To all the little girls and boys dreaming of growing up and working in a chocolate factory, hear this, and be warned. These are the sobering words of Michele Maccarone, a New York art dealer, whose dream has just come true.

“I’ve been eating this chocolate non-stop for over a week,” she says, drawling like an agitated Loyd Grossman, “and I’m, like, raging crazy. I’ve, like, not only broken out in spots but I went to see my shrink this morning and said: ‘I’m having raging panic attacks’ and she was like, ‘Michele, how much chocolate are you eating?’ ” She scratches her head, which is topped with a baseball cap emblazoned with the logo of the luxury chocolate company Guittard, whose product she has been putting to use. “It’s making me edgy,” she says. “It’s so high in cacao that it’s kind of euphoric. I don’t know if I’m raging because of withdrawal or because my head’s about to explode.”

If the dream has gone bad Maccarone has only herself to blame. Her enterprise, called Peter Paul Chocolates for various inconsequential reasons, is a makeshift operation in her gallery, Maccarone Inc, which is housed in industrial buildings on the fringes of Greenwich Village. Worse, her chocolatier, and the author of the project, is Paul McCarthy, the 62-year-old Los Angeles-based artist whose reputation was forged in the 1970s with performances that involved him rolling about on the floor, filling his pants with tuna and cramming his mouth with frankfurters (he’s also an absentee boss: he remained out of reach when I tried to contact him).

Worse still, her prize sweet is a 10in chocolate figurine-cum-sex toy titled Santa with Butt Plug. It retails for $100 (£48).

The operation is impressively comprehensive. McCarthy has devised the décor for a shopfront, which contains mirrors and shelves and candy-coloured wallpaper looming with Father Christmasses. And part of the gallery has been sealed off to provide a sanitary environment to produce the chocolate. Here, on working days, Maccarone has a staff of six at work, led by the master chocolatier Peter Greweling, who superintends the transformation of Guittard’s high-grade 72 per cent cacao chocolate into Santas.

It’s remarkable that it’s here at all, because McCarthy approached her with the idea as recently as last June. “The chocolate industry was, like, no,” she says. “They said: ‘You just can’t open a factory in that time-frame. It’s ridiculous.’ ” But a combination of blissful ignorance and determination got her through. It helped that McCarthy has worked with chocolate before, producing droopy-nosed Pinocchios and pirates. It’s all part of his stream of thoughts about the infantilism of much contemporary culture, of how it all leads back to ingesting and defecating, to food and sex and toilet training. He isn’t the only artist to have muddled his larder and his gallery, and, in truth, the idea is probably a little played out. Nevertheless, few have turned their art into a factory and retail operation quite like this.

Maccarone and McCarthy have succeeded, but only just. There are problems with packing: they had intended to stuff the boxes with shredded copies of the high style New York art magazine Artforum, but, “We’re kinda screwed,” Maccarone says. “It’s taking more than a hundred Artforums a day.”

There are staff training issues (“Every day one of the women in the packaging department says: ‘What’s a butt plug?’ ”). And there are damaged goods: Maccarone picks a Father Christmas off the assembly line and turns it over, dismayed. “This is all f***ed. This goes on the Bad Santa shelf.” She puts it on a pile of shattered Santas. Strangely, and darkly, a bag lies next to them. On it is written the legend: “Slut – New York.”

These glitches are perhaps nothing compared with the difficulty of successfully marketing a $100 chocolate figurine, although in stringent taste tests conducted on a sidewalk later that afternoon, McCarthy’s Santa with Butt Plug easily trumped a $2 “chocolate flavoured" Santa bought in a drugstore.

McCarthy’s creation is a hollow ornament that cracks open cleanly and melts on the tongue. “The chocolate doesn’t have any particular flavour notes that stand out,” Greweling says, “but it’s a blend of beans with a beautifully well-bal-anced flavour.”

By comparison, the $2 Santa is a filthy interloper employing partially hydrogenated vegetable oil instead of cacao: greasy, leaden, and with flavour notes in the range of used chip fat and chocolate sludge.

But even so – $100? One might also object that, for use as a sex toy, McCarthy’s Santa is somewhat fragile. “Well,” Maccarone muses, “if you want to break this off and stick it . . . I wonder. It might work . . . I haven’t tried. Covering costs is a whole other question. I look at the chocolate as a byproduct of this enormous sculpture. It’s expensive chocolate, cheap sculpture.”

Problems notwithstanding, the gallery is bent on producing 1,000 a day. Ten days in, only 1,000 had been sold, but orders were coming in. “Art cognoscenti are buying, for sure,” Maccarone says. “But also random people on the internet.”

Some, “like, fancy people” are even buying in bulk. And they aren’t discouraged by the limited lifespan of the work. Indeed, Maccarone seems confident that the figurines are built to last.

“Chocolate lasts a year – to eat,” she says. “Sculpturally, if you put this at a high temperature it will melt, and if it encounters an inordinate amount of humidity it will bloom, which means the patina will take on a white coating. But Paul doesn’t care about that – the sculpture remains a sculpture.”

As for how this project will pay for itself, and whether it might one day be resurrected elsewhere, Maccarone says we’ll have to wait and see. “The question is, how is it sold? Does it become another retail store? The person who then shows it – do they have the ability to sell the San-tas? Nothing’s been decided, and it doesn’t need to be decided right now – it’s a process-orientated piece.”

— Peter Paul Chocolates, Maccarone Gallery, 630 Greenwich Street, New York (www.maccarone.net ) to Dec 24

Dieter Roth The German-born artist Dieter Roth, who died in 1998, was famously associated with food. Fascinated by the textural qualities of grease stains, mould formations and insect borings, he created works such as Self-Portrait (1969). A simple blob of chocolate, it apparently, now looks cracked and bored with insect holes and smells of rancid fat.

Will the public swallow it? More edible art to savour

Dieter Roth The German-born artist Dieter Roth, who died in 1998, was famously associated with food. Fascinated by the textural qualities of grease stains, mould formations and insect borings, he created works such as Self-Portrait (1969). A simple blob of chocolate, it apparently, now looks cracked and bored with insect holes and smells of rancid fat.

Helen Chadwick The British artist’s 1989 work Meat Lamps used raw meat in exquisite photographic tableaux representing the body and the soul of a person. Cacao (1994) was a plopping pool of chocolate, the nauseating smell of which could be detected yards away, evoking ideas of desire and repulsion.

Giuseppe Arcimboldo Currently at the Musée du Luxembourg in Paris is a retrospective of the great Italian Renaissance “food” artist, Arcimboldo (1527-1593), who is best known for the portraits he created using images of fruit and vegetables, flowers and fish.

Sarah Lucas The British artist has incorporated all kinds of food into her sculptures, often to echo genitalia. In 2001 she produced 12 rum-rich fruit cakes, topped with photographs of her work printed on to the icing. Each sold for £480.

Tatsumi Orimoto Orimoto, aka the Bread Man, is a Japanese artist who has built his reputation on performances in which he binds baguettes to his face. In 2002 he was invited to mark the opening of the Baltic Centre in Gateshead with a performance that reminded visitors of the original purpose of the gallery – as a flour mill.

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