A sweet deal: How a change in US chocolate labelling rules could benefit Africa
A change in the rules for chocolate labelling in the US could increase shea exports and boost incomes in shea-producing regions of Africa.
According to the UN, roughly 3 million African women work directly or indirectly with shea butter. Shea is an important source of revenue across much of sub-Saharan Africa. Shea sales not only generate income for workers and farm owners, but also for the greater community. Estimates from the United States Agency for International Development (USAID), based on a study conducted in Mali, indicate that for each US dollar of farm income from the sale of shea nuts, an additional US$0.58 of household income will be created in the local economy.
Shea has been used for centuries in Africa as a skin care product, one of its key properties lying in the ability to protect and moisturise skin. There are even some reports that Cleopatra travelled with large jars of shea butter throughout the hot deserts of Egypt. Shea is now used across the world, with global demand valued in the billions of dollars. In addition to cosmetic uses, shea butter is used in confectionery and bakery products, and when mixed with other oils it can be a substitute for cocoa butter.
The shea tree grows wild in the equatorial belt of Central Africa in a long and narrow swathe that is approximately 500km wide and 6,000km long. It encompasses over 20 countries from Senegal in the West to Uganda in the East. The fruit consists of a green fleshy mesocarp, which is sweet when eaten, and has a high nutritional value. The shea nuts are cracked to remove the outer crust which leaves the kernel. They are then roasted and ground into a paste from which shea butter is extracted. Shea butter processing and extraction remains a major economic activity in that region of the world, especially for rural women. Due to its well-known cosmetic and nutritional values, it is traded internationally and exported to earn foreign income. During harvesting season, the collection of shea involves a large proportion of the population, mostly women and children.
The US Food and Drug Administration (FDA) considers shea nut oil to be safe for food use and allows shea to be used in confectionery coatings and fillings. Current FDA regulations, however, stipulate that a product that is labelled as “chocolate” shall not contain any fat other than cocoa butter or fat from certain dairy ingredients. Below we consider the potential economic effects of changing US FDA labelling rules to allow chocolate to contain up to 5 percent of cocoa butter equivalents (such as shea butter) as a substitute for cocoa butter – which would be similar to the changes introduced in the EU in 2003. Our results suggest that the potential increase in the demand for shea nuts could significantly boost West African shea exports, generating additional income for the shea-producing communities in some of the poorest parts of the region.
US chocolate labelling rules
The US FDA defines “chocolate” as a product that is based on cocoa solids and cocoa fat, and specifies an exhaustive list of ingredients allowed to be added in chocolate. For instance, regulations for “milk chocolate” authorise optional ingredients such as cacao fat, spices, nuts, or dairy ingredients, but no cocoa butter equivalents are allowed. These rules and distinctions must be strictly followed, with no additional ingredients added, or else a product cannot be labelled “chocolate.” Chocolate producers that use extra components use labels such as “chocolaty” or “chocolate-flavoured.”
Studies have shown that cocoa butter equivalents, such as shea butter, can prolong the shelf life and improve the “functionality” of chocolate products. For instance, shea butter in chocolate can modify a chocolate’s melting curve to get desired results in a range of climates while not necessarily affecting the flavour profile.
In 2003, the European Commission changed its rules to allow chocolate to contain up to 5 percent of cocoa butter equivalents. A similar change to US chocolate labelling requirements that would allow shea-based ingredients could boost African exports. An increase in shea exports, particularly to the US, would seem to support the goals of existing programmes. For instance, the African Growth and Opportunity Act seeks to promote the access of goods produced in sub-Saharan Africa to the US market. Further, USAID has identified shea as a product with significant export potential.
What would be the impact of change in US chocolate labelling rules?
The first step of the analysis involves determining the export potential for shea if the US were to liberalise its labelling restrictions for chocolate and adopt legislation that is similar to the current practice in the EU. The second step involves assessing the effect of increasing global demand for shea on the local economy in terms of revenue and employment growth.
The effect on US shea demand
We estimate current annual US chocolate consumption to be approximately 1.4 billion kilograms – based on annual per capita US chocolate consumption of 4.3kg and the US population of 323.2 million. Suppose the US follows the EU example and allows a substitution of up to 5 percent of chocolate ingredients (in terms of volume) to be cocoa butter equivalents (CBEs), and shea butter is used for half of the CBEs. Then the potential increase in shea butter demand would be 34.8 million kilograms (i.e., 2.5 percent of 1.4 billion kilograms). Alternatively, if only half of chocolate producers made the CBE substitution, the potential increase in shea butter demand would be 17.4 million kilograms. A 34.8 million kilograms increase in shea butter demand translates to 69.6 million kilograms of shea nut kernels, with a market value of US$34.8 million. Given the volume of annual shea nut exports of 349.9 million kilograms, this translates into a 20 percent increase. If only half of the chocolate were to make the CBE substitution, then the estimated increase in exports would be 10 percent.
