Cracking Coffee Regulation: The Coffee Supply Chain Challenges with EUDR Compliance | 25, Issue 22
EILEEN GORDON-LAITY, Secretary General of the European Coffee Federation, shares what we know (and what we don’t know) about the EU Deforestation Regulation coming into effect on Dec 30, 2024.
EDITOR’S NOTE: On October 1, 2024 (after the publication of this feature) the European Commission announced a proposal to delay the implementation of EUDR regulations, with the stated goal of giving concerned parties more time to prepare. If the proposal is approved by the European Parliament and the Council, it would mean that the law is applicable on 30 December 2025 for large companies, and 30 June 2026 for micro- and small enterprises. You can read their October 1 press release here.
In this feature, Eileen Gordon-Laity skillfully helps us navigate and digest the nuances and intricacies of the landmark EU Deforestation Regulation (EUDR). The EUDR is designed to contribute to global efforts towards protecting and restoring forests worldwide. While you read this piece, please take careful note that the implementation of the regulation demands an unprecedented level of traceability and pushes the boundaries of due diligence by requiring risk assessments from producing regions, all of which will require a huge amount of data.
Most of the coffee currently traded to the EU has neither the level of traceability nor the high volume and quality of data needed for successful implementation of the legislation. Professionals and organizations working in coffee sustainability are highlighting possible unintended consequences of the regulation, like the potential exclusion of smallholder farmers from some regions in Africa, who face technological and financial barriers to providing the data that roasters and coffee buyers will require. Actors lacking the resources and networks to support them in compliance efforts could be further disenfranchised from markets that currently represent their key or only source of income.
This article stresses the paramount importance of collective dialogue and sector unity to successfully tackle the challenges emerging from the legislation. The success of our industry has always relied on the many hands involved in coffee’s journey from farm to cup. Addressing the complexities of the EUDR implementation must be seen then as a new opportunity to recognize a thriving, prosperous, and sustainable industry. This can only emerge from an industry-wide endeavor to benefit all the actors involved while contributing to the global fight against deforestation and soil degradation.
Enjoy reading this piece. I hope it brings clarity to the legislation, provides insight into how we may face its challenges, and encourages us to pursue informed conversations that will make coffee better.
ANDRÉS MONTENEGRO
Sustainability Director
On June 9, 2023, the European Union (EU) published landmark legislation commonly known as the EU Deforestation Regulation (EUDR),[1] which set out rules to guarantee that the products EU citizens consume do not contribute to forest degradation worldwide.
The legislation represented the culmination of a process and a broader plan of action to tackle deforestation and forest degradation first outlined in the European Commission’s 2019 Communication on Stepping Up EU Action to Protect and Restore the World’s Forests. This commitment was later affirmed by the European Green Deal, the EU Biodiversity Strategy for 2030, and the Farm to Fork Strategy.
For the past several decades, the European coffee sector has been involved in many initiatives to improve sustainability, fairness, and transparency along the coffee supply chain. The leading principle of these initiatives has been to improve the living conditions of coffee farmers, thereby establishing more sustainable and fairer practices in the coffee value chain while contributing to economic progress for local coffee farming communities. These advancements have also greatly contributed to the United Nations Sustainable Development Goal 15, Life on Land, which seeks to protect, restore, and promote the conservation and sustainable use of ecosystems, setting the stage for the sector to embrace the EUDR’s commendable objectives.
Understanding EUDR Compliance
The EUDR introduces two prerequisites for compliance. First, green and roasted coffee that is exported from and imported into the EU (notably, soluble [or instant] coffee is not subject to EUDR regulation)[2] must be “deforestation-free” after December 30, 2020.[3] Second, it must have been produced in accordance with other relevant legislation (including laws related to land- use rights, forest management, labor, tax, and human rights laws) in the country of production. To establish that products have met these requirements, businesses importing or exporting either green or roasted coffee into the EU must file a due diligence statement (DDS) in a centralized information system, which includes a record of key information related to deforestation metrics, such as the geocoordinates of a farm, as well as a self- declaration assuring that the business has (a) taken reasonable steps to assess the risk that a product has contributed to deforestation and (b) found either no or negligible risk.
Coffee’s supply chain involves many hands. Although EU importers/exporters of green or roasted coffee (“operators”) will submit the DDS to the EU’s information system, it will include information that will need to be gathered on the ground—in many cases by producers or producer organizations. In addition, traders and roasters (“downstream operators” who make the coffee available for distribution, consumption, or use) are also obligated to complete their own due diligence check by submitting their own DDS to the EU’s centralized information system using the operator’s reference number. Each EU member state will complete their own checks on products. This can be done by customs authorities at the point of import/export when the product is released for free circulation, or all year long by the designated authorities according to annual check plans. These checks are likely to increase in frequency if products present a high risk of non-compliance (e.g., they come from a country with a demonstrable history of deforestation) or if the state receives a substantiated concern. All parties must keep DDS records for a minimum of five years.
