A world without chocolates
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Confectioneries
Chocolates are an absolutely incredible sweet in the world that nobody would dare to resist tasting a piece, including those who resist sugar or anything that contains sugar. We can’t even imagine a world without this milky sweet which comes in many different colours, sweetness, taste, texture, shapes, wrapping and blended with many different ingredients including fruit, nut and liquor varieties.
Although chocolates are one of the most popular sweets in the world, for an average Sri Lankan tasting a piece of chocolate from a good international brand is a luxury and rare. It’s being denied not only by their higher international prices, but also by excessive taxes, currency depreciation and of course, the low incomes.
Accordingly, just a small piece of locally produced chocolate may also cost around 300-400 rupees. I am not sure how many of our average consumers can afford to pay that price for a small piece of confectionary item.
It is not necessary to elaborate the point that excessive import taxes would raise the local prices of similar products, although some argue that it is a necessary condition for the development of local industries. In doing so, the average consumers are, however, deprived from consuming such products, which may be affordable only to the rich class.
The economic consequences are not limited to that. As the average consumers are denied from consumption, the market for such products also become smaller. If there are only one or two consumers who come and buy a few pieces of chocolates, apparently, the unit cost of production is also higher, leading to higher unit prices. If the purpose of higher commodity taxes, such as import duties and VAT, is to raise tax revenue for the government, perhaps, the smaller market may reduce the tax revenue.
Local resources
Recently, I brought the story of chocolates to get across an economic point at a panel discussion. The annual conference of the Sri Lanka Forum of University Economists (SLFUE) was held at the South Eastern University in Oluvil, where I also had the opportunity to attend and speak there at a panel discussion.
The topic was about utilising local resources for sustainable development. Well, the terms such as ‘local resources’ and ‘sustainable development’ are subject to various interpretations so the topic can be a broader one too.
Today, I thought of extracting some points from my intervention there and elaborating further in this column in order to rebut some populist opinions.
The world’s best chocolates are produced in a number of European countries such as Switzerland, Belgium, United Kingdom, France, Italy and Germany. However, the main ingredient to produce chocolates, cocoa or cacao is not produced in Europe, thus all these countries must import cocoa from other countries.
The ideal climatic conditions to cocoa cultivation are in the tropical countries around the equator. Accordingly, the best authentic cocoa is produced in countries like Ghana, Nigeria, and the Ivory Coast in Africa and Brazil, Venezuela and Ecuador in South America. These countries ship their cocoa beans to Europe to produce globally famous chocolate brands. At the same time, some European countries such as the Netherlands, Belgium and Germany are also occupied in the cocoa supply chain as major re-exporters of cocoa to other European countries.
Blending with global resources
We may be able to boast about the availability of “best” productive resources, but just the availability is not important at all unless they blend with such best resources available outside and produce a globally competitive output. The ideal climatic conditions in cocoa-exporting countries will have no use, if such resources are not blended with chocolate-making technology and machinery, and human resources (skills and knowledge), as well as management and marketing skills that are that are available in Europe.
Moreover, good output requires good inputs too. If cocoa beans are sub-standard inputs, then we should not expect that input to turn out good chocolates. Someone could argue that, instead of importing cocoa, why not these chocolate-producing European try and cultivate their own cocoa too, and it would save their foreign exchange.
The argument about “saving foreign exchange by curtailing imports” is more an economic opinion than an economic principle. I must revisit this debate again in this column some other time. However, it is not impossible to cultivate cocoa in Europe too. With their technological advancement and higher income levels, they can do it. However, the result would be that the cost of cocoa may be higher, and the quality may be lower. The effort would dampen the price and quality competitiveness of the world’s best chocolates, which would erode its global market.
What about world market dependence? Apparently, the result of international trade is international dependence, which derives benefits to both trading parties.
Choices and the consequences
It could be surprising to many of us to know that a “global tea hub” is emerging in a West Asian dessert city, Dubai in the UAE where it is naturally impossible to grow tea plantations. But the city has got a favourable business environment and global connectivity, as its most important productive resource which is strong enough to form centripetal forces to attract business.
One of the businesses that it attracted was tea processing and blending industries to cater to the changing global tea demand. The other side of the same story is that, even though Sri Lanka has earned a global brand name “Ceylon Tea”, the country never emerged as a global tea hub. In fact, it lost its world market share in tea against emerging new tea growers in the world as well as against changing consumer demand in the world.
What was the problem? Sri Lanka had the choice either to defend its “Ceylon Tea” brand or to promote blending tea at home or even to choose both. When we make choices, there are consequences of the choices which we must accept. Therefore, Sri Lanka has to accept the consequences of the choices we made, while Dubai too enjoys the consequences of its choices.
Another area where we have accepted the historical choices, we made is the mining and quarrying industry. Everyone knows that
Sri Lanka is blessed with some of the world-class mineral resources – mineral sands, graphite and phosphate. At many of the policy forums where I have participated, the importance of these mineral resource deposits and the potential industrial development that they could bring about have been heard.
But all such discussion get stuck halfway through, when it is realised that Sri Lanka has no future in this industry unless such mineral deposits are blended with foreign resources which the country has not developed here – capital investment, skills and knowledge, and technology.
Shelf-life
Countries and their economies must be having resources but having resources and creating the opportunities to put such resources into productive use are two different things. On the one hand, economies do not become prosperous because of the availability of resources. If it is true, many African and South American countries which are blessed with so much mineral resources and oil should be prosperous too.
On the other hand, not having any resource doesn’t limit the progress of a country either. If it is the case, many Asian countries such as Japan, Singapore and even Dubai should have been poor economies.
By the way, there is a limited “shelf life” for anything so that sooner or later better substitutes may arise ousting their usable value. Accordingly, the resources and opportunities too have a usable time span which may come to an end due to better substitutes. Local resources too are subject to this shelf-life limitation, whether we make use of it for our benefit or we let it go waste without making any productive use of it.
(The writer is a former Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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