Monday, January 25, 2016

Chocopalypse Now, II: Making the World Safe for Chocolate

In our previous posting on this key world issue, we noted we would post a solution to the coming Chocolate Apocalypse.  First, of course, we reminded our readers that a true world shortage of cocoa is not really likely — possible, of course, but not likely . . . if we get to work now to make the world safe for chocolate.  This was essential, because a number of the comments we received on FaceBook indicated that some people intended to kill themselves if chocolate disappeared.

Tea for breakfast? What's the world coming to?
Maybe that’s an exaggeration, but we can’t take that risk.  Besides, if chocolate disappears, we won’t have anything to drink for breakfast except tea and coffee.  And Postum.  Did you know they still make that?  And miso soup.  Willow bark tea, anyone?

Seriously, the cocoa infrastructure needs to be rebuilt.  If 40% of the cocoa trees in Cote d’Ivoire, the single largest producer of cocoa in the world, are no longer productive, then something obviously has to be done, and better management of resources and improved farming techniques are clearly in order.

That in turn means massive education in those areas, and massive investment in new trees. We covered this in the last posting.  The question is how to structure it — and how to pay for it.  We’ll look first at the structure.

Processing, marketing, and distribution are profit centers, too.
One of the first things to do is tie the producers in to the processing and marketing chain of cocoa.  Frankly, it is a grave injustice that, although “the farmer is the one who feeds them all,” he or she usually gets the least return.  In a global economy in which cocoa is one of the few commodities that is increasing in price, growers are realizing less and less profit from their crops.

Part of this is the fact that (at least in Cote d’Ivoire) the government sets the price.  Thus — directly contrary to the laws of supply and demand — at a time when supplies are down and demand is up, the price paid to farmers remains the same per unit price they were getting before, and the farmers end up with less money as production goes down.

In a purely rational market, and all things being equal, the same demand and a lower supply would mean that producers would make the same amount of money because they would get a higher price for fewer units of production.  With world demand increasing as at present, producers should be getting more money.

Make the pie bigger to give everyone a piece.
If producers got a cut of the higher world price, they could still take a reasonable price for their cocoa, but also get a share of the value added by the processors and the services of middlemen.  Details would need to be worked out, but there are ways of granting ownership stakes in the processing, marketing, and distribution to the producers, e.g., Coops and ESOPs.

There also needs to be some way of coordinating education, maintenance, and reinvestment.  If what we learned about cocoa production is accurate (some of which admittedly came from watching the video on cocoa at the Wilbur Chocolate Factory Museum), it’s ideal for small producers.  Small operations are easier to manage, and are probably better to ensure that farmers pay greater attention to things — such as pruning, weeding, culling, and keeping an eye open for disease.

There should therefore be some kind of coordinating/cooperative agency in which the producers have an ownership stake.  An ownership stake in the coordinating agency means that a farmer wouldn’t suffer too much because an overall plan has him or her producing less for some reason, or there is a localized crop failure.

Thus, something like a Citizens Land Bank or Citizens Land Cooperative — which would manage all land, natural resources, and infrastructure — would (if each and every individual had a single, voting, non-transferable, no-cost, dividend-paying share in the CLB/CLC) be able to optimize both sustainable development and profits in which everyone would participate.

Citizens Land Bank Schemata
The CLB/CLC would own all the land, natural resources, and infrastructure (just as the State does now in many places), but the citizens would own the CLC/CLC as a cooperative or joint stock company — something not possible when the State owns “on their behalf.”  Instead of leasing land from the State, farmers would lease it from the CLB/CLC, meaning from themselves.

This could also make the leasehold virtually the equivalent of a traditional freehold.  That’s because private companies have to keep to the terms of contracts or the State will step in to enforce them.  In contrast, if the State is a party to a contract, it can (and often does) change the terms at will.  Keynesian economics and Modern Monetary Theory, in fact, are based on the ability of the State to thumb its nose at other parties to contracts and enforce such changes at the point of a gun.

All this, however, is just common sense.  The big question is where the money is to come from to pay for education, new capital, and supplies (such as adequate fertilizer) — and how to ensure that the money is used for the intended purpose.

Believe it or not, that is the easiest question to answer — in two parts.  With respect to the second part (ensuring that money is used for the intended purpose), having a central agency solves that.  The CLB/CLC, not the individual farmers. would borrow from outside lending sources.  This would not only allow the CLB/CLC with its better bargaining position to obtain better terms, it would be more secure for the lenders.

Cocoa growing and harvesting
Farmers would requisition new capital and supplies directly from the CLB/CLC, which (again) would be able to negotiate better prices than the individual farmers.  These would, of course, be charged to the farmers’ accounts, and repaid when a crop is sold, but it would largely eliminate the problem of farmers borrowing money for one purpose and spending it on other things.

Farmers who resold supplies or capital would have to be penalized in some way, perhaps by building it into the terms of the lease that they could be evicted for egregious misuse or theft.  Problems of this sort would come to light during periodic audits — good management would require that all farms be audited frequently to make certain that the operation is being run properly, and to keep tabs on production levels and general conditions.  This would, naturally, also reveal if someone had received capital and supplies and resold them instead of using them.

The money itself is the easiest problem to solve.  Commercial and central banking were invented to ensure that there would always be enough money for industrial, commercial, and (of course) agricultural purposes.  As Dr. Harold G. Moulton demonstrated in his classic refutation of Keynesian monetary theory, The Formation of Capital (1935), the present value of future increases in production can be turned into money, and that money can be used to finance the new capital that will generate the future increases in production.

Creating money for productive purposes
In this way, credit for productive purposes becomes “self-liquidating.”  Since this doesn’t require existing accumulations of wealth, anybody can finance new capital in this way.  If the lending institution requires additional collateral (which shouldn’t be necessary for a CLB/CLC, since it would own all the land to serve as collateral and thus automatically be considered “credit worthy”), the CLB/CLC could take out a “capital credit insurance policy” that would pay off only if the CLB/CLC couldn’t repay the loans.

This would benefit a country as a whole as well, for it would begin the shift from a currency backed with government debt (as most countries have today) to a currency backed with the value of the land, capital, and productive capacity of the country.  It wouldn’t be too long before the government would realize that creating new money only for productive purposes would enable everybody in the country to become productive, either with their labor or with new capital that they purchase on credit and pay for out of future profits.

Where could this be done?  In Cote d’Ivoire, most certainly — and almost immediately, as soon as enabling legislation could be passed.  That sort of restructuring is what companies like Equity Expansion International, Inc., were established to guide.

What about other countries in the same region?  The Republic of Guinea, for instance, has a new administration that is very interested in introducing new crops and doing it in a way that benefits everybody involved, not just a few rich foreigners.

The possible World Chocopalypse need never come to pass.  All it takes is the application of a little common sense and the Just Third Way.


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