A bitter sweet chance – chocolate industry uses ethical business models (Introduction)

“Anything is good if it’s made of chocolate.” Jo Brand

Chocolate

After focusing and taking a critical view on social problems in Latin America I want to come back to the “other America” and talk about its economic potential and business possibilities that come along with this. Passing by the store “Rausch-Plantagenschokolade” I decided to write about the great world of chocolate. I also worked in a cafe which sells expensive chocolate from all over the world. First I did not understand why I should pay five euros for a chocolate bar when I can also have it for 50ct. But after my boss explained me that cheap chocolate has so much chemicals in it – e.g. Milka would use chemicals which make the chocolate melt in your mouth – and that it is produced without caring about quality standards and actually exploiting farmers I finally realized that it is worth it paying a bit more.

Talking about Rausch

Rausch-Plantagen-Schokolade-Puerto-Cabello-43---Kakao_z1Rausch imports chocolate with 43% cocoa from the plantation Puerto Cabello in Venezuela. On their webpage it is said that they cooperate with the ministry of agriculture and local farmers in order to support them and help them to sell their products for a fair price. Other chocolate products from Latin America are Amacado, dark chocolate from Peru with 60% cocoa content and El Cuador, dark chocolate from Ecuador with 70% cocoa content.

“Rausch has not only propelled his company on one of the fastest growth tracks in Europe, he’s re-introduced the concept of truly premium chocolate bars to consumers in Europe and abroad.” Bernie Pacyniak from Nationaldriller

Pacyniak continues that Rausch could more than double its revenues over the last years from 45 million Euros to 100 million Euros and currently has around 550 employees and producing chocolate in other developing countries in Latin America, Asia and Africa.

Why does that happen? Why are people willing to buy chocolate from Rausch?

Since international competition and the effort to lower prices has led to a low-quality production of chocolate, Rausch actually noticed that this was a great opportunity to produce premium chocolate bar with good quality and a “distinct experience to consumers”.

“We would use only fine-flavored cacaos, but opt for regular sugar and lecithin as opposed to cane sugar and no lecithin for our Plantagenschokolade line,” Jürgen Rausch, founder and CEO of Rausch

How does the business model of Rausch support local farmers?

Rausch works together with local governments, brokers, cooperatives and individual farmers in order to find ways how to develop growing regions further and how to support local farmers as well. The philosophy of Rausch is that farmers should be rewarded with a good salary if they work hard. Therefore they try to eliminate the “middleman” which means that there aren’t too many people involved to trade chocolate. In this way the income of local farmers can be higher than it would be in other chocolate companies.

“We also want to help the farmer have a better life by earning enough money so that he can enjoy and provide a future for himself and his family.” Rausch

Rising problems

“High quality raw materials, such as fine-flavored cocoa, are becoming very scarce,” Rausch said. “That’s why we have to do something for the future.” Rausch

Rausch is currently developing more processes of how to produce high quality chocolate more efficiently in the world and they are building new logistic centres to answer to rising demand of good chocolate. The future will be interesting …

Advertisements

The bloddy reality: Boom vs. poverty in Latinamerica

Who profits from the boom? Who does not?

Last week I already talked about a project to prevent the use of drugs in the northern countries of South America. This week I will focus more on social issues within these countries. There are always two sides of a boom, the ones who profit from it and the others who cannot jump on the train and therefore suffer. Although I already posted about the booming economy in my first post and how many people profit from this I will focus on the opposite of this boom in this blog: I will talk about poverty.

Poverty at its lowest level

“Poverty in Latin America is at its lowest level for 20 years” UN’s regional economic body, Eclac (Economic Commission for Latin America and the Caribbean)

According to an article of BBC household incomes had risen a lot over the last decades. The level of poverty had declined from 48.4% to 31.4%, between 1990 and 2010.

Check out this video to get to know more details about this topic:

The report about a declining poverty, published by the UN in November 2011, mentions other reasons for the positive changes: rising public spending levels due to an overall increase in incomes as well as an increase of government expenditure especially on social issues.

“Poverty and inequality continue to decline in the region, which is good news, particularly in the midst of an international economic crisis,” ECLAC’s Executive Secretary Alicia Bárcena.

Sounds perfect right? Everybody is happy so we can go home…But:

How is the reality?

The report continues that the progress of a declining poverty was threatened by the “yawning gaps in the productive structure in the region and by the labour markets which generate employment in low-productivity sectors.” You can read more about poverty in Eclac’s report Social Panorama of Latin America 2011

Colombia for example, although one of the countries with the highest decline in poverty, is still facing 37.2% (2010 est.) of its total population living below the poverty line (CIA world factbook) which I would consider as very high.  Although the number of people living in poverty has declined there are still many people who earn like 200 Euros a month. The question we have to ask: How much is enough for a living? How much is enough to feed your family? 200 Euros are definitely not enough because you cannot even pay your rent.

Following Jo Tuckman from the Guardian there still exists a very huge inequality in Latin America. There is another report which more emphasizes on the inequality than on the declining poverty rate. This report can be found here.

Isn’t it incredible what those experts found out?

