THE CONTINUING SAGA… OF EUDR!
EUDR + US Tariffs = Potential Overload! YES! This is the 3rd time I am writing about EUDR
(European Union Deforestation Regulation), a piece of EU legislation, that should have been implemented at the end of 2024 and is now scheduled to be implemented at the end of 2025… except…it may NOT be…again!
The original EUDR legislation set out, as the name implies, to try and make the EU a deforestation product free area. I covered this in my original article in the Q1 2024 edition of the ‘Ghost’ – ‘Cocoa Rising…and the chaos & race to the EUDR Deadline!’. here's the link to it
However, as 2024 progressed it became clear that many EU companies as well as those supplying countries to the EU, would not be ready to implement the necessary portions of the legislation in time for the end of 2024 deadline. So…after much debating and wringing of hands, etc… the can was kicked down the road…to the end of 2025. I also covered this in my piece for the Q4 2024 edition of the ‘Ghost’ – ‘Delayed… Delayed…Delayed…EUDRlayed!’.here's the link to it
AS YOU CAN IMAGINE, THIS IS A VERY WIDE TOPIC WITH MANY IMPLICATIONS, SO FOR BREVITY, I HAVE CHOSEN TO CONCENTRATE ON JUST THE ONE COMMODITY HERE… Cocoa…as I strongly suggest the upcoming EUDR has been on the mind of the trade and very relevant to the rise in prices seen throughout 2023 and now into 2024. Data from 20215
shows that the EU is
the world’s largest importer of Cocoa beans at 56% with the Americas accounting for 17% and Asia for 26%. Approximately 70% of the world’s Cocoa beans come from four West African countries – Ivory Coast, Ghana, Nigeria & Cameroon 6
. Thus, we can see how
big an international impact EUDR will have…and is already having, when over half the world’s Cocoa is imported by the one grouping, the EU, and their use of EUDR legislation.
So…I have been researching the response from some in the Cocoa industry to EUDR…and to be honest, it seems to be that at such a late stage, a sense of panic and chaos is out there…with concerns as to whether the EU will have enough Cocoa in 20257
. Additionally,
questions are being raised as to what will be the status of older harvests in warehouse & will certification schemes such as Rainforest Alliance have a role now that due diligence will become mandatory. One sustainability advisor described Cocoa as ’…under the kosh…’ and that we could see a two-tier system developing with EU market compliant Cocoa trading at a premium…a significant premium…to non- compliant Cocoa. Additionally, with Cocoa grown internationally mainly in family smallholdings, unlike the others on the EUDR list of commodities, small- holder Cocoa farmers are being scrutinised like never
5
www.cbi.eu 6
www.statista.com 7
www.confectionarynews.com 5th
Feb 2024
before, something they have never experienced nor necessarily have the means of coping with. Then there are the rights of indigenous people to consider, which EUDR may be seen to be cutting across as inspectors could go as far as seeking to enter the homes of indigenous farmers and all the implications, post-colonial and otherwise, that may have. Many of these same farmers lack the skills to fully complete the documentation necessary to be EU compliant, thereby marginalising and affecting the price they receive for their Cocoa. Finally, coming from some of the Cocoa market chat pages which I’ve seen, there is a seeming disconnect between regulators and the trade with the trade citing a lack of clear guidance from the regulator as well as a lack of understanding of the Cocoa supply chain. Some have even mentioned how Cocoa could become ‘… de-commoditised…’ because of these new Rules… and that is a whole can of whatever, that I do not wish to open right now.
I would just like to finish on this thought, though Cocoa and its chocolate products hardly impact the Consumer Price Indexes of many major countries, there is more to inflation than just how it rates as a percentage. There is the public, the consuming public’s perception of price rises and the shrinkflation already seen in chocolate products. If you thought we’d already seen a lot of this, perhaps it would be best prepared to see a lot more. At its most excessive, it may be that we see Cocoa go the way of lobsters, oysters and foie gras. Originally, a poor man’s food that became a luxury. We are far from that right now… but it is worth remembering…and considering.
Eddie Tofpik E:
eddie.tofpik@
admisi.com T: +44(0) 20 7716 8201
World’s importers of Cocoa beans
56% EU
26% ASIA
Main Cocoa bean producing countries 70%* 17% AMERICAS
*Approximately 70% of the world’s Cocoa beans come from four West African countries:
IVORY COAST GHANA NIGERIA CAMEROON
Source:
www.cbi.eu Source:
www.statista.com 6 | ADMISI - The Ghost In The Machine | Q1 Edition 2024
AT ITS MOST EXCESSIVE, IT MAY BE THAT WE SEE COCOA GO THE WAY OF LOBSTERS, OYSTERS AND FOIE GRAS.
