State of Sustainability Podcast

Solo Episode: Cocoa — A Commodity Deep Dive

SAIF: Welcome back to another episode of the State of Sustainability.

Today we're doing something a little different. I've wanted for a while to dive into commodities that are at risk from a sustainability perspective, and this is the first of what I hope will become a recurring series. I have a niche interest in commodities from several angles — longtime listeners will know I spent time in the farming sector — but also because when I graduated, I briefly fantasised about becoming a commodity trader. That manifested in two ways: I looked into jobs in the cocoa trading industry, inspired by a trader nicknamed "Chocfinger" who had attempted to corner the global cocoa market with an operation involving agronomists on the ground and what appeared to be co-opted foreign service offices. In the end I went into potato trading instead. This is not an episode about potatoes.

This episode is about cocoa. The trigger was warning my niece and nephew that my dog Sussy must never be given chocolate, which reminded me that cocoa is one of the most fascinating and fragile commodity stories in the world right now.

Why Now?

Cocoa has just run one of the most violent price cycles of any major soft commodity this decade. From a running average of roughly $2,000 to $2,800 per tonne, prices surged to an all-time high of over $12,000 per tonne in late 2024, then collapsed by around 70% to approximately $3,000 by spring 2026, and have since recovered to close to $6,000 as of mid-year. This is an extraordinary swing for any commodity.

This episode connects directly to a theme we've covered before on this podcast: commodity price volatility is rising, the swings are getting bigger, and they're getting harder to predict. Cocoa is one of the clearest illustrations of that dynamic in action.

We'll cover both the supply side — how cocoa is grown and the sustainability forces bearing down on it — and the demand side, and how the industry is responding to the signals it's receiving.

Where Cocoa Comes From

Cocoa production is extraordinarily concentrated. Around 40 to 45% of global supply comes from a single country: Côte d'Ivoire. Ghana contributes another 12 to 15%. Together with Nigeria and Cameroon, West and Central Africa account for roughly 70% of global production. The remainder comes primarily from Ecuador — the fastest-growing new entrant, with higher-yield varieties driving rising exports — and from Indonesia. Global output in 2024-25 was around 4.7 to 4.8 million tonnes, and supply has historically ping-ponged between a small surplus and a small deficit.

The production base is approximately 5 to 6 million smallholder farmers, most farming plots of 2 to 4 hectares. To put that in context: my flower farm, which was by no means large, was about 40 to 50 hectares. A mid-sized commercial farm in the US typically runs north of a thousand hectares. These smallholders are effectively running a form of subsistence agriculture — underpricing their labour, their capital, their entrepreneurship, and their land just to feed their families. This is not a resilient base from which to supply one of the most valuable agricultural commodities in the world.

Supply Side: What's Going Wrong

Agronomic decline. The trees themselves are failing. Most of West Africa's cocoa tree stock is past its productive prime. A cocoa tree takes several years to reach its peak, is most productive for perhaps 20 to 25 years, and then begins to decline in yield and disease resistance. The income per plot drops accordingly. As it is, farmers capture only around 6% of the end value of the cocoa they grow — often less. Declining yields compound an already precarious economic position.

Two disease threats make this worse. The first is Cocoa Swollen Shoot Virus — CSSV — which is incurable, spreads via mealybugs, and ultimately kills the tree. It is estimated to account for around 17% of annual production losses. The second is black pod disease, a seasonal fungal threat that rots pods on the tree during wet conditions. When heavy rainfall hits Ghana, cocoa futures prices spike in anticipation of black pod losses. Beyond disease, fertiliser and fungicide use tends to be poorly optimised: farmers often underuse inputs because they can't afford them, buying from middlemen who act as lenders at interest rates of 25 to 40%, or overuse inputs on bad advice, improving short-term yield at the cost of long-term soil health.

Replanting is the obvious solution to aging trees, but it is almost never taken. Cutting down a declining tree means accepting zero income from that plot for two to three years while a new tree matures. Most farmers would rather take the declining yield than absorb that loss. The adverse incentive is structural.

