12. The new EU Deforestation Regulation: towards inclusive and sustainable forest and agricultural commodity chains
Marcelo Inacio da Cunha and George T. Mudimu
in: Hackenesch, C., Keijzer, N., & Koch, S. (Eds., 2024). The European Union’s global role in a changing world: Challenges and opportunities for the new leadership (IDOS Discussion Paper 11/2024). IDOS.
State of play
It is undisputable that addressing deforestation, biodiversity loss, and climate change with the rise in greenhouse gas emissions is a compound global issue that is important to be collectively addressed and has to be done urgently. Although the private sector – as key element of forest and agricultural value chains – is not doing enough towards internalising their negative externalities on forests, it serves as a paramount lever if such a sector can further effectively engage in halting the expansion of the agricultural frontier into forests.
It is clear that voluntary demand-side measures alone are not enough to address deforestation stemming from unsustainable consumption patterns and lifestyles mostly in higher income countries (tele)coupled with land-use change in middle- and lower-income countries. Further regulatory measures are needed to address globally pressing deforestation due to land-use change to cultivate given raw materials and sourcing products from the Global South including for consumption in the European market (Pendrill, Gardner et al., 2022; Pendrill, Persson et al., 2019). Such interconnected challenges are not solved by voluntary sustainability standards alone and call for binding due diligence rules towards deforestation-free commodity chains. With its legislative lever, the European Union (EU) has gone ahead and adopted the EU Deforestation Regulation (EUDR). The EUDR is a critical piece of legislation for governing deforestation-free supply chains located in the EU market. It is targeted at deforestation-free forest and agricultural commodity chains (cattle, wood, cocoa, soy, palm oil, coffee, rubber).
On 31 May 2023, the EU adopted Regulation (EU) 2023/1115 of the European Parliament and of the Council on the export of certain raw materials and products associated with deforestation and forest degradation to the Union market (EUDR, 2023). The regulation came into force on 30 June 2023 and is to be applied from 30 December 2024 by larger businesses, after an 18-month transition period. Small businesses have been granted a 24-month transition period. The regulation is commonly referred to as the EU Regulation on Deforestation-Free Products, those being (significant drivers of deforestation): beef and leather, wood, cocoa, soy, palm oil, coffee, rubber, and some of their derived products, such as chocolate, tyres, or furniture as listed in the annex of the EUDR (2023). The regulation mandates that the relevant raw materials and products may only be imported into, or exported from the EU, or placed on the EU market, if they are not linked to deforestation or forest degradation.
The EUDR aims to mitigate the EU’s contribution to global deforestation by imposing stringent due diligence requirements on operators placing certain commodities on the EU market. The regulation requires operators to ensure these commodities are deforestation-free. Furthermore, in paragraph 6, the regulation takes cognisance of biodiversity loss and climate change as a result of human actions that can be addressed when wide-scale deforestation is addressed. The main purpose of this regulation is to ensure sustainable production systems that do not result in deforestation or forest degradation.
As part of enforcing this regulation, it is stipulated that products legally entering the EU are to originate from deforestation-free zones or areas deforested before the cut-off date of the EUDR (30 December 2020). Exporters or suppliers who do not comply with this regulation risk having their export licenses revoked.
Internal and external influences
EU challenges
- Complex value chains: In enforcing the EUDR, traceability has to be ensured across global and complex supply chains. In this process, operators must gather and verify comprehensive data, including geolocation information, on land and production sites. This information must be provided before the goods or products are exported into Europe. Prospects of getting concrete and accurate information on time may be a hurdle given the complexity of global supply chains, asymmetries in geographic information systems (GIS) and georeferenced information stemming from asymmetric technical capacities, and the accessibility of upstream chain-producing actors who are sometimes located in remote places in the production zones.
- Enforcement and compliance: To ensure compliance to these regulations requires that EU member states establish effective systems for monitoring and enforcement, including conducting annual checks on a percentage of operators and products. This requires substantial administrative resources and coordination, and also support from production countries.
- Data management and exchange: Developing an electronic interface for data transmission between national customs systems and the EU information system at the latest by 2025 comes with financial and logistical challenges.
Partner country challenges
- Governance and enforcement issues: Numerous producer countries struggle with weak governance and enforcement issues, which can hinder “compliance” with EUDR requirements.
- Economic impact on smallholders: Smallholders in producer countries may be “excluded” from supply chains, including the ones governed by a lead firm or trader which/who may want to be supplied only by large upstream actors who do not face challenges in investing in traceability for transparency within the frame of compliance and due diligence requirements of the EUDR for placing listed products in the EU market. Ensuring their inclusion in sustainable supply chains without imposing undue burdens is crucial. In addition, adhering to this new EU regulation will result in costs for both the so-called producer and consumer countries, a cost which most likely producers of the goods will factor in on the cost of goods thereby to an extent triggering product price increases.
