Cocoa’s Breaking Point

Plenty of ink has been spilled over all things cocoa and chocolate in the last couple of years. Cocoa spent decades at around $2,500 a ton, then spiked to over $12,000 at the end of 2024. These days it’s trading around $6,000, a relative relief that’s still more than twice the historical average. Supply-driven volatility is the new normal. And the industry might just have needed this crisis to realize the unsustainable nature of cheap cocoa, and act on it. The question is no longer ‘How bad is the crisis?‘ or ‘How long will it last?’ but “Which transformation do you bet on?” In answering that, focus tends to be singular. Smallholder advocates don’t want to discuss cocoa alternatives. Startups often position themselves as a total replacement. Agri developers rule out traditional sourcing. But as is usually the case, reality is more complex. So, what should an 11-million-ton-a-year chocolate industry look at to secure its future? We sat down with Raphaël Felenbok, an industry expert and former managing director at Barry Callebaut, now on the board of Tony’s Chocolonely Foundation and PeakBridge portfolio company Win-Win. His bottom line: a successful cocoa strategy must pursue three parallel paths.

We hear about commodity shocks all the time lately. What makes cocoa different? What exactly happened to supply?

At its core, the cocoa supply chain is almost primed for problems. Supply is very concentrated, with more than half coming out of Ivory Coast and Ghana. And these are two over-regulated countries. Farmgate prices are both fixed and taxed, preventing farmers from fully benefiting from raising prices. In addition, those countries ban innovation such as high-yielding plants and grafting. As a result, and paradoxically, regulations that were originally intended to limit supply and protect prices are now backfiring and starting to drive cocoa growing elsewhere. Then you have aging farmers and farms, on depleted soils with little or no access to expensive fertilizers, and competition such as rubber in Ivory Coast and gold mining in Ghana.

But the main culprit depressing supply is the Swollen Shoot virus. It’s a silent killer, asymptomatic for up to two years as it makes its way through plantations through mealybugs. Trees start to show symptoms and die within 3-4 years. Over 40% of West African trees are estimated to be contaminated. And there is no real silver lining on the horizon – no cure for the virus nor any mitigation measure in place.

Finally, of course, we cannot forget climate change. Increased temperatures are generating higher levels of evapotranspiration, which ultimately makes significant growing areas less suitable for cocoa production. And this is accelerated locally by deforestation in the Congo Basin (partly driven by cocoa expansion, particularly in Cameroon).

So this really isn’t about a couple years of bad weather and a price jump. It seems to be a new reality. How are chocolate players mitigating this?

For sure, these are structural issues that cannot be solved overnight, and the sustained high prices have pushed many chocolate players to reformulate. Hershey’s has replaced expensive cocoa butter with other fats like palm and shea-based CBEs (cocoa butter equivalents), forcing them to remove ‘milk chocolate’ from their packaging to stay in line with FDA guidelines. Nestlé and Pladis have also removed the term ‘chocolate’ from some products. The UK’s iconic Penguin and Club bars are now ‘chocolate flavored.’ One should keep in mind that under EU law, milk chocolate must contain at least 25% total cocoa solids, and only 5% vegetable fats in place of cocoa butter.

Beyond swaps for cheaper compounds, where does the industry stand on cocoa-free alternatives?

Many chocolate users went back to the drawing board considering a range of solutions, not only to solve for price, but also for sustainability and longer-term supply security and stability. And for some applications, companies have rather radically reformulated, adopting cocoa-free solutions altogether. They turned to FoodTech innovators who’ve been working on the science for a while. Win-Win, for instance (a PeakBridge portfolio company) uses proprietary solid-state fermentation with broadly available cereals to create affordable, stable chocolate alternatives with 80% less emissions and water use than conventional chocolate. Planet A is working with sunflower seeds. Celleste Bio and Kokomodo are both exploring cellular agriculture, though costs remain significantly higher. And finally, even large agri incumbents are providing solutions. It’s for instance the case of Soufflet Malt offering cocoa and coffee powders as bulking enhancers more upstream in the value chain.

How are the innovators bringing their solutions to market?

It’s all about partnerships, often with established mid-stream B2B players. Cargill launched NextCoa solutions with Californian startup Voyage Foods, positioning it as another option to manage volatility (not just a replacement). Barry Callebaut, the world’s biggest chocolate manufacturer, partnered with Planet A. Martin Braun teamed up with Win-Win to bring alternatives to DACH’s artisanal channels. And interestingly, Lindt & Sprüngli has invested in Food Brewer for cell-cultured chocolate.

