Our Nature Team explores how climate change, deforestation, and new regulations are reshaping the chocolate industry — and why Latin America may hold the key to its future.

by Amelia Sadler and David Sternlicht

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‍Key Takeaways:

• The industry is vulnerable: The $130 billion global chocolate industry relies on a concentrated supply chain, with over 70% of production from West Africa facing mounting climate, deforestation, and regulatory pressures.
• Regulations are tightening: The EU Deforestation Regulation (EUDR), effective December 2025, requiring companies to verify their cocoa imports are deforestation-free significantly impacts the industry's largest consumer market.
• Cacao returns home: Despite being native to Latin America's Amazon basin, less than 20% of global cacao production comes from the region — but that's poised to change as companies seek more resilient and EUDR-compliant sources.
• Regenerative cacao can heal landscapes: Latin America's agroforestry traditions and optimal growing conditions position it to lead a transition to more future-proof cacao production.

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A Record-Breaking Commodity

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Chocolate, the sweet staple of winter festivities, is providing unprecedented sticker shock this holiday season. As of October 2024, cacao prices had risen 100% since January of the same year. This followed prices reaching an all-time high of $10,924 per tonne in April — a nearly 4x increase from the prior spring. Whether it's for stockings, Hanukkah gifts, advent calendars, corporate gift baskets, or other holiday treats, shoppers are feeling the pinch of pricier confections. 

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In November 2024, executives at Hershey’s — a chocolate and cocoa industry leader — warned investors about a “significant year-over-year impact" from cocoa costs continuing into 2025. As explored here, rising demand, falling production, and mounting regulatory pressures are wreaking havoc on the global chocolate industry thanks to a handful of culprits, including climate change, structural shortcomings, and low-cost production, that has devastated landscapes and communities.

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This is more than a temporary supply blip. The $120 billion global chocolate industry is facing fundamental challenges that are reshaping the future of cocoa production. With over 70% of cultivation concentrated in West Africa, where climate change and deforestation are crushing yields, the industry is being forced to confront its geographic vulnerability. For manufacturers and investors alike, the solution lies in chocolate's ancestral home: Latin America.

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A Crisis of Sustainability

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The story of modern chocolate production is one of geographic concentration and agricultural intensity. Nearly three-quarters of the world's cocoa comes from just two West African nations: Ghana and Côte d'Ivoire. This concentration emerged from colonial agricultural policies and continued through the 20th century as these regions proved capable of producing high volumes at low costs due to exploitative labor standards and a transition to unshaded planting systems. This increased per-acre production quantity, but resulted in widespread deforestation. These practices have created systemic vulnerabilities that are proving increasingly devastating in a warming world.

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Between 2001 and 2023, Ghana lost nearly 1.6 million hectares of tree cover, with cocoa expansion driving approximately a quarter of land conversion. In Côte d'Ivoire, the situation is also severe — the country has lost more than 80% of its forest cover since 1960, with cocoa farming as a primary driver. Although cacao is traditionally a shade-grown crop, meaning it is cultivated under the canopy of taller trees and benefits from filtered sunlight, many African farmers favor “no-shade” systems in the belief that plants will grow faster at a lower cost by removing “superfluous” trees. Of course, the cultivation of monocultures such as this results in lower biodiversity, nutrient-poor soil, and greater vulnerability to pests and disease. Indeed, the environmental vulnerabilities of this centuries-long practice are now coming due: cacao-growing regions are experiencing more extreme temperatures, reduced rainfall, and declining soil fertility, creating a vicious cycle that threatens both forest ecosystems and cocoa production itself.

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Climate change is exacerbating these challenges. Recent studies suggest that by 2050, many current cocoa-growing areas in Ghana and Côte d'Ivoire will face increasing drought severity, adding additional threats to cacao cultivation. Already, this season’s yields are expected to decline by 11% due to aging trees, depleted soils, and extreme weather. The region is also facing increasing pest and disease pressure. For example, Cocoa Swollen Shoot Virus Disease (CSSVD), brought on by erratic rainfall and higher temperatures, alone has led to the destruction of hundreds of thousands of hectares of cocoa farms in West Africa.

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Mounting Regulatory Pressure 

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In Africa, new regulations aimed at halting forest loss may present a challenge to smallholder farms. The European Union's new Deforestation Regulation (EUDR), now set to take effect in December 2025, marks a watershed moment for the cocoa industry. The regulation will require companies to prove their cocoa imports are deforestation-free through detailed supply chain tracking and verification. With the EU accounting for roughly 60% of global cocoa imports, this regulation is reshaping supply chain transparency in a fragmented industry where more than 90% of supply is derived from ~6 million individual smallholder farmers.

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While a valuable step toward combating deforestation, EUDR requirements are demanding. Companies must now provide precise geolocation data for cocoa farms and prove their supply chains haven't contributed to deforestation since December 2020. For West African cocoa, where smallholder farming and complex supply chains are the norm, compliance presents significant challenges. Industry estimates suggest that less than a quarter of cocoa exports from the Côte d'Ivoire are mapped by the Cocoa & Forests Initiative (CFI), a collaborative effort between West African governments and major cocoa and chocolate companies aimed at ending deforestation. Fortunately, there are alternative cacao growing regions with more established environmental monitoring and sustainable farming practices.

