Cocoa trade, climate change and deforestation

Cocoa provides a source of income for over 5 million smallholders in the tropics and is a valuable source of export revenues for producing countries. It is also a key ingredient in a global confectionary and snacks business, worth an estimated $100 billion in annual turnover.¹ As such, cocoa has huge potential to provide the basis for sustainable development and to contribute to the achievement of the UN Sustainable Development Goals.

However, this has yet to become a reality for much of the sector. For the majority of smallholders, cocoa provides a meagre livelihood. This is the result of a combination of factors, including small farm sizes, poor production practices, inadequate government support, as well as the impacts of climate change.² Furthermore, these circumstances are driving deforestation and forest degradation: with limited ability or incentives to invest in and improve their plantations, yields have been declining in many regions and farmers are clearing new land in response to the growing demand for cocoa.³ From 2000 to 2014, the global production of cocoa beans increased by 32 per cent - from 3.4 to 4.5 million tonnes - while the land-use footprint of cocoa plantations grew by 37 per cent - from 7.6 to 10.4 million hectares.

With demand for cocoa expected to continue to grow and competition for agricultural land also set to increase, the sector is faced with the urgent task of establishing more sustainable production practices.

Global cocoa trade patterns

Grown in the tropics, seven countries account for nearly 90 per cent of global cocoa production: Cote d’Ivoire, Ghana, Indonesia, Ecuador, Cameroon, Brazil and Nigeria.

For Cote d’Ivoire and Ghana, which dominate global production, cocoa contributed 13.4 per cent⁴ and 2.2 per cent⁵ in 2014 of these countries’ GDP respectively. With the bulk of cocoa production being exported, it also provides a valuable source of export revenues – Cote d’Ivoire exported $5.6 billion and Ghana $3.1 billion worth of cocoa and cocoa products in 2014.

The two largest markets are Europe and the US, accounting for 40 per cent and 20 per cent of global consumption respectively.⁶ In 2014, the EU imported 2.3 million tonnes of cocoa at a value of 7.4 billion USD, while the US imported 0.7 million tonnes worth 2.6 billion USD.⁷

Given their large market share, West Africa and Europe will continue to dominate in the coming years, but there have been some recent changes in production and consumption that could be indicative of how trade will shift in the long-term. Consumption has primarily been growing in emerging markets, particularly in China, where the size of the middle class has been increasing and, in response to this, where chocolate companies have been investing.⁸ Imports of cocoa to China grew from 43,500 to 110,000 tonnes over the period 2000-14. On the producer country side, increases in cocoa production have mainly been seen in South American countries in recent years. In Peru and Ecuador, two countries where there have been significant investments in the cocoa sector, production grew by 226 per cent and 56 per cent respectively between 2000 and 2014, and they showed the fastest growth in cocoa exports among all producer countries over the period 2009-14, growing by 21 per cent in Peru and 10 per cent in Ecuador.

The land footprint of cocoa

At the global level, the land-use footprint of cocoa exports is dwarfed by that of a number of other crops. Comparing all crops, those with the largest footprint are wheat, maize, rice and soybeans. If only the exported footprints of internationally traded crops are considered, soybeans, wheat, safflower seed and maize predominate (see figure).⁹ In 2014, cocoa accounted for just 0.7 per cent of the global land-use footprint of crop production and 1.5 per cent of the exported footprint of internationally traded crops. However, due to the geographic concentration of cocoa production, its footprint is significant in the main producer countries.

Thus, for the seven main producers, cocoa accounted for 5 per cent of their collective agricultural crop production footprint and 9 per cent of their collective crop export footprint in 2014.

In 2014, cocoa had the largest land-use footprint of all crop production in Ghana and Cote d’Ivoire, accounting for about one quarter. In Ecuador and Cameroon, cocoa accounted for 15 per cent and 11 per cent respectively, with only maize having a larger footprint in Ecuador, and maize and sorghum in Cameroon. In the other three producer countries, the footprint of cocoa is relatively small, at less than 5 per cent.

When only exported crops are considered, a similar picture emerges, with the exceptions of Nigeria and Indonesia. Thus, cocoa is also one of the main crops responsible for the land-use footprint of exported crops in Ghana, Cote d’Ivoire, Ecuador and Cameroon. And in the case of Brazil, cocoa also ranks fairly low among the export crops – soybeans dominate, with maize, sugar, coffee and wheat also having far greater footprints. However, for Nigeria, cocoa has the largest land-use footprint of exported crops, accounting for 55 per cent, while in Indonesia cocoa accounts for 12 per cent of the exported footprint, ranking second after oil palm, although this accounts for the vast majority - 61 per cent - of the exported land-use footprint.

In nearly all the countries, the land-use footprint of cocoa production has continued to grow as production levels have also grown. Two exceptions to this are Brazil and Ecuador, where the footprint has remained more or less steady, despite increased production. This reflects the investment that has been made in these countries to improve production practices.

Elsewhere though, increased production levels of cocoa have been met primarily through establishing new plantations rather than by intensifying production. In some countries, this has been exacerbated by declining yields - Cote d’Ivoire, Indonesia and Nigeria in particular have seen significant drops in yield since the turn of the century, and so cocoa has had a disproportionate impact on land-use in these countries.

