EU Deforestation Regulation – good, bad, or ugly?

Steps like the EU Deforestation Regulation (EUDR) are crucial for transforming our economic system toward sustainability. The regulation will impact practices in exporting countries, prompting adjustments to comply with new standards. However, we should not ignore that such changes come with a cost.

EUDR is expected to raise consumer prices and potentially reduce European Union (EU) demand due to increased complexity and costs, especially for imports from high-risk regions. Compliance entails tracing products back to specific origins, requiring significant data collection and due diligence. Given the substantial fines at stake, non-compliance is not a real option.

One could say that the EUDR has its good, bad, and ugly sides. Responsible leaders applaud the EU for this regulation, which is a good thing. The EUDR is bad because the regulation comes in late, and it is ugly because we do not have the tools in place to respond quickly. However, it is never too late, and we have everything to build what is needed. It is important to start now.

Companies should get prepared

Meeting EUDR requirements demands innovation and technology, areas where the EU must enhance support for small businesses. While solutions like Bureau Veritas’ V-Trace offer product tracking, some technologies are still underdeveloped, a situation that is unavoidable, posing some challenges. Data accuracy is key for a level playing field, with early adopters gaining a competitive edge.

Companies must conduct thorough risk assessments and collaborate closely with suppliers to ensure compliance with EUDR and other relevant laws. Smaller producers in high-risk countries may face challenges, necessitating additional EU support beyond the information system being established.

Overall, adapting to EUDR will require a proactive approach and strategic collaboration across the supply chain. If smaller players are not supported by their governments, they risk being pushed into disadvantaged positions or even out of the market or being acquired. Market consolidation can be expected.

Countries are affected in different ways

Some countries are aligning with the EUDR, which will bring positive structural change, while others like Malaysia and Indonesia are facing disruptions. Southeast Asia’s palm oil and rubber exporting countries might struggle to comply with EUDR due to strict traceability requirements. Brazil’s exports to the EU, such as coffee, soy, and wood pulp, could be impacted, but they only make up seven percent of Brazil’s total exports. In contrast, Cote d’Ivoire and Ghana heavily rely on cocoa exports to the EU, with 20 percent of their total export value coming from this sector.

Countries and companies need to assess the impact based and their situation and prepare individual strategies. The EU can expect resistance, but such sustainability regulations will not go away, on the contrary, we can expect much more of the same.

Criticism – contemplating a phase two

Some critics find the regulation too narrow, criticizing weak definitions and cutoff data limitations. Suggestions for phase two include enhancing the regulation and expanding its scope to sectors like mining. Phase two is certainly worth contemplating. This is a natural and necessary process of the evolution of regulation in new fields.

Conclusions – a stepping stone into a new world

The impact on the transport and logistics sector comes through market consolidation increasing the purchasing power of some actors and shifts in trade flows. Ports like Antwerp, Rotterdam, Hamburg, and Singapore may benefit from EUDR as those locations have been focusing on capabilities able to deal with sustainability requirements. Increasing prices for coffee and cacao may lead to a reduction in the volumes of such commodities transported to Europe.

The focus should be on implementing EUDR effectively and addressing unintended consequences.

While supporting environmental protection initiatives, it’s crucial to consider the impact on consumers, small businesses, and vulnerable populations. Ensuring a level playing field and that necessary technology is available are key factors to ensure a successful implementation. As environment and climate protection efforts will continue to evolve globally actors should see the EUDR as a stepping stone and drill for a world governed by a holistic approach to sustainability regulation.