(Bloomberg) -- The world’s largest coffee traders have started to take on an additional risk: selling deforestation-free beans to Europe before final rules are even laid out.
Companies including Sucafina SA, Ecom Agroindustrial Corp., Louis Dreyfus Co. and Cofco International Ltd. have all struck deals to sell coffee they say will comply with the European Union’s new deforestation regulation, according to people familiar with the matter. Traders are confident supplies from top producers Brazil and Vietnam can meet the requirements, the people said.
The deals come even as the bloc is yet to provide details on what documentation countries will need to comply with the regulations. That means traders are taking additional risk on their books, but also signal companies are confident coffee will continue to flow even if requests to delay the regulation by countries including Brazil and Germany ultimately fail.
The EU’s Deforestation Regulation, set to take effect in December, will require importers into the bloc to prove that commodities like coffee, beef, cocoa and timber do not contribute to deforestation. But the lack of detail on how to implement the rules has prompted Germany’s Agriculture Ministry to call for a six-month delay, adding to objections already voiced by nations including Brazil and Indonesia.
The deals, also struck by StoneX and a unit of Olam Group Ltd., are for coffee produced in Brazil and Vietnam, according to the people. Beans compliant with the rules, known as EUDR, were being sold for delivery next year at a premium of 3 to 5 cents to the price of futures traded in New York, the people said.
While some commodities from Brazil including cattle and soybeans have been at times associated with degradation of the Amazon, coffee is mostly grown far away from that region. Minas Gerais in the southeast is Brazil’s biggest coffee-growing state.
Ecom said it’s “focusing on ensuring readiness” for the upcoming regulations. Cofco said its coffee business has been conducting trials with EU clients to prepare for EUDR implementation, despite the ongoing need for increased clarity and guidance from the EU, according to a company spokesman. Sucafina confirmed having done EUDR-compliant deals.
Ofi, a part of Olam Group, Dreyfus and StoneX, declined to comment.
Uncertainty over whether traders would be able to comply with the rules forced buyers to rush to stock up on beans earlier this year. Now exporters are coming up with new procedures to keep shipments flowing.
Brazil’s exporters group know as Cecafé and data company Serasa Experian launched a platform that allows exporters to check whether coffee comes from deforested land. The system uses farm location data available in a government register known as CAR.
Intercontinental Exchange Inc., home to the coffee futures and options markets, is also currently testing a platform created in collaboration with Meridia Land B.V. and Space Intelligence.
(Updates with where coffee is grown in sixth paragraph.)
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