“Latin America is the most inequitable region in the world, presenting lower results than regions with more dramatic poverty levels such as Africa and parts of Asia.” Poverty and Inequality Report Latin America 2011

That is really confusing. What can we actually believe? I think that we should not just believe in one report that we find because although there might be a positive change this does not necessarily mean that everything is perfect. This point brings me to the …

Future challenges

The future outlook of the UN report states that the poverty line will continue to drop into the next years. But still there are many challenges Latin America will have to face. It has to put more effort in social issues to make a permanent change and expand the social security system so that there is more equality for workers.

But compared to Germany I noticed that people e.g. in Colombia did not complain that much about their situation. People always came across me with a big smile and they were always helpful. I think that this depends on the attitude you have towards your expectations in your life. People there might be satisfied with less than people in Europe who are used to the consuming society and being spoiled many times.

RED BULL everywhere you look and go!

It was a beautiful spring day in 2009 – the 19th of Mai to be more appropriate. The huge energy drink seller Red Bull released its coup called RB Leipzig. What is RB Leipzig? RasenBallsport Leipzig is a football Team that currently plays in the fourth league in Germany. The special thing about the club is that Red Bull already invested millions into new players, a new performance centre and professional structures. Therefore the club is quite successful and made up two leagues since the foundation in 2009. But the project in Leipzig is only one of many Red Bull Projects. The energy drink company owns a very successful Formula 1 team and several other football clubs in Austria and in the United States. It supports almost every successful extreme sport talent world wide, host’s air races and employs fancy DJ’s.

“Red Bulls 8000 employees world wide work in the marketing or sales department”

It seems like everywhere you go you see Red Bull signs. Marketing all over the world, in each and every country, in every modern club or restaurant. According to JÖRN KABISCH, economic editor at freitag.de: “Red Bulls 8000 employees world wide work in the marketing or sales department. The production of the bottling of the drinks is made by extern companies.”

An analysis of the economic magazine “brand eins” states “Red Bull spends 1 billion euro yearly only on marketing while the production cost amount is 600 million euro.” That led me to the questions: Does this advertisement effort make sense? Red Bull spends so much money on promoting the product everywhere but do they generate enough profits?

”Red Bull uses 30% of its yearly revenue only for marketing”

Jörn Kabisch quotes that: ”Red Bull uses 30% of its yearly revenue only for marketing. This is a lot. Only food producers like Nestle or Beiersdorfer invest an equal percentage.” But the most important thing about Red Bulls advertisement strategy is that people a ready to pay up to 2,50€ for one bottle of Red Bull. Kabisch insists: “After deducting the costs of production Red Bull has a profit margin of 70%. There is no comparable drink producer.” The advertisement is also responsible for Red Bulls huge growth over the last 20 years. “Since the release of the product in 1987 Red Bull only had binary growth rates.”

In the first place we can conclude that the companies advertisement is essential for its success. But how much profits are there actually? A view on Red Bulls balance sheet tells us something about 311,2 million Euro in 2011. Since 2011 the company does officially not have any debts.

WOW! A totally healthy company!

But while the profits are increasing this year there was a time in 2010 when sales decreased. Kabisch already predicted that: “Red Bulls golden times are over”. From today’s point of view we can say that he was wrong. What many people don’t know is that the energy drink producer owns over 70 different other companies all over the world. The popular health drink “Carpe Diem” is one of them. So even if sales should sustainably decrease one day … by that time Red Bull will have a supporting leg with a huge marketing support …

Rising economy of Latin America

Latin America – The new land for doing global business?

Even one of the global leaders in economy, China, is getting “hungry” for Latin American products. Experts note a change in global economy towards the improvement of the economy in countries which we still consider as unknown in global importance. In accordance with the Global Competitiveness for 2012-2013 three countries of Latin America are ranked in the middle of 144 countries worldwide.

Why is that happening?Buenos Aires

Due to international trade agreements and more governmental investments in the own economy the Latin American market gets more open to the global market. The booming economy and its growing potential also attracts many companies from abroad to settle down in Latin America e.g. Siemens or Henkel. This process establishes more employment in the bigger cities and creates a higher amount of money available for the Latin American economy. The motivation of people to work hard for the improvement of their economy really fascinated me and gives me the impression that the goals Latin America is setting for their future – becoming more of significance in global economy – can really be achieved in the next decades.

Of course, there are still many challenges that Latin America has to master like the existing corruption in governmental positions, the high poverty and social problems. What we see on TV about governmental plans is still a dream world. Although the living standard is improving a lot I could still see many social problems and people working hard every day to earn a few dollars in the end.

“After sitting on the couch for a decade, getting fat on Chinese largesse, it may be time to lose a few pounds, starting with some self-imposed fiscal austerity.” John Price, managing director of Americas Market Intelligence

But with the support of foreign investments Latin America can make a change for the better and become more important in the global market. People are working for their dreams and I am sure that there will change a lot in Latin America in the next decades.

I have experienced Colombia by myself and I also saw the enormous economic potential there and how German companies were establishing their market there. It is interesting to see how such countries are more and more taking part of the global economy. So why not try something new and invest in Latin America instead of common China or Europe?

Video of the economy