header-briefing-commfree.jpg

Briefing

Deforestation-free commodity trade

Scaling-up implementation with jurisdictions

Highlights

  • A global coalition of public and private actors is committed to stopping deforestation associated with major commodities like palm oil, soy, and pulp and paper, but implementation is lagging.
  • Innovative analysis of trade, customs and production data is starting to uncover information about the global flows of commodities that present risks to forests, removing a key information barrier faced by public and private actors in implementing these commitments.
  • Measuring the success of deforestation-free supply chains is context-dependent. Ultimately, success is linked to the implementation of sustainable land-use planning in jurisdictions where commodities originate.
  • Knowing the local, subnational location of origin of commodities is essential to assessing forest-related risks and opportunities in trade.
  • Producing countries seeking preferential access to emerging deforestation-free markets can take a proactive role in clarifying the criteria for deforestation-free commodity production within their jurisdictions.
  • Supply-chain transparency can contribute to fighting tax avoidance and may strengthen collaboration between producer and consumer countries on forest-risk supply chains.

Forest-risk commodities

Production of forest-risk commodities drives most loss and degradation of tropical forest. These commodities move along complex supply chains, exposing thousands of private and public institutions worldwide to the risk of involvement in unsustainable land use and deforestation. While improvements in the availability and analysis of satellite imagery are providing a clearer view of what is happening on the ground, the flows of trade in commodities have so far been fairly opaque. Much is at stake: a handful of forest-risk commodities – including palm oil, beef, soy, and pulp and paper – account for more than 70% of all deforestation in tropical forests (WRI 2015). This brief outlines steps to facilitate wider implementation of deforestation-free commitments for consideration in ongoing discussions on public and private strategies to promote responsible commodity production and trade.

Containers at the port of Antwerp, Belgium

Containers at the port of Antwerp, Belgium

Source: CIFOR

Containers at the port of Antwerp, Belgium

Source: CIFOR

Zero-deforestation commitments

Private sector

Recently, an unprecedented number of companies have established corporate commitments to remove commodity-driven deforestation from their supply chains. As of 2016, hundreds of companies, with a total market value of over EUR 2.5 trillion, have joined the Consumer Goods Forum, which is committed to achieving zero net deforestation in major supply chains by 2020. The action of civil society organisations, increasing consumer awareness and corporate leadership are playing a key role in setting this as a new global business norm.

Recent data indicates, however, that the implementation of such commitments is slower and harder than expected (Rautner et al. 2015). In particular, deforestation-free commodity production is hindered by weak law enforcement, lack of land-use planning and insufficient monitoring (Streck and Lee 2016). Deforestation caused by production of globally-traded commodities, like beef, soy and palm oil, shows no clear sign of diminishing (Kissinger et al. 2012; Hansen et al. 2013).

Governments

Mirroring moves in the private sector, governments in both consumer and producer countries have formulated intentions to stop deforestation in major commodity supply chains (New York Declaration on Forests 2014; Amsterdam Declaration 2015). In 2008, the European Union (EU) pledged to at least halve tropical deforestation, compared to 2008 levels, by 2020. In the Amazon region, Brazil aims to eliminate illegal deforestation by 2030, and Colombia to achieve zero net deforestation by 2020. More than 45 tropical countries are developing jurisdictional programs to reduce emissions from deforestation and forest degradation (REDD+).

The intervention of governments, together with action by the private sector and civil society organisations, increases the chances of finding scalable responses to shifting pressures on tropical forests. There is now a global community of influential, private and public, southern and northern actors regularly calling for eliminating deforestation and favoring so-called ‘deforestation-free’ products.

Scaling-up implementation

The 2020 targets are only four years ahead. Public and private actors are debating how to mainstream deforestation-free supply chains. While there are significant challenges, there are also new opportunities to facilitate larger-scale implementation of commitments to deforestation-free supply chains. Taking the perspective of governments that wish to support the production and consumption of deforestation-free products, this paper outlines a three-step process for action within jurisdictions [1].

