The EU Deforestation Regulation (EUDR), approved in April last year, was hailed by Members of the European Parliament (MEPs) as a turning point in the bloc’s efforts to achieve sustainable business practices and reduce carbon emissions.
“European consumers can be assured that they will no longer be unwitting accomplices to illegal deforestation,” stated the European Parliament’s lead negotiator on the legislation, former centre-right MEP Christophe Hansen (Christophe Hansen) from Luxembourg.
Critical Latin American and African countries, which will have to implement the new rules, argue that EU representatives did not consult them and that the EUDR could force thousands of vulnerable farmers out of business. Much like the EU Carbon Border Adjustment Mechanism – another piece of legislation aimed at curbing emissions that sets new requirements for exporters to the European Union – the EU Deforestation Regulation was adopted by the EP with cross-party support and a large majority. The legislation was approved despite an extensive lobbying campaign against it by several international corporations and civil society groups.
The EUDR is included alongside the EU’s new Corporate Sustainability Due Diligence Directive, which aims to ensure that companies identify, prevent, and mitigate their negative impact on human rights and the environment throughout their supply chain. The regulation includes a guarantee that products will not contribute to deforestation.
The new legislation will start applying to international companies at the end of 2024. Companies will be required to vet their international suppliers by establishing annual due diligence systems. These must be submitted to the member states where the products are sold, guaranteeing that they have not caused deforestation.
The regulation on deforestation-free products covers cattle, cocoa, coffee, palm oil, rubber, soya, and wood. It also includes leather, chocolate, charcoal, and printed paper produced using these raw materials.
The scope of the EUDR stipulates that due diligence statements must include information proving that the products manufactured by suppliers comply with the land-use, labour, and human rights legislation of the supplier countries.
Sanctions
Those who violate the rules may be excluded from the EU market. Businesses and traders may be subject to fines of up to 4% of their annual turnover in the European Union, as well as the confiscation of products and revenue.
EU member states will have to manage the administrative burden of conducting inspections, as well as the bureaucratic requirements the regulation will impose on small businesses. This is specifically emphasised regarding the determination of geographical location.
Products originating from low-risk countries will be subject to a simplified due diligence procedure. The proportion of inspections for traders will be determined based on the country’s risk level: 9% for high-risk countries, 3% for standard-risk countries, and 1% for low-deforestation-risk countries.
The due diligence declaration will also have to include information on the quantity and geographical location of all plots of land where the goods were produced, from 31 December 2020 onwards.
Vulnerable stakeholders
Approximately five million smallholders – mostly in West Africa – produce 80% of the world’s cocoa. Elsewhere, nearly two-thirds of global coffee production is generated on 12 million farms covering less than five hectares, while about 30% of the world’s palm oil production is produced by smallholders.
EU legislation stipulates that the due diligence process is targeted at private-sector traders and businesses, not individual countries and farmers.
The European Union has promised to provide financial support to smallholders and, more broadly, to countries that demonstrate a willingness to fight against deforestation, as well as to “least developed countries”.
The European Commission’s impact assessment, however, lacked detailed information on how the new law would affect small farmers and what costs they would have to cover to achieve compliance. The EU executive has not developed an impact assessment regarding production. Small farmers are the most vulnerable stakeholders in this value chain. The EU Deforestation Regulation aims to introduce additional requirements and rigorous checks on their practices, thereby potentially increasing liability as well as the administrative and financial burden.
“Implementing the due diligence process could create higher costs for farmers who are already struggling to make a living,” warns Maria Naranjo, a researcher in green economy and land use at Wageningen University in the Netherlands.
There are concerns that additional import rules and the associated costs could incentivise traders to reduce purchases from smallholders or even shift supplies to lower-risk regions.
The new law is expected to increase prices. So far, however, there is a lack of evidence that it will benefit small farmers, particularly in markets where many smallholders sell their produce to a single buyer. It is unclear how the requirements will be implemented, given that countries have different logging and national legal definitions. It must be emphasised that the Deforestation Regulation effectively imposes obligations on sovereign states outside the European Union.
The demand-side assessment does not include either the anticipated impact on deforestation on the ground or the regulation’s potential direct or indirect impact on smallholder incomes, human rights violations, and land tenure security – all of which are drivers of deforestation.
