In 1996 there was a woman at our local organic food store (Whole Foods had not purchased it yet) offering samples of organic, fair-trade chocolate. And while just the smell of the 70% Dark concoction made me salivate like Pavlov’s dog, she really depressed the hell out of me.
You see, while I was trying to enjoy the bittersweet taste of perhaps my only real addiction, she started rattling off all the reasons our chocolate consumption helps fuel things like poverty, child labor and slave trafficking.
My original thought during this impromptu lecture was, “Lady, just let me enjoy my chocolate!”
But I must admit--she got to me.
What can I say . . . I’m a sucker when it comes to human rights.
Throw in a market opportunity on top of that, and you’ve got me, hook, line and sinker.
The Advantage of Responsible Capitalism
A few years ago, the US State Department released a human rights report that found there are nearly 110,000 child laborers working in hazardous conditions on cocoa farms in and around the Ivory Coast.
This is where 43 percent of the world’s chocolate comes from.
Another 27 percent comes from Nigeria and Cameroon, two countries that don’t seem to have much of a problem with child slave trafficking, either.
Now bear with me, I promise this isn’t a lecture. In fact, even if I sound like an absolute greedy bastard at this point, there is an enormous opportunity here for investors.
But before we get to that, we have to identify the conventional market conditions in which the chocolate industry operates. Because these, as you will soon see, present a way for us not only to make money, but actually to help change an industry that is in dire need of a wake-up call.
This, my friends, is the advantage of responsible capitalism!
All Will be Fair in Coffee and Chocolate
In 2002, the chocolate industry acknowledged that illegal child labor was a major problem at cocoa farms in West Africa. And to avoid proposed legislation that would have forced chocolate companies to mark their products with “no slave labor” labels (which most chocolate manufacturers wouldn’t have a chance of qualifying for), the industry agreed to a voluntary protocol to end forced child labor on cocoa farms by 2005.
Of course the industry dragged its feet and has done very little to address the child slave labor issues that continue to contaminate the industry.
But, as we’ve seen time and time again, the market can dictate change.
That has certainly happened in the coffee industry, where in 2004 U.S. retailers sold approximately $300 million in Fair-Trade Coffee. That’s about 34 million pounds, or 6% of the gourmet coffee market.
By 2005, that number grew to $500 million!
Today, more than 400 companies sell fair-trade coffee, including Starbucks, Dunkin Donuts, Proctor & Gamble, Ben & Jerry’s and Sara Lee.
One company in particular, Green Mountain Coffee Roasters (GMCR:NASDAQ), is a stock we told subscribers about back in 2005. This is a company that’s well known for its fair-trade gourmet coffees.
If you’ve ever doubted just how lucrative fair-trade can be, take a look at this company’s five-year chart:
Who would’ve guessed a fair-trade coffee stock could deliver gains in excess of 400% in four years?!
Of course, we’re talking about chocolate here . . . not coffee.
And while the fair-trade coffee market has been growing and profiting for decades, the fair-trade chocolate industry is still getting warmed up.
In fact, less than 1% of the $13 billion chocolate market is certified as fair trade. But it is growing.
From 2003 to 2004, sales of fair-trade chocolate grew 78%. And 2005 estimates were nearly double that.
So what does that mean for us?
A tremendous growth opportunity.
While there are currently no pure play fair-trade chocolate companies for us to invest in, the potential for one or two of them to go public isn’t out of the question.
Also, there are some up-and-comers that could be prime takeover targets by larger organic fair-trade, and even conventional food processing companies.
In fact, it was about this time last year that confectionary giant Cadbury Schweppes bought organic fair-trade chocolate maker Green & Blacks.
This little do-gooder is the fastest-growing confectionary brand, with more than 5% of the UK market for block chocolate.
Not surprisingly, with an annual growth rate of 69% since 1991, Cadbury swooped in.
Incidentally, Green & Blacks was represented at the LOHAS (Lifestyles of Health and Sustainability) conference I attended last week in California. I spoke with them briefly during a lunch break.
Well, honestly, I probably spent more time devouring their fair-trade samples than actually talking.
Regardless, Green & Blacks is the perfect example of what we should expect to see from the chocolate industry well into the next decade . . . and beyond.
As more develops, we’ll keep you posted.
Until next time . . .
Jeff
Subscribe to