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Problems of intervention in the market for Cocoa

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Problems of intervention in the market for Cocoa ai)The buffer stock scheme was intended to keep prices almost constant but due to a single target price i.e. a fixed price offered it would encourage farmers to mass produce goods that may not necessarily be needed/demanded as they knew that anything left over would be bought by the authorities as buffer stock. This would lead to "butter mountains" and wine lakes". This way when the price is between a certain range no intervention will be needed, however if there may be a good harvest one year then the authorities would purchase the stock and store it as buffer stock. This way it means that the excess stock is purchased and the price would increase. In case of a bad harvest, the authorities would sell back the buffer stock to decrease prices. This scheme would therefore regulate the cocoa market as prices should remain fairly constant. aii) Schemes such as the buffer stock scheme may be ineffective as many years of bad harvest would cost a lot of money in order prices fairly constant. ...read more.


This process continues leading to fluctuations. c) Large multinational companies such as Nestle, Jacob Suchard, Cadbury Schweppes and Mars may dominate the market for chocolate confectionery as they are more liable to benefit from economies of scales. The obvious economies of scale that the big multinational companies benefit from are purchasing and marketing economies. Discounts would be given by suppliers to these companies on bulk purchases of raw material and components, leading to a lower per unit cost. If suppliers do not want to sell at a lower price, then they face losing a customer as the multinational companies could easily just go to another supplier. In terms of market economies of scale, the large companies could easily just market many products at once instead of having a number of adverts and hence advertising costs are also unlikely to increase in proportion to increase in output. However depending on how much supply there is of cocoa beans, it means that prices are going to rise and therefore making it more difficult for large multination companies to benefit from economies of scale as they may only purchase the confectionery when required instead of storing for later use. ...read more.


Nevertheless, some people may not find intervention to be as desirable because it means that farmers are getting income for not really trying hard as they could easily mass produce a certain product. Inefficient farmers would be less likely to leave the farming market due to the intervention by the government as they will be receiving high revenues through their production of agricultural products. Efficient farmers would also be less likely to exit the farming market as they would be more acquainted with using chemicals and other harmful substances in trying to increase their surplus and therefore their guaranteed revenue/income. This would lead to acidification of lakes, loss of habitats and even soil erosion. Intervention may mean that it increases agricultural productivity but in actual fact it may not be so efficient because many years of good harvests would mean that the government would have to purchase and then store any surplus goods. This would lead to high costs of storage. Countries with large agricultural sectors would require a lot of help from the government and that would also consequently increase the costs of any new schemes. ?? ?? ?? ?? ...read more.

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