EthiopiaArticleInvestment
The new deforestation regulation of the European Union (EUDR) will have a significant impact on Ethiopia’s coffee sector. The large share of smallholder coffee farmers in Ethiopia makes it especially challenging to trace coffee back to the farm level and ensure coffee does not come from deforested land. European coffee buyers seem to be moving away from Ethiopian coffee and sourcing from less risky origins. To ensure Ethiopian coffee will still be available in Europe and Ethiopian farmers do not lose their livelihoods, companies, governments and development partners have developed actions plans and are putting in place measures that will facilitate EUDR compliance. Yet, more is needed to secure the future of the Ethiopian coffee sector.
Small-scale farmers, major challenges
Consumption in the EU drives about 10% of global deforestation, which has prompted the trading block to introduce new legislation that aims to reduce tree loss by banning sales of key commodities often associated with deforestation.[1] One such commodity is coffee.
In Ethiopia, EUDR can have a detrimental impact on the economy if negative impacts are not managed well. Ethiopia earns around one third of its export earnings from coffee, it is the main source of FOREX, and EU is the largest market with around 30% of exports going there.[2] Most Ethiopian coffee is grown in forested areas, where trees provide the right shade conditions for coffee to grow. This is much less damaging than monoculture plantations that prevail in other countries. Especially when considering trees might be cut altogether for growing other profitable crops such as khat. Nevertheless, the cutting of primary forest to make way for coffee trees does occur in some areas. EUDR can incentivise coffee producers to prevent new coffee expansion into forested areas.
The main challenge for the Ethiopian coffee sector is that coffee is mainly grown by around 5 million smallholder farmers. Most smallholders are poor and do not have the expertise or resources to collect the complex data to show EUDR compliance. Coffee supply chains are complex and fragmented, often involving several brokers. One single shipment of coffee can include beans from thousands of farmers.[1] This makes Ethiopian coffee ‘risky’ in the eyes of buyers.
Bitter side effects
Early indications are that European companies are not buying coffee from Ethiopia and are shifting to countries with better traceability and compliance systems.[1] Not only might this result in Ethiopian coffee no longer being stocked in European cafes and supermarkets; it may also reduce income for poor farmers due to lower demand, and reduce incentives for sustainable farming as demand shifts to countries with lower environmental standards.
Slow brew: Ethiopian government finally unveils a plan for EUDR compliance
The Ethiopian government has developed an action plan to address EUDR compliance for the coffee sector, giving an indication of needed activities and possible implementing organisations.[1] It is currently being reviewed by regional and central government organisations. As EUDR come into force in 2025, the Ethiopian government has asked Brussels for a time extension.[2]
Private sector leads the way, but some risk being left behind
European coffee traders and roasters are scurrying to set up systems for EUDR compliance, using satellite imagery, artificial intelligence and on-the-ground verification to track deforestation among their suppliers.[1] Third-party verification agencies that cater to the coffee sector have also launched new EUDR-related initiatives, including a compliance programme from commodities marketplace the Intercontinental Exchange, an updated coffee sustainability standard from Fairtrade International, a compliance service from baseline sustainability certifier 4C, and additional EUDR criteria introduced in the Rainforest Alliance standard.[2] Within Ethiopia, several business associations have been organising awareness-raising events to ensure their members know that EUDR is coming and advising them on steps they can take.
Nevertheless, not all coffee producers are being reached by these private sector initiatives, and coffee sustainability analysts warn that “despite the clear legal responsibility for compliance falling on traders, roasters, and retailers within the EU, there is a significant risk that industry actors shift costs, obligations, and administrative burdens onto small-scale farmers in order to access the European coffee market.”[3]
Development partners are helping with a just transition
With Dutch funding through the Netherlands Trust Fund V (NTFV) project, the International Trade Centre (ITC) has led the development of a National Action Plan together with the Ethiopian Coffee and Tea Authority (ECTA). Through awareness raising and setting up a stakeholder dialogue platform including key coffee sector actors, ITC and ECTA have outlined joint actions to ensure compliance with new EU regulations. ECTA has now set up a taskforce to work on EUDR as well as the European Corporate Social Due Diligence Directive (CS3D). ITC is also directly supporting Ethiopian coffee producer organisations and roasters with developing sustainability plans, capacity building, and setting up digital due diligence and traceability systems.
TRAIDE Foundation, in partnership with ITC, organised a trade mission for Dutch coffee traders and roasters to Ethiopia. Aimed at fostering new business connections, the mission provided insights into the Ethiopian coffee value chain and the implications of EUDR. Engaging with key stakeholders such as producer unions and the ECTA, participating companies gained a clearer understanding of compliance with EU regulations and opportunities for collaboration. Several companies are now implementing traceability systems in collaboration with Ethiopian producers. Find a video about the coffee trade mission here.
Towards a traceable coffee sector
Questions remain about the implementation of EUDR. For example, what are the exact requirements from value chain stakeholders? And what are the potential remediation measures if deforestation is discovered? Increased awareness and more clarity from the EU will allow coffee actors to respond appropriately.
The Ethiopian government needs to speed up the roll out of its action plan and help coordinate coffee actors. Some are calling for a national traceability system, however this requires significant time and funds. In the meantime, European coffee companies need to co-invest in traceability and due diligence systems for Ethiopian producers in order to help them become EUDR compliant.
EUDR could be a powerful tool to combat deforestation and push the coffee sector to become more sustainable. Different stakeholders need to work together to ensure this does not come at the cost of the most vulnerable or cause Ethiopia to disengage from the European market.
TRAIDE is working with several organisations to set up coffee supply chain traceability and sustainability projects. Do you have a project idea you want to discuss, or do you want to receive more information? Send an email to Thomas Meijer, our coffee business development manager, at [email protected].
[1] https://dailycoffeenews.com/2024/02/13/jde-peets-and-enveritas-announce-global-deforestation-free-plan/
[2] https://www.ice.com/iba/commodity-traceability-service
https://www.fairtrade.net/news/coffee-standard-update-expanding-deforestation-prevention
[3] https://coffeebarometer.org/documents_resources/coffee_barometer_2023.pdf, p. 43.
[1] https://www.ena.et/web/eng/w/eng_3982888
[2] https://addisstandard.com/news-ethiopia-seeks-extension-for-implementation-of-eu-deforestation-free-regulation/#:~:text=Adopted%20by%20the%20European%20Parliament,compliance%20and%20sustainable%20resource%20management
[1] https://www.europarl.europa.eu/topics/en/article/20221019STO44561/deforestation-causes-and-how-the-eu-is-tackling-it#:~:text=EU%20consumption%20accounts%20for%20about,Soya%2032.8%25
[2] https://amp-theguardian-com.cdn.ampproject.org/c/s/amp.theguardian.com/global-development/2024/apr/09/coffee-how-rules-made-in-europe-put-ethiopian-farmers-at-risk
