On June 29, 2023, the EU introduced a groundbreaking initiative to combat deforestation and forest degradation—the EU Deforestation Regulation (EUDR). This regulation targets key commodities such as soy, oil palm, rubber, wood, coffee, cacao, and cattle, ensuring they are produced in compliance with local laws and adhere to strict traceability requirements.
BREAKING DOWN THE EUDR: WHAT DOES IT MEAN FOR YOUR BUSINESS?
In simple terms, the EUDR requires that anyone involved in importing or exporting these commodities within the EU must prove that their products are not linked to deforestation or forest degradation. Here’s what you need to know:
Deforestation-Free Production: Products must not come from land deforested or degraded after December 31, 2020.
Legal Compliance: Products must follow the laws of the country where they are produced.
Due Diligence: Each product shipment must include a due diligence statement.
Enforcement timeline: Enforcement starts in January 2025 for large firms, with smaller firms getting an additional six months to comply.
THE STAKES OF NON-COMPLIANCE
Ignoring the EUDR is not an option. Businesses that sell non-compliant products could face fines up to 4% of their annual European turnover. This regulation affects everyone from green coffee importers to retailers who sell in Europe, which is why many are scrambling to find solutions. The EU will assign exporting countries a risk level for deforestation—low, standard, or high—which will determine the scrutiny level of their shipments. If any commodity from a country is deemed high-risk, all commodities from that country will be treated similarly. This categorization is still pending, adding to producers’ uncertainty.
WHAT PRODUCERS NEED TO DO
Producers aiming to sell in the EU by the end of 2024 must be capable of the following:
Shipment Information: Ensure traceability and legal compliance, including geolocation of farms and satellite proof of no deforestation.
Risk Assessment: Undergo a risk assessment as per the EU-assigned risk level.
Mitigation Plan: Implement plans to address identified risks.
This is an ongoing requirement, with data needing to be uploaded to an online system for every trade. Registration for this system starts in November 2024, with full access in December 2024.
CHALLENGES ON THE GROUND
While the EUDR aims to protect forests it presents significant administrative challenges, particularly for small producers. Smallholders, farming on tiny plots, may struggle to meet these requirements. For instance, in Uganda coffee farmers typically work on 0,25-hectare plots, producing around 600-700 kg per hectare annually. Ensuring all these smallholders are documented and compliant is a complex task. Satellite remote sensing will be used to verify non-deforestation, but this method has its own set of challenges. Crop production can resemble forest cover, leading to potential inaccuracies and false deforestation claims. Proving compliance in areas with low literacy, limited electricity, and poor internet access further complicates the process.
MASSIVE PUSHBACK BY INDUSTRY PARTICIPANTS AND KEY PRODUCER NATIONS
With the implementation deadline of December 31, 2024, looming, uncertainty still clouds the practical workings of the new regulation. Despite Brussels’ repeated promises over the past months to provide more detailed guidance on EUDR compliance, specifics remain elusive, leaving producers increasingly anxious. Many orders destined for Europe are shipped weeks in advance, and the lack of clear directives is causing significant concern. Key producer organizations are not only voicing their apprehensions but also advocating for a postponement, fearing substantial disruptions. The European Cocoa Association (ECA) has highlighted potential financial losses and supply chain bottlenecks due to this ambiguity, emphasizing the need for precise planning in the sector .
Adding to the tension, key producer nations, including Brazil and Indonesia, have ramped up their diplomatic efforts to seek either a relaxation or deferral of the regulation. Brazil’s agricultural policies suggest that these policies favor large-scale agribusinesses and multinational corporations, often to the detriment of smallholder farmers. This results in unequal distribution of wealth and resources, with significant benefits accruing to larger operations while smaller farmers struggle with issues like land alienation and increased production costs. The Indonesian Palm Oil Association (GAPKI) has raised alarms about the economic repercussions for their national economy . A recent workshop organised by the International Trade Centre (ITC) under the EU-EAC MARKUP II program suggests that phased implementation or extended deadlines might mitigate adverse impacts, allowing more time for producers to adapt and for Brussels to issue comprehensive guidelines. This pushback underscores the urgent need for Brussels to expedite its guidance to ensure a smooth transition and maintain a robust global supply chain.
IMPACT ON SMALL PRODUCERS
The EUDR, while well-intentioned, may have significant and unintended consequences for small producers in developing countries. These smallholders often operate on minimal resources, and the stringent requirements of the EUDR could pose substantial challenges:
Complex Compliance Requirements: Ensuring that each smallholder involved in a cooperative or larger supply chain is documented and compliant with both deforestation-free and local legal requirements is a monumental task. The process involves collecting detailed geolocation data, satellite evidence, and legal documentation, which can be overwhelming for small farmers who may lack the necessary technical and financial resources.
Technological and Infrastructure Barriers: The reliance on remote sensing by satellite for verifying non-deforestation poses its own set of challenges. Crop production, especially in agroforestry systems, can be difficult to distinguish from forest cover via satellite imagery. Small producers often operate in regions with limited access to electricity, mobile phones, and internet, making it difficult to access and manage the required online documentation systems.
