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EUDR Law and Commodity Markets: What You Need to Know (Updated)

EUDR Law and Commodity Markets: What You Need to Know (Updated)

On April 19, 2023, the EU passed the EUDR (European Union Deforestation-Free Supply Chain Regulation). In short, the regulation aims to curb deforestation and forest degradation by requiring much stricter accounting for the sources of several types of commodities.

Adding accountability across the supply chain will reduce and eventually eliminate goods produced using unethical or illegal deforestation practices. We anticipate that the sweeping reforms on imports of these major commodities to the EU will have an enormous impact.

The EUDR officially took effect on June 30, 2023. Traders and operators have up to December 30, 2024 to properly implement their processes to adhere to the regulations. Accordingly, we're seeing a great deal of renewed interest in what the EUDR entails and how organizations can begin to align with its requirements.

To help make things easier, we’ve put together a straightforward rundown of what the EUDR is all about. This includes some of the challenges the regulation already faces under scrutiny.

The Basics of the EUDR Explained

Small flag of the European Union next to a notebook titled "EU Regulations."

The EUDR reflects a clear and direct initiative to restrict deforestation and degradation from both global forestry and agriculture. The legislation expands on many components of the 2010 EU Timber Regulation (EUTR), which aims to reduce illegal logging and trade. By doing so, the EU is prioritizing their transition into a more sustainable world.

The EUDR sets new mandatory reporting requirements for business operators in the EU involved with certain commodities. Operators in this context mean any organization that either:

  1. Makes these certain commodities available across the EU marketplace.
  2. Participates in exporting these commodities from the EU to other countries.

Reporting involves keeping track of the value chain of these commodities to prevent using materials stemming from deforestation or forest degradation.

In the context of the EUDR, these terms mean the following:

  • Deforestation refers to converting forestland into agricultural use.
  • Forest Degradation denotes changes of a primary or naturally regenerating forest into either tree plantations or other wooded land no longer classified as a forest. Primary forests refer to native species that are naturally regenerating and have no visible signs of human interference. Naturally regenerating forests are mostly comprised of natural and native trees, but may have a mix of other, non-native species in the stand.

To simplify, commodities can’t be tied to any sort of forest removal or land change from forests into non-forests to stay in compliance.

Commodities Affected by EUDR

The initial commodities covered under the EUDR include the following:

  • Palm Oil
  • Cattle or Beef
  • Cocoa
  • Coffee
  • Soy
  • Rubber
  • Wood and Wood Products

This list does not strictly refer to the raw materials. It also encompasses the range of products that use or are derived from these commodities.

Failing to comply is not as simple as paying a cursory fine, either. This will mean operators will be forbidden from either selling or exporting said products (and the commodities used to create them) on the EU market.

Why has Europe Enacted the EUDR?

At its heart, this regulation adds the step of due diligence to buyers of materials used in their businesses. Accountability and record-keeping will ensure that European businesses will only deal with legitimate suppliers and producers.

The regulation connects to many other major changes across forestry, energy and agriculture in major markets like the US and Europe.

Related: EU Shipping Fuel Transition in Motion with Fuel-EU Maritime Agreement

With such strict penalties for unethical or illegal deforestation or degradation, these operations will become obsolete (hopefully). Large-scale changes like this will help the EU meet its sweeping climate change goals by significantly reducing carbon output.

Unpacking the Details and Requirements

The EUDR officially took effect on June 30, 2023. All requirements for operator compliance must be in place and ready to go by the end of this year—December 30, 2024.

In the meantime, an EU commission has begun work on a country-based benchmarking system to assess overall deforestation and degradation risk. The ratings range from low, standard, and high based on three main criteria:

  1. How quickly deforestation and forest degradation are occurring.
  2. How quickly agricultural land to produce commodities is expanding.
  3. Overall production trends of related commodities and products produced from them.

These ratings will help the commission better understand how to direct their efforts in addressing deforestation and degradation.

