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October 29, 2014

Global economics: is Ebola fear driving up the cost of chocolate?


The Ebola outbreak is extracting a devastating human cost in Africa, where it started, and around the world.  From an economic perspective, it is also affecting certain markets, including the chocolate industry.

The world’s chocolate production begins in West Africa, where the majority of the world’s cocoa is grown. In recent months, international worries about the virus have caused the price of cocoa—and, therefore, chocolate—to spike.

The outbreak began in Guinea in March and has swept through West Africa, infecting over 10,000 people and killing over 5,000.

Cocoa prices increased as news of the virus became more dire, according to David Martin, founder of hedge fund Martin Fund Management.

From West Africa, cocoa producers sell their product to chocolate manufacturing companies, who sell chocolate to stores. When the price of cocoa is higher, stores adjust their prices accordingly.

Dante Confections, a truffle-maker in Massachusetts, saw the price of cocoa increase by 26 percent. In response to a higher production cost, the company increased the price of its chocolates by 10 percent for candy stores, which in turn increased prices for customers.

But the markets might be overreacting, chocolate entrepreneur Joe Salvatore said. Though the country of Ivory Coast, where most of West Africa’s cocoa is produced, shares borders with Guinea and Liberia, there has not been a confirmed case of Ebola.

Market changes have many causes, but one of the biggest is human reaction, Martin said. “Price movements aren’t about the values of the companies of the stock market…They’re about the study of human behavior and how humans react,” he said.

Warm up questions
  1. Where does chocolate come from? Specifically, what part of the world?
  2. Where is the current Ebola outbreak most concentrated? Which countries or what region in Africa?
  3. Is there any overlap between the two areas?
Critical thinking questions
  1. In your own words, explain how the Ebola outbreak may be affecting the price of chocolate.
  2. Think about something that costs a dollar. With a 26 percent increase, how much would that item cost? Would you be willing to pay for something with a 26 percent increase? What if the item was $1,000? Would you still buy the product with the price increase?
  3. The text states, “Though the country of Ivory Coast, where most of West Africa’s cocoa is produced, shares borders with Guinea and Liberia, there has not been a confirmed case of Ebola.” If there have been no identified cases, why do you think that there has been a spike in the price of chocolate? What do you predict will happen to the market if the outbreak gets worse? What impact might it have on an individual level?
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