2022 INCCS Negotiation Case- Cocoa Negotiation[1]

Part A: Ferrero Food Co. , Ltd.(FFC)[2]

Part B.: Cocoa Beans Supply (CBS)[3]

Background

Part A

Jiangsu Nanjing Ferrero Food Co., Ltd. (FFC) is a wholly-owned subsidiary of Italian Ferrero group. Ferrero company was founded in 1946 by Mr. Pietro Ferrero in Piemonte special zone in northern Italy. It implements familybusiness. Up to now, it is the third generation. At present, it has developed into a famous multinational group and has a series of self-created famous brand high-quality products.

Chocolate products use cocoa beans as raw materials. As an internationally renowned company, the cocoa beans purchased by Ferrero require the best quality and sustainable fair trade farm certification. In February 2022, the military conflict between Russia and Ukraine broke out. This incident had a great impact on the production plants of Ferrero company in Europe. Due to the impact of the epidemic starting in 2019, the operating rate was insufficient. In addition, with the recent soaring energy prices, Ferrero company hopes to expand the production capacity of factories in China, so as to meet the needs of China's rapidly developing market and provide products to other markets, Therefore, Jiangsu Nanjing ferriro Food Co., Ltd. began to look for new cocoa bean suppliers.

Part B

Cocoa beans supply (CBS) has been the cocoa bean supplier of American chocolate production companies until 2019. Unfortunately, due to the recent economic recession in the United States, the business of cocoa bean supply company has encountered difficulties. Therefore, after considering several strategies to deal with the decline of customer demand, the company decided to enter a new market.

Growing mainly in world’s equatorial regions, cocoa beans are the key source component for the billion-dollar chocolate industry. Although the third largest producer of cocoa beans in the world, the country of Ghana is also known for the premium quality of its cocoa. In fact, Ghanaians call it “pa pa paa” which means the best of the best. Unfortunately, despite the high quality of this commodity, general economic underdevelopment in Ghana has allowed farming practices such as child labor that many characterize as unethical. To combat this, the industry recently introduced a Sustainability and Equity Certification (S&E Certification) Program. The key goals of this program are to promote sustainable agricultural practices, improve farm yield management and address social and living conditions among farm workers. An encouraging sign of its impact, according to a recent report, is the comparatively higher yields, better quality and higher profitability of S&E certified cocoa farms when compared to conventional farms.

In recent years, the Ghanaian government has promoted the full liberalization of the cocoa industry and promoted the development of the local chocolate industry. Because cocoa is the raw material for chocolate production, other multinational companies have strong demand for cocoa beans. For example, Nestle of Switzerland has established a planting base in Ghana.

Negotiation Process

CBS in Ghana learned that FFC in Nanjing, China is looking for a reliable supplier of high-quality cocoa beans. FFC in Nanjing, China selects high-quality raw materials to produce high-quality organic chocolate products (chocolate bars, chocolate candy, etc.). In recent years, the import of cocoa beans in the Chinese market has increased rapidly, so this may be a great opportunity for CBS in Ghana.

Therefore, Ghana CBS is planning to meet with Nanjing FFC in China to discuss with it and develop it into a new customer. Taking into account the impact of COVID-19, the two sides decided to conduct consultations through video negotiations in October 2022 or November. During this negotiation, the two sides discussed the following important topics:

• Price

• Quantity

• Quality (based on percentage of defective cocoa bean and yield of cocoa butter)

• Incoterms (International Commercial Terms)

• Certification

• Flavor

The Negotiating Objectives

Ghana cocoa bean Supply Co., Ltd. and Jiangsu Nanjing Ferrero Food Co., Ltd. successfully concluded a transaction.