A Brewed Dilemma: EU Deforestation Law Casts Shadow on African Coffee Exports

The imminent enforcement of the European Union Deforestation Regulation (EUDR) in late 2024 is already exerting a profound influence on the global coffee import landscape. This legislative initiative, designed to combat deforestation, will impact products such as coffee, cocoa, soy, and others, mandating that they must not originate from deforested areas. Importers are grappling with the complexities of compliance, and the consequences are particularly pronounced in the realm of coffee, affecting small-scale African farmers, especially in coffee-rich countries like Ethiopia.

As reported by Infostride News, the EU’s importers are preemptively adjusting their sourcing strategies in response to the forthcoming EUDR. Small-scale African farmers in Ethiopia, where coffee farming is a vital livelihood for approximately 5 million families, are witnessing a reduction in purchases. Reuters, the initial source of this report, suggests that this shift may lead to increased poverty among these farmers and higher prices for consumers within the EU. Paradoxically, it could also undermine the EUDR’s overarching goals of forest conservation.

Johannes Dengler, a representative from Dallmayr, a prominent German coffee roaster, voiced concerns regarding the practicality of procuring significant quantities of Ethiopian coffee under the impending regulations. Similarly, JDE Peets, a major player in the coffee industry, hinted at the possibility of severing ties with smaller producing countries unless viable compliance solutions are swiftly identified. To mitigate potential adverse effects, the EU Commission has committed to providing support to producers and smallholders, including a 70 million euros initiative announced at COP28.

However, the implementation of the EUDR is not without its challenges. The need to digitally map extensive supply chains and address issues such as internet connectivity, land rights disputes, and local conflicts in producer countries poses practical hurdles. In response, some major companies are contemplating the segregation of their supply chains. This involves redirecting non-compliant materials to non-EU markets while reserving compliant goods for the EU market. While this strategy may address immediate concerns, there are apprehensions that it might dilute the effectiveness of the EUDR in curbing deforestation, as non-compliant goods would still find markets outside the EU.

Moreover, the regulation is anticipated to have a cascading effect on food prices within the EU, owing to higher compliance costs. Two of the world’s largest coffee traders, Sucafina and Louis Dreyfus Company, have already factored in an EUDR premium in their future sales contracts. This underscores the economic implications of the regulation not only on producers but also on consumers within the EU.

The challenges posed by the EUDR extend beyond European borders and have profound implications for African countries, especially major cocoa-producing nations like Ivory Coast. In regions where a substantial portion of the crop is sold through local intermediaries, traceability becomes a formidable challenge. The EU’s stringent insistence on compliance, coupled with the inherent complexities of local supply chains, raises concerns about potential social unrest. Addressing these challenges will necessitate substantial funding and support for sustainable transitions in these regions.

While the EUDR is a commendable effort to combat deforestation and mitigate climate change, its implementation is undeniably intricate and carries far-reaching implications for global commodity markets. The delicate balancing act between environmental goals and economic realities, especially for small-scale farmers in developing countries, underscores the need for ongoing efforts to support compliance and ensure a sustainable future. The EU’s commitment to navigating this delicate equilibrium will be crucial in the years to come.