Our Guest Post comes from Prof. Howard Weiss, who recently retired from Temple University.
Ghana, the second-largest producer of cocoa beans, currently ships the beans out of the county for production into chocolate. This means that Ghana receives less than 2% of the profits on chocolate. According to Financial Times (June 3, 2021), in order to reduce the poverty level in Ghana, the country’s president has set his country the challenge of producing chocolate bars on a commercial scale.
The Supply Chain Management chapter in your Heizer/Render/Munson textbook (Ch. 11) defines vertical integration as “developing the ability to produce goods or services previously purchased and cites an example of “Apple deciding to manufacture its own semi-conductors.” In the case of Ghana, the president is proposing the backwards integration for the entire industry, not just a single company. This would develop more income than a strategy of raising prices.
Chapter 11 also notes that “Backward integration may be particularly dangerous” and in the case of Ghana there are several challenges to producing its own chocolate bars. Ghana will need to import milk powder, develop packaging facilities and face issues related to energy because more energy will be required in Ghana than say, Switzerland, to keep the chocolate from melting and energy is more expensive and less reliable in Ghana. In addition, it is further away from markets so transportation costs will be high.
In spite of the challenges, the change has already begun with Fairafric, a German-Ghanian company, building a $10 million plant in Ghana. Fairafric demonstrates Corporate Social Responsibility, as defined in Supplement 5 of your textbook, “By not only sourcing the cocoa in Ghana but by producing the chocolate from bean to (wrapped) bar in Ghana”.
Classroom Discussion Questions
1. For what other resources in Africa might it be profitable and socially responsible to modify the supply chain?
2. What are the major benefits that will accrue to Ghanians from more profits staying in Ghana?