Steps to scale-up deforestation-free commodity trade

Steps to scale-up deforestation-free commodity trade

Source: EU REDD Facility

Steps to scale-up deforestation-free commodity trade

Source: EU REDD Facility

1. Determine the local origin of commodities

While there has been tremendous progress in recent years in the availability and use of satellite imagery to monitor deforestation and see what is happening on the ground, commodity trade flows continue to be difficult to untangle and track. The routes and actors in supply chains are known for only a fraction of the global trade in commodities, such as certified products.

Just knowing the country of origin of commodities is not specific enough when assessing risks of deforestation. The way commodities are produced varies widely at the local level. Local, municipal or district-level information on the origin of commodities is crucial for actors to take effective action in terms of sourcing deforestation-free commodities and making deforestation-free investments.

Companies sourcing and trading commodities face challenges in systematically identifying the local areas where beef, palm oil, cocoa and other commodities are produced. Investors and governments trying to encourage responsible trade also struggle to monitor the impact on land and forest of businesses whose exposure to high-risk supply chains is unknown. While the business case for mitigating deforestation risks related to reputation and securing access to sustainable supplies is increasingly well-understood, the limited accessibility and transparency of information on complex supply chains is a critical barrier to action.

Near real-time tracking of who trades forest-risk commodities internationally, where and when, is possible through big data analysis of import-export transactions at the port level. With the help of customs authorities, unprecedented levels of transparency in global supply chains could be achieved before 2020.

Contrast between forest and agricultural landscapes near Rio Branco, Brazil

Contrast between forest and agricultural landscapes near Rio Branco, Brazil

Source: CIFOR

Contrast between forest and agricultural landscapes near Rio Branco, Brazil

Source: CIFOR

Nevertheless, information to track commodity movements exists in many countries. Most export-import transactions are systematically recorded by customs authorities, if only for fiscal purposes. But, the information is not easily accessible and not usefully compiled to eliminate the risk of deforestation associated with commodity trading. However, new initiatives have the potential to change this state of affairs:

  • The TRASE initiative

    The Transparency for Sustainable Economies (TRASE) initiative, initially known as the Transformative Transparency initiative, is the first initiative to access and compile a critical mass of untapped production, trade and customs data, including databases of import-export commercial documents, in particular maritime bills of lading. The data reveal to the public how forest-risk commodities navigate international trade routes and link specific actors (trading companies, ports, consumer-facing companies, among others) to local areas of production (such as municipalities and districts). The ambition of the initiative is to cover at least 70% of the global trade in forest-risk commodities by 2020 (and potentially full global coverage if additional data can be obtained from a handful of key customs authorities), with frequent updates to track the implementation of zero-deforestation commitments and other dimensions of responsible trade. The European Forest Institute (EFI), a partner in the initiative led by the Stockholm Environment Institute and the Global Canopy Programme, is working to develop innovative functionalities tailored to the needs of governments, trade and customs authorities, to use TRASE to monitor forest-related risks and opportunities in commodity production and trade.

  • National information systems

    Global commodity-tracking initiatives like TRASE can go only so far in identifying where products originated. Some customs data provides information on the subnational origin of the commodity (such as Colombian coffee). In cases where such information is lacking, modelling can fill information gaps, taking commodity transport costs and other country-specific information into account. Importantly, in addition, countries often have national information systems to monitor production, trade, pest management, legal and fiscal compliance, among other issues in commodity value chains. National information systems are diverse, ranging from supply-chain specific systems managed by producer associations (such as the Ivorian Natural Rubber Association) to comprehensive land registration systems maintained by governments (such as the Brazilian Rural Cadaster). They also include legality assurance systems developed in the context of bilateral trade negotiations, such as for timber supply chains in countries negotiating a Voluntary Partnership Agreement (VPA) with the European Union. Linking these systems to global commodity-tracking platforms offers huge, untapped potential to increase and continuously improve the quality of information on the origin of forest-risk commodities and to link local producers to downstream supply-chain actors.

Figure 1

Figure 1

Tracking the flows of forest-risk commodities from local places of origin to traders and consumer markets by combining data from national information systems with international trade data enables solutions-oriented risk-opportunity assessments in supply chains (it complements, but does not replace, fully-fledged traceability systems, such as for product certification).

Source: EU REDD Facility

Figure 1

Tracking the flows of forest-risk commodities from local places of origin to traders and consumer markets by combining data from national information systems with international trade data enables solutions-oriented risk-opportunity assessments in supply chains (it complements, but does not replace, fully-fledged traceability systems, such as for product certification).

