The world’s chocolate supply is in trouble.

Over the past year, prices for cacao have shot up by 400% to as high as US$10,000 a ton. This is due in large part to severe heat, intense rain, and disease outbreaks—all linked to climate change—in Ghana and Cote d’Ivoire.

Together, these 2 countries produce 70% of the world’s cacao supply.

This is just the latest blow to chocolate production in West Africa, which has come under increasing scrutiny for its historical role in driving deforestation, high poverty rates among farmers, and use of child labour. And yet the industry not only provides hundreds of millions of people around the world with the chocolate they love, but also marginally employs an estimated 2 million smallholder farmers in the region.

To survive, the sector faces an extremely daunting question: how to produce verifiably deforestation- and child labour-free chocolate that is resilient to climate change and provides a pathway out of poverty for farmers.

Doing so requires a fundamental shift in how the entire supply system operates, starting at the farm level.

Transforming Peru’s Cacao Sector

From 2012 to 2022, Palladium’s Peru Cacao Alliance developed and tested one path forward, with transformative results. By building proactive relationships with cacao buyers, intermediaries, and associations, it catapulted Peru from 10th to 2nd in the world in terms of fine flavour cacao production while raising farmer incomes and reducing poverty.

It also proved effective in the fight against climate change, both by increasing farmers’ resilient to climate change, and by sequestering greenhouse gases through reforestation.

The first major innovation was to enable farmers to expand from an average of 1 hectare of low yielding cacao to at least 5 high productivity hectares using an intensive agroforestry model that combined cocoa with plantains and trees. This new approach replaced unsustainable livestock and illicit coca, providing farmers with living incomes without further deforestation.

During its first, agroforestry-focused phase, the Alliance reforested 29,088 hectares of cacao, over half of which used an agroforestry model that included 16 million non-cacao trees. An independent analysis published in 2016 found that the new cacao trees alone resulted in projected carbon sequestration of 211,467 tons of greenhouse gases annually, which more than offsets the expected emissions from the use of fertilisers (10,286 tons).

In its second phase, the Alliance’s efforts shifted towards connecting these farmers with the markets, finance, and technical assistance needed for their investments to pay off in the form of higher incomes. The program partnered with financial institutions, input and technology providers, and international and domestic cacao buyers to address market failures, develop and implement collaborative business models, and introduce and promote new agricultural practices to boost productivity and access high-value markets.

This involved two systemic innovations. First, PCA helped farmer organisations and private firms replace outdated on-farm processing practices with centralised processing centres, which made the cacao beans higher quality and more traceable, which in turn, raised prices.

The second innovation was empowering networks of cacao farmers to teach each other how best to improve yields and quality even in the face of climate shocks. This also involved linking them with technology and input companies offering improved farming inputs and practices, as well as financing from local financial institutions. These innovations have transformed the entire cacao ecosystem in ways that are good for farmers, businesses, and buyers, as well as the environment.

Crucially, increasing yields on existing agricultural lands meant that farmers could boost their incomes without expanding production into existing forests. The European Union and other important markets are increasingly requiring that importers prove that their agricultural products are deforestation-free.

This requires farm-to-market traceability, which is very difficult to achieve.
To help address this problem, the Alliance developed and piloted a system that used a combination of satellite and in-person data to track forest cover on individual cacao plots over time, based on the extensive database of cacao farmers that it built over 10 years of implementation. Such systems can ensure that Peruvian cacao meets even the most stringent market requirements regarding deforestation, and also can be leveraged by carbon credit programs to help connect smallholder farmers with an extra source of income for protecting and restoring their forests.

Protecting the World’s Chocolate

Beyond helping farmers respond to this climate shock, the Alliance helped the industry navigate challenges that posed threats to farmers’ increased incomes, without which these kinds of agroforestry efforts are at risk of reversal.

This included helping farmers, cooperatives, and local processors achieve the level of quality needed to sell their goods in high-value markets and navigate regulatory challenges such as the European Union’s ban on pesticides, limits on cadmium content, and requirements that agro-commodity companies prove their imports are deforestation-free. Overall, the Alliance’s activities supported 26,659 farmers managing 78,781 hectares of cacao, helping protect all those hectares from deforestation for other (oftentimes illicit) lucrative crops.

Protecting the world’s chocolate supply and the farmers that produce it, requires systemic and transformative solutions.

The Peru Cacao Alliance shows what is possible when the resources and attention of the full array of participants in the system – everyone from smallholder farmers and associations to financial institutions and end buyers – are aligned around shared interests and goals. Some governments, including the United Kingdom, are already investing in similar solutions in West Africa, including the Cocoa and Forests Initiative.

As the United States seeks to place the climate crisis at the centre of its foreign policy and development assistance approaches, West Africa’s cacao sector provides immense opportunity to protect the world’s chocolate supply while fostering shared prosperity, promoting sustainable restoration and management of productive landscapes, and addressing the twin global crises of climate change and biodiversity loss.

For more, read the case study or contact info@thepalladiumgroup.com.