Green Goals & Growing Pains
Rooting out deforestation is crucial but how to do it without penalising small-scale farmers who aren't responsible for the bulk of the problem?
This is a short week for some of us lucky enough to be born in - or live in - countries where Easter celebrations are a multi-day affair. Unfortunately, that group does not include me.
Still, I think many of us will be channelling their spirit this weekend when we reach for some delicious chocolate. At lest, we will be trying to, because who knows if we will still be able to afford them, given the skyrocketing prices of cocoa beans.
This week, its future prices topped $10,000 for the first time. What’s the cause? Extreme weather plus diseases. That’s right. Climate change is here and it’s coming for our chocolates. And coffee. And bananas.
So there’s a need for us to do everything we can to rein in runaway emissions, even if it is purely out of self-interest. But it is also important to make sure good intentions don’t lead to unexpected bad outcomes. And that’s what this week’s issue is about.
In the long-running “unhappy marriage” saga between agriculture and climate, cutting down forests to grow commodity crops (I’m looking at you in particular, palm oil) ranks pretty high in terms of actions with multiple terrible consequences.
There’s the release of greenhouse gases that contributes to climate change. This in turn brings about erratic weather patterns that destroy harvests. Denuded landscapes lead to soil erosion and yield loss too. By some estimates, agriculture accounts for at least 75% of deforestation.
Which means anyone who cares about the environment agrees we need to stop deforestation. So there was much rejoicing when the EUDR - no relation to TLDR - was passed in April 2023.
EUDR is short form for the European Deforestation Regulation, which requires companies working in seven commodities that drive deforestation - cattle, cocoa, coffee, palm oil, rubber, soy and wood as well as some of their derived products like leather, chocolate, and furniture - to show their products don’t come from deforested land or areas affected by forest degradation.
It will come into force on 30 December 2024 for most businesses and on 30 June 2025 for small and micro-enterprises.
As the deadline to comply with this important piece of legislation draws near, however, governments and organisations are expressing concerns on a multitude of issues, from a short timeframe and a lack of clarity over key details to whether it will decimate the livelihoods of small scale producers.
Some of the arguments feel self-serving and slightly disingenuous: see this NYT piece where major palm oil producers Malaysia and Indonesia criticised the law for threatening the jobs and incomes of their citizens.
This prompted a sort-of rebuttal from NYT’s own climate newsletter, which quoted a study showing most deforestation in Indonesia is caused by industrial plantations, not small farmers, and a more full-on rebuttal from the founder and CEO of advocacy group Mighty Earth.
But there are also more thoughtful and nuanced takes, like this op-ed from organisations that are part of The CASH Coalition which “works to make regenerative agriculture and climate action profitable for smallholder farmers”.
So I spoke to Elizabeth Teague, Senior Director of Climate Resilience at Root Capital, an impact investor and a member of The CASH Coalition, about their concerns.
Root Capital works with businesses that source from smallholder farmers and in 2023, provided “financing and business advisory to 500 businesses globally in Latin America, Sub Saharan Africa and Asia”, Lizzie told me over a Zoom interview. “Collectively, those businesses are impacting over half a million smallholder farmers.”
Their biggest work is with coffee cooperatives, associations, and businesses that source from small-scale farmers throughout Latin America, East Africa, and Indonesia. The conversation below has been lightly edited for length and clarity.
THIN: Why is EUDR problematic in its current form?
LIZZIE: I would first say that we applaud the spirit of the regulation. We really need to reduce deforestation globally if we're going to hit our emission reductions targets. Our concern is really about potential unintended consequences especially for smallholder coffee farmers.
In particular, we're concerned that the farmers we work with, who are not driving the deforestation, may not be able to demonstrate compliance before the regulations go into effect, and therefore that might mean coffee no longer is a viable livelihood for them and they could also resort to more damaging environmental practices.
To get a little bit into the weeds - the regulations go into effect, basically, in January 2025. But that coffee is going to be harvested as early as now. So the regulations are kind of already here, for coffee or cocoa. So the main challenge is really the speed of the implementation. Supply chains knew this was coming for a while, but there was a long waiting period while the regulations were being debated and voted on, and then coming into force 18 months later.
But supply chains like coffee have less than 18 months to prepare, where you're maybe harvesting in March (2024) for a product that is going to enter the EU in 2025. So you already need to be ready to show compliance. We're worried about smallholder farmers who don't have the resources or the industry connections to demonstrate compliance, and that buyers are going to turn away from smallholder coffee origins, at least momentarily.
They could say, “Well, we're going to get our traceability systems up and running and return in two years.” What are farmers supposed to do during those two years? That's our concern.
THIN: That’s an important point that people unfamiliar with the harvesting times and the value chain might not realise.
