Chocolate Challenged at the Origin

Climate change is turning up the heat throughout the chocolate supply chain. Improving yields and farmer economic health is crucial to ensuring a sustainable, long-term supply of the world’s favorite candy.

Barry Callebaut isn’t a household name, but odds are one of its products will flash through your mind when you’re craving a treat. Founded in the mid-1850s, Barry Callebaut is today the largest processor of cocoa and chocolate in the world, accounting for over 25% of the world’s production.[1] As the industry’s largest player, Barry Callebaut focuses on sourcing the best-quality cocoa beans and processing them for use by the likes of Nestlé and Mondelez.[2] The only step in the chocolate supply chain Barry Callebaut does not actively engage in is cocoa farming itself.

Even with a relatively efficient manufacturing footprint, Barry Callebaut is still far from immune to the adverse effects of climate change. Like many other companies exposed to natural commodities, much of Barry Callebaut’s success rests on its ability to reliably source its primary raw material, cocoa beans, at a financially viable price. Unlike many others, however, Barry Callebaut must constantly manage acute supply constraints given the complexities of cocoa farming within the thin, tropical strip around the equator that can support cocoa trees.[3] More than 70% of the world’s cocoa originates from small, family-operated farms in west Africa, and attempts to scale up cocoa production in other countries along the equator have been slow-going, particularly in light of the environmental hazards of deforestation.[4] Like all other players, Barry Callebaut sources the vast majority of its cocoa from west Africa.


Changing weather patterns have already begun to have a material impact on annual production of cocoa across this key growing region. Farmers in Ghana and Ivory Coast, together representing over half of the world’s production, have reported that a meaningful increase in the variability of temperatures and rainfall in recent years has translated into much greater volatility in crop yields.[5] This volatility has, in turn, greatly impacted global cocoa prices, which have experienced swings of 20% or more in four of the last ten years and increased over 100% on a cumulative basis from 2006 to 2015.[6] Considering long-term trends, the Center for Tropical Agriculture estimates that rising global temperatures may render much of Ghana’s current cocoa-producing region unsuitable for the crop by 2030.[7]

In this context, Barry Callebaut faces a very serious threat given the concentrated and very delicate nature of the supply of its key raw material. The past few years of volatility have underscored this issue, and company management has recognized that Barry Callebaut’s success is ultimately intertwined with that of the individual cocoa farmers that supply it. As such, the company has made significant strides to strengthen its link to farmers and farm cooperatives in west Africa. Whereas the company traditionally relied heavily on purchasing through trading houses, today it purchases over two-thirds of its raw cocoa directly from farms in origin countries.[8] In addition, the company has invested heavily in programs that help train over 77,000 farmers in yield improvement techniques and offer many access to financing to reinvest in their farms. To generate new methods for improving yields further, Barry Callebaut has also opened a flagship R&D center in Indonesia that can run tests on up to one million seedlings per year.[9]

Barry Callebaut’s dual focus on increasing cocoa yields and improving farmers’ financial health represents the core of its effort to promote sustainability throughout its supply chain. In the face of increasing instability, the company’s aim is to boost each farmer’s baseline level of production, while also reducing the risk that unexpected adverse weather events will put farmers out of business. Indeed, there is considerable room for yield optimization in west Africa, where average yields are 350-400 kilograms per hectare versus a potential maximum of 1,500 kilograms.[10] Early yield improvement efforts have focused on straightforward techniques like proper fertilizer application and pruning, and have shown promising results.

Going forward, it will be important for Barry Callebaut to continue to build its partnership with farmers and help develop buffers, both operational and financial, against the increased volatility brought on by climate change. Looking beyond Africa, I believe the company should proactively foster similar relationships with farmers in other countries like Indonesia and Brazil that are ramping up cocoa farming in a sustainable way. Ultimately, geographic diversification will allow the company to mitigate the risk that adverse weather patterns could disrupt its current supply from Africa. Finally, given Barry Callebaut’s market leadership, I believe the company is uniquely positioned to collaborate with companies more specialized in crop science to intensify its R&D efforts and develop tailored solutions like drought-resistant cocoa strains. Leveraging its farmer relationships, Barry Callebaut can also be instrumental in bringing these advancements to market in a way that benefits all parties involved.

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[1] Bertschy, J.P., March 30, 2016. Barry Callebaut. Zurich: Bank Vontobel Equity Research, p. 7.

[2] Barry Callebaut. 2015/16 Annual Report., accessed November 2016.

[3] International Cocoa Association. Growing Cocoa., accessed November 2016.

[4] Bertschy, J.P., March 30, 2016. Barry Callebaut. Zurich: Bank Vontobel AG, p. 35.

[5] Coulibaly, Loucoumane. Reuters. Increasingly Erratic Climate Menaces Africa’s Cocoa., accessed November 2016.

[6] International Cocoa Organization. Monthly Averages of Daily Prices., accessed November 2016.

[7] Center for Tropical Agriculture (CIAT). Predicting the Impact of Climate Change on the Cocoa-Growing Regions in Ghana and Cote d’Ivoire., accessed November 2016.

[8] Zuanic, Pablo, December 19, 2008. Barry Callebaut. New York: J.P. Morgan Equity Research, p. 3, 18.

