Memo #9: Is the future of chocolate cocoa-free? 🍫

 🍫 The Problem

The Context:

• Chocolate is the most popular confectionery segment globally, it accounted for 46% of the segments revenue in 2022.
  

• Chocolate is also one of the highest emitters of CO2 as a foodtype. 70% of emissions associated with chocolate come from cocoa production, specifically land-use change.

• The challenge is set to become bigger. The size of the global Chocolate market is set to increase from USD $115.8 billion in 2022 to 161.99 billion by 2032 (3.4% CAGR). It also is a major money maker for big corporates - 80% of Nestle’s confectionery segment (USD $7.2 billion) comes from choc!

The Problem:

• Cocoa farmers clear tropical forests to plant new cocoa trees rather than reusing the same land. Large scale cocoa farming has led to massive deforestation, particularly in West Africa where the majority of the world’s cocoa is produced. Some research estimates that 70% of the Ivory Coast’s illegal deforestation is related to cocoa farming, negatively impacting local ecosystems and biodiversity.
  

• Cocoa prices have soared in recent years. Weather, disease and market speculation have resulted in chocolate prices hitting a 45-year high in 2023, with cocoa bean futures trading at $4,362 per tonne (up 84% from 2022).

• Intensive farming practices has led to soil degradation. Much of today’s cocoa is grown in monocropping systems – an agricultural practice where a field is used for the production of one crop only. This leads to nutrients in the soil being lost. To combat this over time farmers use more chemical fertilisers and pesticides, leading  to increased pollution of local rivers and streams, threatening marine wildlife.

Your chocolate preference can determine your carbon footprint:

💬 Potential Solutions

• Cocoa alternatives are putting more sustainable chocolatey treats on our shelves. With many of the sustainability issues associated with chocolate coming from the cocoa production itself, chocolate innovators are looking for alternatives to the cocoa-bean, from broad-beans to sunflower seeds, that deliver the same chocolatey taste.
  

• Cell culture technologies can produce cocoa with identical characteristics to any chocolate bar you will find at the store. The environmental impact of cocoa production is exacerbated by the excessive quantities being demanded globally. Cell culture processes offer some respite to the natural world, in a similar way to cell-based meat, where continuous production can be kickstarted with just 1-2 cocoa beans. This allows for great-tasting cocoa-chocolate, without the need for intense land-use.
  

• Chocolate can also be produced taking materials from other processes that would otherwise be wasted. Taking the sustainable move of bean-free chocolate one step further, companies such as Voyage Foods are using spent grape seeds from wine production as their cocoa-alternative. Embedding this element of circularity further enhances the sustainability of the production process.

If you’re interested in learning more about our research (Incl. Market Sizing, Funding Landscape and Business Models) or want an introduction to any of the start-ups we mentioned above, reach out to Patrick or Ollie & subscribe to The NatureTech Memos.

🗺️ Start-up Landscape

1. Planet A Foods (Munich, GER)
   Uses oats and sunflower seeds to create ‘ChoViva’ concentrate & butter used to make cocoa-free chocolate.
   Latest Round: Series A; February 2024; $15.4M
   Investors: World Fund; Omnes Capital; Cherry Ventures; Mudcake; Triple Point Capital; Nucleus Capital; Feast Ventures
   News: REWE Group became the first European retailer to use ChoViva cocoa-free chocolate in its own-label products.

2. NukoKo (Guildford, UK)
   Developer of a proprietary technology to naturally create a new type of chocolate from locally sourced fava beans,100% cocoa-free.
   Latest Round: Seed; March 2024; $1.5M
   Investors: Oyster Bay VC; SOSV; The Mills Fabrica; Innovate UK
   News: Secured a spot on the European Institute of innovation & Technology (EIT)’s Food Accelerator Network Program.

3. Voyage Foods (California, USA)
   Upcycles grape seeds from wine production to create an entirely vegan, dairy-free and cocoa-free chocolate.
   Latest Round: Series A+; May 2024; $52M
   Investors: Level One Fund; Horizons Ventures; SOSV; Nimble Partners; Collab Fund
   News: Commercial partnership with Cargill as a distribution partner.

4. Celleste Bio Ltd. (Misgav, ISR)
   Uses just 1-2 cocoa-beans to kick-start a continuous production cycle of cell-cultivated cocoa-butter.
   Latest Round: Seed; November 2022; $TBD
   Investors: The Trendlines Group; Mondelez International; Barrel Ventures; Regba Group
   News: Secured BIRD Foundation grant funding in partnership with Mondelez.

