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Beyond The Chocolate War

We decided to write about the Chocolate Wars yesterday because it nicely illustrated a recurrent economic dynamic—the way companies attempt to use government regulation to gain competitive advantage. Alexandra Wolfe’s article in Portfolio touched on an important aspect of this dynamic when she described the efforts of the Chocolate Manufacturers Association, a trade group dominated by the biggest names in chocolate, to get the government to lift restrictions on the recipe for anything called chocolate. Big Chocolate, really from competition from artisanal chocolate makers and increases in the price of cocoa butter, wants to use cheaper ingredients to cut the costs of manufacturing the stuff.
We wanted to emphasize the other side of this regulatory battle—the economic motives of the artisanal chocolate makers who are lobbying against the Big Chocolate reforms. The artisanal crowd makes lots of unsustainable arguments against the proposed reforms that serve to cover up what’s really going on. And what’s really going on is what’s always going on, businesses seeking advantage over competitors.
The artisanal chocolate makers advance some extremely unsound arguments. The first is that chocolate made with substitutes for cocoa butter—a smoothing ingredient that adds texture to chocolate—are vastly inferior. But if this were true, they’d welcome Big Chocolate’s move. Customers would turn away from New Chocolate the way they turned against New Coke, opening up a huge market for the artisanals.
What the artisinals seem to fear is that New Chocolate won’t be bad enough to drive away customers from Big Chocolate. To put it differently, they suspect that chocolate consumers may decide that they’d rather eat cheaper stuff made without cocoa butter than pay a premium for the old-fashioned product. And they want to make sure that consumers are given the opportunity to make this choice. And what they really want is to prevent Big Chocolate from engaging in price competition with their more expensive products by finding cheaper ways to make chocolate.
[More on the Chocolate Wars after the jump.]

This is a common dynamic in the market for food products. The most familiar case has to do with champagne, which French wine-makers insist only comes from a region in France. Everything else is merely sparkling wine. For the most part, people ignore this distinction and refer to any kind of sparkling wine as champagne. There’s a subtle argument to be made that allowing wine makers from other regions to call their sparkling wine champagne would deceive consumers into thinking that what they are drinking is bubbly from Champagne, France. But this argument cracks under the reality that few people actually know Champagne is a region, much less care whether the champagne they are drinking actually comes from there.
But it’s not just Champagne. We see similar arguments all over Europe about what may be labeled under familiar, popular names. Cognac. Parmesan. Even cheddar cheese has its Cheddar purists.
But these arguments at least have the strength of a long-standing tradition backing them. No matter how many times artisanal chocolate makers talk about “tradition” the truth is that what they are proposing the government protect is a relatively new way of making chocolate. In fact, until recently chocolate was for drinking and was almost never consumed in solid form. The industrial revolution brought about the mechanical cocoa press, making chocolate more affordable to the masses and creating a chocolate with a smoother, sweeter taste. It wasn’t until 1830 that solid chocolate was developed by Fry and Sons in England. At any stage of these developments, it’s easy to imagine traditionalist chocolate makers objecting. Chocolate not produced entirely by hand! Horrors! Chocolate is a drink not a solid!
Some object that customers eating New Chocolate would be being deceived because few people read the labels naming the ingredients on food. That’s largely true, as far as consumer habits go. But if New Chocolate was actually vastly inferior, customers wouldn’t have to read the labels. They would taste it and feel it in their mouths. Again, the fear here seems to be that customers could eat New Chocolate without noticing. Or that, if they did notice, they would prefer to pay less for the New Chocolate than the Old Chocolate. But why should the government be in the business of preventing unnoticeable changes or stopping consumers from making their own cost vs. taste decisions?
We actually don’t have an opinion on what should count as chocolate. We suspect we prefer the traditional stuff. But we haven’t heard a plausible argument for why the government should have an opinion on this either. And, perhaps more importantly, we don’t think it makes sense to even discuss this issue without paying attention to the economic and politics of artisanal chocolate makers attempting to avoid price competition with New Chocolate.



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