Deforestation-free supply chains must protect producer incomes

The authors’ organizations are among thirteen social enterprises that comprise The CASH Coalition, a collaborative initiative to make regenerative agriculture and climate action profitable for indigenous and local communities.

The clock is ticking on access for small-scale farmers to lucrative European markets. The EU Deforestation Regulation (EUDR) gives global suppliers of seven key commodities - coffee, palm oil, beef, timber, cocoa, rubber, and soy - only one more year to execute risk assessments, to guarantee deforestation-free and legally produced products. To prove traceability throughout the supply chain back to their source, these new requirements involve collecting complex geolocation data and due diligence information. Compliance is expensive and will be prohibitive for many smallholder producers from indigenous and local communities in the Global South.

Smallholder and indigenous producers rely on thin operating margins, and are exposed to intensifying climate risks, rising input prices, and other exogenous economic shocks. If they struggle to adapt to exogenous shifts – including access to valuable markets – they are more likely to shift production to forest-degrading cash crops such as palm oil or soy in demand from non-EU supply chains. Such deforestation risks are highest when there are unforeseen drops in smallholder farm incomes.

The EUDR runs the real risk of reducing smallholders' incomes and market share, and jeopardizing a precarious smallholder transition to regenerative agriculture. Under the regulation, trading companies will likely find it cheaper or easier to source from lower-risk compliance areas, or to cut non-compliant smallholders from their supply chains.

Reuters has already documented European commodity traders curtailing sourcing from smaller, particularly African producers, in anticipation of EUDR requirements. Considering the swift transitions imposed on vulnerable producers, the five-year timeline for an EUDR impact assessment is grossly inadequate. By then, significant damage will have been done, deepening smallholder poverty and vulnerability, and - in some instances - unintentionally accelerating deforestation. 

Most smallholder farmers we work with will need technical support and additional financial resources to meet the EUDR’s land tenure and geo-location compliance requirements. For example, farmers cultivating more than four hectares of land must submit polygon maps of their holdings, yet access to smartphones and internet connectivity remain limited in remote areas. In their current form, the regulations of the European Union offer an example of well-intentioned action that may instead harm vulnerable communities and forests. 

Time and investment needed

What is needed to support smallholders is a staggered timeline for EUDR smallholder regulatory compliance, complemented by investments in data, connectivity, and capacity building. The EU has an opportunity to take corrective action that can showcase the ability of smallholder farmers to adhere to even the most stringent standards. 

The EUDR will directly impact millions of smallholder communities. The stakes are very high. The majority of global coffee production (67-80%) is sourced from smallholder farmers, and the EU accounts for 44% of world trade valued at 8 billion euros in 2021. Fifteen million Ethiopian smallholder farmers depend on coffee production, either as direct producers or as laborers working on coffee plantations.

In the Democratic Republic of Congo, the post-conflict revival of the Congolese coffee sector with strong climate-resilient and regenerative components, supports 15,000 households and significant numbers of women farmers. These livelihoods are dependent on reliable due diligence and geolocation systems being established in the next year to meet EUDR requirements. Infrastructure deficits make this a prohibitively steep order.

In Vietnam, 70% of timber, 95% of coffee, and 50% of rubber production is sourced from smallholding families, contributing to $2.5 billion in annual revenue derived from these EU commodity markets. Proving land-use permissions and demonstrating land demarcations is resource-intensive. Smallholders alone cannot pay for it.

Smallholder cocoa farmers - a majority of whom are concentrated in tropical sub-Saharan Africa - account for 70% of global cocoa production. Europe is the largest market for the world’s cocoa, accounting for 56% of global imports. Without supportive measures to ensure small producers can meet new reporting requirements, trading companies will likely shift sourcing to larger commercial growers, or less “risky” production in the Americas.

As the CASH Coalition’s Farmer Voice Report shows, smallholder farmers in the Global South recognize the realities of climate change, and see its impacts through declining yields and degraded natural resources. They want to contribute to mitigating climate change.

Smallholder farmers produce the majority of food in the Global South, steward a quarter of global agricultural land, and are uniquely positioned to advance solutions to address biodiversity loss, poverty, food security, and development. The actions of 500 million smallholder households - home to almost one in four humans - are critical to achieving the Paris Agreement climate goals.

The Global Stocktake outcome negotiated at COP28 in Dubai, similarly stressed the need to “meaningfully engage Indigenous Peoples and local communities in their climate policies and action”. To stop deforestation and restore global forests, it affirmed “the important role and active engagement of... Indigenous Peoples [and] local communities… in addressing and responding to climate change and enhancing ambition”.

A just transition in the commodities sector requires financial and technical aid for smallholders to meet new diligence and compliance requirements. It demands inclusive dialogue and leveraging local smallholder expertise to guide solutions, and investments in monitoring to detect harms and iterate adjustments to protect vulnerable livelihoods. Failing to consider smallholders will only serve to supercharge the crises already unfolding at the nexus of the planet, people, livelihoods, and ecosystems. It is not too late for the European Parliament and Commission to take bold action and include smallholder farmers.