The economic case for climate action in cocoa production

Christian Bunn
Aug 30, 2018 · 4 min read

Adapting cocoa production in Ghana to climate change is a smart investment. Inaction will result in income losses to farmers and the economy.

Drying cocoa beans in Ghana

Stakeholders along the cocoa value chain acknowledge the reality of climatic change and the need for action. However, investments in adaptation are limited.

That contradicts the scientific consensus that climate change is progressing at a serious pace. Cocoa plantations have a lifespan of several decades and will be exposed to different conditions than today.

Today, many stakeholders downplay the cost of inaction and proceed with “business as usual.”

This “Parmenides fallacy” occurs when stakeholders assess the value of an investment in innovation against the present state of the system, as opposed to valuing it against alternative future states.

That is, stakeholders avoid investments that anticipate future climate change because the action would not have had positive returns with current (or past) climate conditions.

Instead, adaptive action needs to be valued against a hypothetical future in which no action is taken to contain negative impacts and conditions for cocoa degenerate.

By providing a benchmark for this cost of inaction, we aim to make it easier for cocoa stakeholders to argue in favor of investments in climate change adaptation.

We asked how cocoa producers in West Africa would be affected if the projected conditions of the 2050s hit today. We evaluated the loss of production under 171 impact scenarios that reflect potential climate change trajectories and empirically founded production losses.

In our analysis, we left total production, number of producers and prices unchanged (using 2011–2015 averages), and considered only a change of the climate. We deliberately chose to use a simplified approach to not confuse the reader with overelaborated modelling with many hidden assumptions.

While we are aware of the limitations of our study, we decided that clear assumptions about climate impacts would be more helpful to convey a clear message: A failure to act upon climate change will be very costly.

Our method used machine learning algorithm to evaluate the degree of climate change impacts in Ivory Coast and Ghana by comparing future (2040–2069) to present (1950–2000) bioclimatic suitability for cocoa. We considered 19 climate projections from global climate models in a moderate emissions scenario.

For each climate scenario, we distinguished four impact zones: Cocoa production can either be sustained under low or high adaptation effort (incremental or systemic adaptation) or will become unprofitable such that it needs to be substituted (transformation). In previously unsuitable regions, (opportunity) cocoa may become a new option for farmers.

Impact scenario by degree of projected impact

We assumed losses between 10 and 20 percent of current production with low impacts caused by high temperatures and changed pests and disease patterns that require adaptation. Higher adaptation efforts will be required where in addition to these hazards drought is threatening production (30–50 percent losses).

Transformation zones will see cocoa plants critically affected, and farmers may migrate or invest in other crops (60–100 percent losses with climate change). In opportunity zones, we assumed an opportunity cost of not adapting caused by foregone production on 10–20 percent of the new area with low (230kg/ha) yields.

COCOBOD production data was used to estimate the current subnational distribution of cocoa production. We then overlaid the climate change damage functions. The use of several scenarios resulted in a most likely estimate, and a range of uncertainty.

The expected cost of inaction on adaptation by the 2050s was estimated at $410 million per year which is about 1 percent of current real GDP in Ghana.

Inaction to climate change will result in annual losses of USD 410 million

There is, however, considerable uncertainty about future climate conditions and climate damages to unadjusted cocoa. We estimated a 90 percent range of $270 million $660 million per year (or 0.7–1.6 percent of GDP).

The probability distribution was not symmetric and indicated a downside risk of extreme values, i.e., very low cost (e.g., less than $250 million), are rather unlikely, while very high cost (higher than $570 million correspondingly) are relatively more likely.

Our cost of inaction must therefore be understood as an estimate of the degree of potential cost based on reasonable assumptions.

A full assessment of the benefits of adaptation by the 2050s would require knowledge of future cocoa production and prices. Demand will likely grow in the future and Ghana announced an effort to expand future production. Under these conditions, the true cost of inaction could therefore be even higher and decisive climate action a smart investment.

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Christian Bunn

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Postdoctoral fellow at the International Center for Tropical Agriculture trying to help coffee and cocoa sectors to proactively adapt to climate change

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