Expected economic effects in shea-producing regions
A value chain analysis conducted by USAID in Mali found that each US dollar of shea nut sales generates an additional 58 cents of economic activity in the community, which translates into a regional income multiplier for shea of 1.58. The additional economic activity includes subsequent spending on wages and salaries, petrol, packaging materials, and so on. In essence, the multiplier effect means that individuals will spend parts of the income earned along the value chain by purchasing other goods and services, which creates additional demand and income for the local economy. Using this USAID regional income multiplier, the total potential additional income generated for shea-producing communities is estimated to be US$55 million. Table 1 summarises the estimated economic effects across a range of scenarios.
Table 1: Estimated economic effects across a range of scenarios
Source: These figures are based on Sidley calculations. For more details see the following footnote.
Two metric tons (MT) of shea kernels are needed to produce one MT of shea butter. As indicated above, if the US were to liberalise its labelling requirement, shea-producing regions could expect an increase in demand in the order of 69,646 MT of shea kernels. Typically, each woman collects around 85kg of shea kernels during the harvesting season. As a result, increasing US demand for shea could create job opportunities, during harvesting season, for an additional 820,000 women. The increase in shea demand would also likely bring about upticks in world market prices. There do not appear to be supply restrictions: currently, only 50 percent of shea production is collected.
Our analysis suggests that a change in US chocolate labelling rules that would allow chocolate to contain up to 5 percent of CBEs could boost African shea exports and bring important revenue-generating effects to the region. Specifically, we find that African shea exports could increase by 10 to 20 percent, assuming that at least half of US chocolate manufacturers would take advantage of the substitution ability. Further, our results suggest that the export revenues plus the additional income generated could be up to US$27 million for the region. The countries across the shea tree-growing region of Africa have annual GDP per capita ranging from US$370 to US$3,300, and the region includes some of the poorest countries on the continent. The feasibility of a change in US chocolate labelling requirements that could bring about such economic benefits certainly appears worthy of further study.
The views expressed in this paper are those of the authors and do not necessarily represent the views of Sidley Austin, LLP, or any of its clients. The authors wish to thank Joe Funt of the Global Shea Alliance, Torrey Cope, Diane McEnroe, and participants at “The Future of Shea Conference,” Washington, DC, May 2016, for helpful comments.
Authors: Kornel Mahlstein, Economist, Sidley Austin, LLP (Geneva). Christine McDaniel, Senior economist, Sidley Austin, LLP (Washington, DC).
 In 2003, the EU Shea Butter Directive (Directive 2000/36/EC) allowed chocolate to contain up to 5 percent of a limited number of vegetable fats (such as illipe, palm oil, shea, kokum gurgi, and mango kernel); see also European Commission, “The Impact of Directive 2000/36/EC on the Economies of those Countries Producing Cocoa and Vegetable Fats other than Cocoa Butter,” 2000.
 See Forbes. “The World's Biggest Chocolate Consumers,” 22 July 2015; and US Census, Population Clock, as of 28 March 2016.
 The degree to which chocolate producers in the US would take advantage of a new labelling rule that would allow them to use CBE and still label their product as “chocolate” is unknown. Some manufacturers may choose to make the substitution and others may not, depending on consumer preferences, production choices, and so on. Because the share of chocolate that would contain CBE as a substitute is unknown, we include a range of estimates in Table 1.
 USAID, “Exports, Employment and Incomes in West Africa,” January 2011, Table 2.8.
 We estimate 1.4 billion kilograms of annual US chocolate consumption. Based on information from industry observers, we assume shea butter would constitute 50 percent of the CBE with palm oil and/or other cocoa butter equivalents comprising the other 50 percent. The regional income multiplier of 1.58 for shea is based on estimates published in USAID "Exports, Employment and Incomes in West Africa,” January 2011, Table 2.8. Note the multiplier is with respect to shea nuts and therefore we convert the shea butter figures to shea nut figures in this table. Assumes 2kg of shea nuts are required for 1kg of shea butter; and 1MT shea nut=US$500. All figures in US$.