This paper examines the devastating impact of the insect pest Cocoa Pod Borer (CPB) (Conopomorpha cramerella) on the livelihoods of smallholder cocoa farmers in East New Britain Province (ENBP), Papua New Guinea Province. Since 2006, when the pest was first detected, cocoa production has collapsed and the cocoa sector across PNG is now under threat. Cocoa was the largest source of income in ENB and grown by over 70% of households in the province; thus the impact of the pest on the local economy and on the livelihoods of cocoa smallholders has been enormous. The presentation draws on field data and is in two parts. The first part outlines the range of livelihood responses and trade-offs made by smallholders as they sought ways to cope with and adapt to the new and unfamiliar conditions created by this devastating pest. While a small proportion of cocoa smallholders have successfully modified their cocoa farming systems to manage CPB, the large majority have been unable or reluctant to do so, generating high levels of vulnerability among farmers as their capacity to earn a living and sustain their livelihoods have been undermined. The second part of the paper seeks to explain why the impact of the CPB has been so great and discusses the capacity of farming households to adapt, in the short- to medium-term to sudden environmental shocks. This section will examine the interconnections between household responses, the local socio-cultural and economic context of smallholder commodity crop production and the wider institutional environment in which household choices and decisions are made. The paper will conclude by drawing out the implications of our study for understanding why some households are better able than other households to cope with and adapt to sudden disruptions of their livelihoods caused by environmental disturbances.