Perspectives on Policy
The European Commission’s proposal for EU regulation on deforestation-free products marks a long-overdue leap forward in global environmental governance. It is a flagship initiative under the European Green Deal with the goal to minimise the EU’s impact on forests worldwide. We look at two sides of the story – consumer-side and producer-side.
In July 2019, the European Commission (EC) adopted a Communication on stepping up EU action to protect and restore the world’s forests. This paved the way for the EC’s Deforestation Regulation, proposed in November 2021, which will have a significant impact on the trade of key agricultural commodities associated with deforestation such as soy, beef, palm oil, cocoa and coffee. The Regulation envisages a benchmarking process, whereby countries are categorised as low-, medium- or high-risk in relation to production of forest-risk commodities. For higher-risk countries, the Regulation proposes to put the burden on consumer companies to prove they are sourcing their raw products sustainably. They must do this through a due diligence process that geolocates every cocoa crop back to its source farm and uses satellite data to verify the farm has been deforestation-free since 31 December 2020.
In January this year, the Regulation was opened for consultation by non-EU states and it is expected to be operational within the next two years. Below we present two views of the Regulation from the frontline – one consumer and one producer.
CONSUMER VIEW
We interviewed Juan Fernando Valenzuela Arango, Director of Purchases, Agricultural Development & Operations Management, Compañía Nacional de Chocolates, whose parent company is Grupo Nutresa, a food-processing conglomerate headquartered in Medellín, Colombia.
Juan Fernando’s company is one of the major buyers of cocoa within Colombia, processing the beans into products for domestic consumption and export. His company has developed a relationship with cocoa farmers over more than 60 years, giving Juan Fernando a unique perspective on the issue from multiple points of view – local and global, producer and consumer, smallholder and large corporation.
The global cocoa market is growing fast – about 8% a year. But sustainably farmed cocoa accounts for just 10% of this market. “Sustainable cocoa is not taking off anywhere”, says Juan Fernando. Even his company – a market leader in Colombia – is not certified as deforestation-free, although it buys Fairtrade cocoa beans. Juan Fernando describes the deforestation-free certification of cocoa in West African countries such as Cote d’Ivoire as “meaningless”. One reason is the low level of education and awareness among smallholder farmers. While Juan Fernando is broadly supportive of the new EU Deforestation Regulation, he cannot see it succeeding unless the EU balances the stick of regulation with the carrot of capacity-building and incentives.
“It could be a trade opportunity, but it will be a problem to start”, he says, “because the due diligence that the Regulation will develop is so difficult.” He fears the burden of demonstrating that a particular landholding is deforestation-free will fall disproportionately on Colombian farmers and their cooperatives. Equally, he adds, “for us as a company it’s going to be difficult to establish the traceability in the value chain to demonstrate that we are not deforesting – whether we do that by satellite or drone.” Currently Juan Fernando’s company can trace each cocoa bean back to the district it was grown in, but not the individual farm. Nevertheless, he is full of ideas to try and ensure cocoa farming in his country contributes to forest cover rather than destroying it.
Juan Fernando’s company has operated in Colombia’s agriculture sector since 1958, buying cocoa beans from cooperatives and smallholders. “For us, buying the beans is only one part of it”, he says, adding: “we understand small farmers, their livelihoods and their problems – and we try to solve them”. Traceability comes at a high cost – especially to smallholders. “The Regulation must bring different programmes to support the incomes of farming cooperatives”, he says. When he speaks to smallholders about what the EC is proposing, they reply simply: “We need to be paid to manage the farm the way you want us to”. Time is another key ingredient. Juan Fernando suggests the country will need at least three years to prepare for the Regulation. To make this work, you will need to engage farmers’ cooperatives, each one of which may comprise 150 families of farmers or more. You need to know if each family plans to comply or not. You’ll have to work with civil society organizations and government agencies to monitor smallholdings by satellite. “And what if we have the data but no enforcement?” he asks.
Data alone won’t deliver deforestation-free cocoa. Enforcement will always be imperfect at local level, while simply closing Colombia or other countries out of the European market will also fail to address the problem. Juan Fernando believes boosting productivity is the key to reducing the damage cocoa farming does to forests. At present, inefficient farming methods keep farmers’ yields and incomes low, which in turn prompts them to clear more forest to plant more cocoa. In Colombia, cocoa yields are on average 500-550 kg per hectare. This is higher than the West African average of around 300 kg. But it's still not enough to generate a living wage. However, by using better plants and farming practices, smallholders could double their yields to 1,000 kg per hectare – this is the way to reduce deforestation, he argues.
For example, the monilia fungus that spreads disease through cacao trees can kill 40% of production. But educating farmers in how to inspect their trees every two weeks and cut away the fungus can save the crop, without using pesticides. Technology has great potential to improve yields. More than 85% of farmers use phones. If you could deliver relevant agrobic data to their phones, such as how to control diseases, or when to apply fertilizers and in what quantities, yields would improve. Providing farmers with genetically-modified cacao plants would improve productivity and may protect crops from future effects of climate change. And agroforestry projects have been successful in restoring degraded forest land.
