Demand and Supply of Cocoa: A Critical Analysis Essay

Introduction

Demand and supply in any given market follow specific laws to settle any market shifts to equilibrium. The phenomenon of the order and quantity has a real-world application, but it requires in-depth analysis of the particular factors affecting market equilibrium. Consequently, the research paper seeks to answer the research question, "To what extent does political unrests and natural calamities affect supply and demand in any marketplace?" The paper supplies answers to the research question by focusing on the critique of an article by Kash and Wilkes (2) concerning the political stability's effect on cocoa and cocoa products inside and outside Ivory Coast between 2007 and 2017. Therefore, a problem of investigation in the research paper exploring the real-world problem of political instability in the demand and supply of Cocoa and its products, especially in the manufacture of chocolates in the US and Europe at large.

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The Global Demand and Supply of Cocoa

According to Kash and Wilkes (5), West Africa accounts for more than 74% of the global supply. The main question raised from an article is, "How can one region like West Africa have a speculative influence on the demand and supply trends of cocoa and cocoa products to epic proportions?" The answer lies in the attainment of market equilibrium to counter the effects of fluctuations in demand and supply of any product (cocoa in this case) in a market. According to the law of demand, rising prices of goods implies reduced purchase of the same sound by people. Practically, economists interpret such situations through opportunity cost: the value forgone because of choosing the second best alternative. Since the quantity demanded reduces because of increases in prices, the opportunity cost of buying cocoa increased during the 2007 unrest year in West Africa too. Political unrest was not the only factor affecting the production of cocoa in West Africa during that year, but natural elements such as the arrival of Harmattan wind.

As the farmers grow increasingly weary of the low production, the low supply will trigger high demand from dependents of cocoa beans for the production of goods such as chocolates, in the US and Europe. Consequently, the law of supply purports that increases in prices act as an incentive to cocoa farmers to supply more quantity to the market. Unfortunately, either increased supply or reduced demand does not cause equilibrium of the market in the long because cocoa farmers, for instance, will rush gain from increased prices, thus supplying more on the market. Increased supply shall lead a surplus in demand, causing prices to drop once more. Therefore, demand and supply are cyclic and each response to the prevailing market conditions to bring about equilibrium in the market.

How Correct Fluctuations in Demand and Supply: A Theoretical Overview

Solving the problem of fluctuations in demand and supply remains a challenge, especially where political instability other than natural causes leads to price, demand and supply changes in a market. Consequently, supply chains get affected from the farmer to the consumer of a finished product (Dobbs 36). Resultantly, demand and supply pass through different supply chain costs while changing the cost of producing the good at each stage of the supply chain. Supply chain dynamics eventually affect the prices of finished products because manufacturers will respond to raw material prices by either lowering or raising finished product prices to remain profitable.

The effects of demand and supply can start from a cocoa farm in West Africa but affect global industrial prices. For instance, when power changed hands in Ivory Coast in 2010, there was increased speculation in the global prices of cocoa from Latin America through Europe. Interestingly, Porters Five Forces explain the reactionary responses taken by the industrial player. For example, the bargaining power of suppliers in the industry can influence prices, especially when they supply the goods and services with a monopolistic stance. Second, when buyers wield pivotal bargaining power, they control supply prices on the market, and central remain profitable as long as they can hold onto the bargaining power (Dobbs 33). Interestingly, such real-life situations affected the global production, demand, and supply of cocoa beans following a reduction in political instability of the West Africa region.

Solution to the Global Demand and Supply of Cocoa

The supply and demand of cocoa in the global perspective is a real-life example of a commerce problem. Although the impacts of fluctuations in demand and supply may be short-lived, solutions are necessary to bring the market to equilibrium. Many Chief Officers have adopted measures for correcting such fluctuations, but matching supply and demand through yield management is the best, most common strategy across selected industries (Dobbs 32). However, segmentation is an important source solution to fluctuations for both service and goods industries.

Conclusion

After 2007, many cocoa buyers realized that they were vulnerable to price fluctuations because of over-reliance on the politically unstable West African region. Therefore, the buyers segmented existing cocoa clients into market sections to buffer any shortages resulting from political instability and natural disasters. Thus, demand and supply are important to the determination of solutions which return the market to equilibrium, after fluctuations.

Works Cited

Kash, Kamal, and Geordie Wilkes. "Bittersweet Outlook For Cocoa." Sucdenfinancial.Com, 2017, https://www.sucdenfinancial.com/media/133729/sucden_financial_monthly_report_february_2017.pdf. Accessed 24 Sept 2018.

Dobbs, Michael. D. "Guidelines for applying Porter's five forces framework: a set of industry analysis templates." Competitiveness Review 24.1 (2014): 32-45. doi.org/10.1108/CR-06-2013-0059