Supply shortages and signs of growing demand are driving cocoa prices upward. Unusually severe weather in cocoa-producing regions—too much rain in Brazil and too little in West Africa—has limited production. Further, Europe and North America recently reported stronger demand for cocoa. In the first quarter, grinding of cocoa beans—the first stage in processing cocoa for chocolate—rose 8.1 percent in Europe and 16 percent in North America. Analysts have concluded that cocoa's price will continue to rise at least into the near future. Which of the following would, if true, most strengthen the reasoning above? A. Ground cocoa beans can be stored for long periods before they spoil. B. Several European and North American manufacturers that use cocoa have recently improved their processing capacity. C. It takes new cocoa trees five or six years before they start bearing fruit. D. Governments in Europe and North America are likely to change current restrictions on cocoa imports. E. Historically, cocoa production has varied widely from year to year. CR51141.01 OG2020 NEW QUESTION

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Supply shortages and signs of growing demand are driving cocoa prices

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GMATNinja

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Karanzzz11

While I understand this.

However in the question also there is a talk about processing cocoa as the first stage in making chocolate and if European and North American companies have increased processing capabilities will also increase the demand of cocoa beans and we know that if the demand is high and the supply is low(which is clearly known by the premise established) doesnt it make the price high?

I used this approach and marked B as the correct option. Can you explain how my reasoning is incorrect.

It's important to keep in mind that manufacturers that use cocoa (for example, factories that process cocoa for chocolate) do not SUPPLY cocoa. Instead, such manufacturers purchase cocoa to make other stuff, such as chocolate.

Improving processing capacity might lower costs for those manufacturers, but who knows whether those savings will be passed on to consumers. Hershey, for example, might leave chocolate bar prices the same and just pocket the extra profit. Just because Hershey improves its processing capacity does not automatically mean that Hershey will demand more cocoa from suppliers.

Sure, it's possible that the recent improvements in processing capacity help explain the first-quarter rise in cocoa grinding, but the data itself (the percent rise in grinding of cocoa beans) is already given in the passage. Knowing why the data is true is interesting trivia, but it doesn't strengthen the argument.

And even if (D) helps explain the current production levels, there is no reason to believe the production will CONTINUE to rise.

I hope that helps!