Since the publication of the first road map and public consultation pertaining to the EUDR in January 2019, the European Coffee Federation (ECF), on behalf of the broader European coffee trade and industry, has engaged with the proposed legislation, adding concrete proposals to the discussion and involving coffee producers on many occasions. We (the ECF) have always believed that an approach based on dialogue and collaboration is key to ensuring the effectiveness of any measure that impacts so many within the coffee system. However, a much more structured and detailed conversation between legislators and the coffee supply chain could help to resolve some of the challenges the coffee industry faces in the implementation of the EUDR. (One potential avenue for this kind of meaningful discussion is the Multi- Stakeholder Platform on Protecting and Restoring the World’s Forests, an EU Commission expert group for legislation related to deforestation.)
The record-keeping requirements are no small feat: 150,000 20-foot containers of green coffee are imported every year into the EU[4]—this is a combined three million metric tons of coffee which is difficult to trace. Globally, coffee is produced on over 60 countries by 12.5 million farms, 84% of which are smaller than two hectares.[5] Only an estimated 20% of the total imports into the EU corresponds to a verified certification system (e.g., Fairtrade), with another 30% estimated to have been brought directly from a large farm or cooperative. The remaining 50% of coffee imported into the EU is classified as “disenfranchised”; this means producers or producer organizations have sold it to buyers who seem appropriate at the time, and that the coffee likely passes through many intermediaries between the farm and the exporter. For example, up to 10 different small intermediaries will participate in a coffee’s journey from a plot of land to the exporter in countries like Vietnam or Indonesia. Similarly, national auction systems in Eastern Africa (Kenya, Ethiopia, Tanzania) are also a challenge to ensuring strict traceability.
The Challenges of a Data-Driven Approach: Geolocation and Satellite Monitoring
One of the key due diligence obligations of operators includes capturing the specific geolocation for all plots of land on which a specific shipment of a product was produced. This information can take the form of either specific geocoordinates (for farms smaller than four hectares) or “polygons” (for farms over four hectares) that outline the entire perimeter of the farm. These data forms are then used to check the farm’s compliance with the EUDR. This means having not only the coordinates for each farm, but the ability to track the level of forestation over time for that specific location and to comply with the producing country’s national legislation.
Figure 1. A base map for coffee-growing areas (shown in pink) overlaid with coffee polygons (pink circles). The blue circles are coffee polygons for a particular supplier (a cooperative). A deforestation event is depicted in orange in the top left of the image. Image credit: Satelligence.
Since the publication of the EUDR, the coffee sector’s efforts have been focused on identifying concrete ways to ensure its implementation. These include a close collaboration with the EU Agency for the Space Programme (EUSPA) to help support mapping the geolocation of coffee plots through Galileo, the EU’s global navigation satellite system (GNSS), and deforestation tracking through Copernicus, the EU’s Earth Observation program. A recent pilot project has shown that EU space data from these two programs can support the geolocation and deforestation requirements linked to EUDR— but it also found that validation of these results requires significant additional data, including high-resolution Earth observation imagery and field data. Common datasets used to track deforestation, like those from the EU observatory or Global Forest Watch, are not designed specifically for coffee and can therefore present inaccuracies.
In fact, using Earth observation programs like Copernicus present their own important challenges. These programs gather information about the Earth’s surface, water, and atmosphere using a variety of sensing platforms; this information is then processed and analyzed using algorithms to assess and monitor changes in the environment.[6] Not all algorithms are set up to assess things like shade-grown coffee or the borders between forested and deforested land, which often requires a more thorough deforestation assessment to be completed at tree level. The EUDR legislation specifies December 31, 2020, as the starting date used to determine whether deforestation has occurred in a specific location, but it’s unlikely that the accuracy of geodata or the quality of algorithms will have been assessed and addressed by the time compliance checks begin after the grace period (enforcement begins December 30, 2024). As a result, we anticipate finding a wide array of differing results when assessing deforestation.
All of this is before even addressing the secondary requirement of the EUDR, which asks operators to demonstrate that coffee was produced in accordance with the relevant legislations of the country of production. That is an entirely different story that would require its own feature.
More Clarity (Still) Required
At the time of this writing (July 2024) and with January 2025 rapidly approaching, the ECF is working to address some of the key obstacles we see to the European coffee sector’s ability to ensure seamless EUDR compliance. This section outlines our suggestions about how the system can be improved.
First, we believe the business community should be able to participate in a second round of testing with the EU’s centralized information system. More broadly, the information system should also be made available for general use by early October 2024 in order to give businesses time to familiarize themselves with it before compliance checks begin in January; 2025’s coffee is already being shipped to Europe and operators need to upload the corresponding information well in advance. Full access to the system should also be granted to non-EU operators, particularly those in Switzerland and the UK, to ensure that there is no trade barrier and to avoid disruptions in coffee supply for EU consumers.
