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Supply Chain

Coffee, Candy Makers Question EU Deforestation Law

By Reuters
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Coffee, Candy Makers Question EU Deforestation Law

Chocolate and coffee makers including Italy's Lavazza and Cadbury-maker Mondelēz are concerned about the "practicalities" of a new European Union law aimed at stopping deforestation.

The pushback comes despite voluntary, public commitments by the companies themselves and the broader coffee and cocoa industry to clean up supply chains using audits carried out by third parties like Fairtrade.

Agreed in December, the law is expected to come into force at the end of 2024. Importers of coffee, cocoa, beef, soy, rubber and palm oil must prove their supply chains aren't contributing to the destruction of forests, a cause of climate change, or be fined up to 4% of their turnover in the bloc.

Several major investors told Reuters last month that concerns about their exposure to the issue could lead them to quit consumer goods makers with "risky" supply chains.

"It will be very difficult to implement this law in practical terms, because the coffee supply chain is very complex and traceability is very difficult," Lavazza group chairman Giuseppe Lavazza told Reuters. "We are talking to the European authorities through our association to try to find a way."

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The EU rules will be hard to implement without more guidance, Lavazza said, pointing to the large number of intermediaries involved in coffee.

'A Huge Challenge'

"These inherent characteristics of the coffee supply chain make traceability at the parcel level a huge challenge for the sector, as information on geolocation and contacts may not be available for small plantations," he added.

Christophe Hansen, who led negotiations on the law for the European Parliament, said, "I don't think it's impossible. It will be a challenge for them for sure because coffee sector producers are often quite small.

"But we have integrated into the text (of the law) the obligation of the European Commission to help especially small-holder farmers to be able to comply with the requirements."

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Oreo-maker Mondelēz told Reuters it is "not clear on how they (EU authorities) will control or implement this" law.

"There should be more dialogue about how do we practically make something happen on the ground," chief executive Dirk Van de Put said in an interview with Reuters last month.

The EU says it introduced its landmark deforestation law because years of voluntary commitments by food companies to rid their supply chains of environmental harms had largely failed to have an impact on the ground.

Non-profit organisations including Earthsight, Fern and Solidaridad said the law mostly requires companies to put into action their voluntary pledges to stop sourcing from deforested areas.

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"It is entirely possible to trace coffee supply chains, despite their complexity. Other sectors such as cocoa are well on their way to doing so," said Julia Christian, a lawyer who works on forest campaigns for Fern.

A Big Question

Lavazza and Mondelēz did not comment on specific solutions to their concerns.

Some companies say the law in its current form could hamper Europe's food supply chain. "I don't think that's what they're looking for," Van de Put said.

He suggested better training for farmers to help them improve crop yields and avoid cutting down forest to plant more cocoa trees.

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Mondelēz and members of a trade group working on the cocoa industry's forestry impacts met with the EU Commission on the law this spring, an executive said.

By 2025, Mondelēz is aiming to source all of its cocoa from farms in a programme that will have little to no deforestation.

Italian confectionary group Ferrero wants the EU to provide specific guidance on compliance for each commodity because supply chains vary greatly between them.

Deforestation is the second leading cause of climate change, after the burning of fossil fuels.

Several top investors remain steadfast in their support of the regulation.

"This legislation is an example of something that really is likely to affect companies that have not adequately prepared and can have financial consequences," said Snorre Gjerde, investment stewardship manager at Norway's sovereign wealth fund, NBIM.

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