The EU Deforestation-Free Regulation (EUDR): Requirements and methodologies

On April 19, 2023, the European Parliament approved the text for the new European Union Deforestation-Free Products Regulation (EUDR) and the regulation came into force on June 29 this year. This regulation is part of the EU Green Deal and a broader EU strategy that also comprises the EU Biodiversity Strategy for 2030 and the Farm to Fork Strategy, aiming to protect the world’s forests.

It requires all relevant companies to carry strict due diligence if they export or sell on the EU market some of the most traded commodities including palm oil, cattle, soy, coffee, timber, rubber and cocoa.

They will have to prove that the land or plot where the product has been produced, or raised in the case of cattle, has not been subject to deforestation or forest degradation (we list a few examples of what it means).  

It is anticipated that the obligations listed in the regulation will be applicable from 30 December 2024 (especially Articles listed in paragraph 2 or Article 38) and six months later for smaller companies, or 30 June 2025.
Therefore, large companies have now a bit more than a year to prepare themselves for better due diligence and smaller or micro companies have almost 1.5 years.

This article will explore what the EUDR entails, what it means for companies importing from or exporting to the EU, provide key figures of commodities exporters and the technical and financial challenges associated.

Towards a reduction of imported deforestation

According to the Food and Agriculture Organization of the United Nations (FAO, 2020), an estimated 420 million hectares of forest – about 10 % of the world’s remaining forests, equalling an area larger than the European Union – have been lost worldwide between 1990 and 2020 and 90% took place in tropical areas.

Additionally, the Intergovernmental Panel on Climate Change (IPCC) estimates that around 11% of overall emissions come from forestry and other land use, mainly deforestation.

Among the main drivers of deforestation, agriculture expansion, logging, and infrastructure development are the main culprits.

Countries with high deforestation rates including Brazil, Indonesia, Democratic Republic of Congo, Malaysia, and Bolivia face significant challenges due to clearing forests for palm oil production, soybean farming, cattle ranching and commercial logging.

While sustainable practices are being promoted as highlighted by some initiatives such as the Africa Sustainable Commodities Initiative (ASCI) or the Global Framework Principles for Sustainable Palm Oil (GPF-SPO), further actions are needed.

The European Union has a role to play to eliminate deforestation as imports to the EU are one of the biggest drivers of global deforestation. Between 1990-2008, EU imports amounted to more than 30% of the globally traded agricultural products associated with deforestation.

Fighting deforestation has also a direct implication on our climate change objectives. Forests are not only providing ecosystemic services such as filtering water supply, providing food and fuel or sustaining biodiversity, but also represent an important carbon sink with a cooling power to keep the temperature of Earth down.

But what are the objectives of the new regulation?

The objectives behind the new EUDR regulation are the following:

  • Avoid that the products European consumers buy, use and consume contribute further to deforestation and forest degradation in the EU and globally ;
  • Reduce carbon emissions caused by EU production and consumption of the associated commodities by at least 32 million metric tonnes a year ;
  • Address all deforestation driven by agricultural expansion to produce the commodities in the scope of the regulation, as well as forest degradation.

According to KPMG, the implementation of the EU deforestation-free regulation aims to reduce the impact of deforestation and forest degradation by 71.92 kha, or approximately 100,728 football pitches – of forest per year and reduce CO2 emissions by 31.9 million metric tons per year.

Understanding the national context, the deforestation rates, the main exporters of the commodities covered within the EUDR is especially important as the EU will segregate countries based on their risk level and make it publicly available by the end of 2024. It is highly likely that operators and companies exporting from a country classified as “high risk” will face further scrutiny.

This risk level will be based on three variables:

  • the rate of deforestation and forest degradation;
  • the rate of expansion of agriculture land for relevant commodities;
  • the production trends of relevant commodities and of relevant products.

What does the European Union deforestation-free Product regulation (EUDR) entail?

In practice, it means that European supply chains will have to ensure that seven commodities (wood, palm oil, soy, coffee, cocoa, rubber and cattle), and its derivates (e.g. leather, soy milk, cosmetics using palm oil, sweeteners, paper, etc.) that they import, or export have not been produced on land that was deforested after December 31, 2020.
This requirement applies to any company, regardless of them being based in the EU or not.

It might also be possible that over the next two years, additional products may be added to this list. Any commodity that is producing land conversion and is putting pressure on forests might be a target. While nothing has been confirmed, we assume it could potentially include sugar, tobacco, corn, and its derivatives among other commodities.

With the Deforestation-Free Products Regulation (EUDR), companies are being held accountable for the environmental impacts of their global operations and legally required to trace the commodities or products at a microlevel.

They must gather data and information at the plot level and, in the case of cattle, the specific locations where the animals were raised.

Commodities and products covered by the EUDR

Within each commodity, meaning one of the 7 categories we listed previously, the new regulation defines which products are included within the scope of the law.

To find the full list of items, you can refer to the list in Annex I of the Regulation here.

By default, any product or commodity imported or exported under a different Customs Code would not have to comply with the EUDR.

Commodities are also linked to human rights

Not only does this regulation tackle deforestation issues but also human rights abuses. The seven agricultural commodities being targeted, must comply with the relevant laws in their country of origin. These include laws on land use rights, labor rights, human rights protected under international law, and anti-corruption laws.

Indeed, industrial agriculture has been linked to a range of human rights abuses, including the prevalence of child labor, dangerous exposure to toxic pesticides, forced evictions and displacement, intrusion on Indigenous peoples’ traditional territories, and acts of violence and intimidation against defenders of the environment (HRW, 2022).

In this regard, specific guidances and rights must be under scrutiny within the international supply chains such as the Free, Prior and Informed Consent (FPIC), a specific right granted to Indigenous Peoples recognised in the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) and the Human Rights Due Diligence (HRDD) process.

