Macroeconomic and financial risks transmitted by the European Union Deforestation Regulation: a focus on the coffee value chain in Honduras

The European Union’s Deforestation Regulation (EUDR) poses nature-related transition risks for countries exporting to the EU market. The coffee value chain in Honduras provides an excellent context in which to study this, in view of the country’s extreme economic dependence on this highly relevant sector and the overwhelming reliance on smallholder and household producers. The macroeconomic and financial risks transmitted by the EUDR — especially for climate-vulnerable and commoditydependent economies — remain underexplored. Findings suggest that the overall risks of exclusion for Honduran producers remain extremely high because of the legality and traceability requirements of the EUDR, putting approximately 20% of the country’s exports and 7% of its foreign exchange at risk. The general exposure of banks through loans to the coffee sector, as a share of total lending portfolios, is low. However, at the individual level, some banks are highly exposed to credit risks arising from default, with potential for regional spillovers. Finally, the interaction of nature-related transition and climate risks deserves greater attention, given the potential for both financial and trade-related exclusion.