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Latin America: Cacao's Native Home

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What many consumers may not realize is that despite the region’s market dominance, chocolate isn't native to Africa — it originated in the Amazon basin of Latin America, and ancient Mesoamerican civilizations cultivated cacao for thousands of years before European contact. Today, Latin America produces only around 20% of the world's cocoa, but this relatively small share masks an important reality: the region hosts the greatest genetic diversity of cacao, with varieties that are particularly resilient, more flavorful, and higher-quality than the handful of bulk cultivars that dominate global production.

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This genetic diversity, combined with favorable growing conditions and established agroforestry traditions, positions Latin America as one natural solution to the industry's mounting challenges. Countries like Ecuador, Brazil, and Colombia are already seeing increased investment in their cacao sectors, with the Americas’ share of cacao production showing meaningful growth in recent years. Ecuador alone increased cacao production over the past decade by over 80%. Crucially, many Latin American countries already have farm traceability systems in place (e.g. the Brazilian government’s CAR program) and established agroforestry practices that align with EUDR requirements. 

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The Regenerative Answer

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Beyond just shifting production geography, Latin American growing customs offer a fundamental model for sustainable cacao cultivation. Traditional Latin American cacao farming often employs agroforestry systems, where cacao trees grow beneath a canopy of larger trees, mimicking their natural habitat. This approach, referred to as "regenerative cacao," offers the benefits of agroforestry, including:

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• Climate Resilience: Shade trees protect cacao from temperature extremes and help maintain soil moisture amidst drought conditions.
• Biodiversity: These systems can support twice as much pollinator activity and see up to a 50% reduction in pests compared to conventional monoculture plantations.
• Soil Health: Improved organic matter content and natural pest control reduce the need for chemical inputs.
• Carbon Sequestration: Both the cacao and shade trees sequester carbon in their biomass, as does soil with more organic matter.
• Income Diversification: Farmers can harvest additional products from shade trees.
• Premium Pricing: Fine flavor cacao from agroforestry systems often commands premium pricing 2-3x higher than bulk cocoa.
• Regulatory Compliance: Built-in traceability and sustainable practices align with EUDR requirements.

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The market is increasingly ready for this transition. Just as single origin coffee demand has surged in response to consumer focus on quality and traceability, a preference for high-quality, single origin chocolate is on the rise. Premium chocolate sales are forecast to grow at twice the rate of conventional chocolate by the end of the decade, with consumers showing increasing interest in origin, sustainability, and quality. 

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An Industry Attempting Action

Global chocolate manufacturers are not just mentioning the threats of unsustainable practices on earnings calls — they are taking tangible steps to fortify and diversify cacao supply chains. Industry leaders, like Mars, Nestlé, Mondelez, and Barry Callebaut, have collectively pledged billions to sustainable sourcing initiatives, many targeting 2025 as a critical deadline for meeting commitments. However, results to date are falling short of targets. While these initiatives have spurred progress in areas like traceability and sustainability certifications (e.g. Rainforest Alliance and Fair Trade), challenges remain not only in keeping pace with timelines but also at achieving impact at scale.

Even the industry’s most ambitious initiative, the World Cocoa Foundation (WCF), which unites industry stakeholders to address economic, environmental, and social sustainability, pales in comparison to the reach of other industry sustainability initiatives, such as the Sustainable Coffee Challenge, a partnership between Conservation International and coffee industry stakeholders to drive sustainable coffee production. For example, the WCF’s Cocoa and Forests Initiative, aimed at stopping and reversing deforestation caused by cacao farming, has struggled with limited funding and structural hurdles. 

WCF’s upcoming 2025 Annual Partnership Meeting in São Paulo, aptly titled “Our Future: Resilience Through Sustainability,” demonstrates a collective awareness of just how vulnerable today’s cacao supply is, and is a nod to the vital importance of Latin America to the industry’s future.

Investment Implications

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For investors, Latin America's cacao sector presents a compelling opportunity to address both climate risks and regulatory demands. Latin America is known for small-batch, artisanal chocolate production. The evidence suggests that to meet mass market demand while maintaining the benefits of a regeneratively grown product, significant investment is needed in:

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• Farm Renovation: Converting conventional mono-culture plantations to regenerative systems that benefit from the greater biodiversity, water retention, and soil health 
• Processing Infrastructure: Expanding local processing capacity to develop a more sophisticated regional supply chain capable of meeting mass production needs
• Ecosystem Development: Building connections between farmers, distributors, and premium markets to scale the region’s network of regeneratively grown cacao
• Technical Assistance: Supporting farmer training and certification as they transition farming practices and diversify crop mixes 
• Traceability Systems: Implementing Monitoring, Reporting, and Verification (MRV) technology to adapt to emerging regulatory compliance requirements

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This transition isn't just about securing chocolate's future — it's about building resilient agricultural systems that benefit both ecosystems and communities. There is a real possibility for a not-so-distant future in which our chocolate Santas, gelt, and bonbons are not only free of deforestation and labor abuse but are also derived from cacao beans grown in and helping to restore native ecosystems. As climate change continues to pressure traditional growing regions and regulations reshape market access, Latin America's native cacao forests may once again become the heart of global chocolate production. 

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