I recently published a blog about trends and threats in the commodity business. Climate change is one of the threats. This week, I reached out to Steve Wateridge to ask how it is affecting the two crops he follows—cocoa and coffee. I asked first about cocoa.
Climate change is often blamed for everything. There’s a lobby dedicated to amplifying the threat of climate change and pointing to any weather anomaly as evidence of it. You hear about it all the time. It is sometimes justified, but not always.
Cocoa and coffee prices have hit record highs in the last 18 months. I will discuss coffee later, but the record-high cocoa prices were caused less by climate change and more by a severe El Niño, along with long-term structural issues such as ageing trees and swollen shoot disease.
The disease is caused by the Cacao Swollen Shoot Virus (CSSV), which is transmitted from infected to healthy cacao trees by different mealybug species. It is one of the most economically damaging viruses affecting cacao production, as CSSV reduces yields over time and will eventually cause trees to die. The disease has had a significant impact on cacao production in Ghana and Côte d’Ivoire in recent years.
The disease spreads slowly, but as yields decline, the farmer gives up and replants. The problem is, if they replant without realising they’ve got the virus, the new trees will become infected as well. This has been ongoing for 20 years. I first became aware of CSSV in Côte d’Ivoire in 2008, and it has since worsened, yet the government has not taken action to control its spread. The disease is the leading cause of recent poor crop yields in Côte d’Ivoire and Ghana.
Cocoa prices have remained too low for too long. Governments have not taken the disease seriously, possibly because it is mainly smallholders who produce cocoa. There are no big plantations. The Ivorians may not have been aware of the way the disease was spreading, but the Ghanaians have known about it. It was a significant factor in their crop’s collapse in the 1970s, but the government lacks the funds to address it.
It’s truly coming home to roost. The worrying thing is that nothing significant is being done to change it. Cocoa production in Côte d’Ivoire and Ghana will continue to decline until this issue is addressed.
But isn’t climate change at least partly responsible?
Climate change has not been a significant issue. I don’t see any convincing evidence that the climate in West Africa has changed enough to cause a substantial decline in crop yields. We are observing record crops in Cameroon, Nigeria, DR Congo, and Uganda. In South America, record crops are also being harvested in Ecuador and Peru.
Why has the CSSV issue not been addressed previously? And with these record-high cocoa prices, will producers and governments now have the funds to tackle it?
Why has it not been addressed before? You would need to ask the governments of Côte d’Ivoire and Ghana. Either they were unaware of it, or they ignored it.
Once a tree becomes infected, it must be cut down, the infected tissue burned, left for 12 months, and then replanted. There has been no such programme in place. From 2010 to 2020, cocoa production in Côte d’Ivoire expanded significantly, and to a lesser extent in Ghana’s western region, driven by increased area, deforestation, and new plantings. This increase offset the adverse effects of swollen shoot disease.
Côte d’Ivoire production nearly doubled during that period, even as the disease was spreading. Yields began to decline once these new trees reached maturity, and the disease became even more evident, accelerating that decline.
Despite the prices we’ve seen over the last 18 months, there are no real efforts to tackle the issue in Côte d’Ivoire and Ghana. This means prices will need to remain higher for longer to encourage production elsewhere and reduce demand.
The question becomes, “What price level achieves that?
Over the last 12 months, we found that a cocoa price of $10,000 per tonne is too high. It destroys too much demand and incentivises too much supply outside Côte d’Ivoire and Ghana.
It doesn’t mean we have to revert to $2,000 or $3,000 per tonne. That would be too low. A price around $5,000 or $6,000 per tonne should establish a balance between supply and demand, with short-term stock replenishment.
You mentioned that other West African producers are experiencing record crops. What are they doing differently that Côte d’Ivoire and Ghana are not doing right?
They pass higher prices on to the farmers. Côte d’Ivoire and Ghana have state marketing boards that sell forward. Since they sold at lower prices, they haven’t been able to give farmers the higher market prices. Now, farmers in both countries are receiving $5,000 per tonne.