LIZZIE: There was a really interesting article in the Financial Times a few months ago about how European customs works for coffee and cocoa. It said containers can sit at ports in Europe before they've cleared customs for over a year for cocoa.
So buyers have to retroactively make sure that the data that they've been collecting fits into this new EUDR compliance system, which is still being defined. And that's one of the other big challenges we have: the risk rating system is still to be announced, some of the specific details in terms of what data is collected, and how it would be entered by buyers into the EU system, is still being defined.
So that's creating a lot of uncertainty.
THIN: In addition to the timeline and the fact that some of the details are still being sorted out, is it also just much more onerous to collect this data? What would this regulation look like in practice for smallholder farmers?
LIZZIE: What the regulations are showing, for all of these commodities, is that even industries where buyers had been working on full traceability of supply, they were not yet there. And suddenly, they need to get first full traceability of supply, to know exactly where their coffee, cocoa, palm, etc is coming from, and in many cases that has been the biggest challenge. And then once they have that traceability, they have to go to specific farmers and/or other suppliers and collect the data. The data itself is not necessarily that complicated, at least on the geospatial side.
The other big thing that has raised complications is that EUDR is also about ensuring the crops are produced on land that farmers have the legal right to manage. This is a challenge because farmers may not have official land tenure documentation. From origin to origin, you have lots of different kinds of land rights frameworks, often relying on customary land rights, essentially an informal system recognising the rights of farmers have been farming that land for decades.
So the act of mapping a farm can raise a lot of questions around, “Is this the right farm boundary? Do your neighbours agree that this is the farm boundary? And do you have official documentation to show that you can be farming here?” And that is going to significantly increase the time and cost of the compliance process.
THIN: Yes and tenure security is already such a big issue in the Global South. So recently the New York Times wrote a long piece about how EUDR could affect palm oil plantations. But there's a lot of evidence that palm oil plantations - and a lot of the commodities in the EUDR - have been sources of deforestation. So isn’t it a good thing that this legislation is coming into force? What is the big stumbling block here? Is it just too broad?
LIZZIE: There are a few things.
One, if you look across the commodities that are covered by the regulation, these are wildly different commodities and supply chains. I understand why the EU wants to tackle them together because they were looking at the major drivers of tropical deforestation. But we may be casting too broad a net to say the same regulatory framework can apply to these very different commodities, in very different geographies, on the same timeline.
For coffee, our main concern is that things are simply moving too quickly, especially because coffee has not been a leading driver of deforestation on the scale of palm oil or soy.
If you look at different industries’ deforestation contribution, palm and soy account for around 60% to 70% of the deforestation the EU was concerned about. Coffee was somewhere around 7%. So certainly, it's something we need to address. But because it has not been as much of an issue, the coffee supply chain was saying we’re managing this through certification. We have fair trade certification, Rainforest Alliance, organic - they all talk about avoiding deforestation in a certain way. In many ways, I think the coffee supply chain was not as prepared for this huge regulatory shift.
Also, there's a greater proportion of smallholders in the coffee supply chain. Again, that raises the complexity and raises the cost of things like traceability, land tenure, etc. We certainly don't have a perfect formula. But for us, a lot of it comes back to simply providing a longer phase-in timeline. Especially when the EU is trying to say, “We have 18 months both for us to create our systems and for the world to prepare.” Ideally, those two would have been sequenced.
THIN: That was going to be the next question: what would you recommend? So essentially, EU should get its house in order and get every thing ready and then give a deadline to comply, instead of having two parallel processes?
LIZZIE: Exactly. I think there has been unnecessary friction caused by there being so much uncertainty about the regulations. I think it would have helped to have more clarity around the risk framework, around the tools, around the system.
And then giving more time to supply chains to do the work and make sure they're doing it well, instead of buyers feeling like they need to make choices between investing in smallholder-heavy origins or turning away.
THIN: Essentially this is an issue of “just transition” right?
LIZZIE: I think so. These types of regulations are going to raise the cost of business across the supply chain. So when we think about smallholder coffee farmers, they are generally not responsible for significant emissions. The farmers we work with are generally using agroforestry farming practices that have a much lower, even negative, carbon footprint.
We are now asking them to do more to contribute to the solution, which is great - but where's the reward? Is there a carrot that comes with this regulation, that they're going to get more money at the end of the day, at least to cover the costs of the mapping or getting that official land tenure document, or whatever it is to continue accessing this really important market for your livelihood?
THIN: Yeah, particularly with coffee and cacao where what the farmers get and what the consumers pay for the final product can be so wildly different.The EU has said they will provide financial support to help small farmers. What do you think of that? Will it be enough?
