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The cocoa and coffee sectors, among the most globally valued, now face a new regulatory challenge with the introduction of the European Union Deforestation Regulation 2023/1115 (EUDR). Approved by the European Union in 2023, this regulation is part of a broader strategy to combat deforestation and forest degradation, which are closely linked to the farming of cocoa and coffee. Companies will have to comply with stricter rules regarding traceability and sustainability by December 30, 2024 in the case of large and medium-sized enterprises and June 30, 2025 in the case of small and micro enterprises. In this article we will look in depth at what to expect from the EUDR regulation and how chocolate and coffee companies can prepare themselves to deal with these changes.

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1. What is the EUDR regulation?

The EUDR regulation aims to prevent products associated with deforestation and forest degradation from entering the European market. The EU has recognized that imports of commodities such as cocoa, coffee, palm oil, soy, rubber, cattle and timber are among the leading causes of global deforestation, contributing significantly to climate change and biodiversity loss.

The regulation requires companies that import or trade these products in Europe to demonstrate that their supplies have not contributed to deforestation after December 31, 2020. The goal is clear: to reduce the environmental impact of production chains and promote sustainable sourcing practices.

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2. The impact for cocoa and coffee companies

Cocoa and coffee companies, which rely heavily on raw materials grown in tropical regions vulnerable to deforestation, will be particularly affected by the EUDR. Both crops, cocoa and coffee, are often grown in countries with high deforestation rates, such as Côte d'Ivoire, Ghana, and Brazil.

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2.a. Mandatory Traceability

A key requirement of the EUDR regulation is traceability. Companies must be able to verify the exact origin of their raw materials, right down to the specific plantation or production region. This poses a major challenge, particularly for businesses with complex, sprawling supply chains.

Many small farms currently lack the advanced technology needed for product tracking. Chocolate and coffee companies will need to invest in monitoring and certification systems, collaborating with suppliers and intermediaries to ensure full transparency across their supply chains.

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2.b. Higher Initial Operating Costs

Complying with the EUDR regulation is likely to increase costs for companies. They will need to invest in satellite monitoring technology, digital traceability tools, sustainability certifications, and independent audits to ensure compliance.

Companies may also need to overhaul their supply chains, choosing suppliers who meet higher environmental standards or investing directly in sustainable farming practices. While these upfront costs could be significant, companies that adapt quickly could gain greater consumer trust and a competitive edge.

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2.c. Reputational Risks

As public interest in sustainability grows, companies that fail to comply with the EUDR regulation risk not just heavy fines, but also serious damage to their reputation. Consumers and investors are increasingly focused on the environmental impact of their purchases, and products tied to deforestation could face boycotts or declining demand.

Non-compliance could also result in fines, penalties, and trade restrictions in the European Union, potentially leading to significant hits to sales and profit margins, and putting their market competitiveness at risk.

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3. Opportunities for Companies

Though the EUDR regulation may seem challenging for chocolate and coffee companies, it also offers a chance to stand out in the market. The increasing demand for sustainability opens up opportunities to create new business models, strengthen supplier relationships, and differentiate through ethical products.

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3.a. Technological Innovation

Innovative technologies like drones, sensors, and satellite mapping can help companies monitor land use in cultivation areas and prevent illegal deforestation. Incorporating blockchain into the supply chain can further boost transparency, enabling real-time verification of raw materials.

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3.b. Trusty: An Innovative Solution

A remarkable example of innovation is Trusty, a blockchain-based traceability system that offers simple, comprehensive tracking of raw materials and products across the entire supply chain. It ensures full transparency and accountability for all stakeholders, from crop to the final consumer, while continuously monitoring deforestation risks.

Trusty allows importers and exporters to easily prove compliance with the EU Zero Deforestation Regulation, accurately reducing the risk of non-compliance. By adopting this technology, companies can also boost operational efficiency and improve the quality of their production processes.

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4. Conclusion

The EUDR regulation marks a pivotal moment for the cocoa and coffee industries, requiring a stronger focus on sustainability and traceability of raw materials. Though it brings significant challenges, companies that adapt stand to gain in a market increasingly driven by environmental responsibility. The necessary technologies to meet these requirements are already available, accessible, and ready to be integrated, giving businesses the opportunity to enhance transparency and competitiveness while effectively meeting new regulatory and market expectations.