When the price was at $12,000 per tonne, farmers in Cameroon and Nigeria received $10,000 per tonne. They have responded with better farm care, disease-spraying, improved husbandry, and new plantings. The new trees won’t produce fruit for another couple of years, but all of this helps.
The state marketing boards impose a tax on farmers in Côte d’Ivoire and Ghana. They pass on 60-70% of the world price, while in Ecuador, Cameroon, and Nigeria, farmers receive 80-90% of the world price. Unfortunately, the proceeds from that taxation haven’t been invested in the cocoa sector. Instead, they have been used for other purposes.
How has consumption been impacted?
When prices ranged between $2,000 and $3,000 per tonne, we became accustomed to cocoa consumption increasing by 2 to 3 per cent per year.
However, if your two leading producing countries are in decline, you need significantly higher prices to boost cocoa output elsewhere and to slow demand growth. We’ve seen unprecedented demand destruction in cocoa. We’ve lost 10 per cent over the past two years due to high prices.
It’s not just about passing higher prices to consumers, leading them to eat less chocolate. You’re seeing manufacturers reduce cocoa content in their products. The classic example was just this week, when McVitie’s in the UK replaced cocoa butter in its Penguins and Club biscuits with cheaper vegetable fat. They can no longer say, If you like a lot of chocolate in your biscuit, join our Club, because it’s not real chocolate; it’s chocolate-flavour.
You mentioned that vegetable oils are replacing cocoa butter. Does this alter the taste of the finished biscuit?
When I entered the cocoa industry in the 1980s, I worked at Rowntree’s. Cocoa butter is a delicate vegetable fat in terms of its cooling curve —the temperature at which it melts and so on. It wasn’t easy to replicate. At that time, there were alternatives, but they often felt waxy. You could tell the difference between real chocolate with cocoa butter and cocoa liquor, and the chocolate coatings, which contained cocoa liquor or powder and vegetable fat.
The technology has improved so much that it’s difficult to tell the difference. I’ve tried the new recipe for Penguin biscuits. I didn’t know that it was only chocolate flavouring. They’ve replaced cocoa butter with a great substitute. I couldn’t tell the difference.
It makes it easier for these substitutions to occur. There’s reputational risk. They have had to change the slogan for Club biscuits, and it has attracted significant media attention, even though consumers can’t tell the difference.
Well, that’s all I’ve got on cocoa. Do you have enough energy left to talk about coffee and climate change?
Absolutely! Climate change is significantly impacting coffee production.
Over the past 40 years, the coffee market has generally operated with oversupply at or near production costs, punctuated by price spikes during adverse weather conditions. Brazil is the world’s largest coffee producer, but it is susceptible to periodic droughts and frosts that affect production. These events cause price increases, which tend to limit demand growth and encourage increased production elsewhere. When the weather returns to normal, Brazil produces a large crop, leading to another period of oversupply, which drives prices back to the cost of production. Typically, this cycle takes about 18 months to two years to complete.
The main change is that the current issues in coffee, which have led to record-high prices recently, basically began about five years ago. It was during 2021-22 when a major weather-related deficit occurred, caused by drought and frost in Brazil. Since then, the Brazilian crop has continued to underperform consistently.
I firmly believe that climate change is responsible. We have the evidence. Look at the last five years in Espirito Santo and Minas Gerais. The weather has been drier, on average, than it was over the previous ten years, and those ten years were drier than the ten years before them. It’s also been hotter, on average, than the last ten years, which were hotter than the ten years before that.
Climatologists attribute it directly to deforestation—not only in the Amazon but also in the Atlantic forest. Whatever the cause, the conditions in Espirito Santo and Minas Gerais are now less than ideal for coffee growing. It doesn’t mean you can’t grow coffee, but it does mean the crops consistently underperform their potential.
