Key takeaways

Extreme weather events, driven by climate change, are causing significant yield losses across key commodities including coffee, cocoa, corn, soy, dairy, and beef. Traditional risk-hedging strategies, such as diversifying sourcing and forward contracts, are becoming less effective as climate change accelerates and historical patterns of predictability disappear. The financial impacts are immediate; Tyson Foods recently closed a Nebraska facility and reduced Texas operations due to high beef prices and low domestic supply. Furthermore, cocoa price surges in 2024 led to 2025 market volatility, squeezing margins for Mondelēz International and Barry Callebaut. Modelling suggests these extreme weather events could eventually cost companies up to six times more. Regenerative agriculture is presented as a crucial risk management strategy to build system resilience, potentially safeguarding up to $500 million annually for companies like Tyson Foods and General Mills.

Farmers bear the brunt

Farmers globally face declining soil health, reduced water availability, and rising costs for fuel and fertiliser. In the Global South, smallholders often lack the resources to pivot to new crops or irrigation methods. In the United States, challenges include labour shortages, high fertiliser costs, and farm consolidation. Alarmingly, more than half of American farmers do not generate a profit, with a median income of approximately -$1,000. Deteriorating incomes are driving farmers to exit the industry, creating long-term vulnerabilities for the entire supply chain as the quality and availability of commodities are threatened.

The cascading effect on companies

Climate change is now a material financial risk, with extreme weather translating into measurable financial impacts. At 3°C of warming by 2060, companies purchasing beef, cocoa, coffee, corn, dairy, or soy could see damages from price spikes increase between twofold and sixfold. Specific projections indicate damage increases of over 2x for beef and dairy, over 3x for cocoa and soy, approximately 4x for coffee, and over 6x for corn. No company is insulated, regardless of its position in the value chain.

Tyson Foods: cattle herds at a historic low

Tyson Foods has experienced immediate impacts from prolonged U.S. drought, reporting beef segment operating losses of $381 million in fiscal 2024 and $1.135 billion in 2025. Between 2021 and 2025, drought caused failing pastures and reduced feed yields, leading to an 83% increase in cattle prices and a 7% reduction in U.S. herd sizes—the smallest since the 1950s. Consequently, Tyson’s beef segment operating income dropped by almost $3 billion from 2022 to 2024, leading to a $343 million goodwill impairment in the third quarter of 2025.

Chocolate companies: volatility in the futures market

Cocoa production in West Africa, which provides 70% of the world’s supply, fell 15% between 2021 and 2024 due to excessive heat and intense rain. This caused global cocoa prices to increase by 282% between 2022 and 2025. To manage this extreme volatility, manufacturers like Nestlé, Barry Callebaut, and Mondelēz International are reformulating products to reduce cocoa content and developing chocolate alternatives.

Coffee companies: single-variety reliance

Reliance on Arabica coffee makes companies vulnerable to climate shocks. In 2021, droughts and frosts in South America caused a 6.5% drop in global coffee production and a 36% price spike. By 2025, global Arabica prices were 150% above 2020 levels. While companies use financial instruments to hedge against these spikes, such strategies have a diminishing effect as shocks become longer and more frequent.

A constellation of factors can expose a company to risk

Exposure to climate risk depends on various supply chain factors. Risks are higher for commodities produced in vulnerable regions, perishable items like milk that cannot be stockpiled, and rigid supply chains dependent on single-origin varieties. Additionally, high reliance on volatile inputs like feed and fertiliser, and a limited ability to pass costs to consumers, increases a company’s vulnerability.

The eroding effectiveness of traditional risk management

Traditional agricultural risk management strategies are increasingly failing to address underlying climate risks. Natural hedging is undermined when commodity prices rise so high that companies cannot raise prices enough to compensate. Contractual hedging fails as agreements based on historical data do not account for extreme shifts in yield or quality. Financial hedging is hampered by extreme price volatility and high leverage requirements, while operational changes like switching sourcing regions are difficult when climate events are global and systemic.

Regenerative agriculture is a smart investment in supply chain stability

Transitioning to regenerative agriculture involves adopting practices like no-till, cover cropping, and improved crop rotations to restore soil health and improve water quality. Although yield improvements accrue gradually, they deliver compounding returns by enhancing productivity and nutrient density. Direct support for farmers is essential for supply chain stability, especially for companies sourcing directly or those dependent on processed commodity markets. Such investments also help companies meet sustainability commitments and reduce greenhouse gas emissions by decreasing reliance on synthetic fertilisers.

Resilience on the farm translates to resilience for companies

Scaling regenerative agriculture improves the stability of regional production systems, buffering companies from future price spikes. Modelling for General Mills indicates that regenerative corn production could reduce yield losses by 5% to 25%, providing annual benefits of up to $75 million. For Tyson Foods, similar investments in practices like rotational grazing and methane-reducing feed additives could save up to $500 million in future damages. Beyond risk mitigation, these programmes enhance brand equity, customer loyalty, and market share.

Climate mitigation remains a priority

While regenerative agriculture is a vital adaptation measure, it cannot eliminate all losses from extreme weather. Mitigation of greenhouse gas emissions is necessary to prevent global temperatures from crossing the 2°C threshold, which would exceed the effective limits of adaptation. Practices like cover cropping and alternative manure management are essential as they both sequester carbon and reduce nitrous oxide and methane emissions.

Regenerative agriculture

There is no universal definition of regenerative agriculture, but effective programmes take a whole-systems approach to soil health, water resources, biodiversity, emissions, and livelihoods. Companies are encouraged to implement location-specific practices rather than overly generalised programmes to avoid greenwashing. Operational changes, such as diversifying ingredient sourcing and shifting away from animal-source ingredients, further support agricultural resilience.

Elements of a successful regenerative agriculture programme

A robust programme should clearly define its objectives across climate, soil, water, and biodiversity while supporting farmer livelihoods. For instance, Nestlé uses the Farm Assessment Tool to evaluate practices and outcomes. Companies must also clarify the scope, including timeframes and geographies; Danone, for example, aims to source 30% of key ingredients from transitioning farms by 2025. Finally, companies should choose between practice-based or outcome-based reporting. Outcome metrics include soil organic carbon and water use efficiency, while practice-based approaches, like the Mondelēz Harmony Wheat Production Charter, mandate specific farm strategies.

The investor’s role in scaling regenerative agriculture

Investors can drive progress by engaging portfolio companies on their climate-related impacts and the efficacy of their hedging strategies. Key engagement questions should focus on whether companies have defined regenerative agriculture, the scale and timeframe of their programmes, and how they monitor and report outcomes. Investors should also assess whether companies provide sufficient financial incentives or support to help farmers transition to more resilient practices.

Ceres can support investors interested in engaging on regenerative agriculture

The Ceres Cultivate initiative helps investors navigate the complexities of evaluating corporate regenerative agriculture programmes. It supports engagement across the food and agriculture sector to address climate-related financial risks and identifies investment opportunities to accelerate the transition to a resilient food system.