23:37.680 --> 0:23:40.399 don't even know what that is. What is the grindings data? 0:23:40.440 --> 0:23:42.800 And what is that information telling us? What is grinding? 0:23:43.800 --> 0:23:47.960 So grindings happen after the farm, so on the farm, 0:23:48.119 --> 0:23:52.320 Cocoa is still an agricultural commodity. Once it gets into 0:23:52.359 --> 0:23:56.040 a factory, it starts to change into a manufactured good, 0:23:56.359 --> 0:23:59.800 a manufactured item, just like a toy or electronics or 0:23:59.800 --> 0:24:03.720 manufactured chocolate is manufactured. And the first step is grinding 0:24:03.760 --> 0:24:08.480 the beans. And so cocoa beans are really the seeds 0:24:08.600 --> 0:24:11.560 of the fruit, and so that's what we make chocolate 0:24:11.600 --> 0:24:14.440 out of, is the seed. They're pretty big seeds, they're 0:24:14.480 --> 0:24:18.439 like maybe a bit bigger than an almond usually, and 0:24:18.480 --> 0:24:23.199 those those seeds are fermented usually and then dry and 0:24:23.200 --> 0:24:27.119 then they're really really really hard, like a pebble, and 0:24:27.160 --> 0:24:29.720 you've got to grind them down, and so you that's 0:24:29.800 --> 0:24:33.360 the first step into making them usable. So you could 0:24:33.359 --> 0:24:36.320 eat one in it's just sort of whole state, but 0:24:36.480 --> 0:24:42.120 you wouldn't have a very maybe like emotional experience with that, 0:24:42.880 --> 0:24:44.679 and you could meet a lot of them. So the 0:24:44.720 --> 0:24:47.080 way we get cocoa to be usable is we grind 0:24:47.119 --> 0:24:49.720 it and it grind down. It's so so so fine 0:24:50.160 --> 0:24:52.800 to such a small particle size that it turns into 0:24:52.920 --> 0:24:56.200 almost a liquid. It's like a paste. And then from 0:24:56.240 --> 0:24:58.439 that paste is where we can start to make all 0:24:58.720 --> 0:25:03.040 chocolate and chocolate factionary kids. So grindings really refers to 0:25:03.160 --> 0:25:05.880