What you need to know about the coming regulation.

Deforestation. The word alone conjures images of the destruction of animal and human habitats and the loss of biodiversity. The impact of deforestation is sobering, but the EU has a plan to reduce its impact on the world’s deforestation.

The devastating impact of deforestation

Every year, the world loses around five million hectares of forest. Forest destruction is responsible for about 15% of total greenhouse gas, which makes it a key contributor to climate change. And at least 75% of deforestation is driven by agriculture. Most comes from the production of beef, palm oil, soy and logging industries for paper and wood. 

The European Union’s response to global deforestation is its new regulation: the EU Regulation on Deforestation-free Products (EUDR), which aims to reduce the EU’s impact on global deforestation.

The regulation puts the burden of proof onto the operators and traders of commodities that drive deforestation to show that products entering the EU are deforestation-free. In essence, this prevents European citizens from buying, using, or consuming any products that may have had an impact on deforestation.

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With an upcoming compliance deadline of 30 December 2024, EUDR requires all companies sourcing any one or more of seven specified commodities or certain by-products — cattle, soy, palm oil, cocoa, rubber, wood, and coffee — to prove their supply chains don’t contribute to forest degradation or destruction, or breach existing environmental or social laws. 

And the European market is massive. The total annual value of the imports affected by EUDR will be around 72 billion euros, or 60% of all agricultural imports to the EU. This means a huge number of suppliers will be impacted when the EUDR’s compliance deadline hits in December.

Companies across industries are working fast to get into a position to meet the requirements of the new laws. But – ready or not – EUDR is coming, and it’s going to have a huge impact on a wide range of businesses, many of whom may not be fully aware of what they need to do to comply.

Any business that sells products using any of the seven specified agricultural commodities in the EU (or that exports products from the EU) will need to conduct detailed due diligence to be able to prove that their products are EUDR-compliant. Failure to comply could result in big fines, potentially up to 4% of a company’s EU turnover.

Things to know

There are three parts to the due diligence required:

  1. Information gathering – companies must collect data about their products’ supply chains, including the geolocation of where the product originated.
  2. Risk assessment – they need to assess the information they’ve gathered (for accuracy) to work out any risk of deforestation, forest degradation and illegality associated with the product.
  3. Risk mitigation – if there is a risk, they will need to demonstrate that they’ve taken actions to reduce risks to negligible levels. Actions could include requesting further information, independent surveys, scientific product testing or audits.  

In the information-gathering stage, the regulation requires proof of three things:

  1. Traceability the ability to trace the product to where it originated (its geolocation). 
  2. Deforestation – the product originates from land where there has been no deforestation or degradation from the cut-off date (31 Dec 2020).
  3. Social – the product was produced legally (e.g. no forced labour, no child labour, etc).

At TRACT, we’ve been hard at work to help companies manage their EUDR compliance as seamlessly as possible.

We created industry-wide technical working groups consisting of 12 or more experienced representatives from leading food and agriculture businesses on both the supplier and buyer sides. In these groups, we’ve put our heads together to understand the requirements for EUDR compliance and users’ priorities, as well as to align on the metrics and methodologies needed. 

The experts in our groups work on these topics at a technical and operational level, and by bringing everyone together, we’ve agreed on industry-aligned methodologies which will make compliance across the whole supply chain a lot easier. And to help strengthen the quality of the metrics and the reporting, we also consulted experts outside the private sector.

So, yes, EUDR is going to be a complex and potentially difficult undertaking for companies to comply with, but once a company has full visibility of its supply chain, there are so many advantages — not just compliance.

They’ll be able to see which supply chains have appropriate risk mitigation measures in place and which need the greatest improvement to create change. This is a good thing: for efficiency, profit, and sustainability.

About the author

Allison Kopf is the CEO of TRACT, an agri-tech business that provides an EUDR-compliance platform, aiming to accelerate supply chain transformation through aligned sustainability measurement.