Brazil's dreams for industrial-scale cocoa farms fading after price crash

By Marcelo Teixeira, Oliver Griffin and May Angel

SAO PAULO, March 12 (Reuters) - Cocoa farmers in Brazil have slammed the brakes on new planting projects following a 70% plunge in cocoa prices from their 2024 record high, stalling growth that investors had expected would make the country a major supplier of the main ingredient in chocolate.

At current prices of around $3,000 per metric ton CCc2, farmers and analysts told Reuters they expected around half the projects in Brazil to grow cocoa on an industrial scale could be canceled.

The projects, centered in Northeastern Brazil, would have added at least some 75,000 hectares of growing area, according to an estimate by supply chain services provider Czarnikow, enough to supply nearly 5% of the global demand for cocoa.

"I think Brazil expansion plans have had a massive cold shower," said Paulo Torres, a London-based cocoa industry advisor and cocoa farmer in Brazil's Bahia state. Torres himself canceled a plan for an additional 30 hectares of cocoa at his farm in Bahia.

Current prices do not cover the investment or production costs of new fields, making the Brazilian projects unfeasible, he said.

The farmers and investors that planned the giant cocoa farms in Brazil, backed by big players in the industry such as Cargill CARG.UL and Barry Callebaut BARN.S, saw them as a solution to years of supply shortages that led to skyrocketing prices.

The planned farms would have provided an alternative to the main growing region in West Africa. Ghana and Ivory Coast produce nearly 50% of global cocoa, which has left the market vulnerable to production problems there.

Unfavorable weather, illegal mining and diseases reduced West Africa production in 2023 and 2024, causing prices to spike from an average $2,500 per ton to more than $11,000 per ton and generating panic in the industry.

Cocoa traders scrambled to source beans. Smuggling rose sharply in Africa with people bypassing official government buying to sell across the border at higher prices. The chocolate industry raised prices to offset spiraling production costs.

African production has since recovered, and other geographies such as Ecuador have increased production. At the same time, consumers have cut back on buying expensive chocolate, and small cocoa farmers in Brazil have not been making money. A group of them last month blocked a road leading to the Ilheus port in Bahia, setting old tires on fire, to protest the arrival of imported cocoa from Africa.

After that, Brazil's food supply agency Conab suspended any imports of cocoa from Ivory Coast.

Weight-loss drugs have further curbed demand, and the industry has reduced package sizes and turned to non-cocoa ingredients, such as artificially flavored palm oil butter, hitting demand for the beans and exacerbating the cocoa price crash.

DELAYS, REEVALUATIONS

Moises Schmidt, one of the biggest cocoa farmers in Northeast Brazil, said the current price of cocoa would not cover the investments in irrigation and machines for crop care and post-harvest processing typical of the region's farms.

"If the market remains below $5,000 per ton, more than 50% of the projects are gone," he said.

Schmidt had expected to oversee as much as 10,000 hectares (24,710 acres) of cocoa plantations, roughly the size of Manhattan. He declined to comment on what the price crash means for his own plans.

Two sources, one a large farmer in the region and the other an executive at an agricultural equipment supplier, told Reuters that a large project by Switzerland-based investment company NewAg Partners, for up to 22,000 acres (8,900 hectares) of cocoa fields, had been suspended.

"At this stage we prefer not to comment," said NewAg chief executive Detlef Schoen.

There are other initiatives in the area whose future is uncertain.

Copa Investimentos, a Sao Paulo-based asset manager with investments in agriculture and forestry, was also planning an industrial-scale cocoa farm, but one of its partners, Apolonio Sales, said it is now "evaluating" the investment.

Sales said he visited some of the new cocoa farms and also held talks with cocoa traders and chocolate companies, but the company has not yet reached a conclusion about whether to go forward.

SLOW-PACED GROWTH

Brazil cocoa production could still grow, experts said, but at a much slower rate, mostly as a diversification strategy in farms where the trees would grow alongside other crops.

The big Brazilian farms, however, had intended to deliver quick and massive production growth. An additional area of 75,000 hectares of irrigated fields could deliver 225,000 tons of beans in four years, or 4.5% of global production.

"If some big farm had plans for 400, 500 hectares, now it will do 80 or 100, only to start learning about the crop," said Emerson Silva, a sales executive at irrigation equipment maker Netafim.

Brazilian co-op Cooabriel, which announced a cocoa initiative with Cargill last year, said it would continue developing its small-scale project.

Projects from Sao Paulo's state government, which include using cocoa trees to reforest degraded parts of farms, will also go ahead, said the coordinator Ricardo Pereira.

"In some areas, we already have seedlings almost ready to go into the field," he said, adding that as with any commodity market, cocoa prices would eventually rebound.