Second, it is not yet clear how some provisions will be interpreted or implemented, creating significant barriers to the sector’s preparation for enforcement. For example, the regulation requires that the European Commission categorize producing countries into low-, standard-, and high-risk origins, but the country benchmarking system has not yet been finalized. A potential delay of the implementation would imply that all countries would be considered standard risk by default, with all the products covered in the legislation (including coffee) immediately facing full-fledged due diligence obligations, with many businesses not having anticipated this possibility. Another example can be found in how businesses are expected to log DDSs.
Figure 2. Using Earth observation programs to track deforestation likely presents additional challenges: not all algorithms are set up to assess things like shade-grown coffee or the borders between forested and deforested land. Pictured here: forest and coffee farms in Salenta, Quindío, Colombia, by Reiseuhu for Unsplash.
Although the EUDR places due diligence obligations on EU downstream operators and traders further down the supply chain, it is still unclear whether operators must disclose geolocation information to them in the EU’s centralized system. If downstream operators and traders lack access to primary data, particularly geolocation information, it is unclear how they’ll be able to perform their due diligence effectively.
To avoid duplication of efforts and simplify the procedure, we believe a single DDS— submitted when the green coffee is placed on the market—would suffice to cover all imports/exports. Multiple DDSs will only duplicate efforts, increasing the likelihood of overwhelming the system and causing it to fail. Every step of the value chain is expected to verify the compliance of all coffee plots, as the simple collection of the DDS reference numbers does not constitute due diligence evidence. In our opinion, one single DDS and the subsequent use of the generated reference number should be considered sufficient to comply with EUDR requirements.
Last, but certainly not least, the EUDR interacts with—and in some instances contradicts— other EU regulations. For example, the data collection required by the EUDR intersects with the EU’s General Data Protection Regulation (GDPR), and it is not yet clear how to manage the requirements of both; operators and downstream operators will need to have a clear overview of how they may ensure the protection of farmers’ data along the supply chain. They will also need to address the disclosure of commercially confidential information when uploading data into the EUDR’s Information System. Similarly, without clear guidance on how to comply with the EUDR’s second directive (collecting verifiable information showing that coffee has been produced in accordance with local legislation), Article 3 of the EUDR appears to contradict the EU’s Corporate Sustainability Due Diligence Directive (CS3D).[7] CS3D provides a clear risk-based approach that may also effectively contribute to fulfilling the EUDR’s objective—we believe that EUDR legality requirements should align with the legality requirements of CS3D.
Perhaps the greatest challenge to the European coffee sector’s compliance is the application of the two EUDR requirements for complete traceability (i.e., completion of risk assessment and results of risk assessment) to the unique reality of the coffee supply chain.
Looking Ahead to January 2025
Understanding and adhering to the EUDR requires a meticulous approach. Operators will need to thoroughly collect the required information and carry out a sound risk assessment that takes into consideration country risk levels, proximity to forests, presence of Indigenous peoples, prevalence of deforestation, and supply chain complexity. And should the risk assessment unveil significant risk, operators must take mitigation actions. This may include providing additional information, conducting independent surveys or audits, or supporting supplier compliance through capacity building and investments. Expert support may be required and is recommended when in doubt.
There is no doubt that the EUDR is a significant step in the global fight against deforestation; however, successful implementation requires tackling the outlined obstacles head first. It is paramount that the coffee supply chain stands united as we continue to voice our concerns and work towards ensuring a deforestation-free coffee supply chain. We firmly believe that by providing the necessary tools, guidance, and exemptions, the EU can facilitate compliance and ensure the continuous supply of coffee to the market.
EILEEN GORDON-LAITY is the Secretary General of the European Coffee Federation, based in Brussels, where the secretariat consults on issues affecting the European coffee sector.
References
[1] European Parliament and Council , Regulation (EU) 2023/1115 (EUDR), May 31, 2023, http://data.europa.eu/eli/reg/2023/1115/oj.
[2] Annex 1 of the EUDR does not include the instant coffee Harmonized System code, only the green and roasted coffee codes.
[3] For a definition of “deforestation-free,” see EUDR, Article 2, 13(b).
[4] European Coffee Federation, European Coffee Report 2023-2024 (May 2024), https://www.ecf-coffee.org/wp-content/uploads/2024/07/European-Coffee-Report-2023-2024.pdf.
[5] David Browning, “Using Technology to Help Smallholder Farmers” (lecture presented at Re:co Specialty Coffee Symposium, 2019), https://sca.coffee/sca-news/podcast/64/reco-podcast-david-browning-on-using-technology-to-help-smallholder-farmers-s2-ep-5.
[6] European Union Agency for the Space Programme, “What Is Earth Observation?” accessed July 9, 2024, https://www.euspa.europa.eu/eu-space-programme/copernicus/what-earth-observation.
[7] European Commission, “Corporate Sustainability Due Diligence,” accessed July 9, 2024, https://commission.europa.eu/business-economy-euro/doing-business-eu/sustainability-due-diligence-responsible-business/corporate-sustainability-due-diligence_en.
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