Do you have a sense of how consumers are reacting? As with all food novelties, consumers’ appetite is the ultimate judge, right?

Research indicates that end-consumers are increasingly receptive, with blind tasting showing parity in most confectionery applications. A recent study from Diffusion showed 38% of consumers support these alternatives and as much as 55% for younger generations (aged 25-34). Also interesting to note that 37% of consumers said they are “neutral or undecided” suggesting that top-line marketing could certainly help.

Your take seems to be that alternatives are important, but not the whole story. What do you think should be happening on the supply side to make it more resilient and productive?

Let’s start with smallholder farms. Today, more than 95% of cocoa is still farmed by smallholders, far more than in coffee, palm or tea. The vast majority of these farmers live in extreme poverty, under $3 a day, and are often trapped in “low input / low output” farming models. In that light, one can understand why cocoa is often described as a “poverty trap”. And that poverty induces other dire issues like child labor and deforestation.

Can the industry continue to rely on such a flawed model?

Smallholder farms will certainly still be part of the picture. But the path forward requires fundamental restructuring, more equitable for farmers and more reliable for offtakers. Dutch Tony’s Chocolonely has set a working blueprint. Paying farmers a significant premium above fixed farmgate prices (44% higher in Ivory Coast and 15% higher in Ghana last season) and doing so over the long-run (5-year commitments with their 10 partner cooperatives). That has ultimately led to more resilient cocoa farmers, with yields suffering less of a hit during the crisis, plus much lower child labor occurrences – 4% vs. the shocking industry average of around 50%. 

Another transformative model is Switzerland’s Choba Choba. They source exclusively from 35 farming families in Peru who own around half of the company. As active shareholders, they steer the business and receive dividends. And there are many more impactful startups that can help by bringing truly life-changing solutions to smallholders like Elucid’s healthcare or OKO’s climate insurances.

It’s important to note the potential for smallholder farmers to double yields from 400 kg/ha to around 800 kg/ha thanks to relatively basic agronomical practices. Proper weeding and pruning, for instance, aerate the farms and prevent the spread of the black-pod fungal that can destroy up to 40% of a farmer’s output.

Given the structural issues we discussed, plus diseases and climate change hitting vulnerable smallholder farms, at what point does this production shift out of West Africa to larger scale farming?

The potential for productivity is much higher than what those small-scale models can offer. Farming in drier zones helps avoid pests and diseases which is crucial. Then by adding compost/fertilizer, irrigation and self-pollinating trees, yields can jump 6x higher (above 2 tons per hectare as observed on larger-scale farms in Latin America). Some chocolate brands and developers began experimenting well before the crisis with agroforestry farming (e.g. Mars Wrigley with La Chola in Ecuador, Andean Cacao in Colombia, and Ritter Sport with El Cacao in Nicaragua) but the crisis fueled the emergence of even larger projects over the last two years, like Cargill with Agricola Schmidt and Barry Callebaut with Santa Colomba, both in Brazil.

What are the caveats here – what about sustainability? And what will it take to make this kind of large-scale farming really take off?

Larger plantations do risk drawing sustainability concerns, but there are ways to do this well when building from scratch in cocoa today. Higher yields and planting trees on previously deforested land certainly bring the carbon footprint down. And on the social side, this model employs farmers and allows them to make a living wage: to send their kids to school, afford healthcare and retire with a pension. 

Scaling to farms as big as 100’000 ha does require well-structured cooperation, significant upfront capital, and patience over a long horizon. It’s no surprise that it’s mostly private companies that have been seriously looking at this so far. These CAPEX-heavy long-term bets are hard to do under the short-term scrutiny of public markets but can deliver great long term value creation. For any major industry player that’s looking ahead, it has to be part of the thinking.

Let’s end by zooming out: what would be your message to the cocoa and chocolate sector, whether industry giants or startups?

This unprecedented cocoa crisis has changed the cocoa industry for the long run. A strategy to adapt can’t rely on just one of the discussed avenues. Cocoa and chocolate players should embrace the “new normal” and investigate parallel solutions: a step-change in the way they work with smallholder farmers, modern and sustainable large-scale farming in new regions, as well as scalable cocoa alternatives. These approaches will yield results on different timelines, but all must begin now to ensure resilience and competitiveness down the road.