The bears outcry the bulls as companies prep for EU deforestation law

With less than sixty weeks to go before the EU deforestation regulation comes into force, it’s pretty much the only topic of discussion between commodity-importing companies. 

The company “bears” were holding forth on every panel at a recent commodities conference in Amsterdam. 

One palm oil trader and long-standing buyer from small farms said that they will source palm oil primarily from plantations for EU supply as the risk of non-compliance from most smallholder farmers is too great. 

A major coffee roaster speculated that many smaller companies will not be able to stay in business because of the new data verification wall being built around Europe’s port. 

One speaker expressed the frustration of many at the poor preparedness of the customs authorities in Europe: “If I don’t comply perfectly with your requirements, we have a financial liability of up to 4% of our European turnover, and yet you say “it’s too technical” for you when we want to discuss the details of compliance.”

Relishing the prospect of regulation

But in the coffee breaks and the corridors, there was another voice, the quiet opinion of business “bulls” who don’t want a public argument but are relishing the prospect of the regulation. 

One high-profile chocolate company talked about the promise of “the end of indirect supply”, where most of the social and deforestation challenges to the cocoa sector lie. 

A big coffee roaster talked excitedly about finally having the tools to break the link between coffee and deforestation and the relief of having the full attention of producer governments on the issue. 

I heard similar stories from forest campaigners who report that EUDR is having a wonderful galvanising effect on the forest protection actions of the rubber sector.

It is possible to align these different perspectives on the regulation. Bullish opinion was generally focused on its benefits over the next five to ten years, and they largely agreed with bears that the markets were going to be very disrupted in the next two to three. 

In the short term, it is very likely that millions of small farmers supplying cocoa and coffee indirectly to European suppliers will either be excluded or launder their supply through compliant farmers to protect their incomes. There are wry predictions of a miraculous jump in “productivity” in compliant farms.

Can Brussels counter some of the bears’ pessimism?

It’s not in anyone’s interests to admit this, and so there is a strange contrast between public statements from some coffee and cocoa producer governments that they will be ready, whilst in private most will admit that it may only be between half to two-thirds of their supply that will be compliant by January 2025. 

Similarly, despite the heated debate about benchmarking countries to determine what percentage of their shipments need to be checked on arrival, there is little sign that European customs authorities are ready. 

No one thought that the famously well-organised Dutch were going to be ready to check the paperwork of more than a handful of the thousands of ships arriving into Rotterdam and Amsterdam every day.

Which makes it all the more puzzling why the European Commission is charging ahead and assuming that the law will be fully enforceable from day one. 

It may be time to concede that at least the first year will be one where producer organisations, companies, and customs authorities alike will have to learn together how to make the system work. 

The cut-off date for deforestation won’t change, so the risk of extra forest loss is tiny, but having an “inception year” where importing companies can work out how to make smallholders compliant without the threat of big fines would reduce the risks of lowering small farmer income and indirectly driving more deforestation for non-EU markets. 

It would also lower the temperature of the diplomatic spat with producer governments who feel like they are not being heard. 

Amid the dash to comply, the aim of reducing net deforestation is in danger of being lost, but the bulls should be proved right if the European Commission can counter some of the justified pessimism of the bears.

Matthew Spencer is Global Director of Landscapes at IDH — Sustainable Trade Initiative, established by the Dutch government in 2009 to help improve the sustainability of international supply chains.

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