A market for craft chocolate is emerging, driven by demand for recognisable ingredients, transparent supply chains and environmentally friendly practices — and Wedgetail is strategically deploying finance to speed up the speciality sector’s growth.
“The thing that makes craft chocolate interesting is the cacao beans,” Wedgetail’s Head of Sustainable Farm Investments Greg D’Alesandre tells me.
“Unlike craft beer, which is more often about craftsmanship, in craft chocolate, it’s about the ingredients, which requires transparency, and then connects people back to farmers and landscapes.”
What this means in practice is a focus on agroforestry techniques where cacao is grown alongside flora and fauna as opposed to in cleared landscapes in full sunlight, and the validation of nature-positive business models where forest protection and restoration and farming are pursued in tandem.
There’s a market that’s willing to pay more for chocolate that’s had a positive impact on nature, Greg adds, and Wedgetail is speeding up the speciality sector’s growth by deploying nature-linked loans to cacao farmers and aggregators with regeneration at the heart of their business models.
Incentivising traditional farming
The cacao sector comprises millions of smallholder farms, most on less than 5 hectares of land — but make no mistake, these farmers don’t grow cacao because it’s a money-maker, they do it out of necessity.
“Last I read, the average age of a cacao farmer is 55. The reason the age is so high is that people don't see cacao farming as a way to get out of poverty, but rather, a poverty trap,” Greg explains.
“The sector is unsustainable because people are not being paid enough for the cacao they produce, so they try to produce more cacao, to get more money, and end up destroying the environment in the process.
“The sector’s lack of financial sustainability has caused a lack of environmental sustainability.”
The only way to break this vicious downward cycle is by introducing new financial incentives that reward farmers for keeping forests standing — and this is exactly what the budding craft chocolate industry hopes to do.
It’s necessary to clarify that cacao agroforestry is not new. It’s a return to the way cacao has been farmed for thousands of years.
“I don’t ever want to imply we are bringing these ideas to cacao farmers,” Wedgetail Founder Lisa Miller tells me. “People have told them ‘you need to get more efficient and industrialise and scale’. We’re trying to support them to make traditional ways of farming cacao practical.”
“Smallholder farmers are very connected to their farms. It’s their livelihood, home and source of food. It’s their whole life. They desperately want to protect it and ensure the health of the ecosystems in which they operate,” she adds.
“There’s extensive, well-researched scientific, Indigenous and farming knowledge on agroforestry systems and their beneficial impacts on biodiversity. We don't have to replicate this knowledge.
“We just need to provide finance so it can be put into immediate action.”
Luxury first, then mainstream
The reality of transitioning to nature-positive business models is that there are upfront and increased costs at various points in the supply chain, from land management practices to measurement and reporting.
Wedgetail’s loans provide working capital so producers and aggregators can buy more nature-positive cacao at premium prices — but consumers still need to be willing to pay more at the other end.
“Consumers are paying right now because companies don't want to pay. Companies don't want to change their systems and the engines that drive big profits,” Lisa explains.
She’s quick to clarify this doesn’t mean nature-positive business models only work for luxury goods, or that only the wealthy will have access to nature-positive products.
It’s akin to the initial ‘green premium’ in other markets, where those who can afford to buy green goods and services, essentially fund the validation of the right economic models, which then brings prices down, and makes the market mainstream.
“This is what happened in solar. The same is happening with EVs,” Lisa adds.
The uptake of more expensive nature-positive options is enabled by storytelling, Lisa tells me, and chocolate fits the criteria perfectly.
“If you want consumers to pay more, you need supply chains where stories based on high integrity data can be tracked and told,” she explains.
“Supply chains where commodities are aggregated without knowing their farming origins don't allow consumers to understand the environmental, animal welfare or livelihood credentials of those farms. For craft chocolate, the supply chain can be shortened significantly — allowing the origin and farming impact story to be told.”
“People love chocolate, and so, you can really capture people's imagination and attention when you talk about cacao, chocolate and nature,” Greg adds.
Businesses often see environmental impact as an externality — but a nature-positive business model is one where the environment and positive impacts on nature is core to the business.
What’s more, nature-positive business models have flywheel effects which can benefit farmers and communities too. “A huge part of what we do at Wedgetail is getting these flywheels to spin,” Lisa says.
“Wedgetail’s focus is the intersection of business and biodiversity,” Greg explains.
“When a company’s work in nature is limited to charitable giving, offsetting and add-ons, there's an inherent notion that the work isn’t necessary, but optional. However, if a company’s core business model takes nature in consideration, it gets baked into the everyday. Considering and caring for nature is no longer optional. It’s not something done on the side when it's convenient.”
“Some companies with massive supply chains in a wide range of agricultural commodities are currently bolting on nature and climate funds,” Lisa explains.
“At the moment these initiatives are often not changing the company’s core business model, and so, not addressing the core farmer issues that can lead to environmental damage. They don’t want to ruin their profit-making engines, which actually keeps the farmers poor and the environment degraded.”
True systems change will see the environment no longer regarded as an externality but put at the centre of business models, she adds.
Trade-offs and consequences
The biggest blocker to the development and adoption of nature-positive business models is people understanding and valuing nature.
“Instead of simply measuring financial returns, we need to be measuring returns in nature too. But this will only be possible by expanding our accounting systems, and redefining what success looks like for humans across more than just financial resources, but health, wellbeing, the environment and ecosystem services,” Lisa says.
“If you start to account for natural capital alongside financial returns, the picture will look very different.”
The limiting thing about financial capital is that it’s only of benefit to the person who owns it, Greg explains, whereas natural capital is beneficial to everyone.
Trees, for example, create oxygen, capture carbon, control erosion, stop flooding and filter water.
“As you convert natural capital into financial capital through extractive models, you're actually decreasing the amount of capital in the world. You're converting capital into something that’s only useful in a very narrow way,” Greg says.
“Farmers see this trade-off all the time. They are constantly making a trade-off between growing what they need to survive and sell and taking care of the environment that supports them. Short and long term thinking is the world they live in.
“As a society, we are heavily focused on financial capital. There’s huge pressure to get financial capital as quickly as possible, without regard for the long-term impacts of this decision.”
As a result, there’s now an imbalance of financial and natural capital in the world.
The people and nations who have converted their natural capital into financial capital are wealthy. But they are also unable to do the bulk of natural capital work needed to ensure survival of all species.
“In essence, what's happening is a rebalancing,” Greg adds. “Those rich in financial capital now need to work with those rich in natural capital.”
“Indigenous people are the custodians of 80% of the world's biodiversity. They now need to be paid for that work,” Lisa adds.
“We’re deploying financial capital because it’s the biggest hurdle nature-positive projects face, whether they’re in Australia, the Dominican Republic, Costa Rica or Indonesia. There is true scalability in deploying capital, context-sharing, decision-making and best-practices — and returning to some of the ways humanity used to work with nature.”