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  • Writer's pictureSascha Tischer

The risks of excluding smallholders from EU value chains remain very likely

ARTICLE HIGHLIGHTS

  • Smallholders face significant challenges in complying with the EUDR. The differentiated requirements for large farms versus smallholders, especially regarding geolocation data and legality proof, create complexities.

  • The EUDR's demand for proof of legality poses difficulties, particularly in regions with traditional land use practices. Geolocation transparency requirements are resource-intensive and add complexity.

  • The EUDR's effectiveness in halting deforestation is not clear, especially when a substantial volume of covered commodities goes to markets outside the EU. Smallholders may find alternative markets in India, China, Bangladesh, and Indonesia.

  • Sustainable Agriculture Network (SAN) collaborates to support solutions for transforming agricultural land use. There is a clear need for differentiated solutions and increased collaboration to address the inherent complexity in the system, especially regarding inclusivity and working together for the long-term preservation of tropical forests.



Credit: © FONAP/FORTASBI

Nearly three years ago, I had already written a thought piece about the risk of smallholders potentially getting excluded from international supply chains. Some 1,000 days later, and in light of new European Union regulations enforced and more yet to come, the situation has not improved.


The EU Deforestation Regulation (EUDR), for example, is today certainly developed, negotiated, and finally decided with the utmost best intentions by the Commission, Parliament, and Council to halt deforestation globally — co-driven by market demand from Europe for commodities such as palm oil products, cocoa, and rubber.


It is positive that the EUDR takes a more holistic approach, linking the urgency of halting deforestation with the enforcement of numerous fundamental social and human rights. In Chapter 1 (General Provisions) Article 2 (definitions) of the EUDR, legislators have defined the terms for any work compliant with the new legislation. It is clearly stated that traceability needs to be ensured along the value chain — and thus also from products entering the EU (also partially for the final-stage manufactured products) — going back to the actual farms.


Credit: © FONAP/FORTASBI


Technical Challenges for Smallholders

Many stakeholders, including NGOs, have already voiced their opinions on whether this is the best approach for halting deforestation. Numeral 28 of Article 2 says that large farming estates need to submit one polygon only for a plot of land, no matter its size. Farms of 10 thousand hectares will hand in one single corresponding polygon.


In the case of smallholders, however, every single one of them has to provide at least a central GPS coordinate (when the plot is less than 4 ha) or an individual polygon. So certified farmer associations, cooperatives, or communities need to deliver (depending on the number of farmers and land plots registered) 500, 1,000, or more coordinate data points and/or polygons. Imagine the volume of individual plot data going with one simple liquid tank ship around the globe!


While this is certainly technically manageable, the buying, processing, and final-stage manufacturing sector in Europe still needs to ensure — by comparing details with backtracking data — that the origin producer did not violate the EUDR and is effectively selling produce from deforestation-free land and plots only. In other words, every single smallholder becomes a single individual risk for the buyer.


If corporations want to mitigate the risks in their supply chain, they certainly would consider reducing the number of individual points of sourcing origins. Consequently, it becomes easier to work with 100 large commodity suppliers where feasible (e.g., in palm oil) instead of managing and/or retaining 10,000 or more smallholdings in their supply base.


Credit: © FONAP/Tegar Wijaya (Rumah Obor)

Legality Proof and Compliance Concerns

But this is not the end. The EUDR also requires proof of legality, certifying that the supply comes from an adequately registered, concessioned, or otherwise well-accredited plot of land. In some countries, that might be easily achieved, especially where well-maintained cadastres are existing. But what shall one do in countries where you have a culturally “traditional” land use right understanding and practice in place?


It is also not yet clear what type of legality proof will be in compliance with the EUDR and subsequently, what will be requested and accepted by the implementing, monitoring, and law enforcing authorities. Since the law will require full implementation by the end of 2024, there is not a lot of time to get things sorted out – and in some areas, things definitely need to be negotiated between the EU and the partnering countries' governments to shed some light on dark corners and yet foggy areas of the Directive.