No matter an operator’s risk ranking, everyone will need to keep all of the following records on all relevant commodities for a minimum of 5 years:

  1. Description: Operator’s trade name and all products that were made by or contain one or more of the listed commodities. Product descriptions must also be given with a list of all commodities used. If the product was made using wood, records of the wood’s common name and species must also be kept.
  2. Quantity: Volume and/or number of units of a relevant product. This number can also be the net mass if applicable.
  3. Identification: Information about where the relevant commodities were made (name of countries and specific regions in those countries when required).
  4. Geolocation: All geolocation data of land where the commodities were made, produced, and assembled. Date ranges for production must be included. If commodities were produced in multiple plots of land, operators must provide all additional geolocation information.
  5. Contact Information: Names, addresses, and emails for all people and businesses who supplied an operator with the product. Additionally, contact information must be tracked for those who received these relevant products.
  6. Deforestation-Free Confirmation: In the words of the EUDR, operators must provide “adequately conclusive and verifiable information” confirming that all relevant products were not linked to deforestation or degradation.
  7. Country-Specific Legislative Confirmation: Similar to the above point, “adequately conclusive and verifiable information” must be given to verify that commodities were produced in-line with the country’s laws. Particularly, operators must show that the production of any particular commodity adheres to that country’s land-use laws.

Needless to say, these provisions add a significant amount of work for operators to meet and maintain their records. With more commodities potentially going on the list in the future, we may only be seeing the tip of the iceberg here.

Potential Issues and Challenges with the EUDR

In the early stages of the EUDR’s coming into law, many questions and concerns have understandably come up. A few of the most apparent challenges are listed below.

Huge Supply Chain Burdens

Major costs and extraordinary burdens across the global supply chain are likely to occur. Smaller, low-risk operators may suffer serious financial setbacks following the law.

Lack of Impact Analysis

No impact analysis was done prior to the passing of the EUDR. Problems like pricing, trade, food security, and other components could disparately affect some countries worse than others. This could lead to even worse economic conditions in certain countries.

Unrealistic Geolocation and Supply Chain Requirements

The feasibility of geolocation required by the EUDR seems unsteady at best. Verifying a full chain of custody for products across the global supply chain may not be possible in the way the EUDR proposes.

Challenges to Standard of Forest Degradation

The EU’s definition of forest degradation is ambiguous and has been criticized as far too extreme in its scope. This definition is not globally standardized, either. Many countries have differing viewpoints and legal standards on how to classify degradation.

Potential Accuracy Problems in Mapping Forestlands

Inspectors will use the EU Earth Observatory to remotely determine forestlands in their determination of deforestation and degradation. The accuracy of this observation process on some of the specific requirements has been called into question. This could lead to wildly inaccurate reporting on timber production or other factors.

Understanding Forest Products and EUDR Changes

Processed lumber as a commodity affected by the EUDR

Many people within the US forest products market have also expressed concerns with some of the requirements the EUDR will pose for them. EU officials haven’t given much help with clearing up the ambiguity, either.

The supply chain for wood products in the global industry poses particularly challenging in terms of tracking. The full chain of custody between trees in a forest and finished wood products move through many different hands.

At the very least, the EUDR will require several conversations among forestry professionals to set up the proper channels for tracking. Similarly, the changes will alter supply chain optimization and require a restructuring of SFI and FSC forestry certification standards.

January 2024 Update: European Commission Releases Updated FAQ

The European Commission provided an updated FAQ in December that has begun to address and clarify many of the above-mentioned challenges. The updates address some of the confusion on a few significant topics:

  • Due Diligence Reporting
  • Farm Data Reporting and Legal Documentation
  • EU's Recently Opened Observatory for Monitoring Deforestation and Forest Degradation

ResourceWise will continue to cover this topic outlining these new clarifications and their implications in commodity markets. Check back with us regularly to be sure you never miss any critical updates.

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(Post originally published August 18, 2023; updated with more recent information)