Source: EU REDD Facility

2. Assess forest-related risks and opportunities

Palm oil, sugar, beef and various other commodities, have been labelled ‘forest-risk commodities’. However, the risks associated with these products vary considerably, depending on where they are produced and the actors involved. Once the local origin of the commodities traded has been established, examining detailed deforestation rates in the local area of production – using data for the smallest geographical area possible, such as municipality – is the first risk assessment that any commodity buyer can take. Publicly-available tools, such as those of Global Forest Watch, have been used for assessing deforestation risks in commodity production, bearing in mind the uneven quality of deforestation data for different regions of the world. Assessing deforestation rates is only a starting point for comprehensive due diligence in commodity sourcing and investment.

Looking beyond rates of deforestation

To maintain or develop responsible business connections with the many parts of the world that experience significant deforestation, more sophisticated risk assessments are needed. These should provide information on local drivers of deforestation as well as the social and non-forest environmental impacts, such as impacts on biodiversity, smallholder farmers, local crop diversity or food security, that may be associated with the development of deforestation-free supply chains. Impacts on smallholder farmers, in particular, are emerging as an important issue in this context, as it was noted that some companies could reduce the number of smallholder suppliers in an effort to implement and monitor zero-deforestation sourcing (Pearce 2013).

A risk-based approach can also identify opportunities for encouraging and sustaining progress, such as supply-chain networks that are rapidly decoupling from deforestation with no or few recorded conflicts. While private companies may focus on fully dissociating their products from deforestation, governments could pursue a broader approach to managing risks and opportunities in trade, such as identifying local jurisdictions that are most rapidly reducing deforestation but still have important forest cover (rather than those that have no deforestation, possibly because they have no forest) and those with a high potential for improving farm productivity in un-forested areas.

 

Measuring success in deforestation-free supply chains is context-dependent and requires assessing related impacts on biodiversity, smallholder farmers, local crop diversity and food security.

Collaborative land-use planning in Papua, Indonesia

Collaborative land-use planning in Papua, Indonesia

Source: CIFOR

Collaborative land-use planning in Papua, Indonesia

Source: CIFOR

Clarifying the zero-deforestation concept at jurisdictional level

Comparisons of deforestation risks across different contexts pose challenges that will not all be resolved with better monitoring technologies alone. Can the performance of deforestation-free supply chains in Mozambique’s miombo woodlands be measured in the same way as in the heart of Borneo? The definitions of forest and legality aspects are context specific. Attributing deforestation risks to specific commodities and supply chains raises as many political as technical questions.

A balance between the general concept of zero deforestation and local socio-political issues has to be found. The ‘High Carbon Stock’ (HCS) methodology reflects this balance, recommending that, when mapping forests and deforestation-free agricultural areas, the results of remote-sensing analyses should be aligned with the priorities of local stakeholders through participatory land-use planning.

Governments and local stakeholders can proactively clarify what ‘deforestation-free’ agriculture means in their jurisdiction. Interpreting global standards in the context of local socio-political circumstances is a key opportunity for national stakeholders to engage, and work out the criteria for legal, deforestation-free commodity production in their jurisdictions through a participatory process (Box 1). Mainstreaming such discussions in major commodity producing countries would help responsible trade partners to understand where and how to source legal, deforestation-free commodities from specific jurisdictions according to local priorities and possibilities.

Box 1. Côte d’Ivoire’s definition of deforestation-free agriculture

As a major commodity exporter, Côte d’Ivoire sought to define national criteria for deforestation-free agriculture. In December 2015, the Government and national producer associations for cocoa, palm oil and rubber published a policy document to clarify forest categories (in the Forest Code) that should not be converted to agriculture. The policy document included targets for forest restoration in places where forest cover has virtually disappeared. To support companies, cooperatives and subnational jurisdictions embarking on this path, the government is putting in place a comprehensive monitoring system and supportive policies, in particular with respect to smallholders.

More info

Locally-owned sustainable land-use plans can serve as benchmarks for measuring success in deforestation-free supply chains.