That’s why we need prices to remain high to curb demand growth. We’re not observing anything like the demand destruction we see in cocoa.
Coffee demand tends to be more resilient. It is uncommon for global coffee demand to decline, even with record-high prices. What we see is a stabilisation in demand growth. The long-term trend indicates that coffee consumption grows at about 1.5% annually. If it doesn’t grow for seven years, that leads to a 10.5% decrease in demand. Prices have been very good for farmers, and we are continually increasing production capacity through better farm management and expanding cultivation areas. What we are not observing is that capacity being fulfilled. It is certainly not in Brazil.
We’ve also experienced a severe El Niño that has impacted coffee production in Asia. Severe El Niños are often linked with drought in Indonesia and Vietnam, resulting in poor crop yields. Additionally, there have been disease issues in Central America and Colombia.
What we need to bring prices down is for Brazil to reach its full potential. If that happens, there will be a significant surplus, and prices will drop to the level of production costs.
What about Vietnam? Has climate change affected coffee production there, too?
I don’t see much evidence of that. The problems in Vietnam over the past few years have been mainly due to a severe El Niño, which brought the rainy season to an early end and delayed its start in April and May. This increases pressure on irrigation. The robusta crop depends on irrigation.
Guy Hogge once told me that coffee production in Central America was moving to higher altitudes and had already increased by about 500 metres because of climate change. Is that true?
I don’t know as much about Central America as Brazil, Vietnam, and Colombia, as these are the leading coffee producers. However, Central America’s production hasn’t increased in the last five or ten years. They’ve had disease issues and labour shortages caused by migration to the US. I wouldn’t like to say if climate is also a problem there.
However, climate change in Brazil is a significant factor. It’s a real game-changer. I’m no longer sure what a typical weather pattern for crops in Brazil is, since we don’t seem to experience normal weather year after year.
Is the coffee sector taking climate change seriously?
That’s a tough question. Brazilian farmers are aware of it, but are they taking it seriously? There was a severe drought in Espirito Santo in 2016-2017, and the farmers invested heavily in irrigation and water storage. Previously, many farms irrigated from rivers, but the state government ended that practice, affecting crops. So now, many more farms have their own storage capacity.
I’m unsure whether that’s enough to lessen the impacts of climate change. It is helping, but the crops still underperform. However, prices will eventually fix the issue. They always do.
Slightly off topic, how is the US’s 50% tariff on Brazilian coffee imports impacting the market?
The coffee market experienced significant deficits in 2021/22 and 2022/23, leading to a drawdown of stocks.
Although the market was no longer in deficit in 2023/24 or 2024/25, we didn’t generate a surplus or rebuild stocks. We still face a tight stock situation. However, stocks should be replenished if we achieve a decent surplus in 2025/26 and 2026/27.
The 50% tariff has come amid a very tight stock situation in consumer countries. As a result, US roasters have tried to secure as much coffee as possible from outside Brazil, because Brazil is just too expensive. You know, usually the most significant flow of coffee in the world in July, August, and September is from Brazil to the US. It hasn’t necessarily stopped, but it’s undoubtedly been curtailed.
They are even shipping certified stocks from Europe to the US. The tariffs don’t affect global supply because the Brazilian crop remains available. But because Brazilian farmers have recently made substantial profits due to high prices, they are not panicking into selling their coffee cheaply or flooding markets outside the US. They believe this will be a temporary problem and are holding onto their coffee.
So, with the Brazilians holding on to their coffee, the US is attracting everything from outside Brazil, and the supply situation is only tightening.
What could cocoa learn from coffee regarding climate change and its associated risks? Should cocoa be worried about climate change?
There is no conclusive evidence that the climate is changing significantly in cocoa-producing regions.
If it becomes an issue, it will only worsen problems caused by the disease and the ageing tree stock. Prices will increase to a level that encourages farmers to invest more in cocoa, while discouraging people from consuming so much. That’s how markets operate.
Thank you, Steve, for your time and input.
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