Opportunities
- Transparency and traceability: Through this regulation the EU encourages transparency along the affected value chains. For that, it has come up with a Global Observatory hosted by the Joint Research Centre (JRC) of the EU, while the EU and its member states further encourage the use of traceability per geospatial information of the producing areas and plots, and capacity development, which can improve forest management and compliance tracking.
- Partnerships and cooperation: Advancing with preparation for the EUDR implementation regulation can be more efficient and effective, provided there is inclusive cooperation with producer countries through partnerships, dialogues, and joint roadmaps – particularly if they are aimed at addressing the root causes of deforestation, at promoting inclusive and sustainable commodity production, at mitigating climate change and at building resilience.
The EU is aiming to strengthen cooperation with producer countries to address deforestation’s root causes and support sustainable production practices. This includes not shying away from sourcing areas classified per the European Commission’s assessment as being “high-risk” according to the three-teared risk classification (high, middle and low risk areas, depending on how “exposed” they are to commodity-induced deforestation if the area has been deforested after 31 December 2020). It further includes structured trust-building dialogues (including towards market recognition with policies in producer countries being factored into context-sensitive EUDR implementation on a sustainable basis); and cooperation arrangements and joint roadmaps towards environmentally sound value chains based on just transitions. It is key for the new EU representatives to prioritise partnerships with the producer countries which are mostly low- and middle-income countries. These partnerships will ensure secure supplies of raw materials and also provide opportunities for value addition in partner countries, while producing co-benefits in the realm of inclusive and sustainable rural “development”.
The EU is committed to assisting smallholders through capacity-building initiatives and technical assistance to enable them to comply with the EUDR. This includes raising awareness, disseminating information, and conducting workshops in affected countries. This support is key and needs to be expanded, while being context-sensitive and tailored to smallholder needs for them not to be left behind by falling off lead-firm-governed value chains with prevailing large-scale suppliers and exclusion of such small-scale suppliers.
The European Commission is developing guidelines and compiling good practices to help stakeholders implement the EUDR effectively. This includes guidance on due diligence processes, risk assessment, and the use of certification schemes. The development of such guidelines could be done in partnership with representatives from producer countries to enable a “buy in” and easier implementation of the regulation.
The regulation mandates robust monitoring and enforcement mechanisms, including checks on traders, operators and product supply. EU member states are to ensure compliance and address non-compliance through corrective actions and penalties.
The fact that the EUDR was adopted and entered into force in 2023 is already a positive step towards dealing with implications of consumption on production of agricultural and forest products listed in this regulation. However, in the design of the EUDR, partner countries from the so-called Global South where most EUDR-relevant produce and raw materials come from, claim to have not been consulted enough in this process or that smallholders will be partially replaced by larger suppliers of raw materials and products as a potentially unintended implication of the EUDR (ATIBT, 2023). Further, there is a tendency of the high-risk areas of partner countries (classified as such upon completion of the “official” assessment) being left behind as traders tend to minimise the risk of deforestation and the required burden of due-diligence statements for entering products into the EU by shifting their procurement focus from high-risk to lower-risk areas. Still, the European Commission is now proactively reaching out to main producer countries, which is key for “buy in” by countries where most EUDR-relevant raw materials and products come from.
If the goal with the EUDR is to effectively address deforestation in the EU and elsewhere – beyond protecting consumers in the EU from “importing deforestation to their plates” – then the following are crucial: (i) effective and inclusive implementation which at the same time supports smallholders so they are included in the relevant commodity chains by large powerful downstream value-chain actors; (ii) robust enforcement; and (iii) strong international cooperation on an equal footing between the EU and partner countries.
References
ATIBT (Association Technique Internationale des Bois Tropicaux). (2023). 17 producer countries write to the European Union to warn of the potential collateral effects of the EUDR on small producers. https://www.atibt.org/en/news/13377/17-producer-countries-write-to-the-european-union-to-warn-of-the-potential-collateral-effects-of-the-eudr-on-small-producers
EUDR (European Deforestation Regulation). (2023). Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010. European Union. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
Pendrill, F., Gardner, T. A., Meyfroidt, P., Persson, M. U., Adams, J., Azevedo, T., Bastos Lima, M. G., Baumann, M. Curtis, P. G., DE SY, V., Garret, R. Godar, J., Goldman, E. D., Hansen, M. C., Heilmayr, R., Herold, M. Kuemmerle, T., Lathuilliere, M. J. , Ribeiro, V., Tyukavina, Al., Weisse, M. J. & West, C. (2022). Disentangling the numbers behind agriculture-driven tropical deforestation. Science 377(6611). doi: 10.1126/science.abm9267
Pendrill, F., Persson, U. M., Godar, J. & Kastner, T. (2019). Deforestation displaced: Trade in forest-risk commodities and the prospects for a global forest transition. Environmental Research Letters 14(5). doi: 10.1088/1748-9326/ab0d41
