"I, Chocolate". Why is chocolate so cheap when SO MANY people have to get paid to get it to us?

I cannot answer that question. No one can (we can only suppose).  It is part of the miracle that is markets operating in as free an environment as possible.

The World Cocoa Foundation has this terrific report on the state of the Cocoa/Chocolate market.

One section of the report serves as a reminder of just how difficult and complex it is to bring a seemingly simple product to market for the masses to enjoy at a relatively low price.  If you start to list out ALL the steps and cooperation that is necessary to complete production it is mind boggling.

Read all the steps involved...and these are just an overview and only scratch the surface.  Many other steps and processes are not accounted for.

(Go here for an explanation of "I, Pencil" and "I, Smartphone")

Meanwhile after you read this think about it the next time you consume a good (durable or non-durable) and make a mental list of the processes involved in getting it to you.  You will run out of mental capacity before you run out of supply chain steps.  :)

Cocoa Value Chain

Growing: Cocoa trees grow on small farms in tropical environments,
within 15-20 degrees of latitude from the equator. Cocoa is a delicate
and sensitive crop, and farmers must protect trees from wind, sun,
pests, and disease. With proper care, cocoa trees begin to yield pods
at peak production levels by the fifth year, and they can continue at
this level for ten years.

Harvesting: Ripe pods may be found throughout the continuous
growing season; however, most countries have two peak production
harvests per year. Changes in weather patterns can dramatically affect
harvest times and yields, causing fluctuations from year to year.
Farmers remove pods from the trees using long-handled steel tools.
Pods are collected and split open with a sturdy stick or machete, and
the beans inside are removed. A farmer can expect 20 to 50 beans per
pod, depending on the variety of cocoa. Approximately 400 beans are
required to make one pound of chocolate.

Fermenting and Drying: Farmers pack the fresh beans into boxes or
heap them into piles covered with mats or banana leaves. The layer of
pulp that naturally surrounds the beans heats up and ferments the
beans. Fermentation lasts three to seven days, and it is the critical
step that produces the familiar chocolate flavor. The beans then dry
for several days in the sun or under solar dryers.

Marketing: After the dried beans are packed into sacks, the farmer
sells them to a buying station or local agent, who transports the bags
to an exporting company. The exporter inspects the cocoa and
transports it to a warehouse near a port.

Packing and Transporting: The exporter ships the beans to the
processing location, where the cocoa is moved to a pier warehouse
until needed. Details of export process vary by country. The buyer
conducts a quality check to accept delivery and the cocoa is stored
until requested by the processor or manufacturer. Trucks or trains
carry the cocoa in large tote bags or loose in the trailer to the
manufacturer’s facility, on a “just-in-time” basis.

Roasting and Grinding: Before processing, the beans are thoroughly
inspected and cleaned. The inside of the cocoa bean is called the nib.
Depending on the manufacturer’s preferences, beans can be roasted
whole, or the nib can be roasted alone. Once the beans have been
shelled and roasted (or roasted and shelled), the nib is ground into a
paste. The heat generated by this process causes the cocoa butter in
the nib to melt, creating “cocoa liquor.”
Cocoa liquor does not contain alcohol and is solid at room
temperature. It can be further refined, sold as unsweetened baking
chocolate, or used in chocolate manufacturing.

Pressing: The cocoa liquor is fed into hydraulic presses that divide
liquor into cocoa butter and cocoa cakes. The cocoa cake can be sold
into the generic cocoa cake market, or ground into a fine powder.
The processor may pre-treat the cocoa liquor with an alkali solution
(alkalizing), which reduces acidity. This treatment is known as
“dutching” and produces Dutch processed cocoa when pressed.
Alkalized liquor becomes darker, develops a more robust chocolate
flavor, and stays in suspension longer in liquids such as milk.

Chocolate Making: To make chocolate, cocoa liquor is mixed with
cocoa butter, sugar, and sometimes milk. The mixture is poured into
conches—large agitators that stir and smooth the mixture under heat.
Generally, the longer chocolate is conched, the smoother it will be.
Conching can last from a few hours to three full days. After conching,
the liquid chocolate may be shipped in tanks or tempered and poured
into block molds for sale to confectioners, dairies, or bakers.

Video: The Miracle of the Pencil...And everything else...

In posting just before this one I extolled the virtues of the Capitalism and Creative Destruction (by implication) through a high tech device---a Smartphone.  Now, I would like to do the same with a
very low tech device---a Pencil!

