Why EU coffee importers are rushing to beat the upcoming deforestation regulation

racing shipping containers
  • The ICO says says traders are accelerating shipments ahead of the EUDR
  • Potential non-compliance fines of up to 4% of an EU company’s turnover are a daunting prospect for coffee importers
  • Producers and importers face uncertainty that makes risk management difficult and is already affecting pricing

THE EUROPEAN Union’s Deforestation Regulation (EUDR) is due to kick off at the end of this year. Coffee importers in the EU are hastening their shipments to stock up on coffee before the new regulations take effect, according to the International Coffee Organization (ICO).

The EUDR, set to combat deforestation and protect global forests, will impose stringent requirements on companies importing commodities like coffee to the EU, including demonstrating that their products are not linked to deforestation.

Importers are accelerating their shipments to secure coffee supplies ahead of the EUDR’s implementation to avoid potential disruptions in the supply chain and mitigate the risk of non-compliance penalties. 

“The EU already clarified via its December 2023 FAQ on the Deforestation Regulation that the green coffees that enter the EU territory this year (2024) don’t need to be EUDR compliant,” says Vanusia Nogueira, Executive Director of the International Coffee Organization. “So as a result, some companies are trying to introduce more coffee into the EU before the end of the year.” 

The urgency to expedite shipments reflects importers’ concerns about meeting the stringent regulatory standards and maintaining a steady flow of coffee imports into the EU market.

These include a prohibition on selling products on the EU market or exporting them from the EU unless they are “deforestation-free”, an obligation on companies placing products on the market or exporting them to exercise due diligence to ensure their compliance with these criteria, and a benchmarking three-tier system for the assessment of countries’ related level of risk for deforestation or forest degradation.

The country benchmarking system , however, was put on hold in early March and whether the list will be published before the end of year remains unsure.

“Coffee importers are facing high uncertainty and a future where it will be difficult to manage risk – for many reasons,” say Raf Van den Bruel, Owner of CoffeeLab Independent and Adeline Vandorpe, Consultant at CoffeeLab Independent in Belgium. 

“The regulation currently leaves too much space for interpretation and still lacks clarity. On top of this, several coffee production regions simply aren’t ready for the  regulation. Tech solutions for deforestation-checks on geodata might – due to different definitions, different qualities of satellite images used, and different models – give different conclusions. Finally, potential huge fines of up to 4% of an EU company’s coffee trade turnover, where turnover numbers are high and margins are narrow, is a daunting prospect.“

EUDR implementation is complicated as coffee production is not uniform across countries

The implementation of the EUDR is expected to have significant implications for coffee producers, particularly in regions where resources and capacity to align with EUDR requirements may be limited. 

Smallholder coffee farmers and producers in countries with very fragmented coffee production systems like Ethiopia, face challenges in meeting the strict deforestation criteria set forth by the regulation, potentially impacting their access to the EU market.

“The most vulnerable groups are the small producers who aren’t organised in cooperatives or associations,” says Vanusia. “These exist in all coffee producing countries. They are the people who sell for intermediates, and their coffees go to the blends, where right now, there is traceability.”

“We expect the countries with good technology systems and more ‘high-end’ producers will have a smoother transition.”

Countries with robust sustainability practices and systems in place may be better equipped to comply with EUDR requirements, giving them a competitive advantage in the EU market. 

“Countries like Brazil and Costa Rica seem to be well prepared,” say Raf and Adeline. “Meanwhile, for many African exporting companies, the challenges are huge and they may fall out of favour for a while, hopefully only temporarily until they catch up.”

In Ethiopia for example, the government recently presented a national Action Plan to ensure EUDR compliance over the next three years, requesting an extension for the implementation of the regulation in listed value chains – which was reportedly declined by the EU.

“Some situations are especially complicated under EUDR,” says Raf. “Last week, I was in the Democratic Republic of the Congo for a project on the relaunch of the abandoned Robusta production regions. But since these plantations were abandoned and partly overgrown by forest before the deforestation cut-off date in EUDR, how do you handle this? Interested investors are backing off because they fear the importers won’t take any risk.”

coffee warehouse

What are the implications for the global coffee market?

Following the rush by EU coffee importers to secure pre-EUDR compliant coffee stocks, the market is poised for shifts and disruptions once the regulation comes into effect. 

Some coffee origins with strong sustainability credentials and deforestation-free practices may prevail in the EU market, gaining market share as importers prioritise compliant sources.

On the other hand, non-compliant coffees that were not procured and stocked before the EUDR deadline may face challenges in finding buyers within the EU market. 

Unsold non-compliant coffees may find alternative routes to market, potentially leading to the emergence of black markets or redirection to other global markets like Asia, the Americas, the Middle East, the UK, or Africa.

“As of December 2024, there will be no space for non-EUDR compliant coffee in the EU,” says Vanusia. “All the lots can potentially be audited. However, the lot selection criteria are still unclear, because this depends on the country’s risk level and also how to select the 3, 6, or 9% of lots. Penalties can be severe – I don’t expect the serious companies will take the risk of going to a black market.”

The distribution and fate of non-compliant coffees post-EUDR implementation will depend on market demand, regulatory enforcement, and the adaptability of producers to meet evolving sustainability standards in the global coffee trade landscape.

“The ambiguity is that non-compliance will actually often be the consequence of the inability to provide the right paperwork,” say Raf and Adeline. “Usually because of a lack of resources and capacity, a lack of formal land ownership – especially for smallholders – a wrong conclusion reached by the software used, or a lack of clarity of the regulation.”

“It isn’t necessarily that the coffee is coming from a forest that has been converted into a production plot or is in violation of a relevant local legislation. For some origins, it will take a lot more time to meet the requirements and ensure EUDR compliance to their buyers. We’ll see many consequences on the coffee market in coming years – we can already see an impact on coffee prices, and this will most probably continue in the months to come.”

The race by EU coffee importers to expedite shipments before the EUDR takes effect underscores the urgency and complexities surrounding sustainability regulations in the coffee industry. The implementation of the EUDR will not only impact producers and importers, but also reshape market dynamics.

Coffee Intelligence

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