Globally, an estimated 18,000,000 acres of forest, an area more than half the size of New York State, are lost every year to deforestation<\/em> [zotpressInText item=”{8690787:GGJRD9F9}” brackets=”no”]<\/p>Food and Agriculture Organization<\/em><\/cite><\/blockquote>\n\n\n\n To have an impact at a meaningful level, a new approach was needed. Self-regulation of the industry didn\u2019t work, and this was the catalyst for legislation. The chocolate companies themselves suggested that regulation was a preferred option at this stage, as it would provide a level playing field for the industry to operate on.<\/p>\n\n\n\n As we are considering the impact on the Cocoa and Coffee industry, we have focused on the regions with the biggest consumption, namely the EU and the US, and to a lesser extent, the UK.<\/p>\n\n\n\n Currently, the major laws being considered, and at different stages of being passed are in the UK with the Environmental Bill [zotpressInText item=”{8690787:57HJ9NMH}”], the USA with the FOREST Act [zotpressInText item=”{8690787:CRH47DGR}”], and Europe deforestation bill (still in draft, a leaked copy referenced) [zotpressInText item=”{8690787:TVB3NN6T}”].<\/p>\n\n\n\n Additionally, for completeness, and to add context we briefly mention New York State\u2019s Deforestation Procurement Act [zotpressInText item=”{8690787:V2ITI8QT}”] and California\u2019s Deforestation Procurement Act. [zotpressInText item=”{8690787:U7MLXENN}”]<\/p>\n\n\n\n While there may be differences in implementation, there is a common set of objectives and tools being considered.<\/p>\n\n\n\n A transparent and evidential network joining the dots all the way back to the farm is one of the most important, yet difficult and expensive parts of a sustainable supply chain. Companies were earlier quick to claim a transparent supply chain, but these would be traceable only to the container, or perhaps to a cooperative. <\/p>\n\n\n\n Unless goods can be traced back to the originating farm, then it cannot claim to be deforestation-free.<\/p>\n\n\n\n The same is true for Mass Balanced purchased cocoa – cocoa that is traceable from a chocolate company\u2019s direct supply chain that gets mixed with non-traceable cocoa. <\/p>\n\n\n\n For these laws to be effective, they must require documented evidence at the ports, that the cocoa\u2019s provenance can be identified.<\/p>\n\n\n\n Fortunately, as they stand, and remembering that neither bills have passed yet, both the EU and US laws require an evidence-based supply chain. Products that cannot prove their origin and compliance will put the US at risk of essentially funding bad environmental practices. The definition in the act is written as:<\/p>\n\n\n\n A new law called \u2018The Environment Bill\u2019 was announced by the government on 11th November 2020 covering a range of environmental issues, including an effort to prevent businesses in the UK from importing commodities linked to illegal deforestation overseas. The page on the official government website refers to their law as \u201cworld-leading new measures to protect rainforests\u201d.<\/p>\n\n\n\n The Bill and associated schedules contained in the long explanatory notes7<\/sup><\/a>, is not easy to read, partially because it is so broad in scope. Deforestation and cocoa are specifically catered for as a \u2018forest-risk\u2019 commodity<\/p>\n\n\n\n Two Subsections detail two procedures, the first is the \u2018Affermative Procedure\u2019 which captures in-scope commodities, relevant local law (this is the contentious element), and enforcement provisions.<\/p>\n\n\n\n The second is the \u2018Negative Procedure\u2019 which details the due diligence, annual reporting and process for requesting an exemption.<\/p>\n\n\n\n \u201c…The meaning of \u201cforest risk commodity\u201d. This captures agricultural commodities whose production is associated with wide-scale conversion of forest. Some examples of commodities likely to be considered for inclusion within this definition include beef, cocoa, leather, palm oil, rubber and soya. The Secretary of State will have power to make regulations specifying the commodities to which the Part 1 requirements will apply. This means that commodities will be brought into scope at a later date by laying further secondary legislation. \u201c<\/p>\n\n\n\n \u201c…prohibits the use of regulated forest risk commodities, and products derived from forest risk commodities, in a regulated person\u2019s UK commercial activity unless they were produced in compliance with relevant local laws.