Economic Displacement: The administrative burden and costs associated with EUDR compliance may drive buyers to source from larger, more industrialized farms that can more easily meet these requirements. This shift could marginalize smallholders, cutting them off from lucrative EU markets. Instead, they may be forced to sell their products in markets that pay significantly lower prices, reducing their income and potentially exacerbating poverty. This economic displacement might lead to unintended consequences, such as increased deforestation, as small producers seek to expand their agricultural activities to make up for lost income.
Risk of Market Exclusion: Small producers might be excluded from the market if they fail to meet the EUDR requirements. The regulation’s focus on due diligence and compliance could favor larger, well-resourced companies that can afford the necessary infrastructure and expertise. This exclusion could lead to a concentration of market power among large firms, reducing market diversity and resilience.
Social and Environmental Consequences: The pressure to comply with EUDR might lead to social unrest in communities that rely on smallholder farming. If farmers are unable to meet the requirements, they may face economic hardships that could drive them to engage in environmentally harmful practices, such as illegal logging or shifting cultivation.
OUR LESSONS LEARNED SO FAR
When screening our own productive farms for EUDR compliance, we experienced first-hand how difficult the interpretation of satellite data is in practice. While publicly available tools such as Google Earth and Global Forest Watch are useful to quickly detect vegetation and canopy cover change over a landscape, their resolution and accuracy are limited, and canopy cover change can often be misconstrued as “new deforestation” without the employment of additional tools and ground truthing evidence. For example, in the case of one of our very large and complex coffee farms, it was difficult to discern just from aerial imagery whether vegetation on the ground constitutes primary forest, secondary forest, commercial plantation forestry, agroforestry, or another type of vegetation. The analysis correctly identified recent canopy cover change on various portions of the property, but as we knew that no deforestation had occurred, we dug deeper and, with the help of additional local data, managed to map all locations in doubt to recent harvesting of established commercial forestry plantations, recent land preparation and clearing of fallow vegetation (not constituting forest) for the planting of coffee and cacao, or simple tree pruning activities.
When an organization like ours, with a dedicated GIS team and full control over its production assets, needs several weeks of analysis and ground-truthing evidence, it becomes clear that less engaged buyers may avoid “complicated supply chains.” Similarly, less informed sellers may lack the tools to resolve these ambiguities, leading to the exclusion of these grey areas from consideration.
NAVIGATING THE FUTURE
Passing this regulation was difficult and important. While the EUDR’s goals of halting deforestation and ensuring sustainable production are commendable and should not be diluted, it is crucial to consider the real-world impacts on small producers. Support mechanisms, such as technical assistance, financial aid, and capacity-building programs, are essential to help these farmers comply with the new regulations without suffering economic setbacks.
However, the real challenge lies in the effective implementation of these regulations. It is imperative to strike a balance between enforcing compliance and avoiding an excess of bureaucratic red tape that could inadvertently hinder the very objectives the EUDR aims to achieve. Overburdening market participants with complex requirements could lead to unforeseen consequences, potentially jeopardizing the regulation’s success. Therefore, a pragmatic and flexible approach is necessary, ensuring that the transition to sustainable practices is both inclusive and manageable for all stakeholders involved. This balanced implementation will be key to truly navigating the future of sustainable production and conservation.
The European Union Deforestation Regulation (EUDR) represents a significant shift in the global supply chain landscape, particularly for agricultural commodities like cocoa, coffee, and timber. Designed to curb deforestation and promote sustainable practices, the EUDR imposes stringent compliance requirements on producers and buyers alike. This regulation mandates comprehensive due diligence to ensure that commodities entering the EU market are not contributing to deforestation. For organizations navigating these complexities, adapting to the EUDR is not just a regulatory necessity but an opportunity to enhance sustainability and consumer trust.
At RRG NBS, we are at the forefront of transforming supply chains to meet the evolving regulatory landscape. With deep expertise in agricultural commodities, including cocoa, coffee, and timber, we offer unparalleled support to producer organizations and buyers aiming to achieve EUDR compliance. Our in-house experts bring a wealth of knowledge and practical experience, ensuring that our clients can seamlessly integrate sustainable practices into their operations. We provide tailored solutions and hands-on guidance to make your supply chain EUDR-ready, leveraging our extensive field experience and cutting-edge strategies to foster sustainable growth and regulatory adherence.
Acknowledgements
Special thanks to Eva Ross and Esteban Sheridan for their valuable insights and editorial contributions.
About the Author:
Oliver Hanke is the Managing Director of Natural Capital Business at RRG Nature-Based Solutions, where he leads many initiatives focused on commodity supply value chains and decarbonization strategies. With over 25 years of business experience, Oliver has established himself over the past decade as a leading expert in designing and implementing large-scale sustainable investment projects that integrate high social and environmental impact with global supply chains.
