EU Deforestation Regulation: While implementation could be further delayed, EUDR is already enhancing supply chain practices

The EUDR is pioneering in demanding rigorous due diligences of supply chains tied to critical commodities and their byproducts[OA1] [CM2]  (all products that contain, have been fed with, or have been made using critical commodities).

The founding principles of the Deforestation Regulation lie in the respect of 3 conditions for certain commodities or products to enter the EU or be exported from it:

 

o    Be deforestation-free from 31/12/2020. The definitions of deforestation and forest used by the EU is one provided by the UN Food and Agriculture Organization (FAO), which may differ from that of some producer countries[1] and be stricter.  For example, Brazil’s definition of "forest", guided by the country's Forest Code[2], does not provide a singular, comprehensive and quantitative definition of "forest"; it rather gives qualitative attributes and also allows for “legal deforestation”, subject to competent authorities’ approval[3]. As a result, what can be deemed legal in Brazil may not comply with the EU Deforestation Regulation.

 

The cut-off date set at 31 Decembre 2020, although less ambitious than the cut-off date already used in previously existing labels and deforestation-related frameworks (that were considering earlier dates such as 2014 or 2015), has already become a reference. It applies retroactively to land subjected to deforestation or forest degradation after 31 December 2020.
 

o    Be legally produced, i.e. in accordance with the relevant legislation of the country of production, taking however into account the above-mentioned preeminence of the EU-FAO deforestation definition; 

 

o    Be covered by a due diligence statement (DDS).

 

The scope and coverage of the DR in terms of commodities and operators is particularly exhaustive and therefore potentially both demanding and impacting.

All operators placing commodities or products covered by the EU DR (see below) on the EU market or exporting from it are in scope.  Applying uniformly to EU and non-EU operators, the regulation was designed to close the loopholes in voluntary schemes and prevent free riders in supply chains. Covering seven key deforestation-related commodities and derived products, it should cover more than 90% of EU-driven deforestation according to the EU Commission.

 

While large and medium companies must now comply by 30 December 2025, and micro and small enterprises must do so by 30 June 2026, companies are getting prepared. Faced with the challenge of traceability, many have already changed their supply chain management practices to increase the robustness of their controls, either through tech-driven or governance-based solutions.

·         Tracing the chain to the plot geolocation

The geolocation requires operators to identify the country and coordinates (latitude, longitude) of the relevant plot of land for each commodity they place on the EU market. Before even making any deforestation-related verification, this requires a precise identification of the exact origin of the commodities purchased, which can vary very much within a single consignment. This proves particularly challenging when the supply chain involves up to 6-7 intermediaries[6], as it is the case for instance for rubber with collectors, dealers, processors, traders… making traceability highly complex. Companies like Michelin have to deal with a supply chain where 85% of the global natural rubber production originates from millions smallholder farms with an average surface area of 2 to 3 Ha. Michelin has therefore collaborated with its natural rubber subsidiaries, joint ventures, and suppliers, deploying a dedicated digital mapping tools (Rubberway)  to pinpoint the locations of its supply chain at the farm level and gather geographic coordinates for millions of rubber plantations.

Producer countries have also in some cases contributed to provide governance-based solutions. The EU has, for instance, initiated policy dialogues on sustainable cocoa with Ghana, Ivory Coast among others[7]. These have launched traceability schemes (e‑ID cards, mapping) to support cocoa producers. Peru developed a Digital Identity App to register producers and plots. Challenges remain especially as the effective deployment of such systems remains constrained by limited financial resources and adoption by local stakeholders. In the absence of fully functional and accessible national system, other sources of information may be used by stakeholders and contradictory data may circulate, potentially creating confusion as to the state of deforestation of countries. Access to historical information on land-use changes is also often limited, although needed under the EUDR. Countries with data gaps, weak or poorly titled land render access to the EU market more complicated for small producers, such as Ethiopian coffee farmers[8]. 

Satellite verification of non-deforestation

Once plots are identified, they can be matched with satellite imagery. The track record allows to check whether the plot was a forest or not before 2021. One can do it manually or train a machine to allow for automatic recognition of a change in land use based on a track record of satellite imagery. Such satellite imagery is publicly available thanks to the European Spatial Agency and the like (e.g. Copernicus available here).

As an example, the image below allows for a human eye to detect, whether or not, some plots have been deforested after the cut-off date. Although it is not enough, this step is essential to the due diligence process and allows for a verification at scale.

While traceability and knowledge of supply chains has already proven indispensable to prepare for the application of the EUDR, the regulation may have more profound and long-term impacts on the supply chain management of corporates. Beyond traceability, demonstrating compliance also requires ensuring good practices.

The choice of suppliers, along with the use of certifications and technical support will become even more central. Corporates may change providers according to their capability to demonstrate their EUDR alignment. To date, the impact of the EU DR on small farmers and producers remains to be unfolded: On the one hand, increased traceability and dedicated supply chains may create a premium on EUDR compliant commodities, from which small farmers could benefit; on the other hand, they could be dropped for larger suppliers demonstrating compliance more easily. The use of sustainable sourcing certifications, be they in-house or external, such as RSPO, FSC, Rainforest alliance, etc. can bring small farmers and producers the necessary technical assistance needed. For example, The Rainforest Alliance[10] has set up systems to support producers and supply chain actors to meet the requirements of the EUDR. Some corporates are also accompanying and training smallholder farmers towards the integration of sustainable practices to reduce deforestation and degradation risks.

Corporates may also favor more in-depth reorganizations of their supply chains, favoring geographies where deforestation risks are minimum. When feasible, corporates may be incentivized through the regulation, to source from low-risk countries rather than from medium to high-risk countries, therefore re-routing trade and potentially exercising higher pressure on low-risk countries’ land use.

While corporates reactions to the EUDR have proven mitigated (some industry fearing it could influence commodity prices and disrupt trade), the regulation might still be at the center of the political debate in Brussels in the coming weeks, with ongoing questions on its potential inclusion in the EU’s upcoming environmental Omnibus that should revamp an unknown number of environmental legislations. On the ground though, efforts to prepare and comply are already changing supply chains in a concrete manner. Many corporates for which business rely on EUDR critical commodities have invested substantial amounts of time, money and technical capacities to trace back to millions of plots. Demonstrating that enhanced supply chain management practices and traceability, although challenging, is possible and already happening.