<\/p>\n\n\n\n \u201c…defines \u201clocal law\u201d as any law that has effect in the country or territory where the organism from which a forest risk commodity was produced was grown, raised or cultivated. <\/p>\n\n\n\n \u201c… defines \u201crelevant local law\u201d as a local law which relates to land use or land ownership where the commodity was grown, raised or cultivated. A relevant local law would include, for example, a law designating an area as a national park…. The effect of this definition is that the commodity must be sourced from land that is legally occupied or used\u2026\u201d<\/p>\n\n\n\n As WWF puts it: <\/p>\n\n\n\n \u201c\u200b\u200bThe objective of the due diligence legislation is to ensure that the \u2018forest risk commodities\u2019, ie soy used for animal feed, palm oil used for soap and other products, and cocoa, are imported into the UK only where they are in compliance with the local laws in the country of production.\u201d [zotpressInText item=”{8690787:IRS8TEEJ}”]<\/p>\n\n\n\n Forest and Communities Platform in Cameroon, a large cocoa producer commented: <\/p>\n\n\n\n \u201c[We call on\u2026] the United Kingdom to go beyond the objectives of respecting legality in production processes\u2026[and integrate sustainability criteria]. Cameroon\u2019s legislation, like that of all Central African forest countries, remains very weak on essential points\u2026\u201d<\/p>[zotpressInText item=”{8690787:IRS8TEEJ}”]<\/cite><\/blockquote>\n\n\n\n Global Witness has a detailed blog<\/a> on why the UK Environment Bill should be updated to remove the reference to \u2018Illegal deforestation\u201d. Some countries that benefit from large exports of tropical commodities could just change their laws.<\/p>\n\n\n\n Some Chocolate companies are unhappy for other reasons. Cargill, who is actively lobbying against the EU\u2019s proposed deforestation law, weighs into the UK debate with a vague and suspiciously specious looking claim:<\/p>\n\n\n\n There is a risk due diligence will not sufficiently overcome [issues with traceability of goods] without harming supply chain resilience and efficiency, with associated cost impacts.<\/p>Cargill – – source The Guardian<\/a><\/cite><\/blockquote>\n\n\n\n The law was proposed after a public consultation of around 63,000 UK citizens found that consumers in the UK don\u2019t want to buy products linked to the destruction of the planet.<\/p>\n\n\n\n \u201cThe move coincides with the publication of a new report setting out government\u2019s approach to tackling deforestation linked to UK demand for products such as cocoa, rubber, soya, and palm oil.\u201d<\/p>\n\n\n\n All Brazil or Cote d\u2019Ivoire need to do to have their cocoa authorised for import into the UK, is to claim any deforestation occurring in the production of goods questions is legal. In fact, this is what they are doing according to an article<\/a> by Greenpeace.<\/p>\n\n\n\n In fact, there is potential for the law to make things worse, since the UK consumer could believe products to be deforestation-free, when they may not be.<\/p>\n\n\n\n Despite the ringing endorsements, activists and interested stakeholders wanted more from the UK government. However, as one person put it \u201cIt\u2019s better than nothing\u201d. Perhaps the flexibility of interpretation is necessary.<\/p>\n\n\n\n Several open letters have been written, urging the government to tighten the bill, including this one8<\/sup><\/a> which makes the case for removing the references to \u2018illegal\u2019 deforestation.<\/p>\n\n\n\n CEO of Tesco UK & ROI, Jason Tarry, chose his words carefully when he endorsed the law.<\/p>\n\n\n\n \u201cWe welcome these new measures as an important first step towards creating a level playing field in the UK, aligned with Tesco\u2019s goal of zero deforestation. We hope this encourages all businesses to do the right thing.\u201d<\/p>CEO of Tesco UK & ROI, Jason Tarry, chose his words carefully when he endorsed the law.<\/cite><\/blockquote>\n\n\n\n The aptly named FOREST act [zotpressInText item=”{8690787:CRH47DGR}”], which belies the awkward formation of that acronym it represents – Fostering Overseas Rule of Law and Environmentally Sound Trade, was introduced on 6th October 2021.<\/p>\n\n\n\n The proposed Act currently runs to 34 pages, but there are helpful summary documents available.<\/p>\n\n\n\n The authors refer to it as a framework, with the intent of providing a toolkit that can be used to create a more comprehensive answer to the problem of deforestation. There are four tools:<\/p>\n\n\n\n This is an effective approach that combines stick and carrot in the pursuit of a successful outcome.<\/p>\n\n\n\n This proposed bill will be adopted at a Federal level, meaning that it will apply to all States. Since it deals with the importation of goods into the country, it will naturally fall into the purview of the federal government.<\/p>\n\n\n\n Three members of Congress (two Democrats and one Republican) have created the first legislation in the US to control imports of goods to the US that have links to deforestation.<\/p>\n\n\n\n Senator Brian Schatz (D-Hawai\u2018i) and U.S. Representatives Earl Blumenauer (D-Ore.) and Brian Fitzpatrick (R-Penn.) came together in a show of bipartisan support to introduce this important legislation.<\/p>\n\n\n\n \u201cIllegal deforestation is threatening local communities and wildlife and is a major driver of climate change. American consumers are unknowingly and unintentionally driving this destruction, and our bill will help put an end to that.