Compliance is likely to favour larger commercial farms over smallholders in supply chains, as compliance costs will be higher for goods sourced from many smallholders with complex value chains than from a single large producer.
Industry stakeholders and experts add that the new law is likely to increase the price of land deforested before the cut-off date. Consequently, production for EU markets on such land will become more profitable, squeezing production out of domestic markets and markets outside the European Union. In some cases, large trading companies or producers may choose to purchase such land from smallholders. These, in turn, could continue to move into forest areas, indirectly causing deforestation and the expansion of agricultural land.
Kenyan government officials admit that the EU deforestation law will increase pressure on land use and most farmers are unaware of how the new rules will affect their livelihoods. Kenya’s Cabinet Secretary for Cooperatives, Micro, Small and Medium Enterprises, Simon Chelugui (Simon Chelugui), admits that the law will put “pressure” on the sector. At the same time, he stated that the government is working on an integration plan that will allow farmers to earn a living while ensuring an increase in forest area.
“There will be some pressure on land use, but our farmers can cope and implement all these changes simultaneously,” stressed Simon Chelugui. He added: “Farmers can set aside a few hectares for tree planting, as these forests are also beneficial to them in terms of climate regulation, and this will go a long way in helping meet the EU’s EUDR requirements.”
According to him, good ecological zones suitable for forestry in the country are also areas where crops such as coffee, tea, and macadamia nuts grow. According to S. Chelugui, Kenya has adopted the EUDR, which is part of the Nairobi government’s broader strategy to position itself as an “African climate champion”.
The Commission’s impact assessment on the potential effect of the new law warns of EU trade shifts from “high-risk” producer countries to “low-risk” producer countries. “High-risk” countries more often have very significant levels of poverty, and experts have warned that increasing poverty in impoverished countries could be one of the unintended consequences of the EU Deforestation Regulation.
Insufficient enforcement capacity and limited international funding would hinder the ability of producer countries to reach their deforestation targets. This, in turn, would increase the number of countries the EU labels as high-risk. Even if countries of origin/export adapt, the difficulties associated with tracking complex supply chains and the associated costs will increase companies’ motivation to shift to low-risk jurisdictions. Such behaviour would be expected from those companies currently selling EUDR-related products in the European Union.
Maria Naranjo argues that not all countries are equally prepared to meet the Deforestation Regulation’s requirements. “It is important to determine at the national level how ready a country’s producers are and what problems need to be addressed,” she points out. The EC should conduct a national assessment of their readiness to comply with the new due diligence requirements, Naranjo believes.
Coffee was also included in the regulation because of the link between deforestation in a specific area or country and coffee production. Regarding coffee production, the deforestation definitions included in the law imply that all coffee plantations (even if grown in an agroforestry system that meets structural forest requirements) are considered deforestation if done on land that was previously forest. The only exception might be natural coffee forests in Ethiopia and South Sudan.
Meanwhile, Côte d’Ivoire, which together with Ghana produces nearly two-thirds of the world’s cocoa beans, is lobbying the European Union to provide greater financial support for reducing deforestation processes. Anticipating the EUDR, the Ivorian government has also introduced its own GPS tracking system to improve data on the origin of cocoa beans. Since February, farmers have been issued electronic tracking cards, which are required for trade. Other involved countries, such as Ghana, have also introduced a national mandatory traceability system to meet EUDR requirements.
Consultation is not at a sufficient level
Several African leaders and economists have complained that the EU often fails to hold meaningful consultations on new legislation that, although well-intentioned, will significantly impact their countries’ economies. Much like the CBAM (the EU’s Carbon Border Adjustment Mechanism is an EU instrument that sets a fair price for carbon dioxide emissions produced during the manufacturing of carbon-intensive goods imported into the EU, and promotes cleaner industrial production in countries outside the EU), many stakeholders in Africa and Latin America see the regulation as a dictate rather than a partnership.
“I think the EUDR should be viewed positively because we are addressing sustainability issues,” says Rachel Gyabaah (Rachel Gyabaah), technical advisor to the NGO TrustAfrica. “But, as usual, there was a lack of consultation on what is defined as deforestation and what it (the regulation) means for each of the affected countries. It is also not really clear what the consequences will be for farmers who produce the relevant goods.”
