Navigating the EU Deforestation Regulation: Perspectives from small-scale commodity producers in Indonesia and Thailand

The EU Deforestation Regulation (EUDR), which entered into force on 29 June 2023, exemplifies the EU’s commitment to reduce their contribution to global deforestation, forest degradation, greenhouse gas emissions and biodiversity loss.

The regulation covers seven forest-risk commodities such as cattle, cocoa, coffee, oil palm, rubber, soya and wood as well as derivative products such as beef, chocolate and wooden furniture. Together, these commodities generate approximately USD 2 billion for each country through exports to the EU. They provide livelihoods for millions of smallholders.

Under the EUDR, individuals or entities in the EU that import, trade or export these commodities or products are mandated to exercise due diligence to show that they: originate from legal sources and are not sourced from forests cleared after 31 December 2020.

While the regulation is promising, it poses risks to smallholders in commodity-producing countries. Smallholders are now left to adhere to the new policy and meet the criteria to maintain market access.

It is crucial to raise awareness about the regulation's requirements and potential impacts on smallholders. One of which is the possibility that commodities may be exported to markets with weaker environmental regulations instead of to the EU, thereby failing to address deforestation risks.

We conducted research through sixteen interview sessions with stakeholders from the coffee and timber sectors in Indonesia, and rubber in Thailand, focusing on policy, value chain governance and human rights. We wanted to assess the level of awareness of local actors on the potential impacts of the EUDR on smallholders and forest communities. Interviewees included smallholder groups and cooperatives producing these commodities.

We also talked to representatives of Agriac, a Thai social enterprise that supplies rubber products to EU-based tyre makers, Java Learning Centre (JAVLEC), an Indonesian nongovernmental organization and a company in Indonesia that exports timber products to the Netherlands. Each of these works with smallholders in their respective countries.  

Key findings: The EUDR on the ground

Smallholders lack awareness of the EUDR

Smallholder groups and cooperatives have received little information from other actors in their supply chains about the EUDR and its requirements. In Thailand, most of the representatives of the groups interviewed had heard of the EUDR, in general terms, either from local NGOs or the state enterprise Rubber Authority of Thailand. However, that information was mostly not available to smallholders or cooperatives members. They were unaware of the regulation’s requirements or potential impacts. In Indonesia, JAVLEC knew about the EUDR but had not informed smallholders about it. Notably, the Indonesian company supplying the Netherlands-based operator with timber products was unaware of the EUDR and initially assumed it to be a voluntary certification scheme.

Smallholders lack adequate documentation and face higher operational cost

The EUDR will require more rigorous documentation of commodity sourcing and transactions. This will increase costs for smallholders and affect their ability to meet EU-based buyers’ requirements for due diligence and traceability. While most smallholders we met typically sell their products through farmers' groups and cooperatives, which keep detailed records of all transactions, some are compelled to engage intermediaries that often lack proper transaction documentation. Some mapping initiatives that have been initiated in response to the EUDR will help smallholders meet their buyer’s needs. For example, a coffee cooperative in Indonesia, is implementing a geolocation mapping system with support from a processing company. However, most smallholders there have yet to receive maps for their plots of land.

Smallholders without legal tenure risk exclusion from EU supply chains

When laws are insufficient or are not applied properly in the local context, i.e. slow issuance of land certificate, smallholders are at risk of being excluded from supply chains. For example, Thai rubber farmers who lack land tenure documents may be excluded from value chains for sustainable natural rubber. The complex nature of the rubber value chain, with numerous midstream and downstream actors, especially intermediaries, also complicates the traceability of rubber products.

The EUDR’s definition of deforestation creates uncertainty for practitioners of agroforestry

Challenges will arise if agroforestry systems clash with the EUDR’s definitions of forest and deforestation. Indonesian smallholders who interplant coffee with fast-growing sengon trees on private agroforestry landholdings view the EUDR as a business opportunity. In their view, their management practices did not result in deforestation as they plant new seedlings after harvesting trees and that this aligns with the EUDR's anti-deforestation objectives. The EUDR’s deforestation definition does not seem to align with various national legal definitions. The EU should discuss this with commodity-producing countries to ensure that the EUDR does not discourage agroforestry.

Better understanding of governance in commodity value chains is needed

The interviews identified factors that will influence the EUDR’s impacts on production systems and value chains. These include the complexity of the value chain, levels of trust and connection between smallholders and buyers, the transparency of information, equitable participation, gender inclusivity in governance, and cost-sharing considerations. All those seeking to support actors in the supply chain, but especially those in the EU, should understand how these factors could harm smallholders and affect the legality of their products.

There is a need to value and strengthen farmers' organizations

Efficient organizing by smallholder groups and cooperatives strengthens negotiating power, enhances internal governance and enables a transparent flow of information with larger networks. Such organization can attract buyers and ensure that transactions are well-documented, facilitating the traceability required by the EUDR.

Engaging in certification schemes through partnerships can help smallholders meet market requirements

Certification schemes, such as those of the Forest Stewardship Council (FSC), support farmers' organizations and promote sustainable and responsible production. JAVLEC and Agriac have facilitated FSC certification for smallholders producing timber in Indonesia and rubber in Thailand. These practices help smallholders understand market requirements, the need for traceability and national laws, contributing to responsible value chains. However, market demand for certified products is needed to drive upstream participation in certification schemes.

There is a need to clarify how existing standards align with the EUDR

Interviewees in both countries assumed that FSC certificates would be sufficient to meet the EUDR requirements and continue exporting certified products to the EU. However, while FSC certification is strongly aligned with the EUDR, there are some areas in which alignment is only partial.

In Thailand, the Rubber Authority of Thailand has engaged with the EU to express its confidence that the Thai rubber sector can meet the EUDR’s requirements, including through use of the national sustainable forest management standards (Thai Industrial Standard 14061). How realistic this is remains to be seen, but some good practices provide a foundation. For example, we learnt that a rubber processing company in Thailand is involved in piloting a system called RubberWay, which aims to identify sustainability risks in upstream rubber supply chains.

These key findings underscore the multifaceted challenges and opportunities associated with the implementation of the EUDR. The nuances highlight the need for enhanced communication, robust support systems, the role that NGOs can play and collaborative interventions that cater to the unique circumstances of each stakeholder, especially the smallholders.

"Guiding, not leading, we journey with our smallholders towards a deforestation-free future. Their potential is immense, and with the right support, they can proudly transform the supply chain. After all, we are all part of this ecosystem, striving together for sustainability," said Maipare Loyen, co-founder of Agriac.