The European Union Deforestation Regulation and the Future of Indonesian Cocoa: Policy Challenges and Implications for Smallholder Farmers

Abstract

Indonesia is among the world's leading cocoa-producing countries, with production concentrated almost entirely in the hands of smallholders farming plots of less than two hectares, principally across Sulawesi. The European Union Deforestation Regulation, which requires operators placing cocoa and six other forest-risk commodities on the Union market to demonstrate through geolocated due diligence that their goods were not produced on land deforested after 31 December 2020, represents one of the most consequential pieces of unilateral trade-environment legislation of the past decade. This review synthesises the peer-reviewed and authoritative institutional literature on the regulation's design, its interaction with Indonesia's land tenure system, and its likely consequences for smallholder cocoa farmers who lack formal land documentation, geolocation capacity and organised cooperative structures. The paper examines the structural features of the Indonesian cocoa sector, including declining productivity, ageing tree stock and competition from oil palm; the legal ambiguity surrounding cultivation inside the state forest zone; the accumulated experience of voluntary sustainability standards as a precedent for what mandatory due diligence might achieve or fail to achieve; and the technological and institutional pathways, including blockchain-enabled traceability and the 2025 Indonesia–European Union Comprehensive Economic Partnership Agreement, that might reconcile regulatory compliance with smallholder inclusion. The review finds that the regulation's environmental logic is well supported by evidence of cocoa-driven deforestation and poor sectoral traceability, yet its implementation architecture risks reproducing the exclusionary dynamics already documented under voluntary certification schemes unless accompanied by public investment in cadastral clarity, farmer-level data infrastructure and differentiated compliance pathways. The paper closes with directions for future research, policy conclusions and a candid account of the review's limitations.