Making the EU regulation on deforestation-free products (EUDR) a tool that works for smallholder farmers

The implementation of the EU Regulation on deforestation-free products (EUDR) must prioritise the inclusion and support of smallholder farmers in third countries, who are disproportionately affected by stringent sustainability requirements. For the EUDR to succeed without disadvantaging smallholders, the EU needs to bolster targeted technical and financial support, establish dedicated assistance programmes, foster transparent partnerships, and leverage existing dialogue platforms. By doing so, the regulation can achieve its environmental goals while supporting vulnerable farmers. 

The EU’s Regulation on deforestation-free products (EUDR) will have severe impacts on smallholder farmers, particularly in the Global South. For instance, in Brazil, smallholders account for over half of the land used to grow cocoa, as well as substantial portions of the land used for palm oil and coffee cultivation.

The aim of the regulation is to promote the consumption of ‘deforestation-free’ products and reduce the EU’s impact on global deforestation and forest degradation. By leveraging the EU’s market power to curb deforestation and forest degradation, the regulation is expected to reduce greenhouse gas emissions and biodiversity loss. However, the regulation is likely to affect smallholders disproportionately, while they do not necessarily have the means and instruments to respond to such a changed regulatory environment.

There is still time to to take into account these adverse effects on vulnerable stakeholders. The transition period for EUDR is still planned to last until the end of the year, but there are uncertainties around the implementation timeframe. Although there is an increasing pressure from Member States and agrifood stakeholders to postpone the regulation, no decision has been taken so far.

Europe Jacques Delors, in cooperation with the Trade, Development & the Environment (TRADE Hub), led by the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), has looked at what the European Commission could do to ensure that this regulation does not disproportionately harm the most vulnerable actors across the supply chains. You can find the main recommendations of this joint research project in this blogpost below, and a more detail analysis in our recently published policy brief “Towards a more inclusive, sustainable, and cooperative EU agricultural trade: Lessons from practice”.

The first main challenge is that smallholder producers could potentially be cut off from trade with the EU or pushed out of supply chains by larger producers for whom proving compliance with the EUDR requirements might be easier. Indeed, while the share of smallholder farmers potentially impacted by the EUDR varies among commodities and countries of origin, many of those affected do not necessarily have the resources, technical knowledge, and financial means to comply with the EUDR’s stringent traceability and sustainability requirements, risking their exclusion from EU supply chains.

In order to address this first challenge, the EU could sponsor independent studies to assess the specific impacts of the EUDR on different countries and commodities. These studies should gather data on supply chains, local regulatory frameworks, and the socio-economic conditions of smallholder farmers. Secondly, the EU could facilitate knowledge-sharing initiatives to ensure that all stakeholders, especially smallholders, are well-informed about the EUDR’s requirements and the broader benefits of sustainable agricultural practices.

Thirdly, based on the findings of these studies, the EU could deploy targeted technical and financial support programmes. While much has been done in this regard, the technical and financial support provided must match the size, scale, and speed needed to maintain and promote smallholder inclusion. These programmes should aim to build the capacity of smallholder farmers to meet the EUDR’s requirements. This could include providing training on sustainable farming practices, facilitating access to necessary equipment, and improving infrastructure. Efforts by the EU should go beyond ensuring compliance with the EUDR requirements and seek to promote the sustainable livelihoods of smallholders. Thus, financial support should be made available to help farmers invest in sustainable practices and improve their livelihoods.

The European Union has been criticised by several developing countries for its top-down approach when it comes to the EUDR. According to them, their concerns contending that the regulation disregards their local conditions and own efforts to combat deforestation were largely ignored during the drafting process of this new legislation.

In order to avoid an escalating situation with developing countries, the EU should build bilateral partnerships. Such partnerships, alongside multi-stakeholder platforms including third countries and regional economic actors, should focus on fostering technical alignment and implementation support by addressing key challenges and aligning monitoring, reporting, and verification (MRV) processes for consistent compliance and fostering political exchanges. This should include building on best practices and supporting local and national MRV systems and certification schemes, such as Brazil’s “Beef on Track” programme and the sustainable palm oil certifications in Malaysia and Indonesia. To do so, the Commission should work with partner countries to determine to what extent existing local and national programmes can be used and relied upon to verify EUDR compliance.

TRADE Hub research and field studies have shown that the EUDR’s traceability requirements are amongst the top concerns of value chain stakeholders, raising a number of questions about data governance. In this regard, the European Commission should develop guidelines for data alignment and system integrability, to streamline processes and ensure that all actors use compatible formats and systems.

The EU should also establish commodity-specific partnerships and build on existing initiatives, such as the “Forest Partnerships” and the “Sustainable Cocoa Dialogue”. These programmes provide platforms for addressing sustainability issues, identifying specific challenges, and initiating policy responses. These commodity-specific partnerships can also be leveraged as a mechanism to help producing countries prepare for the EUDR’s implementation.

Moreover, the EU should foster political and technical exchanges through multi-stakeholder platforms and EU Task Forces.  Existing platforms, such as the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests and the ad hoc Joint Task Force between Indonesia, Malaysia, and the EU are intended to enhance dialogue and cooperation. However, these platforms have faced criticism for being too one-sided, often briefing stakeholders without involving them in decision-making. To rectify this, it is crucial to strengthen technical-level dialogues through commodity-specific discussions. Establishing a mix of multistakeholder and bilateral dialogue platforms is critical to ensure regular feedback loops and anticipate and respond to technical challenges arising during the EUDR’s implementation. This is equally important to ensure that relevant stakeholders and partner countries can participate and influence the regulation’s upcoming review processes.

The EU could also establish an expert group, similar to the advisory body for the EU Carbon Border Adjustment Mechanism (CBAM), to provide advice on the EUDR’s implementation and future reviews. This group should be inclusive, bringing together experts from trade, environment, development, and finance sectors, both from the EU and partner countries.

During the EUDR negotiations, the inclusion of financial institutions within its scope was object of contention, and negotiators ultimately decided to exclude them. However, they left in the possibility to include them during the regulation’s revision within two years. Over this period, the European Commission is expected to evaluate financial institutions’ role in preventing deforestation and could consider adding specific obligations. Despite the lack of explicit obligations, the EUDR has already influenced financial practices, for instance with Brazilian banks requiring compliance for export credits on bovine meat. However, this remains an exception.

Given the crucial role of financial institutions in fostering an economic ecosystem that supports sustainable production, ensuring their compliance with non-deforestation standards is essential to achieving sustainability outcomes. Moreover, the EU should incentivise European banks to collaborate with local banks in producing countries and encourage international institutions, such as the World Bank, to support smallholders, who face considerable challenges due to limited access to credit, hindering their ability to engage in sustainable production.

The EU has taken significant steps to become a frontrunner in food system sustainability. It has translated ambitious goals into tangible actions with the adoption of the EUDR. As the regulation will come into effect by the end of 2024, it is crucial for the EU to focus on developing targeted support measures and partnership programmes to ensure effective implementation and build local capability for compliance. While these efforts are essential to drive meaningful change in global food systems, the EU must continue to pursue strong environmental action also through its Trade Agreements. This will be the focus of the next blog post.

This blogpost is based on the findings and analysis presented in Europe Jacques Delors’ paper entitled “Towards a more inclusive, sustainable, and cooperative EU agricultural trade: Lessons from practice”. This work is a collaboration between Europe Jacques Delors, the United Nations Environment Programme (UNEP), and the UK Research and Innovation Global Challenges Research Fund (UKRI GCRF) Trade, Development and the Environment Hub (TRADE Hub).