On 18th January 2024, Innovation Forum held the latest in its Big Debate webinar series, this time on the European Union’s deforestation regulation
Joining Innovation Forum moderator Ian Welsh were Emanuele Pitto, international relations officer at the European Commission’s DG Environment; Olivier Tichit, director of sustainability at Musim Mas Group; and Tessa Meulensteen, senior program manager coffee at IDH.
There follows a summary of points raised at the outset of the webinar. Any opinions raised are not necessarily those of Innovation Forum.
Background to the regulation
The regulation was presented in 2021, adopted in 2022, and entered into force in June 2023. The obligations for operators will apply as of 30th December 2024.
Operators must then submit due diligence statements, proving that a specific commodity/derived product in scope is legal and deforestation-free.
The regulation features a set of obligations for operators, i.e those placing products and commodities on the EU market, regardless of whether they are produced in the EU, imported or exported from the EU.
Typically, the legal and deforestation-free status of commodities and derived products will be proven through the provision of geo-location – i.e where the commodities have been produced.
The seven commodities in scope, listed in Annex I, are: cattle, cocoa, coffee, oil palm, rubber, soya, and timber.
Sanctions and penalties will be in the remit of member states’ competent authorities.
Policy rationale
Fighting deforestation is key to achieve climate change and biodiversity goals. Unless deforestation and forest degradation is addressed worldwide, these goals will not likely be met. Deforestation takes place worldwide both illegally but also in line and in compliance of legislation in various jurisdictions.
Deforestation is linked to the conversion of land from forest for the purpose of agricultural use, for the production of specific commodities.
Voluntary commitments have not worked to alter or reverse levels of deforestation.
Because the EU is a large consumer of these commodities, it must take action to reduce its impact worldwide. The objectives are to:
Minimise EU contribution to deforestation and forest degradation worldwide.
Minimise the risk that products associated with deforestation are placed on the EU market, or exported from it.
Increase EU demand for, and trade in, legal and deforestation-free commodities and products.
Risks of the regulation
Overall
Context: the EUDR sets three strict requirements, from the business perspective: 1) Products have to be deforestation-free; 2) products must be legally produced; and 3) products must be segregated from other products or products of unknown origin
There is no official reference map for due diligence; this will be left to member states, or even companies.
The requirement for segregation is extremely demanding and difficult to fulfil.
Clarity is urgently needed from EU member state competent authorities, regarding how checks on shipments will be carried out from 2025, as products may be in the process of production already.
There is risk of inefficiency, through the need to segregate supply chains.
In the coffee sector, there will be origin countries and markets that will be significantly short of demand from EU markets, by next year, as they will not be able to comply with the regulation. In the long-term, investment will go into origins with less associated deforestation, reducing the range of flavour profiles, resilience crops and the sector as a whole.
Smallholder-specific risks
To be within scope smallholder farmers may require land titles. In informal economies, despite the law stating that farmers should have land titles, this is often not the case.
It’s not simple to separate farmers who do have land titles, from those who don’t. Companies do not have this level of granular insight into supply chains.
It is likely that organisations will cease to buy commodities for their EU supply chains from smallholder farmers.
Farmers often hold their stock to sell at the opportune moment. Under the new regulation, operators will have to have clear knowledge and proof of the date of production. This may be challenging to ascertain.
Smallholders can be present in multiple supply chains. Having to be associated with one supply chain officially, due to the need to comply with the regulation, will essentially trap them.
Solutions
Negligible risk could be used to the benefit of smallholder farmers, ensuring their inclusivity.
Negligible risk as defined by Trase Earth: ‘‘Risk benchmarking of sourcing regions is being developed by industry groups to aid implementation of voluntary deforestation commitments. One important application is to classify sourcing regions as negligible risk and non-negligible risk (at risk) to enable companies that can trace volumes to negligible risk sourcing regions to claim deforestation and conversion-free (DCF) volumes from these regions without plot-level traceability.’'
Tools exist to be able to assess impact without having to interact with each smallholder individually – e.g. geo-location.
There are benefits from collective approaches and public-private sectoral collaboration. i.e. landscapes/jurisdictional sourcing approaches.
Regionally driven, rather than supply-chain driven approaches, can lead to more efficient and inclusive supply chains. Rather than causing operators to source only from farmers with the means to comply, this approach allows for the inclusion and support of all farmers within a select region.
These approaches also allow for collective strategies on mitigation. i.e. appropriate response to deforestation and forest degradation by smallholder farmers.
For example, in Vietnam, there is currently an EUDR action plan designed by the Vietnamese government and the private sector, covering the central highlands (the country’s main coffee-producing region).
These approaches may take longer, but collaborative approaches may well be the best option in the longer term
Overall, the regulation will lead to an increase in supply-chain transparency, and therefore likely a reduction in middle-men, and fairer pay for farmers. This will be ultimately to the benefit of smallholders.
The second part of the discussion was based around the questions asked live through the Q&A. Click here to see a list of these questions, with spelling corrected and logistical points removed.
