(Bloomberg) -- Coffee cargoes are flooding the European Union as traders rush to stock up on beans ahead of new environmental rules that kick in at the end of the year.
The EU’s Deforestation Regulation, or EUDR, will require importers into the bloc to prove that commodities like coffee, beef, cocoa and timber do not contribute to destroying forest land. However, a lack of clarity on the details has left many businesses inadequately prepared, making some supply disruption inevitable.
Coffee — a crop that is largely reliant on millions of small growers across a wide swathe of the globe — is especially vulnerable to the challenges of ensuring every bean is in compliance. So, traders have raced to ship as much as they can to Europe before Dec. 30.
Exports from top coffee producer Brazil to the bloc surged about 65% in the seven months to July compared to last year. Uganda — increasingly crucial for Europe’s robusta supplies after a massive shortfall in top grower Vietnam — saw exports touch an all-time high last month, with the bulk headed to the continent.
“This crop is effectively the last crop we can export before EUDR comes in,” said Ted Marley, a coffee trader in Uganda. “The next robusta crop is in October and given the 70-day vessel time past South Africa and the processing time, almost all coffee from the next crop will have to be EUDR compliant.”
Roasters want to cover any possible deficits for the first quarter of 2025, according to Ricardo Dos Santos, managing director at European coffee supplier Riccoffee (UK). Few traders are willing to risk shipping beans after October and miss the window for transporting uncertified beans, he added.
All this comes as traders are faced with higher prices. Robusta beans, used for instant coffee, have soared to the highest since the 1970s. Higher quality arabica beans have surged more than 30% this year. Increased cost of borrowing, container shortages and longer transit periods are also adding to the challenges.
“We don’t have the capacity and we also don’t have the money to put buffer stocks for 12 months in Europe,” Holger Preibisch, chief executive of Germany’s coffee association.
Even as traders try to ship as much as they can ahead of the EU’s regulation change, the path ahead continues to be uncertain as the European Commissions hasn’t published all the implementation details, according to Preibisch. That means fewer volumes, which could push up prices, he added.
Some producing nations are also more unprepared than others.
“Uganda is really lagging behind as far as EUDR compliance is concerned,” said Joab Kankiriho, a coffee broker based there at Wakanda Coffee Brokerage Services. “A great number of exporters did not have sustainability programs in place until the EUDR” became a reality.
Still, some EU countries and industry groups have called for the rules to be revised. For now, shipments are expected to taper off because no one wants to be saddled with a delayed cargo that doesn’t meet the regulatory requirements.
But Europe’s loss could be China’s gain, Kankiriho said.
“We have seen entry of the Chinese buyers and I think we have to look for alternative markets elsewhere, even though the EU has been taking close to 90% of Ugandan coffee,” he said.
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