The idiom ‘you can’t see the wood for the trees’ is certainly one that more businesses should remember when tackling complexity. It’s especially relevant, however, to those businesses trading in any of the seven critical commodities who must prove that all products they move in and out of the European Union are ‘deforestation-free’ by December 30 this year.
This law was supposed to come into force from the end of December 2024. However, it was delayed for an additional 12 months because of the burden of proof it could place on businesses. Delayed until later this year, the law aims to halt deforestation or practices that degrade our fragile habitats.
The target of the measures are enterprises trading in cattle, cocoa, coffee, palm oil, rubber, soy, wood and their derivatives. Products made or fed with these commodities – including beef, leather, cosmetics, chocolate and furniture – are also affected.
Given its breadth, it is no exaggeration to say that many larger industries will feel the additional regulatory impact. This will include a diversearray of sectors, from automotive to food, fashion, manufacturing and pharmaceuticals. The EUDR will also impact SMEs and micro-industries in the space as new regulations will come into force later. However, smaller companies will have until June 30, 2026, giving them more time to adjust.
By December 30, affected enterprises must conduct due diligence on all their supply chain partners, proving their compliance with EUDR.
Why the regulation?
The reasons are existential. Over the past three decades, an area larger than the entire European Union has been deforested. Whole swathes of the world have been stripped bare for commercial gain.
This has had a crushing impact on flora and fauna. Deforestation has contributing to the 69% decline in wildlife populations over the last 50 years. The process has also contributed to the destruction of carbon sinks, which help absorb carbon dioxide from the atmosphere.
The agriculture sector causes 80% of tropical deforestation from land clearance for crops and livestock to feed the world’s growing population which, according to the United Nations, will grow from 7.6 billion to 9.8 billion people by 2030. Importantly, almost 4.2 billion people live within 5km of a forest. Billions of people depend on them for their homes, livelihoods and sources of food. This is why stricter controls on preserving forested areas are being brought into force further ‘upstream’ – the countries where goods are consumed. For example, palm oil alone is present in nearly 50% of packaged products in the UK, from chocolate spread to soap. Most of the volume is sourced from Indonesia and Malaysia, tropical rainforest territories which represent 85% of the global supply.
Under the new rules, companies will need to prove:
- The product itself, its ingredients or its derivatives are not produced on land that was deforested or degraded since December 31, 2020
- The commodities are produced in accordance with the laws in the country of production, including on human rights, and the rights of affected indigenous peoples have been respected
The UK
Despite Brexit, UK companies which are part of supply chains ultimately leading to EU markets will also be affected. EU importers may require UK suppliers to provide evidence of EUDR compliance, even if the UK company is not directly exporting to the EU.
This could involve more rigorous supplier vetting processes and investing in traceability systems. Some UK businesses are already ahead of the curve and looking to change suppliers to ones which can guarantee compliance.
Domestically, this is already required by the UK government which is mirroring the requirements of EUDR:
- UK businesses are prohibited from using illegally produced forest risk commodities, including both raw and derived products
- They must establish a due diligence system for each regulated commodity
- They must report annually on their due diligence
The impact
None of this is happening in a vacuum. Businesses are already recognising EUDR as a vital tool in ensuring a strong Environmental, Social and Governance (ESG) ranking.
As a company involved in every aspect of customs compliance, we have consulted many existing and potential clients on the nuance of the new regulation, from delivering transparent due diligence across the supply chain to the wholesale outsourcing of the EUDR process.
The reality is that no business can be complacent. To say EUDR’s bark is worse than its bite would be to downplay the severe sanctions for non-compliance, with financial penalties up to four per cent of annual turnover. However, our experience of the current market is that businesses are far from complacent. Truly, many are seeing the wood for the trees and their role in preserving them.