Here is a nice video (about 6 minutes long) illustrating the Miracle of the Pencil and how it comes to the marketplace.  Innumerable resources and activities have to be co-ordinated to create such a simple thing at such a low price.  Look at a pencil, then look at EVERYTHING else around you.  Think about the effort it took to get those things within your reach. 

I dont think the word miracle is that far-fetched...

HT: Cafe Hayek and the links from there...

More evidence that the good ol' days were not so great. The earninig power of the minimum wage in 1952 and Today...When would YOU have preferred to live?

With much hostility lately towards Capitalism and Free Markets in general (with justification) it is sometimes difficult to see the forest for the trees.  It has been the greatest force in history towards advancing the standards of living for a vast majority of the worlds people.  The good ol' days were not so great...I know this because I was there...

This is also a good lessson in purchasing power.  Money has value because of what it can purchase.  It is not how much you have, but what you can get in exchange for it. The choices today are amazing.

The following, in its entirety, is from Carpe Diem:

""To demonstrate how free market capitalism generates increased prosperity over time for average (or even low-income) Americans, economist W. Michael Cox of the Dallas Federal Reserve has compared the purchases at different points in time from the income earned by high school graduates or entering college freshmen working at a full-time, minimum-wage summer job (ignoring taxes). Here's a summary of his article "Capitalism's Many Benefits Create 'Luckiest Generation,'" which appeared in Investor's Business Daily in October 2000.  Several years ago, I presented an updated comparison of the purchases from summers jobs in 1949 and 2009 in this CD post. Here's another update:

In 1952, the minimum wage was $0.75 per hour (equivalent to $6.39 in today's dollars), and a full-time summer job at 40 hours per week for 12 weeks would have generated $360 in total summer earnings (ignoring taxes). Using retail prices from a 1952 Sears Christmas Catalog, I found that a teenager then would have only been able to purchase the following 3 items with his or her entire pre-tax summer earnings of $360 working at the minimum wage (with $15 borrowed from the parents to cover the full $375 cost):

Source: Carpe Diem

Now compare that that to the items in the table below that could be purchased by a teenager or college student this year with his or her summer earnings of $3,480 (ignoring taxes) at the current minimum wage of $7.25 per hour:

Source: Carpe Diem

According to Cox: "Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers." 

MP: Teenagers today can afford products today like laptop or notebook computers, Kindles, digital cameras, GPS systems, iPads, iPhones, and iPods that even a billionaire couldn't have purchased 20 years ago.  The comparison above illustrates that we've made a lot economic progress over the last 60 years since 1952 that has increased our national prosperity - and that's happened in spite of ten recessions, the stagflation of the 1970s with 18.5% mortgage rates and a 20% prime rate, the S&L crisis with almost 3,000 bank failures, several major stock market corrections, the Great Recession, etc. 

Even though the economy is still struggling to recover from the 2008-2009 recession, and we've had sub-par economic growth and sluggish job creation this year, economic progress and a rising standard of living will continue to move forward.  The economic challenges of the past haven't stopped innovation and prosperity in the long run, and the current challenges might slow progress in the short run, but won't in the long run.  Just like today's teenagers are infinitely more abundant than their counterparts in 1952 and can afford items not available to billionaires of past eras, the teenagers in 2070 will be infinitely more abundant than today's teens and will be able to afford products that today's billionaires can't even imagine, much less afford.  ""

It does not matter what the price of rice is in China. You still need chopsticks to eat it...Guess which country is a growing supplier of them?

Comparative advantage is a strange thing... A Georgia company is a leading exporter of chopsticks, of all things, to China...Nice example of a small business with an unromantic product filling a niche.  Read story HERE and/or watch video below...HT: Carpe Diem

Short video explaining the link between Economic Freedom and Standard of Living. So simple, yet difficult to achieve...

HT: Division of Labour

While the giant slept the world moved on to eradicate poverty...We just don't get what is happening in the rest of the world.




Source: CSM

  The world is changing rapidly and is becoming less dependent on the success of the US.  We are still very relevant but, in my opinion, the economic success of the rest/most of the world is eroding our status .  And, I fear, we are letting them.  1.4 Billion  Chinese, 1.3 Billion Indians, 190 million  Brazilians, AND the continent of Africa are rapidly developing middle-classes. These middle-classes are not to be confused with the US middle-class, which in dollar terms is way ahead of the aforementioned countries.  BUT the purchasing power of 100's of millions of people is increasing at an increasing rate.  Rising incomes around the world should not be seen as a problem for us, but an opportunity.  Instead of complaining about the "fairness" of trade with the rest of the world, I would prefer we as a nation welcome them out of poverty and ask if there is anything we can sell them (YES! We do make stuff!) that they would FREELY like to buy from us...THAT is what a competitive country does. 

