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Why Global Coffee Is Exiting Africa for Brazil Ahead of EUDR

Producers are scrambling to "de-risk" supply chains ahead of the landmark deforestation legislation


Wed 03 Jan 24

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Global coffee importers are scaling back and walking away from Africa, with producers trading small African landowners for “rich Brazilian farmers” as global commodity markets prepare for the EU Deforestation Regulations (EUDR), set to come into force later this year.

In May, the European Parliament approved a new law with an overwhelming majority, which mandates that companies prove their products do not originate from deforested or forest-degraded lands, or they may face substantial penalties. 

Deforestation accounts for 10% of worldwide greenhouse gas emissions, with a report suggesting that more than 50% of deforestation occurs in 5% of producing areas – including in the Amazon, Cerrado and Gran Chaco biomes.

Last month, a report alleged many of the world’s largest financial institutions are increasing exposure to “at-risk” forest assets.

Under the new regulations, importers of coffee, cocoa, soy, palm, cattle, timber and rubber must be able to prove their goods did not originate from deforested land or face hefty fines.

However, there are concerns about a “worrying lack of readiness” amongst suppliers, with the Zoological Society of London revealing that timber and pulp companies are “largely unprepared” for the new rules.

Now, Wood Central understands the cost and difficulty of complying with the EUDR, which have already had unintended impacts that could reshape global commodities markets.

According to Reuters, industry insiders have cited a “drying up of orders” from Ethiopia, where 5 million farming families rely on the crop. 

They are now warning that new sourcing strategies risk increasing small-scale farmer poverty and raising prices for EU consumers while undermining the impact of forest conservation.

“I see no way of buying significant quantities of Ethiopian coffee going forward,” according to Johannes Dengler, an executive at German roaster Dallmayr, which buys about 1% of the world’s exported coffee. 

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Importers of coffee to the European Union are starting to scale back purchases from small farmers in Africa and beyond as they prepare for a landmark EU law that will ban the sale of goods linked to the destruction of forests, a cause of climate change. (Photo Credit: Reuters)

Because beans he orders now could find their way into coffee products sold in the bloc in 2025, they must be EUDR-compliant, he said – even though implementing acts for the law have yet to be finalised.

The new regulations are already shaping global trade relationships, with Wood Central reporting in September that the Netherlands has a €10B problem with the rules.

Consequently, global coffee giant JDE Peets “has been forced to remove smaller countries from its supply chains” as early as March if it hasn’t “found and implemented a solution with them” by that date. 

The European Commission said it has several initiatives to help producing countries and smallholders comply with the EUDR, including an initiative launched at COP28 in Dubai where the EU and member states pledged 70 million euros (AU $90 million).

It states that smallholders “see the EUDR as an opportunity, especially if accompanied by EU support measures, to help them grow demand for sustainably produced products.”

Under the EUDR, companies must “digitally map their supply chains down to the plot where the raw materials are grown,” potentially involving tracing millions of small farms in remote regions. 

Moreover, where importers do not have a direct relationship with farmers, they rely on data provided by multiple local middlemen, many of whom they also might not deal with directly or trust.

While there is a push to address these concerns by developing the world’s first EUDR-compliant Traceability Transparency Harvested Timber Provenance Digitalisation system, patchy internet coverage, complicated land rights laws, and weak law enforcement can make mapping difficult.

In September, Swapan Chaudhuri, an international expert in AI, automation and computer science, told Wood Central that he is using AI technologies to track global supply chains ahead of the EUDR.

“Nowadays, from Europe, no one is interested in our coffee,” a representative from Ethiopia’s Oromia Coffee Farmers’ Cooperatives Union told a recent World Coffee Alliance webinar.

He said most coffee farmers have never heard of the EUDR and that even educated villagers would struggle to collect the required data in time.

Coffee generates 30-35% of Ethiopia’s total export earnings, with almost a quarter sold to the EU. 

“Roasters are moving to big, rich Brazilian farmers. It’s shocking,” said a trader at one coffee trade major. 

“In risky countries, there’s smallholders and middlemen who are illiterate – and we’re coming to them with a law that even Europeans don’t understand.”

But cutting out small-scale farmers or whole countries is not feasible if they are major commodity producers. 

Ivory Coast and Ghana produce 70% of the world’s cocoa, while 60% of coffee comes from Brazil and Vietnam. Indonesia and Malaysia grow almost 90% of the world’s palm oil, a commodity used in everything from pizza and lipstick to biofuels.

As such, some major companies say they will redirect raw materials they cannot reliably trace in those countries to non-EU markets while sending compliant goods to the EU. 

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In Borneo, over 200,000 hectares of palm oil plantations on the Indonesian side of the border, where 85% of global palm oil is produced, will be converted back to natural forests under a landmark commitment announced by the Indonesian government in November.

Golden Agri Resources, one of the world’s largest palm oil companies, told Reuters that “segregated supply chains will be required” to implement the EUDR. A source at palm oil major Musim Mas concurred.

To the extent this strategy comes to dominate, it would lessen the EUDR’s impact on forest conservation because raw materials would still be grown on deforested land, just not for EU consumption. 

Compliance costs throughout the supply chain are meanwhile expected to raise food prices in the 27-country EU.

Two of the world’s largest coffee traders, Sucafina and Louis Dreyfus Company (LDC) have already locked in future sales contracts that include an EUDR premium, according to a source at a commodities trade major. LDC and Sucafina declined to comment.

Author

  • Jason Ross

    Jason Ross, publisher, is a 15-year professional in building and construction, connecting with more than 400 specifiers. A Gottstein Fellowship recipient, he is passionate about growing the market for wood-based information. Jason is Wood Central's in-house emcee and is available for corporate host and MC services.

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