[9] Barry Callebaut. 2014/15 Sustainability Report., accessed November 2016.

[10] Terazono, Emiko. Financial Times. African farming: Initiatives about to increase cocoa yields., accessed November 2016.



  1. Lesson Paths., accessed November 2016.
  2. Cargill Foods., accessed November 2016.



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Student comments on Chocolate Challenged at the Origin

  1. This was really interesting to see how Barry is trying to overcome the volatility through closer relationships with farmers in the impacted areas.

    Two things that come to mind when thinking about sustainability.

    First, while this does not necessarily help or hurt the environment, has Barry thought about genetically modified cocoa beans that are more temperature resistant? This is a very popular space right now, especially to try to mitigate volatility in crop yield year over year based on climate. This may help the smaller farmers take on less risk in the short run.

    Second, I would push on Barry focusing on other areas more as well. With the climate changing, cocoa beans may be able to grow in new countries or areas that they would not grow in before. I wonder if this is another way that Barry can try to mitigate their risk by having many different areas across the world where cocoa beans are grown.

  2. Zach, thanks for the awesome post. I did my project on Starbucks, and it looks like the cocoa and coffee industries are facing a lot of the same issues in terms of climate change!

    One thing I’d add is that Barry Callebaut seems to be taking the approach of collaborating with a lot of the other players in the supply chain, not just directly with the farmers (e.g., with Mondelez, Mars, Nestle): I wonder if, by pooling their resources together, these companies can set and achieve more aggressive sustainability goals. In the coffee industry, for comparison, it’s primarily Starbucks setting the tone–working 1-on-1 with the farmers, building its own farm in Costa Rica (used for R&D on new hybrid coffee plants), etc. Based on Brian’s post on Hershey, though, it seems that there’s some skepticism around how serious some of the large chocolate manufacturers are in terms of long-term sustainability (at the expense of short-term profits). Would be great to hear how each of you guys think your respective companies fit into the broader cocoa supply chain.

  3. Very interesting read! I remember that I have read an article before, that says some countries are deciding and fixing the cacao trading price, and many local cacao farmers are abandoning their field because farmer’s job is not enough profitable to live. In addition to that there is a fact that it is hard to find newcomers in cacao production, because it takes 4+ years for a cacao tree to bear harvestable cacao beans. I just wonder how Barry Callebaut is managing and thinking about these issues. I agree with Karla’s point that growing cacao in other regions could be a solution for sustainability issues (I wonder why nobody does this. Is there any restriction?)

  4. Zach – What an interesting (albeit extremely concerning) post! I find Barry Callebaut’s dual focus on increasing cocoa yield and improving farmers’ financial health to be an interesting, effective strategy in the smallholder farmer (or small to medium-sized farm cooperative) context. However, it seems like the yields still fall far short of the potential volume of 1,500 kilograms per hectare. I would be curious to understand what additional changes farmers or cooperatives must implement in order to significantly improve toward this potential yield. Are there inherent constraints on yield in the smallholder context, where increased investment in what you call straightforward techniques will only result in diminishing marginal returns, and more dramatic changes are required? Questions about the economic efficiency of smallholder farming, especially in sub-Saharan Africa, are becoming increasingly important as climate change-related challenges put more pressure on natural resources. There’s a strong argument that “leapfrogging” from family-owned farms to large farms (plantations) should not be pursued, as it will result in mass unemployment (See:, but I wonder to what degree smallholder farms must scale up – and how quickly – in order to stay profitable under the pressures of climate change? I’d also be curious to know Barry Callebaut’s position on this question specifically in the Ghanaian context, where the environment may not be conducive to producing cocoa in the next 15 years.

  5. Zach, thanks a lot for sharing this particular research with us. Even though it makes a lot of sense, I had honestly not thought of it before. What Barry’s Callebaut’s approach reminded me of, thought, is the idea of accommodating vs. reducing variability. While I really applaud their efforts to collaborate with local farmers (as I think there is a clear gain for both parties), what I am afraid of is that the fact that they are working on accommodating the impacts of climate change on cocoa beans production might actually result in the perception that climate change is actually “less of a deal”. Sometimes, treating the symptom rather than the cause might work against the efforts to actually reduce the root cause, in this case the climate change. Or do you think the mere fact that they are invested in the issue will raise more awareness and thus also accelerate the reduction efforts?

  6. Zach, very interesting article about the cocoa production and the difficulties it is having due to climate change. Reading the article, it came to my mind that Barry Callebaut is not addressing the climate change problem how they should. Is what they are doing sustainable in time? I mean, we know that the temperatures and rainfall in the cocoa producing countries are rising and therefore cocoa production is getting smaller and smaller. I understand what Barry is doing by getting closer to the farmers and working with them to improve their yields, but isn’t this a strategy to buy some time from clime change? At the end, whatever they do with the yields is not going to be sustainable if temperatures increase over a certain number in the next decade. Shouldn’t they look instead for some long-term changes that will assure them a successful operation in the future? In this case it comes to my mind to start looking for the next country in line that will have the conditions for producing cocoa (I would assume that that country would be immediately north or immediately south to the current cocoa producer countries) and start training that countries’ labor and developing the necessary infrastructure for setting operations there. This will secure the next stage of production after the current producing countries will cease producing due to climate change.

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