Facilitating Accessibility and Empowering Smallholder Farmers in a Changing Regulatory Landscape

By Jon Trask, CEO and Founder of Dimitra

In recent years, the European Union (EU) has taken a significant stride in combating deforestation by imposing a ban on the sale of products from deforested areas within its borders, set to take effect on December 30, 2024. Europe stands as one of the largest consumers of commodities associated with deforestation, encompassing 50% of the world's coffee and 60% of all cocoa—contributing to over 25% of the world's tree cover loss from 2001 to 2015. 

While this move demonstrates the EU's dedication to environmental sustainability and ethical sourcing, the repercussions of these new regulations are anticipated to weigh heavily on farmers in the Global South. The European Union Deforestation Regulation (EUDR) encompasses timber, soy, coffee, cocoa, beef, palm oil, and related products, imposing obligatory due diligence responsibilities on both consumers and producers situated along the supply chain.

The EU's regulation implements a tiered system of inspections and penalties based on the perceived risk level of the country of origin. While designed to ensure compliance, this structure inadvertently places a burden on smaller farming entities. Compliance necessitates robust due diligence processes and risk assessments, which can be financially and technologically challenging for numerous smallholders. In countries such as Indonesia, for example, 1% of smallholder farmers are certified under the current regulations. This means that, with the addition of the EU Deforestation Regulation (EUDR) measures, the majority of small farmers in the country will no longer have access to the EU market.

17 countries from the Global South have expressed their exasperation around this new anti-deforestation legislation and the impact it could have on their exports of commodities. The group argues that the law disregards ongoing efforts to balance nature conservation with protecting livelihoods while at the same time providing farmers with adequate access to expertise and assistance.

Additionally, the regulation introduces an unintended consequence: a potential relocation of deforested produce to markets with less stringent regulations, such as India and China. This raises apprehensions regarding the effectiveness of the EU regulation in achieving its intended objective of mitigating deforestation globally. Moreover, there are concerns that these measures might be viewed as protectionist, potentially conflicting with World Trade Organization (WTO) principles.

Given these challenges and the reaction to such, it is evident that a collaborative approach to deforestation regulation on a global scale is imperative.

AgTech and blockchain-based solutions are poised to play a crucial role in promoting sustainability and combating deforestation across all scales of agriculture, from small farms to large conglomerates. These technologies hold the potential to address critical environmental challenges and contribute to a more sustainable future.

One example from the EU deforestation regulation is a benchmarking system, requiring the geolocation and traceability for each plot of land where the raw material was produced, determining a cut-off date for this due diligence rules to be implemented. This is an example of where Blockchain and Distributed Ledger Technology (DLT) can be of use. This technology facilitates transparency and tracking throughout the supply chain, making it easier to comply with these regulations. Companies like Dimitra have developed blockchain-based solutions to assess deforestation and ensure compliance for producers, traders, and consumer goods firms.

A different approach is necessary in order to align the objectives of Global North and South and bridge the gap in ensuring a unified front against deforestation, thus preserving both the environment and trade relationships. Europe, being a major importer of commodities associated with deforestation, holds a substantial role in fostering this collaboration.

In creating a robust global food supply chain that is inclusive of smallholder producers, Agtech lies at the heart of this process. However, there is an array of Agtech solutions that can help smallholder farmers in adjusting to new regulations. Precision agriculture tools like sensor networks and drones aid farmers in making informed decisions, leading to higher crop yields, lower production costs, and reduced environmental impact. Furthermore, advanced AgTech solutions leverage artificial intelligence and satellite imaging to enhance sustainability and supply chain transparency. These tools also support sustainable farming practices like crop rotation and agroforestry, improving soil health and reducing land erosion. Ultimately, these innovations reduce the demand for deforestation-linked products and promote sustainability.

The issue of price remains, however, specifically in relation to the size of the farm in question: a report by McKinsey and Co. cited that across all markets, only 36% of small farms are using or planning to use these technologies in the future. While these technological solutions are often costly, adoption is slowly increasing across the world, and according to this report, farmers are open to these innovation avenues. It’s noteworthy that new regulation, such as the EUDR, is playing an increasingly important role in accelerating growth in certain Agtech submarkets.

The critiques raised by those from the Global South highlight a broader concern within global environmental policy. This concern relates to the disparity in influence, with the major contributors to climate change instructing on the course of action for those who are disproportionately affected by its consequences. Given the introduction of these new regulatory obstacles, there is a growing need for reform, particularly in the adoption of blockchain and distributed ledger technology (DLT), alongside the other agricultural technology solutions.

Although many smallholder farmers may find these advancements financially unattainable, there is a consistent emergence of cost-effective farming platforms and accessible technologies, offering hope that the EUDR will ultimately benefit all consumers and producers. This, in turn, aligns with the overarching objectives of environmental and food sustainability.

Collaborative efforts and alignment of objectives across the Global North and South can bridge the gap in ensuring a unified front against deforestation, thus preserving both the environment and trade relationships. Europe, being a major importer of commodities associated with deforestation, holds a substantial role in fostering this collaboration.

In the pursuit of balancing the environmental imperative with the demands of food production, a holistic approach like balanced farming is indispensable. Through collaboration and the adoption of these cutting-edge technologies, we can strike a delicate balance between fostering a sustainable global food trade while preserving our invaluable natural resources.

Jon Trask is CEO and Founder of Dimitra.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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