South America farmers turn to cocoa amid price rally

New York — Schmidt Agricola is a large agricultural company producing soya beans, maize and cotton in Bahia, Brazil, one of the country's new-frontier agricultural areas fit for large-scale, hi-tech farming. It recently added a new crop to its fields: cocoa.

Production of the chocolate-making ingredient is expanding outside the main growing area in West Africa as farmers in places such Brazil, Ecuador and Colombia see potential profit in the crop.

The rally in prices to the highest level in nearly 50 years is boosting that trend, which could alleviate the supply tightness in the global cocoa market. It also poses a threat to the livelihood of small farmers in Africa since recently planted orchards such as the ones in South America are more productive, reducing the overall cost of production.

As environmental concerns rise globally, that cocoa is a native species from the Amazon region makes planting it in South America a type of reforestation, while in Africa native forests are being razed to open space for cocoa orchards.

Brazil — an agricultural powerhouse and the top global exporter of soy, corn, coffee and sugar — has seen cocoa plantations spreading over degraded pastureland in the Amazon region, as well as in large farms in the highly developed grain belt.

The country was once the second only to Ivory Coast in cocoa production, but a devastating fungus in the 1980s known as Witches’ Broom sharply reduced production. Nearly four decades later, crops are recovering.

Brazil’s government projects output could grow to 300,000 tonnes by 2025 and to 400,000 tonnes by 2030, from about 200,000 tonnes now, which would turn the country from a net importer to a regular exporter of the commodity.

In Ecuador, annual production has risen to 400,000-430,000 tonnes in 2022-23 (October-September) from 287,000 tonnes five years ago, according to estimates by the International Cocoa Organisation (ICCO) and Ecuador’s exporting group Anecacao.

Ecuador has become the third largest global grower, behind Ghana which produces about 750,000 tonnes. The top grower is Ivory Coast with 2.2-million tonnes.

Anecacao, which last July received record attendance of about 70 buyers from Asia, the US and Europe for a trade and expo conference in Guayaquil, estimates production could continue to grow to as much as 800,000 tonnes by 2030.

Large-scale farming

Some of the new plantings in South America look huge when compared to the small holdings in Africa. Most producers in Ivory Coast and Ghana have about 5ha. Schmidt Agricola has planted 429ha with cocoa, fully irrigated.

“I believe that the new profile of cocoa production will be large-scale,” said Moises Schmidt, one of the owners. “You will need technology, you need to seek higher yields to be more profitable. Grains and fibre [cotton] will continue to be the main crops for us, but we see cocoa gaining more area in the next five years.”

Hi-tech, irrigated areas such as Schmidt’s have produced as much as 3,000kg of dry cocoa beans per hectare, while the new areas in Brazil’s Amazonian state of Para produce about 2,000kg/ha. That is much higher than the Ivory Coast’s average yield of 500 to 600kg/ha, which is similar to Ecuador. Ghana’s is smaller at about 400kg/ha.

Jeroen Douglas, director of the Netherlands-based nonprofit Solidaridad, which targets more sustainable supply chains, sees Brazil’s role in the market growing, in the same way it has with other agricultural commodities such as soya and maize.

“On Brazil, once the mindset is: ‘yes, we want to get into this commodity’, there’s no way of stopping them. That mindset is not there yet, but I think we are getting to a tipping point,” Douglas said.

Brazil’s Amazonian state of Para is undergoing a revival in cocoa growing. “There are people coming back to the farms, people that left in the past to try jobs in towns,” said producer Jose Garcia, who farms cocoa on 70ha that used to be pasture in the municipality of Medicilandia, Para state.

Those new orchards in the Amazon region would have an advantage in the European market since new EU legislation restricts commodity imports from areas that have been deforested for planting crops.

“If you plant cocoa trees there [Amazon region], it is considered reforestation,” said Douglas.

He said that a reforestation project with cocoa, along with other trees, is part of strategies under way to strengthen the Amazon canopy.

Organisations such as UN’s International Fund for Agricultural Development (IFAD), on the other side, seek to preserve the market share of small farmers, including African cocoa producers.

IFAD head Alvaro Lario said it was important for smallholders to improve productivity, distribution and marketing. The agency organises training on agricultural techniques to increase production per hectare.

A broker at an international commodities trader, who asked not to be named due to the sensitivity of the topic, believes that chocolate companies are willing to source more cocoa away from Africa due to sustainability issues related not only to deforestation, but also to child labour.

“They [companies] are tired of trying to defend their business there, and certainly considering moving some of that business elsewhere”, the trader said.

Reuters