PRODUCER VIEW
We interviewed Wendy Arenas from Colombia, director of the Alisos Foundation that hosts Cocoa, Forests & Peace, a public-private initiative which promotes deforestation-free cocoa production in Colombia, while improving livelihoods for producers and helping consolidate the peace process.
Although cocoa is not a major driver of deforestation in Colombia, everyone in the sector welcomes the EC’s proposed new Regulation. They want cocoa to play its part in ridding commodity value chains of deforestation, says Arenas. But while she recognizes the Regulation’s positive intent, she’s worried about how it will be implemented. The timeline to conform is far too tight. The criteria for determining risk areas are not clear enough. And there are no commitments from the European side towards building local capacity to conform. In the absence of progress in these areas, she’s concerned the burden will fall on those least able to bear it – smallholder farmers. We look at each of her concerns below, along with her proposed solutions.
The cocoa sector in Colombia, as elsewhere, is dominated by smallholder farmers – but there is very little mapping or GPS information available on their farms. So, the EC’s requirement for geolocating the source of every cocoa crop is a huge challenge. “Countries like Colombia will take years to map all cocoa-producing areas”, says Arenas, adding: “that’s absolutely not feasible in the short term.” She suggests a minimum additional transition period of two years after the Regulation comes into force. Otherwise, farmers simply won’t be ready, and their livelihoods could be at risk if they are closed out of the EU as a market.
Are the European companies that buy cocoa products going to adapt their business models, are they willing to pay a better price for certified deforestation-free cocoa?
The Regulation currently proposes to risk-assess cocoa-producing areas at the national level. This means farms in high-risk areas have to be geolocated and shown to be deforestation-free. While this burden of due diligence will fall on consumer companies, Arenas fears they will simply pass on the problem to smallholders. And if smallholders can’t certify they are deforestation-free, then consumer companies may just bypass them and purchase cocoa from larger, more well-organized producers who can. Arenas proposes an alternative form of certification – by jurisdiction, such as a district or state. Certification of larger areas would be more feasible than monitoring individual farms, while still bringing trustable data to the markets. Crucially, it would lift the burden of certification off the shoulders of smallholders. But there are challenges – a single jurisdiction might produce many different commodities, such as soy, cattle or palm oil as well as cocoa. And who should do the monitoring – companies or governments? Nevertheless, this approach offers a valuable middle way for the EU, according to Felipe Carazo, Head of Public Sector Engagement at the Tropical Forest Alliance (TFA). “The jurisdictional approach to assessing deforestation risk in commodity value chains offers a more manageable tool to bring countries, and public and private stakeholders to the table”, he says, adding: “it could avoid branding entire countries as high risk, while preventing smallholders from having to bear the cost of farm-specific geolocation.”
The big question for Arenas is: who is going to pay the cost of conforming to the new Regulation? “Are the European companies that buy cocoa products going to adapt their business models, are they willing to pay a better price for certified deforestation-free cocoa?” she asks. If not, will consumers pay – are they even aware they may have to? And if consumers or demand-side companies don’t pay, the costs shift upstream to producers who can’t afford to pay. “Producers won’t be able to adapt without very substantial support”, says Arenas, adding: “We don’t see this support happening and in Latin America we’re really concerned.” She seems concerned that the EU is more interested in supporting cocoa producers in West Africa than in Latin America. In its 2019 Communication, one of the EU’s priorities was to “work in partnership with producer countries to reduce pressures on forests”. However, the Deforestation Regulation is vague on this point. The TFA has lobbied the EU to create Producer Partnerships that support governments, companies and smallholders in commodity-producing countries with financial incentives and capacity-building. Arenas is even more specific. She calls on the EU to support existing public-private platforms, such as the Cocoa, Forests & Peace (CB&P) initiative in Colombia – a coalition of NGOs, three government ministries and 90% of the cocoa industry – that has been working to promote deforestation-free commodities for the past four years. “We have all the actors sitting in these coalitions. We have the action plans. We just need the money and technical assistance to implement them,” says Arenas.
Is the EU Deforestation Regulation going to incentivize real change or will it just be another trade barrier that stops the consumer feeling guilty?
Carazo explains why supporting such coalitions makes sense. “You need to balance the competing demands of forest interests, economic interests, local livelihoods and food security”, he says, adding: “You can’t privilege the forest at the expense of livelihoods.” If the EU Regulation simply focuses on imposing sanctions against deforestation, it will fail. Without investing in the right incentives for producers, they may have no option but to sell into less-demanding markets. If producers can’t deliver on the certification, demand-side companies will simply source from other farmers or countries that can deliver. Meanwhile, the wider problem of deforestation remains unsolved.
As Carazo puts it: “Is the Regulation going to incentivize real change or will it just be another trade barrier that stops the consumer feeling guilty? The causes of commodity-driven deforestation and forest degradation are deeply complex. The only way that European governments and companies can hope to address them is through partnerships with local coalitions that represent the interests of everyone in the value chain."