Land loss. Two distinct forces are removing cocoa land from production. The first is artisanal gold mining — known in Ghana as galamsey — where unlicensed miners, often with foreign financing, strip cocoa plots to prospect for gold. The land is treated with mercury and cyanide, rendering it unproductive for cocoa for a generation. Given that cocoa farming already offers thin and declining returns, the prospect of immediate cash from leasing or selling plots to miners can look appealing. The second force is the European Union Deforestation Regulation, which prevents new cocoa acreage from being created by clearing forest land. This is the right policy from a deforestation perspective, but it creates a practical bind: the land most suited to expanding cocoa production tends to be land adjacent to forest. EUDR effectively freezes the acreage ceiling. New planting is limited to whatever land is already in production — and on that land, farmers have no incentive to replant.

Agroclimatic zone shift. This is perhaps the longest-term structural threat. Climate change is shifting the optimal growing zones for most commodities, and cocoa is no exception. Under current projections, West and Central Africa could lose approximately 50% of their climatically suitable cocoa area by 2050. The zone is expected to shift eastward, toward Nigeria and Cameroon. But expanding into those areas would require converting forest land — which EUDR prevents for European markets. The industry faces a situation where the damage to existing supply is coming regardless, and the most logical adaptive responses are blocked.

The economic engine entrenching these problems. In an ideal world, farmers exposed to these risks would have the economic resilience to respond — through insurance, debt financing, income diversification, or simply the ability to absorb a year of lower income while transitioning to new production. They have none of this. Farmers capture under 7% of cocoa's value chain. Living income gap estimates for cocoa farmers in West Africa typically run at 40 to 50%, meaning farmers earn substantially less than what a living income in their geography would require.

Making this worse, both Côte d'Ivoire and Ghana operate administered pricing systems — the farmgate price is set by government-backed organisations, COCOBOD in Ghana and CCC in Côte d'Ivoire. These institutions tend to lag the market. When global prices spike due to a supply shortage, the farmgate price is slow to follow, so farmers miss the upside. When prices then fall, the agencies have sometimes just caught up and raised the farmgate price — leaving farmers mismatched against a falling market. The structure systematically prevents farmers from benefiting from price peaks and exposes them disproportionately to troughs.

Demand Side: How the Industry Is Responding

The industry's response to supply-side volatility has been primarily to reduce usage. Grindings — the measure of cocoa being processed — fell by around 7.8% in Q1 2026 year on year. Manufacturers have shifted toward reformulation and shrinkflation: smaller bars, substitution of cocoa butter with palm oil and shea fat alternatives, and price increases where real cocoa is maintained. Analysts increasingly expect these shifts to be structural rather than temporary. Once you reformulate, you don't reformulate back.

The risk here is that demand destruction becomes self-fulfilling. If the fear is that cocoa supply is in long-term decline, the worst response is for that supply pressure to be met by a demand-side shift away from cocoa rather than by demand that supports farmer investment and supply resilience. Reducing demand pressure in the near term may ease some supply strain, but it also removes the commercial signal that might otherwise drive investment and innovation in production.

Regulatory Overlay

EUDR increases the cost and complexity of the cocoa value chain significantly. Traceability requirements are substantial, and the legislation is already creating a two-tier market between compliant and non-compliant cocoa. Non-compliant producers will be permanently unable to charge premiums for any other differentiating quality of their product. Whether geographies producing non-compliant cocoa can sustain production long-term is an open question.

Child and forced labour in the cocoa supply chain is a substantial and separate topic that deserves its own episode — we haven't touched on it here.

Where This Is Heading

The industry is moving toward greater use of hedging, forward coverage, and other financial instruments to manage volatility on the buyer side. Sustainability programmes are attempting to support farmer resilience and provide insurance solutions. My honest read is that these efforts will have a limited impact relative to the scale of the structural challenges.

The only real fixes require: some mechanism to incentivise or finance replanting at scale; a meaningfully larger share of the value chain flowing to farmers; disruption of the administered pricing structures — unlikely given their state backing; and regulatory flexibility that allows the growing ecosystem to adapt as agroclimatic zones shift — probably the most tractable of the four, but still slow.

My predictions. Supply will decline long-term. Farmer exits from cocoa production will continue. Cocoa will become an increasingly premiumised commodity on the demand side, with a large portion of the mass market shifting to alternatives. Price volatility will remain high. The area most likely to see genuine innovation is financial instruments — hedging, insurance, and related products that allow the value chain to cope with structural volatility rather than resolve its underlying causes.

It is not the most uplifting conclusion, but it is the honest one.

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