Due Diligence Statement : the requirements under the new regulation

Specifically, the EU is listing a few requirements for any company (or “trader” that is not a SME) that is planning to export and place products on the EU markets.

Note that the EUDR regulation will apply to products from both inside and outside the EU.

Some of the requirements listed :

  • A due diligence statement must include geolocation coordinates for the shipment and the consignment for transactions within the Union market. Without it, approvals won’t be given ;
  • Operators must submit this due diligence statement to the competent national authorities before placing the products on the EU market or exporting them out of the EU ;
  • EU Member States can ask operators to take corrective measures such as product withdrawal, recall or even destruction ;
  • Operators which are not SMEs will have to publicly report on their due diligence system annually.

For any company, trader or individual interested in more detailed information, the European Union compiled an extensive FAQ document with 62 questions being answered.

Operational consequences of the EUDR : challenges and technologies needed

The new regulation has a lot of different implications throughout the supply chain.

In highly complex supply chains, technologies such as satellite imagery, remote sensing, Global Positioning System (GPS), blockchain and geographical information systems (GIS) are useful tools to keep track and address specific issues around sourcing identification, fraud, forced labor and deforestation.

Due diligence and in-depth quality control

For product manufacturers, a more rigourous due diligence involve more in-depth quality control with their suppliers, better traceability to the plot of land (e.g. collecting geographic coordinates where the commodities is produced), and proper data management systems.

Screening of the suppliers and Supplier Code of Conduct

It also requires a better screening of the supplier base and (re)developing a Supplier Code of Conduct to address the implications of the new regulation as well as auditing the current suppliers to guarantee data quality and the application of new procedures.

Trainings and control will be most likely needed to avoid a lack of understanding and misconduct.

Understanding the documents and M&E procedures for farmers and cooperatives

Finally, for producers, farmers and cooperatives, it requires understanding the documents to provide and following rigorous data collection and monitoring procedures to enhance evidence-based traceability.

As you can see, there is a lot to do and opportunities to support this transition.

Technologies and methodologies needed

While big companies were already required to track and monitor commodities, smaller companies and producers should be able to transition, especially if capacity-building trainings are delivered by UN agencies, governments or NGOs.

For example, the cost of high quality deforestation data for major forest biomes is now marginal as open-source applications such as Global Forest Watch, an initiative of the World Resources Institute, is freely accessible.

Technologies and methodologies include satellite imagery, remote sensing, geographic information systems (GIS), and Global Positioning System (GPS) technology. These tools help enhance agricultural monitoring, sustainability, and traceability efforts.

  • Remote sensing allows for the monitoring of vegetation indices, crop health, and identification of deforested areas.
  • Satellite imagery provides detailed and up-to-date information about crop growth and land use changes.
  • GIS integrates spatial data, allowing for accurate mapping and analysis of crop and cattle distribution.
  • GPS enables precise location tracking and tracing of cattle movements, aiding in supply chain management and monitoring of grazing patterns.

The EU lists a few recommended actions such as:

  • Gathering geolocalised data for the declared commodities and products through remotely sensed images (i.e. satellite imagery, aerial photography) or other information such as photograph in the field with linked geotags and time stamps.
    The farmer (if not a direct supplier of the operator or an operator himself) does not need to provide any personal information.
    Only the geolocation of the plot of land or establishment for cattle is sufficient.
  • Making sure that the geolocation and legality information is correct, even if the collected information is provided by intermediaries or third parties.
  • Establishing a due diligence system including the collection of information, data and documents needed to fulfil the requirements set out in Art.9, risk assessment measures (Art. 10) and risk mitigation measures (Art. 11). This system must be revised at least once a year and updates and processed must be recorded and kept for five years.
  • Remaining vigilant not to mix commodities without knowing their origin. If a shipment of bulk commodities, for example soy or palm oil, is linked to hundreds of plots of land and one of them is recognised as being deforested after 2020 then the whole shipment could become non-compliant.

Could the regulation impact industries and smallholder farmers?

While the implementation of this regulation is imperative to achieve our climate targets, notable exporters to the EU, such as Brazil, Indonesia, and Malaysia, have expressed concerns over its potential impact on their industries and smallholder farmers.

Many of these farmers, particularly cocoa and coffee producers operate on a small scale, with farms less than five hectares in size, and live in contexts of economic insecurity exacerbated by climate change. The new regulation risks cutting off these smallholders from the EU market, their primary source of income, without providing adequate provisions or acknowledging the different contexts between large-scale and small-scale production.

The Fairtrade organization advocates for the inclusion of smallholder farmers in the EUDR, suggesting the EU clarify the number of smallholders affected and how, engage with them responsibly, respect land and tenure rights, support compliance through EU partnerships, and address the root causes of deforestation.

Creation of a Joint Task Force with Malaysia, Indonesia and the EU

Additionally, concerns were raised by the Indonesian government regarding the necessity of providing evidence of land legality and precise geographical location of plantations owned by smallholder farmers. As a subsequent course of action, a mission jointly led by the government officials from Indonesia and Malaysia was organized at the end of May 2023, engaging with political leaders from the EU to address the EU Deforestation Regulation (EUDR).

This initiative resulted in the establishment of a Joint Task Force encompassing Indonesia, Malaysia, and the EU, mandated with evaluating key commodities, notably palm oil, wood, rubber, coffee, and cocoa.

In essence, while the EUDR could drive positive environmental change, it also presents challenges that could affect industries and smallholder farmers, necessitating careful implementation to balance environmental objectives with economic and social sustainability.

Additional sources / relevant documents:

Leave a Reply

Your email address will not be published. Required fields are marked *