Smallholder cocoa farmers need support as EUDR compliance nears

From 30 December 2024, companies trading agricultural commodities in the EU, including cocoa from Côte d’Ivoire, will need to demonstrate that their supplies are legally produced and deforestation-free in order to comply with the EU deforestation regulation (EUDR). To do this, companies need to provide the geolocation of the plots of land where commodities were produced to prove there is no or negligible risk that they were grown on land deforested after the end of 2020. The EU and Switzerland are the largest market for Ivorian cocoa, accounting for 61% of exports in 2022.

Although the traceability requirement – if properly implemented – should help guide action to reduce deforestation linked to EU commodity imports – it will be challenging to meet for cocoa produced in Côte d’Ivoire, according to our research.

Trase mapped the supply chain for Ivorian cocoa produced in 2022, the most recent year for which there is available data. Our results show that only around 35% of the country’s cocoa exports was directly sourced from farmer cooperatives, a decrease from 39% in 2021. Direct sourcing makes it easier for companies to trace where the cocoa was grown and whether it complies with the EUDR. The remainder was indirectly sourced via additional intermediary suppliers, making traceability much more challenging.

Some farmers may win, while others could lose

The volumes and the proportion of direct versus indirect supplies vary greatly between different regional departments of Côte d’Ivoire. The largest volumes of indirectly sourced cocoa come from the departments of Sassandra, Tabou, Guiglo in the west of the country, or Abengourou in the east. As little as 6% of cocoa production is directly sourced in departments such as Danane, while in departments such as Djekanou 75% of cocoa is directly sourced from a cooperative.

Producers in departments with higher levels of direct sourcing via cooperatives will have a greater chance of supplying cocoa that complies with the traceability requirement of the EUDR. This may be especially true for cooperatives which have been certified by UTZ, Rainforest Alliance or Fairtrade for several years. Given the costs and challenges of traceability in the indirect supply chain, the bargaining power of cooperatives in these departments may improve, benefiting smallholder producers.

In contrast, in departments where the supply chain is not structured around a cooperative and more intermediaries are involved, achieving traceability and EUDR compliance is likely to be significantly more costly. Without adequate support to meet the EUDR’s requirements from the EU, the Ivorian government and cocoa-buying companies, many farmers may end up only being able to sell to non-EU markets. If the EUDR does split the international market in two, the excess of Ivorian cocoa that cannot be sold in the EU may lower the national price and leave non-compliant farmers with even weaker bargaining power. These farmers are unlikely to find compensation in the price premiums that certification schemes attract, as 73% of cocoa directly sourced from a certified cooperative is sold in the EU, Trase estimates. Hence, without adequate support, market forces alone could create a differential in the actual farm gate price obtained by compliant and non-compliant farmers.

Furthermore, in places that are less able to meet traceability requirements, producers may have less incentive to reduce deforestation and ensure that cocoa is produced in compliance with the local laws. This problem may become particularly acute in areas along the border with Liberia, where cocoa linked to deforestation is reportedly smuggled into Ivorian supplies. Departments bordering Liberia have some of the lowest levels of direct sourcing, with up to 260,000 tonnes of cocoa coming from unknown sources in 2022.

Traders face challenges in sourcing EUDR-compliant cocoa

All of the major cocoa-trading companies source substantial amounts of cocoa from indirect sources, bringing additional challenges to complying with the EUDR. In 2022, only smaller traders ETC Group, Cemoi and Ethiquable sourced enough cocoa directly through a cooperative in Côte d’Ivoire to cover the volumes they exported to the EU. As a result, chocolate and confectionery companies may find it more or less difficult to find enough EUDR-compliant cocoa, depending which trading company supplies them.

Trase calculates that for the EU as a whole, only 36% of cocoa in 2022 was sourced through direct supply chains, a decrease from 43% in 2021. Moreover, the proportion varies for each EU country. Competent authorities responsible for enforcing the EUDR in each member state will face markedly different risks of receiving non-compliant shipments. For example, the Port of Rotterdam in the Netherlands is an important entry point for commodities imported into the EU and then re-exported to other countries. The Dutch authorities will have a crucial role in enforcing the EUDR requirements on import checks.

Supporting smallholder farmers through a national traceability system

To reduce deforestation, support the livelihoods of smallholder farmers and comply with the EUDR, a transparent, nationwide traceability system coupled with robust deforestation monitoring is needed. It is encouraging that such a system is currently being developed in Côte d’Ivoire. Departments with high levels of indirect sourcing will require additional resources to ensure that the traceability system supports smallholders, preventing their exclusion. This comprises measures to increase the number of cooperatives and expand the capacity of existing ones, including with sustainability standard certification. This is because cooperatives have data about members who supply cocoa and are ideally placed to provide information, training and finance to help ensure a traceability system can be successfully implemented to meet EUDR requirements. Cooperatives also benefit smallholder farmers by increasing their visibility in the marketplace, improving their livelihoods.

Without an effective national traceability system, cocoa traders and buyers will have to rely on their own traceability systems to manage compliance. These systems should follow best practice guidance to be robust and credible. However, traceability by itself will not necessarily lead to environmental and social benefits on the ground. To be genuinely transformational, companies need to engage constructively with local producers and governments to support and develop sustainable agricultural practices.

Trase would like to thank Sophie Higman and James Parker at Proforest for their contribution to this article.

To reference this article, please use the following citation: Guye, V. (2024). Smallholder cocoa farmers need support as EUDR compliance nears. Trase. https://doi.org/10.48650/V73S-KV64