LIZZIE: We don't yet have great visibility into where that money is going. I'm guessing that the EU is figuring out exactly how the pot is going to be distributed.
If I were the EU, I would probably focus a lot of that money on the smallholders in the biggest deforestation-driving industries. So a lot of it would go to palm and soy smallholders, which is probably appropriate. But then how much money is leftover for the cocoa or coffee smallholders?
What we're hoping to see is that the supply chain and especially the traders, the importers, the exporters, the roasters, and the brands really step up to cover these increased costs. Ultimately, probably the consumer in Europe will also need to help cover these increased costs.
This is so that we recognise that this more sustainable way of producing these commodities does cost more - but there's huge return on that investment for the world. But we need to make sure that farmers are not bearing the brunt of that increased investment.
THIN: How do we ensure that well intentioned policies don't end up actually making the situation worse, especially for small scale food producers? At the same time, how can we can support them and indigenous groups while also clamping down on destructive agricultural practices?
LIZZIE: My starting point would be what we just talked about, about making sure that ideally, farmers are getting more resources at the end of the day. That the increased costs are being absorbed by others in the supply chain, and also recognising the complexity of these supply chains, and how that complexity looks very different across geographies.
To give a very specific example, when Root Capital started looking at these regulations, we focused on the mapping piece. We thought that's where the businesses that we work with need the most support. And then we quickly realised actually it could be the land tenure issue. That's the biggest issue for these businesses and farmers, and there's not even clarity from the EU around how to interpret the land rights provision of the regulations across geographies.
There's just a blanket statement. It's actually not saying you need to have official documentation, it's saying you need the right to farm the land based on the local laws in which you operate. But you really need a lawyer, and even the lawyers we've talked to are a little bit confused around what does that look like in Peru versus Rwanda, versus Indonesia versus Kenya, across all the countries in which we work?
So again, I think a lot of it comes back to, as you said, the EU getting its house in order first, and providing more guidance and support around what this means across these supply chains in order to make sure that buyers don't look at this and say, “Too much investment. Too much risk. I'm going to focus on easier bets.” Which are basically bigger suppliers.
THIN: Thanks for your time Lizzie. That’s all the questions I have. Anything else you’d like to add?
LIZZIE: Another interesting piece is, let's say we work with a coffee cooperative and it does find a farmer who is managing land they deforested after 2021. What should that farmer do? We know that farmer can't sell that coffee into Europe anymore, indeed ever. But what is going to happen to that land?
We've been asking some actors in the coffee supply chain, and most people don't have answers yet. There are some buyers that are starting to say, “We will pay for reforestation of that land”, which probably is the right answer.
Still, what is the farmer supposed to do in terms of their livelihood strategy going forward? But we were encouraged to see at least some buyers stepping up.
Root Capital is really trying to support the businesses that we work with prepare for the regulation. As an impact investor, social and environmental impacts always come first, so we think that the farmers we’re working with are not driving deforestation – but again, they might have trouble demonstrating compliance.
We're doing a pilot this year with cooperatives in Peru to help them understand the regulations first and foremost and to make sure they have the geospatial data they need. We're particularly interested in helping them map their land to get ahead of potential deforestation risks within their cooperative, rather than having to rely on a buyer, who's only going to tell them when that coffee has been rejected at the point of entry.
Thin’s Pickings
Food Waste Index Report - UN Environment Programme
This new report from UNEP found that in 2022, we wasted a fifth of all food available to consumers. This amounts to 1.05 billion tonnes in total. That’s a heck of a lot of waste, and truly horrible when taken with news of imminent famine in places like Gaza.
A majority of this waste (60%) comes from households and each of us on average waste 79 kilos of food annually, so please, the next time we go shopping, let’s only buy the fresh produce we need.
Here’s a third unpalatable nugget: food loss and waste generates 8% to 10% of global greenhouse gas emissions, almost five times the total emissions from the aviation sector.
This report measures the level of waste from retail to household, while the FAO’s Food Loss Index looks at losses from post-harvest up to and excluding retail. If the 191 pages is too much to chew on, here’s a two-page executive summary.
Chemical Capture: The Power and Impact of the Pesticide Industry - Civil Eats
An investigative series led by Lisa Held on the agrochemicals’ grip on farmers and policymakers in America, where pesticide use has increased by 33% between 1990 and 2020.
The Marquess and the Market - Vittles
A thought-provoking essay from Robbie Armstrong about the systemic forces that lie behind a seemingly idyllic food venue on the Isle of Bute in Scotland.
Have a great Easter weekend and please feel free to share this post and send tips and thoughts on mastodon @ThinInk@journa.host, my LinkedIn page, twitter @thinink, or via e-mail thin@thin-ink.net.