Surging BRIC middle classes are eclipsing global poverty

The world will, for the first time in history, move from being mostly poor to mostly middle-class by 2022, the Organization for Economic Cooperation and Development projects. Asians, by some predictions, could constitute as much as two-thirds of the global middle class, shifting the balance of economic power from West to East. Already, some analyses of International Monetary Fund data suggest that the size of the Chinese economy could eclipse that of the United States in just five years.


By 2030, the global middle class is widely projected to at least double in size to as many as 5 billion – a surge unseen since the Industrial Revolution. This boom, however, is more global, more rapid, and is likely to have a far different – and perhaps far greater – impact in terms of global power, economics, and environment, say economists and sociologists.

But today's middle-class boom is unlike the Industrial Revolution, in which rising prosperity became a catalyst for increased individual and political freedom. Those in the emerging global middle classes – from an Indian acquiring a flush toilet at home to a Brazilian who can now afford private school to a Chinese lawyer with a new car in the driveway – are likely to redefine their traditional roles, and in doing so, redefine the world itself. 

 "I would expect that as the global middle class gets transformed by the entrance of hundreds of millions of Indian, Brazilian, and Chinese families, the concept of what we see as the middle-class values may change," says Sonalde Desai, a sociologist with the National Council of Applied Economic Research in Delhi (NCAER). "Historically, sociologists have defined 'middle class' as those with salaries…. I think 'middle class' is very much a state of mind."

Why have LCD TV's come down in price so much and so fast? Nice Graphics here showing why...

This graphic shows the change in price of various widths of LCD TV screens since their introduction into the marketplace.  It is quite remarkable how the price of the larger screens have decreased the point where price is somewhat irrelevant. The only decision you face is how big you want your TV to be. 


Source: Wired

The primary reason is illustrated in this next graphic.  Since 2007 the widths of screens, the most expensive component, have increased significantly because of a technological break-through in the production of the LCD screens themselves. Note the dramatic increase in widths during the 2007-09 period:

Source: Wired



""Like multicore computer chips, Android smartphones, and Starbucks coffee, LCD TVs are getting cheaper—and bigger—all the time. Inevitably, your brother-in-law’s new 55-inch TV cost less than the 48-inch model you bought two years ago. Why? Science! See, flat-panel displays are made by machines that print arrays of circuits on sheets of glass and then slice those sheets into screens like high tech brownies. And since 1999, those machines have increased in size by 800 percent. Thus, the Law of Big Glass: The larger the glass printer, the cheaper—or bigger—the TV.

In 1993, the industry-standard tool for “printing” display circuitry, a TFT-LCD deposition machine, could work with glass no bigger than about 18 inches square. Today, they can handle sheets that are 11 feet on a side—the size of a garage door—and just a millimeter thick. A 20-inch flatscreen TV cost $1,200 in 1999; it costs just $84 today.

The law applies to organic LED displays, too—which is great, since they’re brighter and more energy-efficient than LCDs. OLED screens use a related manufacturing process, and right now they’re printed on 4 x 5-foot sheets. But the Law of Big Glass says 55-inch OLEDs will someday go for less than $1,000 at Costco. By then you’ll probably want a tiny, ridiculously expensive holodeck""

Do not buy your next airline ticket until you read this article! If may save you money...

Buying an airline ticket has to be one of the most frustrating and mysterious purchases one can make. In economics it is best explained through Price Discrimination, segmenting customers according to their willingness to pay.  We have been lead to believe that purchasing in well in advance is the best way to get a lower fare. Turns out, it may actually be the DAY and TIME you purchase your ticket is the key to getting a "deal" rather than the time lag.

WSJ: Whatever You Do, Don't Buy an Airline Ticket On …

""Rick Seaney, chief executive of FareCompare.com, studied three years worth of airline prices and concluded that 3 p.m. Eastern time Tuesday was the best time to buy. "That's when the maximum number of cheapest seats are in the marketplace," he said.""

This graph shows the dip in prices to major destinations during mid-week. I hope this helps you plan your next trip!

Wall Street Journal

This is only one part of this article. Click below to read the rest...I learned alot and hopefully I will be a more  educated ticket buyer the next time I fly!

Map of the World at Night and of the Korean Peninsula...Quite dramatic.

