EU’s global deforestation law finds industry favor but smallholder farmers fear trade exclusion

28 Apr 2023 --- The European Parliament’s decision to adopt a new law to fight global deforestation has been welcomed by major industry players like Nestlé and Barry Callebaut as a positive step toward high-quality, sustainable food systems, but also left smallholder farmers fearing for their livelihoods. 

The regulation requires companies to ensure products sold in the EU have not led to deforestation or forest degradation. Suppliers of commodities including cocoa, coffee, palm oil and soya, and products that contain these ingredients like chocolate, must provide a “due diligence” statement confirming that their products have not come from deforested land since 2021.

However, carbon solutions provider ReSeed warns that the new rules requiring farms to be mapped by GPS coordinates will financially burden small-scale cocoa and coffee suppliers and potentially exclude them from international supply chains.

The UN Food and Agriculture Organization estimates that 420 million hectares of forest – an area larger than the EU – were converted to agricultural land between 1990 and 2020. EU consumption represents around 10% of global deforestation, with palm oil and soya accounting for more than two-thirds of this consumption.

Companies will also have to verify that their products comply with the relevant legislation of the country of production, including on human rights, and that the rights of affected indigenous people “have been respected.”Under the EU law, companies must perform “due diligence” to demonstrate that products have not originated from deforested land.

Small farms, big impact
The European Commission will classify countries as low-, standard- or high-risk based on “an objective and transparent assessment” within 18 months of the law entering into force. EU authorities will have access to supplier information, such as geolocation coordinates, and conduct product checks using satellite monitoring tools and DNA analysis.

Meanwhile, Nestlé has championed itself as the first F&B company to pilot Airbus’ new Pléiades Neo satellites. It will monitor its reforestation efforts using high-resolution images, ensuring that the trees it plants in sourcing regions continue to thrive over the long term.

“Healthy forests and natural ecosystems are essential to our ability to source high-quality raw materials, and achieving deforestation-free supply chains is key to our efforts to achieve net zero by 2050,” a Nestlé spokesperson tells FoodIngredientsFirst.

But for smallholder farmers – who are estimated to be responsible for over 75% of the global food supply and crucial to storing legacy carbon through regenerative farming – advanced GPS technology is not practically or economically feasible.

“The majority of these farmers live at, or below, the poverty level and are at risk of being pushed off their land due to this law, despite being the unsung heroes in the fight against the climate crisis,” Vasco van Roosmalen, CEO and co-founder of ReSeed, tells us.

“By recognizing smallholder farmers’ ecosystem services – starting with their carbon stocks – and creating incentives to draw down additional carbon, we can scale action against climate change and provide the necessary product origin data required under these EU regulations,” he suggests.

“Instead of a burden, this ruling should be an opportunity to reward smallholder farmers for their ecosystem services and increase their yields and resilience through inclusion in carbon markets. Payments for ecosystem services can help offset the extra costs required under the new law.”Barry Callebaut monitors farms at risk of sourcing from protected areas to ensure an ethical supply chain for its chocolate (Image credit: Barry Callebaut).

Guilt-free commodities
While major industry players generally agree that the law’s mandatory due diligence rules, which apply to traders and operators, support the development of a level playing field for all companies, supply chain collaboration and financial support will ultimately determine the new regulation’s success.

“We strongly believe that to be effective and achieve its main objectives of fighting deforestation, this legislation has to be accompanied by enhanced cooperation and technical and financial support to producing countries, particularly on government-mandated traceability systems, forest governance and land tenure reform,” Frank Keidel, head of media relations at Barry Callebaut, tells us.

“Together with trade associations, other companies and civil society, Barry Callebaut has been a vocal proponent of EU legislation, setting a due diligence obligation on all companies that place cocoa or cocoa products on the EU market.”

The chocolate and cocoa innovator focuses on monitoring farms that are potentially at risk of sourcing from protected areas. Currently, it covers over 230,000 farms mapped within 25 km of national parks, game reserves, forest reserves and classified forests in Côte d’Ivoire. In total, the company has GPS maps for nearly 400,000 farms, covering around 80% of its direct supply chain.

“We welcome the swift negotiation by the co-legislators of the EU Deforestation Regulation, and look forward to the publication and adoption of the final agreement, when we can make a more detailed assessment of its provisions and impacts on the cocoa sector,” adds Keidel.

Meanwhile, Nestlé reports that more than 99% of the aggregate volumes of key commodities it sourced last year through primary supply chains, including meat, palm oil, soy, sugar and pulp and paper, were assessed as deforestation-free.

Environmental unity
In October 2020, the European Parliament asked the European Commission to put forward legislation to halt EU-driven global deforestation. The deal with EU countries on the new law was reached in December 2022. The law has now been adopted with 552 votes in favor, 44 against and 43 abstentions.

After the vote, rapporteur Christophe Hansen stated: “Until today, our supermarket shelves have all too often been filled with products covered in the ashes of burned-down rainforests and irreversibly destroyed ecosystems, which had wiped out the livelihoods of indigenous people. All too often, this happened without consumers knowing about it.”

Flash Forest wants the law’s scope extended to more products amid fears that demand for unlisted products will grow.“The new law is not only key in our fight against climate change and biodiversity loss, but should also break the deadlock preventing us from deepening trade relations with countries that share our environmental values and ambitions.”

Penalties for non-compliance with the new law will be “proportionate and dissuasive,” according to a European Parliament statement. The maximum fine must be at least 4% of the total annual turnover in the EU of the non-compliant operator or trader.

Opportunities and limitations
For progressive reforestation companies, the law’s focus on preventing deforestation is hailed as an opportunity to work closely with businesses looking to meet the new, more responsible standards.

“The law is a big and overdue step in the right direction, creating a greater demand for sustainably sourced products while encouraging companies to adopt responsible supply chain practices,” Bryce Jones, CEO and co-founder of Flash Forest, tells FoodIngredientsFirst.

However, the Canadian reforestation company, which merges UAV technology, automation and ecological science to reforest post-wildfire areas on a global scale, is concerned by the regulation’s limited scope, potential for unintended consequences and lack of transparency.

“The law only covers a limited number of products, and there is a risk it may shift the burden of deforestation to other regions outside of the EU or increase the demand for alternative products that are also associated with deforestation but not listed on the bill,” explains Jones.

“We are also concerned that the lack of transparency in supply chains may make it difficult to effectively monitor compliance with the law.”

By Joshua Poole