How Will the New Deforestation Legislation Impact You?

Mitigating deforestation is one of the 5 core focus areas of Sucafina’s responsible sourcing standard, IMPACT and we see this new law as an opportunity to build upon our focus on mitigating deforestation, fostering climate resilience, and strengthening our connections across our supply chains.

New Legislation in the EU

This regulation is part of the EU Green Deal that was presented in 2019 and focused on transforming the EU into a fair and prosperous society, says Isabelle Lemmens, Sustainability Manager for European Coffee Federation. The objectives are to deliver more sustainable products in response to consumer demands, reduce the EU’s contribution to global deforestation and to encourage partner countries to protect their forests.

“The mandatory due diligence rules are applicable to everyone putting relevant products on the EU market or exporting from the EU,” Isabelle says. These products must be deforestation free, must be legal in the country where they were produced and must have a due-diligence statement attesting to the fact that the product is deforestation free.

In practice this means that all coffee will need to be traceable to the farm where it was produced. It also means that any deforestation on a mapped farm would automatically disqualify that product from being imported into the EU.

The regulation was voted on and passed in Plenary in 19 April 2023. The law “will be published imminently in the Official Journal of the EU,” Isabelle says. The law will officially begin 20 days after publication. According to the typical timeline for EU legislation, the rules will be applied to importers and larger businesses 18 months after the law enters into force and after 24 months for smaller businesses. However, the legislation may apply differently for small to medium-sized operators, though there’s still some questions on how those will be defined, but that remains to be seen.

The Implications of Deforestation Regulation for Non-EU Businesses

While the impact for EU businesses is obvious, for non-EU businesses, this regulation still has 2 primary impacts. First, this is likely simply the vanguard law and will be followed by similar legislation in other regions. With an increasing focus on climate change and on rising consumer demands for sustainable and ethical goods, other countries and regions will possibly follow suit soon. By focusing on deforestation now, businesses will be ready to comply with any new legislation that may arise in the coming years.

Second, while EU businesses will need to comply with these rules now, businesses in other regions can benefit from building deforestation-free supply chains. Consumers are seeking sustainable coffees and show preferences for coffees that meet their standards. Taking steps to source deforestation-free coffee before any laws are put in place can bring your business tangible advantages.

For companies both within and outside of the EU, Sucafina’s new responsible sourcing program, IMPACT, is a verification program where mitigating deforestation is one of 5 core goals. To attain “responsibly sourced” verification with IMPACT, farms will have to be polygon mapped to track forest cover (mapping will be phased in over 3 years) and farmers and cooperatives work hand in hand with implementers to ensure that deforestation is not occurring in the area surrounding supplying farms.

Difficulties in Measuring Deforestation

The new regulation mandates that all coffee be traceable to an individual farm, and this will take a lot of effort across the supply chain. “Most importers in the EU supply chain will struggle to meet these new regulations,” says Justin Archer, Head of Sustainability at Sucafina. Currently, a lot of coffee is sourced through intermediaries that aggregate coffee into blends. These coffees are not easily traceable to individual farms. This is because historically the vast majority of European consumers weren’t willing to pay the necessary premium required for traceable and sustainable coffee.

 “In origins with very small farms the cost of compliance will be especially prohibitive and some of these costs will end up being borne by producers,” Justin says.

At the same time, there is an immense potential for value addition that will bring better profits to companies and farmers alike.

Opportunities for Success

Despite the challenges, the EU regulation may play an important role in improving coffee’s sustainability and reducing agriculture’s contributions to climate change. Sucafina has already been tracking deforestation in our supply chain for several years through a partnership with Trade in Space (TiS). Using our current tools, we are able to track the amount of deforestation in our current direct supply chains – so the task is to work towards more and more traceability over time. “Using our mapping software, we are able to identify the farms that have experienced deforestation in the previous years and communicate with our local teams. Those teams can then focus on those farms and help mitigate deforestation in those areas,” says Ilya Byzov, Head of Research and Quantitative Trading at Sucafina.

Sucafina is focused on helping our partners meet these new regulations without significantly affecting their bottom line. Sucafina’s verification program, IMPACT, is designed to be deforestation-free with strong checks in place to protect forests and help farmers achieve living incomes.

At Sucafina, we are committed to fostering a more sustainable coffee industry, while finding ways to drive innovation. Sucafina intends to provide the credentials for its IMPACT supply chain through farmer connect, an end-to-end traceability platform that uses blockchain technology to track agri and food commodities from farm to consumer. Deforestation analysis from Trade in Space will be consolidated and verified on farmer connect and combined with physical movement and invoice remittance to the customer.

This new EU regulation also increases opportunities for climate change mitigation. While the law currently only relates to deforestation, consumer awareness is growing and there is an increasing appetite for carbon neutral products. Acorn is a program from Rabobank that enables companies to purchase carbon insets and work towards carbon neutral.

Carbon insets are carbon credits purchased from actors within a company’s supply chain that allows a company to create a ‘carbon neutral’ product. With Acorn, coffee companies can purchase carbon insets from smallholders who are expanding agroforestry on their farms and sequestering carbon by planting new trees. As a result, smallholders can receive financing to transition to more climate-resilient farming techniques and can improve their livelihoods through agroforestry and additional income from inset credits. At the same time, companies can create carbon neutral supply chains that support carbon offsets and smallholder farmers while improving the sustainability of their supply chain.

Carbon reduction is also a focus of IMPACT. Sucafina supports farmers as they work to reduce their carbon emissions and build in more carbon sequestration on their farms.

The new deforestation law in the EU will impact coffee production globally. While it raises some issues for implementation, a focus on deforestation also brings new opportunities for more sustainable coffee, better incomes for farmers and a more traceable supply chain. Concerned about how the new law will impact your business? Interested in implementing a deforestation-free supply chain for your business? Get in touch with your trader today.