\u201d<\/p>\n\n\n\n But Senator Blumenauer captured the zeitgeist of consumer sentiment when he stated:<\/p>\n\n\n\n \u201cAmericans shouldn\u2019t have to worry about whether they are contributing to illegal deforestation every time they browse the shelves at their local home improvement or grocery store,\u201d said Representative Blumenauer.<\/p>\n\n\n\n Since chocolate companies like to say they have a 100% traceable supply chain (and then in the small print, clarify they are referring to their \u2018direct supply chain\u2019), I read with interest that the wording in the FOREST act looks as though it might be difficult to continue to accommodate that argument. Here are the relevant clauses.<\/p>\n\n\n\n\n SUPPLY CHAIN<\/strong>.\u2014The term \u2018supply chain\u2019 means the end-to-end process for getting commodities or products to the United States, beginning at the point of origin and including all points until entry into the United States, including refiners, manufacturers, suppliers, distributors, or vendors.<\/p>\n\n\n\n In its current form, the proposed bill does not seem to provide an allowance for practices such as \u2018Mass Balance Sourcing\u2019, which is a method of mixing certified and non-certified cocoa together and is common practice with organisations such as the Rainforest Alliance.<\/p>\n\n\n\n \u201ca person may not import a covered product containing any covered commodity produced in the country and identified in the action plan unless the person files upon entry a declaration that includes sufficient information to show\u2014 <\/p>\n\n\n\n (ii) steps taken to assess and mitigate the risks that the point of origin was subject to illegal deforestation on or after the date of the enactment of the FOREST Act of 2021; or <\/p>\n\n\n\n (ii) steps taken to assess and mitigate the risks that any possible points of origin were subject to illegal deforestation on or after such date of enactment\u201d<\/p>\n\n\n\n\n In brief, the FOREST act requires a risk-led approach, whereby the companies will have to convince the authorities, with supporting documents, that they have taken the necessary steps to avoid deforestation in their supply chain. <\/p>\n\n\n\n Interesting, this reference \u201c if mixing or points of aggregation exist within the supply chain\u201d, seems to include consideration for Mass Balancing – the process where cocoa of known and unknown origins are mixed together.<\/p>\n\n\n\n The Act requires the activities of the Federal agencies tasked with enforcing the new law to report the results to Congress annually, starting before the end of the second year.<\/p>\n\n\n\n The agencies must report:<\/p>\n\n\n\n Laws or regulations that are risk-led or \u2018principled\u2019 as opposed to \u2018prescriptive\u2019, leave some aspects up to interpretation. As time passes, case law helps define how the regulation works in practice, but until then, regulators will often write guidance notes. <\/p>\n\n\n\n This seems to be the case suggested here.<\/p>\n\n\n\n\n \u2018\u2018GUIDANCE.\u2014Not later than 90 days after the date of the FOREST Act of 2021, and as appropriate thereafter, the Commissioner of U.S. Customs and Border Protection (in this section referred to as the \u2018Commissioner\u2019)\u2014 <\/p>\n\n\n\n (A) shall publish guidance on what constitutes reasonable care under paragraph (1) and sufficient information under paragraph (2), which may include guidance with respect to specific commodities, as appropriate; and <\/p>\n\n\n\n (B) may, as appropriate, issue guidance about the potential role of third-party certifications assisting importers with meeting the requirements of this section.<\/p>\n\n\n\n\n If the certification schemes from Rainforest Alliance, for example, are accepted, then I wonder if Mass Balancing, which is a practice allowed under the RA scheme will also be acceptable. That would be a shame, as there is a significant amount of Cocoa involved in Mass Balancing that has no provenance, and which we can assume has a deforestation risk attached to it.<\/p>\n\n\n\n Cocoa is recognised as one of the main contributors to deforestation, and the Act notes this on page 11, where Harmonized Tariff Schedule (HTS) codes are listed for cocoa products. Affected products are:<\/p>\n\n\n\nCountries With New Deforestation Laws<\/h2>\n\n\n\n
Common Elements<\/h3>\n\n\n\n
Different Approaches<\/h3>\n\n\n\n
Traceable Supply Chain<\/h3>\n\n\n\n
UK Legislation – The \u2018Environment Bill\u2019<\/h2>\n\n\n\n
Summary<\/h3>\n\n\n\n
Definitions<\/h3>\n\n\n\n
Forest Risk Commodity<\/h4>\n\n\n\n
Local Law<\/h4>\n\n\n\n
Relevant Local Law<\/h4>\n\n\n\n
US Legislation<\/h2>\n\n\n\n
The FOREST ACT<\/h3>\n\n\n\n
Verified Supply Chain<\/h3>\n\n\n\n
Annual Reporting Requirement to Congress<\/h3>\n\n\n\n
Potential Guidance for Cocoa Importers<\/h3>\n\n\n\n
Cocoa Commodities in Scope<\/h3>\n\n\n\n
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