Traceability Initiatives and the Race Toward EUDR Compliance

Beginning December 30, 2024, chocolate manufacturers operating within the European Union (EU) must prove that since the end of 2020, they have not used cocoa sourced from deforested lands. The European Union Deforestation Regulation (EUDR) mandates that every cocoa batch imported into the EU must be traceable back to the global positioning system (GPS) coordinates of the farm from which it was harvested. Implementing this requirement involves a massive effort to map and monitor cocoa farms, primarily in key cocoa-producing countries like Ivory Coast and Ghana.

Mapping Initiatives and Challenges

Organizations like the Rainforest Alliance, a nonprofit based in New York and Amsterdam, are at the forefront of these efforts. These organizations monitor cocoa farm data in countries such as the Ivory Coast, often under challenging conditions such as extreme heat, rain, and poor signal coverage. The Coffee and Cocoa Council (CCC), the Ivorian cocoa and coffee regulator, has mapped just over 80% of the country's estimated 1.55 million cocoa farms. To meet the EU’s requirements, about 300,000 farms still require mapping by October 1, 2024, the start of the new cocoa season.

The EUDR is part of a broader movement to make raw materials, including agricultural products, traceable to mitigate their environmental and social impacts. Over the past 60 years, Ivory Coast has lost 90% of its forest cover, making it one of the countries with the highest global deforestation rates. In response, Ivory Coast and Ghana have implemented measures to curb deforestation and restore degraded areas, including a 2017 plan with major cocoa and chocolate companies to halt the clearing of forests for cocoa production and restore degraded areas. By 2022, the 36 signatory companies to this plan, accounting for 85% of global cocoa use, had mapped 567,264 farms in Ivory Coast and could trace about 85% of their directly sourced beans. However, aligning these efforts with the new EU requirements presents challenges as there is no central database for the various mapping initiatives, leading to potential duplication and gaps in data coverage.

Figure 1: Cocoa area in million hectares (Mha) in various districts in Côte d'Ivoire and regions in Ghana.

A significant technical challenge is the level of detail required for GPS coordinates. The EU legislation mandates coordinates with at least six decimal points, such as 6.113647, -3.850584. Previously, farmers and organizations used coordinates with only four decimal points, necessitating the re-mapping of tens of thousands of farms. Additionally, the EU requires larger farms to submit GPS coordinates of their entire borders and provide a digital representation of the farms’ boundaries. This process will be verified through satellite images and on-the-ground inspections. Numerous farmers are just becoming aware of these new regulations, while the system for companies to upload GPS data is still in development. This situation has sparked concerns about a potential last-minute rush to comply.

Despite these challenges, the Ivorian government has expressed confidence in its ability to comply with EU law. However, industry groups, such as the International Cocoa Organization (ICCO), have called for a delay in implementing the new law, citing the significant costs and bureaucratic burdens involved.

Economic and Social Impact on Farmers

However, the timing of the EUDR exacerbates an already strained cocoa market. Adverse weather conditions and cocoa-tree diseases have severely impacted harvests across West Africa, leading to the lowest stockpiles in 45 years. This shortage has driven cocoa prices to record highs, with futures prices in New York reaching nearly USD 11,500 per metric ton (mt), quadruple what they were a year ago. Chocolate companies like Mondelēz International and Lindt & Sprüngli have indicated that they will raise prices further this year. These price increases, potentially reaching double digits, follow significant rises in previous years. In response to high prices, companies often reduce product sizes or alter recipes to use less cocoa.

Figure 2: ICCO Cocoa Prices

For the smallholder farmers constituting the majority of cocoa producers, these new regulations represent both a challenge and an opportunity. On the one hand, compliance with the EU's requirements could be burdensome, especially for those without access to technology or support. On the other hand, adherence to sustainable practices and certification could lead to higher and more stable incomes, particularly if cocoa prices remain high.

Cocoa farming in Ivory Coast and Ghana is predominantly manual and labor-intensive. The average farm size is small, and many farmers live below the poverty line. The recent price increases for cocoa paid by the governments of Ivory Coast and Ghana are a positive development but sustained higher prices are necessary to incentivize farmers to adopt sustainable practices such as pruning and planting new seedlings instead of expanding into forested areas.

Financial and Logistical Burdens

The costs associated with meeting the new EU requirements are considerable. The mapping process, re-mapping of farms with insufficient data, and the administrative burden of maintaining accurate records contribute to increased expenses. These costs will likely pass down the supply chain, impacting chocolate manufacturers and consumers. The industry has voiced concerns about the timing and feasibility of the new regulations, with calls for delayed implementation reflecting the significant adjustments required.

Long-term Sustainability and Ethical Considerations

The EUDR legislation is a step towards more ethical and sustainable cocoa production. Ensuring traceability and preventing deforestation are crucial for preserving biodiversity and mitigating climate change. The involvement of nonprofits, industry groups, and governments in supporting farmers through this transition is vital.

Programs like the Rainforest Alliance's certification offer a framework for sustainable farming practices, but the scale of the challenge requires coordinated efforts and significant investment. Long-term sustainability in the cocoa industry will depend on maintaining high cocoa prices, supporting farmers with resources and education, and ensuring robust enforcement of deforestation regulations.

Conclusion

The new EU regulations on deforestation-free cocoa represent a significant shift towards sustainability in the cocoa industry. While the logistical and financial challenges are considerable, the potential benefits for the environment, farmers, and consumers are substantial. Ensuring compliance will require coordinated efforts from governments, industry, and nonprofits. Additionally, increased investment in mapping and monitoring technologies will be needed. As the industry adapts to these new requirements, the hope is that cocoa production can become more sustainable and ethical, benefiting all stakeholders.