“Along with civil society organisations, the Ghana Cocoa Board COCOBOD (the Ghana Cocoa Board is a state organisation that supports cocoa production, processing, and trade in Ghana) was also involved, but this happened after the European Union Deforestation Regulation was released,” notes Rachel Gyabaah, adding that “more time is needed to ensure that many producers are aware of and understand the Deforestation Regulation’s requirements. Time is needed to implement measures to ensure the business stability of producers under the new conditions.”
“The regulation, however, is a big step towards reducing global deforestation and biodiversity loss,” believes researcher M. Naranjo.
Government and industry representatives in key African countries such as Kenya and South Africa have also reacted with mixed feelings. While the Kenyan government is currently working on coffee sector reform in 37 coffee-growing districts, the country has not yet responded to the EUDR.
Festus Bett (Festus Bett), General Manager of the Kipkelion District Cooperative Union (Kipkelion District Cooperative Union) in the Rift Valley, admits that the EU is currently Kenya’s largest coffee market. Under the new regime, Kenyan farmers will need to obtain Rainforest Alliance certification to continue trading.
“It is worrying that this is a completely new process where many coffee unions, cooperatives, and farmers do not even know where to start. It is an exhausting, meticulous, and expensive set of measures. Unions and cooperatives that already have an understanding of the situation are now racing to meet deadlines,” notes General Manager F. Bett.
“Participants in these value chains must be certified. Some associations have already formed an idea, but some, like us, are racing against time. We have already spent nearly 1 million Kenyan shillings (5,500 euros), but we are not even close. We estimate that the entire certification process for our cooperative union will cost about 2 million shillings (11,000 euros),” stresses Festus Bett. Although he believes that the European Union’s Deforestation Regulation requirements are aimed at protecting citizens, it is still difficult for most farmers to complete the checklist tasks.
F. Bett points out that: “The checklist points to many requirements to be observed. It looks at governance issues, as well as social, environmental, and integrity issues. It audits contracts for those working on coffee farms and requires farm owners to comply with international and national labour laws.”
Festus Bett says that his union has about 20 policies that need to be checked. The bureaucratic burden has increased significantly. For certification purposes, copies (these are manual copies) must also be submitted, and these processes, he says, can block many supply chain participants who have not yet understood the rules.
In January 2024, the Ethiopian government, in partnership with the United Nations Development Programme (UNDP), launched an eight-year, 20.8-million-US-dollar programme to combat deforestation and provide market support to Ethiopian coffee producers.
Maesela Kekana (Maesela Kekana), South Africa’s lead negotiator at high-level climate change meetings, argues that the EU Deforestation Regulation will also affect countries like South Africa, despite the country having a large industrial base and significant financial resources. Maesela Kekana notes that although South Africa is only just beginning discussions with the European Union, the country is already planning to negotiate for an extension of the deadlines.
“These rules are being adopted at a time when we have just started the Just Transition process. This means that countries not yet ready to adopt EU rules will begin to deeply examine various aspects of interstate economics and mutual trade. This could delay the decarbonisation process,” stresses lead negotiator Maesela Kekana.
A number of African countries claim to have become allies in the fight against agriculture-driven deforestation. The countries are using industry and stakeholder partnerships, such as the African Sustainable Commodities Initiative. This initiative brings together ten West and Central African countries to define principles for the sustainable production of key raw materials – cocoa, palm oil, rubber, and coffee.
Coffee sector observers have already concluded that coffee importers in the European Union are beginning to reduce purchases from African smallholders.
“If you look closely at the legislation introduced by the EU, it is aimed at protecting European citizens and industries from external competition, and we are reacting to their interests. Why can’t we support ourselves and develop our interests? We should properly satisfy our needs first before competing with European companies to provide them with what they need,” points out Amos Wemanya (Amos Wemanya), a researcher and senior advisor on renewable energy and Just Transition issues at Power Shift Africa.
According to A. Wemanya, the EUDR is a “wake-up call” for Africa to rethink its agricultural models based on large volumes of so-called cash crops intended for export. “Africa has ended up in a very compromising situation where even coffee growers cannot afford the coffee they produce.”