On 29 June 2023, the European Union Regulation on Deforestation-free Products (EUDR) came into force, placing increased regulation on the production and imports of several key agrifood commodities.
As part of the EU Green Deal, the EUDR represents yet another regulatory step in the EU’s broader strategy to protect the world’s forests from deforestation and degradation and ensure long-term sustainable and environmentally friendly practices in the agrifood industry.
The specifics
The EUDR specifically targets operators and traders dealing in the following commodities; soy, beef, palm oil, wood, cocoa, coffee, and rubber.
Under the regulation, any operator or trader who places these commodities on the EU market, or exports from it, must be able to prove that the products do not originate from practices that have caused deforestation or forest degradation. Non-compliance will require remedial action and will be subject to fines, prohibition from the EU market, and confiscation of covered products.
The EUDR mandates due diligence on all companies dealing with these commodities to ensure that their products are deforestation free and are produced in compliance with local laws relating to production. Any company dealing with these commodities must provide their respective national authorities with a due diligence statement as evidence of compliance with EUDR. Furthermore, the regulation obligates national authorities to conduct spot checks – companies must prepare for these checks to come without warning. The EUDR outlines the due diligence process as follows:
- Collect detailed geographic information on where products are sourced from.
- Carry out risk assessment on each product to reveal possible risk of non-compliance
- Mitigate risks by carrying out independent audits.
Though the regulation came into force in June 2023, obligation to implement the EUDR will be applicable within 18 months for non-SME’s and 24 months for SME’s, leaving businesses with a short window of time to address areas of non-compliance and proactively
Why was EUDR introduced?
Deforestation is a key driver of the ongoing climate crisis and the agricultural industry is the largest contributor to deforestation worldwide. According to the UN’s Food and Agricultural Organization (FAO), 88 per cent of global deforestation between 2000 and 2018 was caused by land expansion for crop and livestock farming.
The effects of deforestation are devastating, including loss of biodiversity, desertification, soil erosion, and an increase in greenhouse gas emissions, accelerating global climate change. By prohibiting products that contribute to deforestation and punishing those who do not comply, the EU seeks to ensure long-term sustainability and environmentally friendly practices in the agrifood industry.
Challenges for companies
Companies affected by the EUDR will face several key challenges, including:
- Mapping: Supply chains must be fully mapped to identify risks, though these can contain potentially hundreds of direct and indirect suppliers.
- Sourcing: Sourcing raw materials may become challenging and costly for companies, depending on whether their current or potential suppliers are compliant with the regulation. Companies can expect increased competition for eligible raw materials, increasing prices. Additionally, There may be potential shifts in EU trade towards ‘low risk’ producer countries from ‘high risk’ producer countries.
- Implementation costs: EUDR compliance will require substantial logistical investments in traceability and monitoring systems such as satellite imagery or blockchain. These tools will come at a high cost and will be challenging to implement.
- Barriers to Entry: The strict due diligence requirements may place a barrier to entry for SME’s who do not have the financial or technical means to execute.
How to prepare for it
Being well prepared is crucial. Companies must begin proactively implementing procedures and internal controls to identify and prevent any association with deforestation in their supply chains. This includes:
Mapping: It is critical that businesses have a comprehensive map of their supply chains in order to identify potential high-risk partners and suppliers. Businesses must establish clear company policy in regards to sourcing of raw materials and ensure that suppliers are committed to the same high standards.
Engaging with suppliers: Engage with suppliers to understand their sourcing practices and determine if they have adequate measures in place to prevent deforestation – ask them about what procedures and risk assessments they have in place. Support them in their adoption of necessary operational changes.
Addressing technology gaps: For companies who do not have the means to trace the origin of their commodities, efforts must be made to address technological gaps and obtain the appropriate traceability and monitoring tools. Businesses must establish accurate and reliable data collection methods, and be able to present these findings to relevant authorities.
How do we address those challenges?
Meeting the requirements for EUDR compliance will prove challenging for many businesses. Enlisting the support of experienced and independent industry experts can alleviate these challenges and provide clarity to agribusinesses affected by EUDR.
At Farrelly Mitchell, our policy and regulation experts support agribusinesses with understanding and adapting to regulatory change. The steps needed to ensure EUDR compliance may seem overwhelming, but with our support, your agribusiness can make the necessary operational changes confidently and effectively.
We boasts decades of experience supporting agribusinesses with regulatory compliance, as well as a track record of conducting technical, commercial, and ESG due diligence. We offer critical insights into traceability and transparency systems, as well as other key industry issues such as food security, food safety, and sustainability, and crucial strategies related to EUDR, such as agroforestry, circular economy, regenerative agriculture, and much more. Contact us today to navigate regulations and secure your future.