NTM Note: Removing cocoa from the equation isn’t the only solution. Although we focused primarily on the innovators reducing the use of cocoa in this deep-dive, there are other sustainable practices around cocoa farming that show signs of promise. For example;

1. Agroforestry: This involves integrating cocoa farming with other crops and trees. A process that can improve soil health, increase biodiversity, and reduce the need for chemical inputs. Not to mention also providing farmers with additional sources of income.

2. Shade-Grown Cocoa: Growing cocoa under the shade of native trees helps both preserve natural habitats and reduces the need for deforestation. Shade-grown cocoa farms also tend to support higher biodiversity levels.

🌬️ Tailwinds

• There is a cap on the price-point that products can remain competitive on shelves. The confectionary market is already crowded and supermarket shelves are stacked with options for consumers. Extensive R&D ensuring that new products can integrate with existing infrastructure, think shelf-life, package size, etc., at a cost that is attractive to consumers is essential to compete in this market.

• Validation of the cocoa-free market economics is yet to be seen at scale. Sustainability is a good talking point, but for many producers, this alone won’t cut it. As cocoa prices soar, cocoa-alternatives could be an attractive option for chocolate producers in protecting their slim margins. For scaled adoption to take place, however, traditional confectionery giants need to be convinced on the bottom-line value of these new ingredients.
  

• Chocolate is typically sourced in poorer nations, and consumed in rich nations. There’s a huge geographic wealth disparity within the chocolate industry. In the wake of soaring cocoa prices, the combined wealth of the Mars & Ferrero families ($160.9 billion) now outsize the combined GDPs of the world’s top two cocoa-producing countries, Ghana & Ivory Coast. In these poorer nations, cocoa farmers are often paid just $1/day as these western companies look to protect their profit margins and child labour remains as a real issue. Despite cocoa alternatives offering a more sustainable product in terms of CO2, the question of what happens when work is potentially taken away from these poorer nations is one that remains unanswered. Incentives for a significant redistribution of wealth is needed to move this industry towards a sustainable & ethical future.

🍩 The opportunities

• Nothing sharpens the mind of business leaders like a threatened profit margin. In the midst of soaring cocoa prices, now is the time for alternatives to gain traction amongst these traditional market players. The chocolate industry is at a tipping point, and business owners need an avenue to stabilize their bottom-line whilst still delivering the chocolate experience their customers crave.
  

• Chocolate producers selling in Europe face strict regulation. The European Union’s Deforestation Regulation (EUDR) will come into force at ports and entry points across the EU for a number of commodities, including cocoa, on 30th December 2024. This will make it compulsory that any imported cocoa does not come from land deforested or degraded after December 31st 2020. Innovative cocoa-alternative producers see an influx of demand here as importation of compliant cocoa becomes more difficult.
  

• Hybrid adoption could both save the planet and the palate. Like any climate transition, the switch to cocoa-alternatives can’t happen overnight. Win Win’s chocolate alternative reduces CO2 emissions by 80% compared to cocoa,  meaning a 50:50 blend with traditional milk chocolate could still offer a 40% reduction. Blends like this could introduce the environmental, economic and nutritional benefits of cocoa-alternatives to existing chocolate recipes with little change to taste profiles.

🍪 In summary…

• Chocolate production is undergoing a transformative shift as the industry grapples with the climate pressures and subsequent price volatility.

• A wave of innovative startups are reimagining the way we produce and consume our beloved treat, using cocoa-alternatives and cell culture technologies.

• Innovators looking to disrupt this industry face challenges on pricing, palate and market validation but with regulatory and economic pressures on the horizon, the time to act is now

• The future of chocolate likely entails a blend of cocoa-alternatives with traditional recipes and improved agricultural practices. Through collaboration, consumers, producers, and policymakers can achieve a sustainable and ethical chocolate industry.

If you’re interested in learning more about our research (Incl. Market Sizing, Funding Landscape and Business Models) or want an introduction to any of the start-ups we mentioned above, reach out to Patrick or Ollie & subscribe to The NatureTech Memos.

 📖 Bonus reads:

Still not had your fill? Take a deeper dive here; 

• How Does Cocoa Farming Cause Deforestation?

• Food-tech Startups Push Bean-free Coffee & Chocolate

• With Cocoa-butter at $28,000, More Companies Go for ‘Chocolatey’