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EU Deforestation Regulation could lead to a ‘two-tier market’ in APAC cocoa industry, warns industry insiders

EU Deforestation Regulation could lead to a 'two-tier market' in APAC cocoa industry, warns industry insiders All Asia-Pacific, bakery, beverages, cocoa, confectionery, Convenience foods and snacks, EU Deforestation Regulation, EUDR, Flavours and colours, Industry growth, Policy, supply chain, Sustainability, Traditional and staple foods Food and Beverage Business

The controversial Deforestation Regulation (EUDR) introduced by the EU has sparked intense debate and backlash within the palm oil industry in Asian producer markets. However, the policy will have far-reaching consequences for other commodities as well, including cocoa, coffee, and rubber.

The EUDR came into effect in June 2023, allowing companies an 18-month transition period until December 2024 to comply. While the regulation aims to promote sustainability and deforestation-free supply chains, stakeholders from outside the palm oil sector are expressing concerns about its potential impacts on the food and beverage industry.

“Asia is a significant market both as a consumer and producer, with a substantial amount of cocoa exported to the United States and EU,” explained Andrew Brooks, Head of Cocoa Sustainability at ofi. He warned that the EUDR could create a two-tier market, affecting the global flow of cocoa products, and ultimately leading to cost implications that remain unclear.

The uncertainty surrounding EUDR compliance costs is particularly worrying, as they could impact farmers or consumers in the current economic climate. While big food multinational companies have pledged to source sustainable cocoa by 2025, smaller smallholder farmers and firms may struggle with the additional financial burden.

Fanny Gauttier, the EU Public Affairs Lead at Rainforest Alliance, highlighted the complexity of compliance within the cocoa industry, specifically citing the challenges posed by smallholder farmers. She also predicted an overall increase in certification costs for chocolate and other food companies as they strive to become EUDR-ready, due to the technological and data requirements involved.

One of the key questions that remains unanswered is who will bear the additional costs and premiums associated with EUDR compliance. The European Commission Directorate-General Environment acknowledged the responsibility falls on the operators placing products on the EU market. However, the EU is also working to enhance cooperation with producer countries to address the challenges faced by smallholders and minimize the associated costs.

In summary, the EU’s Deforestation Regulation has implications beyond the palm oil industry, affecting commodities such as cocoa. The compliance costs and potential market segmentation pose challenges for various stakeholders, particularly smaller farmers and firms. As the industry adapts to meet the requirements, key questions remain regarding who will absorb the additional costs.

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