In some countries, a certainly numerous group of oil palm farming smallholders is in a vulnerable position because they are unable to provide an EUDR-compliant legality proof or certificate.


Credit: © FONAP/FORTASBI

Collaborative Initiatives and Future Challenges

The Sustainable Agriculture Network (SAN) collaborates with numerous stakeholders to support ways forward — for the transformation of agricultural land use to the benefit of reducing footprints, conserving biodiversity, protecting resources, and improving the livelihoods of farming families and the communities they live in.


In the context of palm oil, SAN is a member of the influential Forum for Sustainable Palm Oil (FONAP) in Germany, which is committed to working with the current conditions of smallholders and the requirements of the EUDR to enable oil palm farming communities to be better-equipped to ultimately achieve EUDR compliance.


With additional support from its governmental member Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ) — the Federal Ministry for Economic Cooperation and Development — FONAP co-created and implements a pilot project with the Indonesian Palm Oil Smallholder Forum FORTASBI, local NGOs such as Setara Jambi (which is a firm SAN member), Chappa and the Indonesia based IT and technology entity KOLTIVA to address geolocation transparency requirements as set by the EUDR.


With this pilot project, a team of experts travels a significant distance to rural Jambi in Sumatra, to verify the existence and quality of potentially already existing data, identify gaps and agree on the best way to address those gaps, including data collection if necessary. This is a resource and time-intensive endeavor. Who will cover the costs arising from it, and who will pay to address these challenges where no such projects or programs are in place or even being considered?


The collaborative FONAP project extends its scope beyond the enactment of the EUDR. Even before the regulation came into effect, the stakeholders initiated efforts to address rehabilitation, particularly in riparian areas and lands earmarked for reforestation. These initiatives align with Social Forestry concessions granted by the Indonesian Government, empowering local communities to act as guardians for both existing and rehabilitated forests.


The project consortium also developed modules for regenerative agricultural practices, with a specific focus on enhancing soil health and fertility. Despite a commitment to adhere to international rules and regulations, a fundamental question persists: Can smallholders meet the standards set by the EU? Furthermore, if they demonstrate compliance, will they be acknowledged and accepted by international buyers supplying goods to the EU?


Rukaiyah Rafik from FORTASBI made it crystal clear at the Sustainable Palm Oil Dialog 2023 (SPOD 2023) hosted by RSPO, IDH, INA, and FONAP in Frankfurt, Germany, in June 2023: She approached EU-based audiences and stated that the EU markets will surely reach deforestation-free supply chains in compliance with the EUDR. “But will that halt deforestation?” she asked. “Certainly not.”


She congratulated the European Union markets for aiming to become deforestation-free, but frankly, how much volume-share of the commodities covered by the EUDR really goes to the EU markets?


That said, smallholdings (but presumably also medium-sized and numerous big farming estates for palm oil produce), already have or will find alternative markets demanding significant supply. These markets are India, China, Bangladesh, and many more outside the European Union, as well as domestic markets, such as within Indonesia.


Will the EUDR be able to effectively stop deforestation caused by growing demand from these markets? Very unlikely. So, will the EU become an exclusive club with a “white vest,” excluding itself from positively influencing markets of core relevance? An only-apparent success?


Credit: © FONAP/Tegar Wijaya (Rumah Obor)

Navigating Complexity for Sustainable Solutions

As already stated some 1,000 days ago: Those steadfast in preserving tropical forests in the long term cannot simply exclude millions of people in the agricultural sector in need of support, participation, and possible solutions for the sake of an allegedly easy-to-manage supply chain.


In tropical regions, it is primarily smallholders who, in large numbers, supply significant volumes of agricultural raw materials — and it is often communities in these rural regions who have to battle for survival on a daily basis.


There are no easy fixes. Complexity is intrinsic to the system in most cases. We simply have to accept that complexity and work with it. We need differentiated solutions, and more collaboration to develop them. More togetherness, please!

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