IDH 2025 Annual Report: 2025 in Context

Jump to:

Introduction Condition 1 Condition 2 Condition 3 Condition 4 Condition 5

The world IDH operated in

Our work during 2025 was significantly shaped by five external conditions: commodity markets that behaved very differently across sectors; regulation that brought both opportunity and disruption; climate pressures that moved from long-term risks to operational realities; a fundamental shift in how international cooperation is funded, and a rewriting of how companies engage with sustainability.

In the context of these external conditions, we saw patterns emerge, from which we were able to gather far-reaching and valuable insights from across our portfolio. Together they tell the story of how markets change, and where our contribution is most durable.

2025 in context

Overarching trends and insights from IDHs portfolio

Condition 1

Commodity markets became volatile and unpredictable

Condition 2

EU regulations reshaped responsible business conduct across agricultural value chains

Condition 3

Climate disruption moved from long-term risk to operational reality

Condition 4

The funding model for international sustainability became increasingly under pressure

Condition 5

Corporate engagement with sustainability is evolving

Commodity markets became volatile and unpredictable

Across our portfolio, price volatility and unpredictability were the common thread that shaped our programs and initiatives. For example, in cocoa and coffee, supply disruptions driven by weather, disease and ageing plantations pushed farmgate prices to historic highs. In other commodities, such as tea or cotton, opposite dynamics have been observed: Tea production has expanded steadily for a decade, consistently outpacing shrinking demand and creating structural oversupply. Rising compliance and certification costs, combined with falling farm-gate prices, are eroding producer margins further. For cotton farmers, the sharp drop in prices reduced revenues for farmer while rising input costs further reduced margins for producers. These different market conditions shaped farmer income outcomes across IDH’s 2025 portfolio.

EU regulations reshaped responsible business conduct across agricultural value chains

In 2025, a range of EU regulations - EUDR, CSDDD, CSRD and the forced labour ban - became the defining regulatory force shaping responsible business conduct across value chains. With regards to the EU Deforestation Regulation (EUDR), despite delays and ongoing simplification measures, companies and producing countries prepared significantly, with actors treating the compliance deadline as an incentive to build the traceability systems, farmer databases and governance structures their sectors had long needed.

We have seen across our portfolio, that the results of the preparation varied across geographies. Where sector-level foundations were already in place, compliance-related investments could build on existing infrastructure, accelerating progress that voluntary efforts had started. IDH and our partners have been preparing to comply with the new regulations, but a central risk remains. Companies that are unable to demonstrate compliance may initially rely on excluding smallholder supply or moving towards lower risk origin, risking livelihoods and inequity for those producers. This risk is particularly significant for smallholders, women producers and informal workers, who are often least equipped to absorb compliance costs despite playing critical roles within agricultural value chains.

Supporting inclusive compliance therefore requires more than traceability systems alone. It requires access to finance, services, technical support and procurement models that prevent exclusion from formal markets. IDH has already started to work on inclusive compliance across our portfolio in coffee, cocoa and palm oil and we will continue to do so in the future.

For our partners, regulation reinforced what years of voluntary work had built. A full account of that contribution can be found in the IDH EUDR Readiness report, published November 2025.

Climate disruption moved from long-term risk to operational reality

Climate disruption is increasingly reshaping the commercial viability of agricultural production itself. Across coffee, cocoa, palm oil and other value chains, climate-related shocks are affecting yields, quality, sourcing predictability and long-term production suitability. In several regions, climate volatility is no longer experienced as a future environmental risk but as an immediate operational disruption affecting procurement decisions, investment planning and sourcing strategies. This is changing how companies engage with sustainability, shifting attention toward resilience, adaptation and long-term production stability.

In 2025, for example, in Aceh, Indonesia, where IDH delivers palm oil and landscapes programs, flooding has damaged over 42,000 hectares of oil palm and displaced more than 100,000 households. Across coffee and cocoa origins, El Niño-related disruptions contributed directly to severe supply shortages that drove historic highs in market prices as earlier described. All these experiences contribute to the increasingly clear realisation that changes in weather patterns are threatening agriculture, livelihoods and food availability worldwide, and the impacts are not evenly distributed. Women, young people and informal workers often face greater exposure to climate-related disruption due to unequal access to land, finance, services and adaptive resources. This increasingly reinforces the need for climate resilience strategies that integrate economic inclusion and workforce stability alongside environmental objectives.

What we saw more clearly in 2025 than in previous years is a shift in how corporate partners responded to this. Sustainability priorities are moving beyond an agenda that focuses on reducing greenhouse gas emissions towards a more integrated approach that places resilience and supply risks central. Appetite for holistic interventions such as regenerative agriculture is growing significantly.

In section 3 on better environment, we further explore how we respond to these dynamics together with our partners through our programs and initiatives.

The funding model for international sustainability became increasingly under pressure

Several geo-political and economic forces converged in 2025 around a single direction: a retreat from the international cooperation architecture that has underpinned, funded and supported global sustainability work for several decades.

In 2025, official development assistance fell by approximately 23% globally, with further contraction expected in the years ahead. This funding contraction directly affects the market transformation agenda. Shifting agricultural systems towards regenerative practices and building the governance structures that make value chains resilient require sustained, multi-year commitments from public and private partners alike.

Tariff shifts created a parallel disruption. When companies cannot commit to a sourcing geography beyond 12 months, the long-term supplier relationships that responsible purchasing depends on become difficult to sustain.

The implications for how IDH and our partners work are already visible. As public funding contracts, sustainability transitions increasingly depend on models capable of mobilising private capital, embedding sustainability into commercial incentives, and building sector-owned systems that continue beyond donor funding cycles. This is accelerating the importance of approaches that can shift sustainability from project-based implementation toward operational market infrastructure. This shift is also as an opportunity to develop more economic viable and scalable interventions with our Partners. Programs such as LABS, SourceUp and multiple sector collaborations increasingly demonstrate this transition: systems initially supported through public or catalytic funding that evolved into independently financed platforms embedded within sector operations themselves

Corporate engagement with sustainability is evolving

Taken together, the previous four conditions are reshaping how companies engage with sustainability. When climate disruption, labour instability, regulatory exposure and declining production resilience are all material risks long-term sourcing security, sustainability shifts decisively from reputation to core business. Among leading companies, sustainability is increasingly framed through “value at risk”: the recognition that supply continuity, sourcing viability and operational resilience depend on stable farming systems, functioning financial and labour markets and resilient ecosystems. This is changing how procurement teams, sourcing departments and leadership structures engage with sustainability agendas.

The gap between those companies and the rest of the market remains wide. Closing it requires both a strong regulatory floor and a compelling business case. Companies have moved furthest where sustainability has been framed in terms of supply security, operational risk and long-term commercial performance, not moral obligation alone.

Building such business cases across commodities, geographies and sectors is what IDH has been doing for many years. In a climate where values-based arguments are losing traction and financial pressure is intensifying, that expertise is more relevant than ever.

Better IncomesPrevious: Next: IDH 2025 Annual Report