Many nations are implementing strategies to address climate change impacts, both within their borders and on the international stage. Meeting specific environmental standards and requirements has now become an indispensable condition for participating in global trade.
Some nations are disadvantaged by this, however. Developing countries in particular, reliant on climate-sensitive commodity exports, often lack the resources and capabilities to comply with these conditions, jeopardizing their continued participation in international trade. This article looks at Latin American and Caribbean (LAC) countries specifically and considers what can be done to meet the challenges ahead.1
The European Deforestation Regulation and its impact on LAC’s trade outlook
In June 2023, the European Union (EU) adopted a leading regulation on deforestation-free supply chains (DFSC). Coming into force on 30 December, 2024, the regulation stipulates a set of key goods that will have to be deforestation-free in order to enter the EU market. These key goods include raw materials – soya, domestic cattle, palm oil, wood, rubber, cocoa and coffee – as well as derived products such as paper and chocolate.2 While the DFSC will not prohibit trade in these commodities, it will require rigorous due diligence from all relevant companies that export or import them to the EU market. European importers will have to declare that their products originate from areas that have not been deforested since December 31, 2020.
This regulation could have a substantial impact on LAC countries, as commodities are central to the region’s bilateral trade with the EU. Many of these products will be subject to the DFSC regulation (hereinafter “DFSC-related products”). As illustrated in the figure below, Brazil was their primary exporter in 2022, with goods totalling US$19 billion, followed by Argentina (US$4.6 billion), Uruguay (US$1.7 billion), Colombia (US$1.3 billion) and Honduras (US$1.3 billion). This data highlights the relevance of climate-sensitive exports for the region.
Overall, LAC countries exported a total of US$32 billion worth of DFSC-related products to the EU in 2022, representing 22% of the region’s total exports to the EU. For several LAC countries, the percentage is even higher, rising above 50% for Honduras, Uruguay, Guatemala and Paraguay, as shown in the next figure.
The figure above also shows that the main products affected at the regional level in 2022 were soya, coffee and wood, which accounted for 39%, 24% and 21% of DFSC-related exports, respectively. However, this varies substantially across countries. For Paraguay, Argentina and Brazil, soya is the primary affected product, whereas coffee exports are the most important for Honduras, Peru and Colombia.
The DFSC’s impact on LAC countries will depend not only on the exports exposed to the regulation, but on each country’s ability to comply with the new standards. The latter comprises two factors: the extent and trends of deforestation and forest land degradation in each country, and suppliers’ ability to certify products as deforestation-free. Understanding where LAC countries stand along these two dimensions requires an examination of their commitment to forest preservation, the availability of forest-related data and production information, the traceability of products through the supply chain, and the implementation of economic incentives for forest preservation.
Meeting the challenge: Policy responses to deforestation in the LAC region
The data on global forest loss shows that the region faces a pressing challenge. According to Global Forest Review,3 four LAC countries – Brazil, Bolivia, Peru and Colombia – ranked among the top 10 for forest loss worldwide in 2022 (see next figure). Brazil alone accounts for 43% of the global total.
To secure forest preservation, most countries have designed and implemented a wide range of regulations. An Inter-American Development Bank (IDB) study4mapped more than 120 initiatives across 21 LAC countries, ranging from forest monitoring systems using remote sensing to early warning systems to prevent and control fires and deforestation.
Nonetheless, compliance largely depends on the traceability of DFSC-related products. To identify whether a product originated in a deforested area, it is therefore crucial to be able to cross reference deforestation data with production information. Many countries have already made efforts in this regard. Brazil has developed a mandatory national electronic registry, the “Cadastro Ambiental Rural” (CAR), which combines data on rural properties with environmental information. In Argentina, private sector actors in the soybean supply chain have collaborated with environmental NGOs and the Chamber of the Oil Industry to advance product traceability through the ViSeC initiative (Sectoral Vision of the Argentine Greater Chaco Region).
Beyond information systems, countries like Paraguay, Costa Rica and Colombia have introduced economic incentives, such as payments for environmental services. As of 2020, nearly 300,000 hectares had been preserved in Colombia through a programme of direct and conditional payments to landowners and local users for ecosystem services.
The path ahead
With the DFSC little more than a year from implementation, LAC countries have no time to lose. Some immediate actions must include: a) strengthening existing deforestation policy frameworks; b) deepening coordination between different state agencies (e.g. environmental, agricultural, industry and trade departments), and c) deploying funding for technical and capacity improvements. The short-term actions required to meet the coming DFSC regulation will also yield long-term dividends, both in mitigating the risks of climate change and in ensuring the continued economic development of LAC countries.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
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