As the stock market skids lower this week after several
speed bumps have emerged in the global economy, there is one that could
be more than a bump. Not to be a fear-monger, but the Ebola virus, a
severe, often-fatal illness in humans, has spread like wildfire in
Guinea, Sierra Leone and Liberia. According to the World Health
Organization (WHO), the Ebola virus is killing 70% of the people who
contract the disease.
So far there have only been a few reported
cases inside the United States, but there is great concern – read that
as fear – the disease could spread further, not just in the United
States, but in other countries as well. As reported in October 2014, the
WHO believes there could be up to 10,000 new Ebola cases per week in
alone in Guinea, Liberia and Sierra Leone by the end of this year as the
outbreak spreads.
A
recent World Bank study
estimated that if the epidemic is not contained quickly, by the end of
2015 it could cost Liberia 12% of its gross domestic product (GDP) and
Sierra Leone 8.9% of its GDP. The World Bank goes on to estimate that if
the outbreak spreads more widely to neighboring countries with larger
populations and economies, then the two-year financial cost could reach
$32.6 billion.
We’d note that during October 2014, when the urgency was
high and fear was climbing, there were no licensed Ebola vaccines, but
two potential candidates were undergoing evaluation.
While
certainly not a fad, the question to ponder at the moment is: what are
the implications and economic effects of the Ebola virus?
Two
companies that have received a ton of attention following the Ebola
outbreak are Lakeland Industries (LAKE) and Alpha Pro Tech (APT) because
of their disposable protective clothing and chemical protective suits,
as well as infection control products that include facemasks and eye
shields. Should the virus go from outbreak to epidemic, those two
companies could see pronounced demand for their products. Airline
stocks, like Delta Air Lines (DAL), United Continental (UAL), American
Airlines (AAL) and others could see their revenues come under pressure
if Ebola-concerned companies and consumers shun air travel — even though
oil prices are retreating, given the current excess supply of oil.
Those
are two examples, but there is another that will have a far greater
impact on the everyday consumer. Simply put, Ebola is threatening the
world’s supply of chocolate.
Even though, as of this writing,
the Ivory Coast has yet to experience a single Ebola outbreak, the
African country has shut its borders to neighboring Guinea and Liberia.
At a minimum, that reduced the available workforce needed to process the
1.6 million metric tons of cacao beans per year – roughly 33% of the
world’s total – supplied by the Ivory Coast, according to data from the
United Nations Food and Agriculture Organization. That impact to global
supply sent cocoa prices substantially higher, and, should the Ebola
virus be found in the Ivory Coast, cocoa prices could move considerably
higher.
But wait — it could actually get even worse if we fold
the African country of Ghana into the mix.
That is because Ghana is also
a major source of cacao beans; combined with the Ivory Coast, these two
African countries are responsible for about 60% of the world’s cocoa.
If we widen our view a bit further, we find West African countries
supply around three-quarters of the world’s cocoa for chocolate
production.
From
the March 2013 low, cocoa prices have already shot up by 50%. That will
hit any chocolate fanatic right in the sweet tooth and result in higher
costs at chocolate and confection companies like The Hershey Company
(HSY), Mondelez International (MDLZ), Tootsie Roll Industries (TR),
Godiva, Mars, Switzerland-based Nestle SA (NSRGY) and even India-based
Lotus Chocolate Company. Faced with substantially higher costs during
the last few months that could climb even higher, if past patterns hold,
these companies are likely to raise prices in order to preserve their
profits. If we don’t see any wage growth in the near term, consumers may
balk at higher chocolate prices this holiday season, even if gas prices
continue to move lower.
