Agro-industrial firms are seeking to expand into cocoa as global chocolate demand rises at a faster pace than production on the smallholder farms that grow most of the supply, according to Hardman.

About 90 percent of cocoa beans globally were produced by smallholder farms that were typically smaller than five hectares and often did not have sufficient capital to make investments to boost yields or stave off crop diseases, the London-based researcher said in a report, which was paid for by several agricultural firms.

World cocoa production has “stalled” at about 4 million tons a year as chocolate confectionery demand is growing by about 6 percent annually.

“The smallholder production model is facing severe challenges,” Hardman analysts Doug Hawkins and Yingheng Chen said.

“Against this background there is undoubtedly room for new upstream production capacity at the initiative of the agro-industrial sector.”

Rising chocolate demand, especially in emerging markets including China and India, might spur shortages that extended to the next decade, with the global cocoa deficit reaching 1 million tons by 2020, Hardman said. Some cocoa farmers struggling with insufficient income have switched to other crops including rubber.

At least six agro-industrial cocoa plantation projects were being planned or built, including United Cacao in Peru, Agro Nica Holdings in Nicaragua, and Agriterra’s Tropical Farms in Sierra Leone, Hardman said. - Bloomberg