The production of agricultural commodities – including palm oil and cocoa – drives about seventy percent of tropical deforestation. Faced with increased public pressure over the last decade, companies have adopted a range of policies to reduce the deforestation impact of agricultural commodities. This report evaluates actions that companies in the palm oil supply chain in Southeast Asia and cocoa in West Africa have taken to engage their smallholder suppliers to achieve their zero-deforestation commitments.

Engaging small-holders is a must to implement zero-deforestation goals
Companies with zero-deforestation commitments need to engage smallholders if they are to achieve these commitments. Smallholders cultivate a significant portion of the palm kernels used to produce palm oil; and produce most of the cocoa grown in West Africa. However, it is not easy for multinational companies to engage with the smallholders in their supply chain. Challenges include the complexity of the supply chain, the heterogeneity of the supply base, uncertain land tenure and lack of financial resources and farmer education.

Only financing compact involving companies and public agencies will ensure sustainability
Only a broad financing compact involving companies and public agencies will ensure sustainability in the cocoa and palm sectors. Smallholders are too vulnerable and weakly-positioned to take on the risk of changing their behavior in favor of deforestation-free agricultural practices. Companies cannot expect that zero-deforestation commitments can be achieved without transitional financial support to farmers paired with long-term price signals. Individual company support limited to their own supply chains and those smallholders that supply them is unlikely to achieve transformative change.