As cocoa tends to be grown in forest areas, its production is often associated with deforestation and forest degradation. Global forest loss due to cocoa production has been estimated at between 2 to 3 million hectares for the period 1988-2008, equivalent to about 1 per cent of total forest loss over this time.¹⁰ As noted with respect to land-use, this is relatively small compared to some other crops, but in the main producer countries, cocoa has been a significant driver of forest loss. The biggest impact has been in Cote d’Ivoire and Ghana where cocoa production is estimated to have been responsible for about one quarter of historical deforestation in Cote d’Ivoire and nearly 15 per cent in the high-forest zone of Ghana.¹¹ But it has also resulted in deforestation elsewhere, including in Cameroon, Indonesia and Peru.¹²

The loss of forests is of particular concern because of their importance for the climate, both at the local level and globally. At the local level, forest loss is associated with increased temperatures and reduced rainfall, while globally, it is a major contributor to greenhouse gas emissions. While cocoa production is a factor driving climate change, the reverse is also true, as climate change is resulting in shifts in the areas of land suitable for cocoa cultivation. The impacts of climate change have been most studied in West Africa, where it is thought that the area of suitable land for cocoa production will reduce significantly in Nigeria and Togo as well as in parts of Cote d’Ivoire and Ghana, while it could increase in Cameroon and Liberia.¹³

These changes could increase pressure on the remaining areas of forest in West Africa and shift production to the forested areas of the Congo Basin and other parts of the world. For example, the DRC is one country that has significant potential to expand cocoa cultivation, should it become more politically stable.¹⁴

Establishing sustainable cocoa livelihoods

The reasons why smallholders are not investing sufficiently in their existing plantations, and often choose to open up new areas of land to increase their production are varied and complex. A major factor is the limited ability of many smallholders to access credit or to obtain the best technology and knowledge of the most appropriate practices, due to the small sizes of their farms and poverty. In addition, insecurity over tenure often means that there are few incentives to invest in plantations - a particular issue in Ghana. Here also, uncertainty over the rights of smallholders to shade trees has encouraged many to replace their agroforestry systems with mono-culture systems using sun-tolerant varieties of cocoa, exacerbating the impacts on forests. Furthermore, yields decline more quickly in the latter system compared to agroforests, further increasing the pressure to expand into new lands.¹⁵ This situation has been exacerbated by weak governance of the sector in many countries, including poor financial management and a lack of extension services and infrastructure for the sector.¹⁶

The need to establish more sustainable production practices is widely acknowledged, and the governments of both producer and consumer countries and the private sector are striving to find solutions. For example, the governments of Cote d’Ivoire and Ghana have included the establishment of climate-smart cocoa systems as part of their national strategies to tackle climate change.¹⁷ The private sector has also been seeking ways to reduce deforestation in their global supply chains, and the world’s leading cocoa and chocolate companies made a commitment in 2017 to end deforestation and forest degradation in their supply chains, with the launch of the ‘Cocoa and Forests Initiative’.¹⁸

These efforts sit within broader efforts to reduce deforestation driven by agriculture. The New York Declaration on Forests (NYDF) established the goal to halve natural forest loss by 2020 and end it by 2030, and this has now been endorsed by 190 bodies, including governments, companies and civil society.¹⁹ Building on this, under the Amsterdam Declaration, seven European countries have committed to support private and public sector initiatives to eliminate deforestation from agricultural supply chains by 2020.²⁰

These efforts are all extremely positive but while progress is being made it is not fast enough. This is evident from a recent report documenting the illegal clearance of forests for cocoa plantations in Cote d’Ivoire.²¹ Furthermore, the recent assessment of progress towards achieving the NYDF goals reports that if current trends continue, the milestone of halving natural forest loss globally by 2020 will not be met. 2016 in fact saw the highest loss of tree cover globally in more than 15 years.²²

Moving forward: the role of Europe in establishing a sustainable cocoa trade

If this situation is to be turned around and commitments to drastically reduce deforestation are to be achieved, ambitious policy measures are needed. These must include reform of the governance framework for cocoa as well as smallholder agriculture in many countries - both reform of the tenure system and of cocoa pricing with taxes being of particular priority. Land-tenure reforms will also need to allow for the impacts of climate change. All countries will have to devise inclusive mechanisms to enable the difficult but crucial decisions to be made as to the best uses of their land. Reform in the main consumer countries for cocoa is equally important, and this can serve to reinforce the efforts of producer countries. As the world’s largest consumer of cocoa, Europe is best placed to take the lead on this.

Two approaches that have been touted are the introduction of due diligence requirements for importers and the inclusion of sustainability provisions in trade agreements.²³ the EU’s experiences from the timber sector indicate that these could both bear fruit. As part of the FLEGT Action Plan, Europe has introduced legislation that prohibits the import of illegal timber and requires companies to implement due diligence to reduce the risk of sourcing illegal timber. At the same time, it has also negotiated bilateral trade agreements with key producer countries, aimed at supporting legal forest sectors through the establishment of national systems to license legal timber. This dual approach has resulted in a radical shift within the sector. It has improved transparency within supply chains and changed practices within the private sector. In parallel to this, it has prompted significant governance improvements in producer countries, including legal reform, increased transparency of information and the establishment of more open policymaking processes, including the engagement of civil society and the private sector.

The outcomes that have been seen in the forest sector are all urgently needed within the cocoa sector. This is particularly true in Cote d’Ivoire and Ghana, where the high dependence on cocoa production and the risks from climate change mean that establishing sustainable livelihoods is essential. Therefore, options for Europe to promote the trade in sustainable cocoa, and to support sustainable livelihoods in producer countries, need further exploration. Establishing a sustainable cocoa trade will be a huge task, given the numbers of smallholders involved and the governance challenges present. However, this also means that there is a huge opportunity: the establishment of sustainable rural economies would transform the livelihoods of millions of people.