7 | ADMISI - The Ghost In The Machine | Q1 Edition 2024
THE WORLD WAS GIVEN AN EXTRA 12 MONTHS TO GET ITSELF READY FOR EUDR…SO WHAT HAVE WE SEEN DONE? Well, in some cases, quite a bit and in others… not much! Only as recently as early July this year, it was reported that a major company, Mondelez International, wished to have the regulation delayed by another 12 months (1) Italian coffee maker (4)
as has Lavazza, the big . The delay was due to what
seems to be an Achilles Heel of the legislation and one I had previously written about, smallholder cocoa farmers struggling to comply with the bureaucracy and the modern technology elements needed in the fulfilment of the regulations.
However, it was also reported that others in similar industries in the food chain, such as Nestle, Danone & Ferrero are ready and keen to go ahead with EUDR and wish to stick with the end of 2025 deadline…and these area companies, in the same sector – cocoa (1)
Additionally, in the cocoa industry Nestle, Ferrero, Tony’s Chocolonely & Barry Callebaut wrote in a joint letter that some stakeholders are repeatedly attempting to ‘…delay, revise, or even appeal…’ EUDR (1)
. Even dairy giant Danone has signed
onto this with their desire for EU institutes to preserve the ambition and timeline of EUDR. They all acknowledge the challenges smallholder farmers will face in complying and the due diligence involved…but they still wish to go ahead as planned.
As you can imagine, this is causing some considerable friction in all industries as the deadline at the year approaches. Additionally, many will remember last year, when the premium of EUDR products over other products collapsed overnight, when the EU decided to kick the can down the road…and all the costs that involved.
DELAYED… DELAYED…
So…the list of countries that, let’s put this tamely before we go into it, that have voiced concerns are, just to name a few…China, the U.S., Australia, New Zealand, Brazil, Indonesia & Malaysia. I will concentrate on the first two…China has opposed and rejected compliance with EUDR, specifically refusing to share geolocation data and citing ‘security’ concerns1
. Much of China’s timber comes from the DELAYED…EUDRLAYED! Kicking the can down the road for 12 months!
At the time of writing, the European Commission has proposed a delay to the implantation of the European Union Deforestation Regulation (‘EUDR’) by 12 months, from the 30th of December 2024 to the 30th of December 2025 for large companies & from the 30th June 2025 to the 30th of June 2026 for micro & small enterprises, subject to approval by the European Parliament and the European Council. This last bit, is not as clear and straightforward as it may seem, because if some Members of the EU Parliament decide to amend EUDR, then it will delay it even further. However, that may be the subject of another article whereas this one is a follow on to my earlier article on EUDR published in February this year ‘Cocoa Rising…and the chaos & race to the EUDR Deadline!’. You can find a link to it here…
In this current article, I will discuss two specific points. Firstly, the already quite vociferous responses to EUDR before it even has become operational and secondly, discuss some of the guidance and clarification the European Council has released to aid in compliance with the Regulation.
Congo Basin and China supplies the EU with about half its timber furniture and more than 40% or paper boxes…so EUDR may become quite a hit on the supply chains for these products.
Then there is the U.S. and the administration of President Biden has pressured the EU to delay implementing these ‘…impossible standards…’ with 27 Senators warning that the new rules amount to a ‘…non-tariff trade barrier…’ and could end the USD 3.5 billion forest product trade between the U.S. and the EU1
.
On top of these, there is also concern within the EU, expressed by twenty out of the twenty-seven EU Agriculture Ministers voicing their own particular fears1
. 1
mongabay.com – 6 Aug 2024
‘AT THE TIME OF WRITING, THE EUROPEAN COMMISSION HAS PROPOSED A DELAY TO THE IMPLANTATION OF THE EUROPEAN UNION DEFORESTATION REGULATION (‘EUDR’) BY 12 MONTHS…’
!
A far bigger impact would be felt in smaller countries dependant on specific crops that fall under EUDR. An example of this is Ethiopia, where in recent years the economy was dependant on between 30 – 35% of its export earnings on just one product – coffee! A recent modelling exercise estimated that in the most extreme example, if exports of coffee to the EU were to cease, Ethiopia might face an 18.4% drop in overall exports, a 5.8% fall in imports, a fall in GDP of 0.6% and a reduction of 3.3% in public revenue2
.
Implementation of EUDR could lead to a ‘Green Squeeze’ on smaller, lesser developed countries unless there is increased financial & technical assistance, targeted support for smallholder farmers and increased and continued engagement with the governments of lesser developed countries3
.
2
odi.org – 23 Sep 2024 3
odi.org – 4 Oct 2024
…EUDR ON ITS OWN WAS A BURDEN…BUT NOW WITH THE US TARIFF DEMANDS…
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