* Brazilian cocoa projects face financial challenge due

to low bean prices

* African production recovery, 'shrinkflation' impact

global cocoa market

* Big projects for thousands of hectares being suspended

or slowed

By Marcelo Teixeira, Oliver Griffin and May Angel

SAO PAULO, March 12 (Reuters) - Cocoa farmers in Brazil

have slammed the brakes on new planting projects following a 70%

plunge in cocoa prices from their 2024 record high, stalling

growth that investors had expected would make the country a

major supplier of the main ingredient in chocolate.

At current prices of around $3,000 per metric ton,

farmers and analysts told Reuters they expected around half the

projects in Brazil to grow cocoa on an industrial scale could be

canceled.

The projects, centered in Northeastern Brazil, would have

added at least some 75,000 hectares of growing area, according

to an estimate by supply chain services provider Czarnikow,

enough to supply nearly 5% of the global demand for cocoa.

"I think Brazil expansion plans have had a massive cold

shower," said Paulo Torres, a London-based cocoa industry

advisor and cocoa farmer in Brazil's Bahia state. Torres himself

canceled a plan for an additional 30 hectares of cocoa at his

farm in Bahia.

Current prices do not cover the investment or production

costs of new fields, making the Brazilian projects unfeasible,

he said.

The farmers and investors that planned the giant cocoa farms

in Brazil, backed by big players in the industry such as Cargill

and Barry Callebaut, saw them as a solution

to years of supply shortages that led to skyrocketing prices.

The planned farms would have provided an alternative to the

main growing region in West Africa. Ghana and Ivory Coast

produce nearly 50% of global cocoa, which has left the market

vulnerable to production problems there.

Unfavorable weather, illegal mining and diseases reduced

West Africa production in 2023 and 2024, causing prices to spike

from an average $2,500 per ton to more than $11,000 per ton and

generating panic in the industry.

Cocoa traders scrambled to source beans. Smuggling rose

sharply in Africa with people bypassing official government

buying to sell across the border at higher prices. The chocolate

industry raised prices to offset spiraling production costs.

African production has since recovered, and other

geographies such as Ecuador have increased production. At the

same time, consumers have cut back on buying expensive

chocolate, and small cocoa farmers in Brazil have not been

making money. A group of them last month blocked a road leading

to the Ilheus port in Bahia, setting old tires on fire, to

protest the arrival of imported cocoa from Africa.

After that, Brazil's food supply agency Conab suspended any

imports of cocoa from Ivory Coast.

Weight-loss drugs have further curbed demand, and the

industry has reduced package sizes and turned to non-cocoa

ingredients, such as artificially flavored palm oil butter,

hitting demand for the beans and exacerbating the cocoa price

crash.

DELAYS, REEVALUATIONS

Moises Schmidt, one of the biggest cocoa farmers in

Northeast Brazil, said the current price of cocoa would not

cover the investments in irrigation and machines for crop care

and post-harvest processing typical of the region's farms.

"If the market remains below $5,000 per ton, more than 50%

of the projects are gone," he said.

Schmidt had expected to oversee as much as 10,000 hectares

(24,710 acres) of cocoa plantations, roughly the size of

Manhattan. He declined to comment on what the price crash means

for his own plans.

Two sources, one a large farmer in the region and the other

an executive at an agricultural equipment supplier, told Reuters

that a large project by Switzerland-based investment company

NewAg Partners, for up to 22,000 acres (8,900 hectares) of cocoa

fields, had been suspended.

"At this stage we prefer not to comment," said NewAg chief

executive Detlef Schoen.

There are other initiatives in the area whose future is

uncertain.

Copa Investimentos, a Sao Paulo-based asset manager with

investments in agriculture and forestry, was also planning an

industrial-scale cocoa farm, but one of its partners, Apolonio

Sales, said it is now "evaluating" the investment.

Sales said he visited some of the new cocoa farms and also

held talks with cocoa traders and chocolate companies, but the

company has not yet reached a conclusion about whether to go

forward.

SLOW-PACED GROWTH

Brazil cocoa production could still grow, experts said, but

at a much slower rate, mostly as a diversification strategy in

farms where the trees would grow alongside other crops.

The big Brazilian farms, however, had intended to deliver

quick and massive production growth. An additional area of

75,000 hectares of irrigated fields could deliver 225,000 tons

of beans in four years, or 4.5% of global production.

"If some big farm had plans for 400, 500 hectares, now it

will do 80 or 100, only to start learning about the crop," said

Emerson Silva, a sales executive at irrigation equipment maker

Netafim.

Brazilian co-op Cooabriel, which announced a cocoa

initiative with Cargill last year, said it would continue

developing its small-scale project.

Projects from Sao Paulo's state government, which include

using cocoa trees to reforest degraded parts of farms, will also

go ahead, said the coordinator Ricardo Pereira.

"In some areas, we already have seedlings almost ready to go

into the field," he said, adding that as with any commodity

market, cocoa prices would eventually rebound.