The power of information to accelerate change

Information for more comprehensive and finer assessments that take into consideration local drivers of deforestation and complementary social, environmental and legal indicators is still scarce. But such information is expected to become increasingly available through further advances in forest, land-use and REDD+ monitoring, combined with rapidly developing supply-chain tracking platforms like TRASE. The availability of information on the internet for all to see would create new incentives for private companies to disclose information about their good forest stewardship in hotspots. Hence, the ‘burden of the proof’ of residual deforestation will shift to other actors, who could eventually have an incentive to cooperate to reduce their collective risk exposure in relation to specific places and supply chains. The aggregated forest-risk exposure at consumer country level would also become possible to derive from these information systems, in near real-time, which may prompt governments to act more quickly to ensure that such risk exposure decreases over time.

3. Encourage jurisdictions on their paths to deforestation-free production

Better transparency and reliability in forest-risk assessments will bring to light high-risk places and actors and, conversely, opportunities for deforestation-free and legal sourcing. At the same time, more transparency could offer committed national and local governments an opportunity to promote ongoing efforts to improve forest governance by communicating progress. In time, consolidating and sharing critical supply-chain and land-use information with third-party, independent observers will help monitor progress and take effective action.

Most developing tropical countries are officially seeking to reduce deforestation [2] but few commit to fully eliminating it. Nationwide zero net deforestation [3] may be a medium to long-term prospect for many of them. To engage national and subnational authorities effectively, agreed measures of performance at jurisdictional level, ranging from zero illegal deforestation (as put forward by Brazil for the whole of its Amazon region by 2030) to net gains in forest cover, will help all committed governments on the path to ending deforestation. Empowering national stakeholders to strengthening governance of supply chains and land use are key steps on this path. There is ample experience of this in the forest sector from Forest Law Enforcement, Governance and Trade (FLEGT) Voluntary Partnership Agreements (VPAs) (Box 2).

Box 2. The FLEGT VPA experience in strengthening better supply-chain governance in the forest sector

FLEGT VPAs aim to ensure that timber and timber products imported into the EU from a timber-exporting country comply with the laws of that country. To achieve this, the timber-exporting country must first decide which parts of its national legal framework it will use to define legality for the purposes of the VPA. A broad range of stakeholders is involved in the national dialogue to agree on what constitutes legality in timber production and trade. It provides opportunities for stakeholders to identify imprecise and inconsistent legal requirements and/or institutional arrangements. The process also enables each group to have its say and to work with other groups to find shared solutions to governance challenges. For example, VPAs have identified legal and/or regulatory reforms that are required to recognise customary rights, and community forests. In addition to legal clarity, FLEGT VPA processes have led to improved institutional clarity, responsibility and accountability in the forest sector, with national timber legality assurance systems, joint implementation committees, independent auditing and public information.

More info

Achieving zero illegal deforestation could be a major step on the path to zero net deforestation, providing an enabling environment stimulating further action by the private sector towards zero deforestation (illustration 2). According to Forest Trends (2014), nearly half of all recent tropical deforestation is the result of illegal clearing for commercial agriculture. The zero illegal deforestation target has been debated between the governments of the main forest countries (COFO 2014). Its implementation in the Brazilian Amazon will be an important contribution to Brazil’s efforts at reducing greenhouse gases emissions (Brazil INDC 2015). 

Figure 2: Jurisdictional pathway towards zero net deforestation

Figure 2: Jurisdictional pathway towards zero net deforestation

The starting situation, where the risk of deforestation is not managed in the jurisdiction, presents limited opportunities to source deforestation-free commodities (such as product certification). Jurisdictions seeking preferential access to emerging deforestation-free markets can gradually progress towards eliminating illegal deforestation by improving land governance, law enforcement and land-use planning, before striving to achieve zero net deforestation at territorial level.

Source: EU REDD Facility

Figure 2: Jurisdictional pathway towards zero net deforestation

The starting situation, where the risk of deforestation is not managed in the jurisdiction, presents limited opportunities to source deforestation-free commodities (such as product certification). Jurisdictions seeking preferential access to emerging deforestation-free markets can gradually progress towards eliminating illegal deforestation by improving land governance, law enforcement and land-use planning, before striving to achieve zero net deforestation at territorial level.