The World at Night. One of my favorite visuals of all time.  There are many things to observe on this map that says alot about geography, culture, economics, politics, etc in a country and region.  What do you see when you view the first map? The second map shows the Korean Peninsula in two different time periods, 1992 and 2008.  The South has changed considerably and in the North it is pretty much status quo---quite sad. (Source Aidwatchers)

Aidwatchers

The US loses more ground in a measure of Economic Freedom--From Free to Mostly Free...I don't like the sound of that..



The Heritage Foundation

 A highly regarded survey of economic freedom shows the US losing ground in economic freedom, by their metrics.  We have moved from "Free" to "Mostly Free". Not a good turn of events...Look at the whole survey to get a better perspective.

The 2011 Index of Economic Freedom

"The U.S., which fell from the ranks of “free” economies to the “mostly free” category in 2010, continued to lose ground. Its score slipped by 0.2 points to 77.8, dropping its world ranking to 9th place, one slot behind an improving Denmark.

The U.S. lost ground in four of the 10 economic freedoms measured by the Index, with the greatest decline resulting from the explosive growth of government spending. Monetary freedom also declined. “Government interventions in housing, automotive, health and financial markets have substantially increased price distortions,” the authors note. “Drastic legislative changes in health care and financial regulations have retarded job creation and injected substantial uncertainty into business investment planning.”""

What do a toaster and a pencil have in common? Low tech items? I don't think so...

...No one person knows how to make either one, in their entirety.  They are very simple products in their finished condition but complex to manufacture. They require the co-ordination and cooperation of 100's of businesses and 1,000's-10,000's of people to produce and deliver it to you at a low price.  Now look at something tangilble around you and marvel at how it came into being...Miracle? I say yes...

This is a variation of Milton Friedman's narration of Lenord E. Read's "I, Pencil" (See Second Video)

Thomas Thwaites: How I built a toaster -- from scratch

From TED Talks: ""It takes an entire civilization to build a toaster. Designer Thomas Thwaites found out the hard way, by attempting to build one from scratch: mining ore for steel, deriving plastic from oil ... it's frankly amazing he got as far as he got. A parable of our interconnected society, for designers and consumers alike.""

Here is Milton Friedman's discussion of a simple pencil...

Good ol' Days--Part 3---Shipping costs in 1960 relative to today...I was born too early!! The good ol' days are today...

Professor Mark Perry at Carpe Diem has done a series of "then and now" price comparisons using a terrific online resource from Radio Shack. They have put the ENTIRE contents of decades worth of their catalogs online. It is really fun to look at the catalog from my (or your) birth year. The pictures are fun to look at and for those of you who are really into the technical aspects of consumer electronics will be AMAZED at the detail they go into with each good. Don't see that anymore....

Dr Perry has focused on final goods, but I was curious about the transportation costs of getting a good delivered to you.  Below you will find the table from the 1960 catalog (my birth year).  If I wanted to buy something that weighed 11 pounds (easy to do the math) and have it shipped to me it would have cost $6.30 in 1960 (1st pound $.70 and each additional pound $.56).  I also used "Zone 5" estimating that the package would travel 1000 miles to get to me.  Using an inflation calculator, that would be $46.57 in TODAY's dollars! WOW!

Radio Shack Catalog--1960

From the US Postal Service website, I found the following:

Just guessing, but an 11 pound item would probably fit in either of the boxes on the right.  These are retail prices, so a large company like radio shack probably gets a significant price break on it shipping costs from the USPS.  Shipping costs are 3 to 4 (maybe 5) times cheaper today than in 1960.

Not only have the goods we buy today gone down in price but the transportation costs to get them to us have decreased significantly as well.  In the age of a global supply chain, it seems you could not have one without the other...

Find a niche and fill it...Rent the same Christmas tree for multiple years...

I never heard of this before---you can "rent" a live Christmas tree AND have the same one year after year!! It is delivered, picked up and stored for next year. See a niche and fill it--a virtue of the market-system...

LivngChristmas.com

""RENT A LIVING TREE THIS CHRISTMAS and have a live, potted tree delivered to your doorstep. It's fun, it's easy, and it's great for your home and the environment. Simply choose one of our varieties of locally-grown trees and we'll deliver it to your home or business. After Christmas we will pick up your tree and return it to our nursery until next year. You can even watch your tree grow as your family grows by adopting the same tree year-after-year.""

An excellent, short video illustrating the economic progress the world has made in the last 200 years

Well worth a viewing. This gives you a long term view of economic progress...All boats have been lifted,some more than others, but as economists are fond of saying---it is all relative...