Coffee is not just one of Europe’s favourite drinks — the continent is actually the world’s largest coffee market. From bustling Italian espresso bars to leisurely café au laits enjoyed on French sidewalks, to Scandinavia, where the ritual coffee break is reflected by Sweden’s “fika” tradition, while the drink is no less loved in Eastern Europe where Turkish-influenced coffee lends itself to bold and bitter flavours.
The EU’s incoming “deforestation-free” regulation, which comes into place in December 2024, is likely to impact supplies to the bloc of the drink’s essential component–coffee beans.
The EU’s new rules stipulate that any importers of a broad variety of products–like coffee, cattle, wood, cocoa, soy, palm oil, and rubber–must be able to prove that the products do not originate from recently deforested land, or have contributed to forest degradation. In practice, importers will need to provide geolocation data for the origin of their goods. The rules have been hailed as a meaningful push towards sustainable business practices, cutting carbon emissions and reducing biodiversity loss.
However, the West’s imposition of climate-friendly trade rules has been met by opposition in developing countries, where the vast majority of these products are produced.
Indonesia’s economic minister has described the deforestation legislation as “regulatory imperialism” while India’s commerce minister has criticised the EU’s green rules, saying “there is clearly bias, discrimination and unfairness.” Part of the criticism stems from the impact that the legislation will have on the livelihoods of smallholder farmers, who will find it hard to comply with the new rules.
Coffee beans are mostly produced in Brazil, Vietnam, Indonesia and Colombia. Unlike other products on the EU’s list, like cattle, palm oil and soy, which are mostly produced in large-scale farming operations, about three quarters of total coffee bean output is produced by smallholder farmers working on small plots of land–often less than five hectares in size.
The European Commission has produced a document detailing the “opportunity” the new regulation offers smallholder farmers who stand to “reap the benefits of these business opportunities.”
However, there is evidence to suggest that farmers and exporters of coffee beans will struggle to meet the new regulatory standards. After conducting a week of interviews at plantations in Sabah, a Malaysian state, the New York Times found that not a single smallholder farmer had heard of the incoming legislation.
For coffee exporters, the EU will be a less attractive place to sell beans to. They are likely to be more enticed to supply other markets like China or India, where the number of middle class drinkers is rapidly increasing.
Current stockpiling by EU exporters before the December 2024 deadline is likely to be a contributing factor for why global coffee prices have so far soared in 2024 (the main reason being extreme droughts in South-East Asia leading to lower harvests).
By the laws of supply and demand, a lower supply of coffee beans and a subsequent rise in coffee bean prices should prompt new supplies of the product to spring up elsewhere.
However, coffee is a finicky plant. It typically takes four years for a single coffee tree to get a first harvest. Meanwhile in light of more frequent droughts, coffee beans are increasingly prone to unsteady harvests (coffee plants thrive best in well-watered soil). This makes it difficult for farmers to earn a consistent income stream and increases the attractiveness of growing other agricultural goods, like rubber or durian, which are easier to grow in hot weather.
Europe should therefore be prepared to reap the likely consequences of tighter supply —namely, higher prices for a daily necessity.
Frances Li is a Europe analyst at the Economist Intelligence Unit.
Frances Li is a Europe analyst at the Economist Intelligence Unit.