Source: EU REDD Facility

The incentives for jurisdictions that take steps to improve land-use governance in order to phase out deforestation need to be significant to trigger a change from business-as-usual in the commodity sectors. This means a coherent combination of incentives potentially including green investments, development assistance, REDD+ performance payments, trade policies and preferential market access for deforestation-free products (public procurement, tax exemptions, simplified import procedures, etc.). In addition and importantly, fiscal cooperation between trade partners could play an important role in the mix of incentives. Fighting against tax avoidance in forest-risk commodity trade using supply-chain transparency systems developed to phase out deforestation could greatly reinforce governments’ willingness to cooperate (Box 3).  

Box 3. Simultaneously phasing out deforestation and tax avoidance?

Fighting tax avoidance related to international trading in forest-risk commodities could be a big incentive for governments to cooperate fully on supply chain transparency. An area for further research is to assess to what extent global supply-chain transparency platforms that are emerging for attributing forest-related risks to traders could also be put to detecting tax avoidance by multinational companies. The platforms could track not only the flows, but also the prices of commodities as they move along international trade routes using data in globally available export-import bills of lading. It is estimated that about 60% of international trade happens within, rather than between, corporate groups. Abusive transfer pricing, that is, the underpricing of commodities at export in producing countries to limit taxes, and the overpricing before import to limit value-added taxes in consumer countries, is a major concern for governments at both ends of trade. It certainly provides an excellent basis for a government to government dialogue with forest-friendly countries.

Supply-chain transparency can contribute to fighting tax avoidance and may strengthen collaboration between producer and consumer countries on forest-risk supply chains.

Endnotes

  • 1

    [1] A jurisdiction is understood here as the geographical area corresponding to a political authority. It refers to countries and their subnational administrative entities (provinces, districts and municipalities, among others).


  • 2

    [2] As of 2016, more than 45 countries are developing jurisdictional REDD+ programmes.


  • 3

    [3]While the strict ‘zero deforestation’ target has been adopted by some companies, the more flexible ‘zero net deforestation’ objective (or net gains in forest cover) is more adaptable to territories (landscapes, jurisdictions). This still requires specific attention to the issue of forest definitions.


References

  • 1 Amsterdam Declaration (2015) Towards eliminating deforestation from agricultural commodity chains with European countries. Amsterdam: EU and Global Value Chains.
  • 2 Committee on Forestry (COFO) (2014) The zero illegal deforestation challenge, Rome, Italy: Food and Agriculture Organization of the United Nations
  • 3 Federative Republic of Brazil, (2015) Intended Nationally-Determined Contribution (INDC) towards achieving the objective of the United Nations Framework Convention on Climate Change
  • 4 Forest Trends (2014) Consumer goods and deforestation: an analysis of the extent and nature of illegality in forest conversion for agriculture and timber plantations. Washington, DC: Forest Trends
  • 5 Hansen, M., Potapov, P.V., Moore, R., et al. (2013) High-resolution global maps of 21st-century forest cover change. Science 342(6160): 850-853.
  • 6 Kissinger, G., Herold, M. and de Sy, V. (2012) Drivers of deforestation and forest degradation: a synthesis report for REDD+ policymakers. Vancouver: Lexeme Consulting.
  • 7 Pearce, F. (2013) Unilever plans to double its turnover while halving its environmental impact, The Telegraph (23/07/2013)
  • 8 Rautner, M., Lawrence, L., Bregman, T., and Leggett, M. (2015) The Forest 500. Oxford: Analysis: Companies. Measuring progress to zero deforestation, Global Canopy Programme.
  • 9 Streck, C. and Lee, D. (2016) Partnering for results: public-private collaboration on deforestation-free supply chains. Prepared with support from cooperative agreement # S-LMAQM-13-CA-1128 with U.S. Department of State. Little Rock: Winrock.
  • 10 UN Climate Summit (2014) New York declaration on forests: action statements and action plans. New York: United Nations.
  • 11 Word Resources Institute WRI (2015) What Does it Really Mean When a Company Commits to “Zero Deforestation”? 4/05/2015
  • 12 EU FLEGT Facility website
    euflegt.efi.int
  • 13 EU REDD Facility website
    euredd.efi.int