Save forests, sacrifice coffee? The EUDR Dilemma

The EU Deforestation Regulation (EUDR) has sent shockwaves through the global trade industry. The new regulations, aimed at curbing deforestation, are having far-reaching effects on farmers, producers and consumers worldwide.

Certainly, in this scenario of revolutionary change, a proactive approach can make a difference. But how are these regulations causing unintended consequences and what does it mean for the future of global trade.

"However, while coffee consumption in the US and Europe is growing around 4% annually, the 2023 China Urban Development Report published by CBN Data and Metuin shows China's total consumption grew 57% between 2019 and 2023."

Let us first analyze the context to understand the Impact of this regulation on Farmers and Producers.

The EUDR requires that all companies and countries selling products to the EU must prove that these products do not come from deforested land after 2020. The regulations affect commodities such as soybeans, livestock, palm oil, rubber, wood, cocoa, and of course coffee.

Consequently, it also affects products that contain them, and needless to say, there are many of them. This means that companies, producers and farmers must submit detailed documentation that traces each raw material back to its origin, including mapping of land boundaries and coordinates.

The coffee industry is particularly affected by the EUDR, as the European Union is the world's largest importer of coffee. Producers, especially in developing countries such as Colombia, Brazil, and Vietnam, now face significant pressure to prove that their plantations are not contributing to deforestation. The question that arises is, will they do it? Or rather, are they able to do so? We shall see.

For many farmers, especially those in remote areas with limited access to technology, this process can be daunting and expensive. Some may have to use middlemen or third-party services to obtain the necessary data verification, further reducing their already slim profit margins.

And the question re-emerges: will they do it? Are they capable of doing so?

While all businesses face these new challenges, small farmers are particularly affected. Many of them, especially in remote areas, find compliance difficult due to limited resources and access to technology. Many farmers in rural areas may not have the training or tools they need to meet the requirements.

The impact of the EUDR is particularly felt in countries with a high percentage of small farmers, such as Honduras. Many of these producers are not even aware of the existence of these new rules, making them even more vulnerable to economic consequences.

When faced with the need to comply with all these rules, many small farmers will be in dire straits. Lack of resources, technical knowledge and access to technology will make it extremely difficult for them to provide the required documentation. Although there are companies offering services and smartphone apps to help producers comply with the EUDR, rural farmers themselves do not even own smartphones or have access to reliable internet connections.

Without the proper support and guidance, these small producers risk losing access to the European market, which for many represents a significant portion of their income. This could have a devastating effect on rural communities, pushing many farmers deeper into poverty or forcing them out of farming altogether.

There are many companies that have seen an opportunity in helping farmers comply with regulations by providing data mapping and verification services. However, not all farmers have access to or can afford such services.

The difficulties faced by small farmers are reflected in the concerns raised globally about the EUDR. More than 55 countries will be affected by the EUDR, with an estimated $110 billion in trade at risk. Countries with high numbers of small farmers, such as Honduras, are lobbying the EU for more time or guidance to comply. So are companies in consumer countries in Europe. The logical consequence is that producing countries are exploring alternative markets outside the EU. Obvious, isn't it? Who wouldn't.

Europe is a very interesting marketplace so I don't mean to imply that coffee will disappear but you certainly don't have to be a super expert in macro economics to expect the most logical consequence: ever higher prices.

To support this thesis, read this article of World Coffee Portal on coffee consumption trends in China. In my opinion this passage is quite significant:

Demand is growing everywhere, and if the Chinese start consuming coffee at the same rate as Europeans, I believe producers will not struggle to find new customers.

While environmentalists stress the urgency of curbing deforestation, European regulators are trying to balance these concerns with the economic impact on farmers and small businesses. The EU has set aside a $76 million fund to support small producers in complying with regulations, but in the end, the law is the law.

What lessons can we take home from this analysis? And what should we stick to from the future?

As the EUDR continues to provoke debate and concern, important lessons and considerations for the future emerge. Although implementing green policies presents challenges and trade-offs, it is important to find ways to improve and move forward. Regulations are pushing countries and companies to rethink their supply chains and find ways to comply with new rules.

The supply chain is obviously not without repercussions, and it is not enough to protest and ask for referrals

It is critical that the EU and international organizations work closely with producing countries to provide the support small farmers need. This could include training programs, technical and financial assistance to help producers navigate the complex requirements of the EUDR.

Without these kinds of actions, the new regulations are likely to have unintended consequences and exacerbate existing inequalities in global trade.

The EUDR is causing significant disruptions in global trade, particularly for farmers and producers in developing countries. While the regulations aim to address deforestation, they are also raising concerns about the economic impact and feasibility of compliance.

As the world grapples with these challenges, it is clear that striking a balance between environmental protection and economic sustainability will be crucial to the future of global trade.

Only through collaboration, targeted support and careful consideration of unintended consequences can we hope to achieve sustainability goals without leaving vulnerable communities behind.

The challenges are many, and standing passively is not a good strategy in my opinion. As entrepreneurs and coffee lovers, we have the power and responsibility to shape our future.

The first step is to keep ourselves curious, alert and connected, but most importantly, never standing still. Opting for strategies that include ethics and accountability, sharing and transparency may seem ineffective but in fact, they are what will save us.

Photo: Luoman from Getty Images

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