The European Union Deforestation Regulation (EUDR) took effect on June 29, 2023, and its provisions were set to be applied from December 30, 2024. The EUDR aims to minimize the impact of deforestation and forest degradation associated with agricultural raw materials imported into the EU.
The regulation bans products made from raw materials sourced from deforested areas, encourages the consumption of deforestation-free products, reducing the EU's contribution to global deforestation and forest degradation, and lower greenhouse gas emissions and biodiversity loss.
The EUDR covers key agricultural commodities such as cocoa, coffee, palm oil, soy, rubber, cattle, and wood. It's part of the EU's broader strategy to protect and restore the world's forests, as outlined in the European Green Deal and the EU Biodiversity Strategy for 2030. Operators and traders must provide due diligence statements confirming that their products are deforestation-free and comply with the laws of the country of origin. While this regulation by the EU countries seems to be a good initiative to protect world's biodiversity, it will disrupt the market for European cocoa processing companies and benefit countries in other regions, including non-members of the EU.
Disruption for European Cocoa Processing Companies
Under the new regulation, African cocoa producers and exporters will be required to demonstrate that their products comply with the EUDR. They would require attaching a non-deforestation certificate to their shipments.
A non-deforestation certificate must encompass the following details: the producer's information, the precise area of land from which the product was sourced, a definitive statement affirming that the product was produced without causing deforestation, and a reference to the applicable certification standard (e.g., FSC, RSPO). Additionally, it should include the geographical coordinates of the land, dates of verification, and a unique identifier for traceability. The certificate should also be accompanied by relevant maps or satellite imagery to substantiate the land's current forest cover and adherence to no-deforestation criteria. It must be signed and stamped by a recognized independent certification body.
This process is notably complex, which may deter many African cocoa processors. According to SGS, obtaining a non-deforestation certificate for cocoa-based products requires a social audit with rigorous criteria, data that even COCOBOD currently lacks. Consequently, it is not feasible to issue such certificates at this time. It may take some time before non-deforestation certificates can be provided to exporters and traders of cocoa products. Nonetheless, African countries that can demonstrate deforestation-free cocoa production will gain access to the European market, which is increasingly demanding sustainable products.
The European Union Deforestation Regulation (EUDR) is anticipated to present a greater challenge to European countries rather than offering a benefit, as suppliers in key African cocoa-producing nations are expected to face difficulties in complying with the new standards, resulting in European companies experiencing shortages and increased prices of cocoa products.
European companies will need to invest in advanced traceability systems to ensure their cocoa is deforestation-free. This includes mapping supply chains, collecting geolocation data, and maintaining detailed records. Furthermore, European companies will need to collaborate closely with suppliers to ensure compliance, which may involve renegotiating contracts and sourcing from different regions. The need to source deforestation-free cocoa will lead to disruptions and potentially higher prices for European companies.
The new regulation is not well received by many stakeholders in the cocoa industry. Indeed, the EUDR opens up new avenues for African suppliers to explore alternative markets with more flexible regulations.
Opportunities for African Cocoa Growers and Traders
In 2023, Africa exported approximately 2.8 million metric tons of cocoa beans to the EU. Key importers within the European zone included the Netherlands, Belgium, Germany, Spain, France, and Italy. A similar volume of cocoa beans was shipped to European countries in 2024.
The European Union Deforestation Regulation (EUDR) is expected to open new avenues for African cocoa suppliers to conduct business with cocoa processing companies in Asia, the Middle East, and non-EU member countries.
With the stringent requirements of the EUDR, African cocoa suppliers may find it easier and more profitable to sell their cocoa to processing companies in other regions, where regulations may be more flexible. By expanding their market base beyond Europe, African cocoa suppliers can reduce dependence on a single market and mitigate risks associated with regulatory changes. Engaging with markets that do not require the same level of traceability and compliance as the EU can reduce the operational costs for African suppliers.
With African suppliers shifting focus to other regions, European companies will experience tighter supply and increased competition for compliant cocoa.
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