Understanding EUDR

Forests are vanishing at an alarming rate! In 2023, total tropical primary forest loss reached 3.7 million hectares, equivalent to losing almost 10 soccer fields of forest per minute! Clearing forests not only eliminates a critical carbon sink (tropical forests alone hold between 228 and 247 gigatons of CO2—seven times the amount of CO2 emitted by human activities each year), but it also contributes to biodiversity loss through habitat destruction.

Almost 90% of deforestation is directly linked to the sourcing of products ranging from coffee, cacao, and timber to everyday items like soaps, makeup, and detergents in global supply chains. Despite attempts to stop selling products tied to deforestation, these efforts haven't slowed the alarming rate at which our forests are disappearing.

Recognizing the urgent need for action, the European Union enacted the EU Deforestation Regulation (EUDR) to combat global deforestation. This landmark regulation aims to curb illegal deforestation by tightening controls on the import and export of high-risk commodities.

The EUDR looms large, casting a spotlight on how businesses manage their supply chains. Companies trading in key commodities like soy, beef, palm oil, and coffee must now prioritize not just profit but also the planet and people. The EU Deforestation Regulation (EUDR) will require companies to do a lot within a short timeframe or face penalties for non-compliance.

In this blog post, we'll explore ten critical questions to help you understand the EUDR and prepare for compliance!

1. What is the EUDR?

The EU Deforestation Regulation (EUDR) is a landmark EU law aimed at preventing deforestation by prohibiting the import and export of products linked to illegal deforestation. It mandates companies to conduct due diligence to ensure that their products are sourced without causing deforestation or forest degradation. The EUDR is part of the European Green Deal and came into force on June 29, 2023, with full implementation by December 30, 2024. It is expected to drive significant changes in global sourcing and production practices, reducing the EU's impact on deforestation worldwide.

2. Why is the EUDR Important?

The EUDR is one of the most ambitious international efforts to tackle deforestation. By eliminating deforestation-linked commodities from the EU market, the regulation aims to significantly reduce the EU's contribution to global deforestation. Compliance with the EUDR also enhances corporate sustainability and reputation.

3. How Does EUDR Differ from Previous EU Regulations?

Unlike earlier regulations, the EUDR introduces mandatory due diligence obligations for businesses. Companies must ensure their supply chains are deforestation-free and provide comprehensive traceability data.

4. Who Are Operators and Traders Under the EUDR?

- Operators are individuals or entities that place relevant products on the EU market for the first time or export them.

Their responsibilities include:

• Supply Chain Review:Thorough examination of supply chains to ensure compliance.
• Information Collection: Gathering of essential data related to the products and their sources.
• Risk Assessment: Evaluation of potential risks associated with deforestation and legal compliance.
• Due Diligence Statement: Submission of a statement confirming the execution of due diligence to ensure products are deforestation-free.

- Traders are entities that resell products within the EU. They are not responsible for the initial placement but must:

• Information Storage: Keep relevant transaction details readily available.
• Information Sharing: Provide these details to other supply chain links or competent authorities upon request.

- In cases where a company acts as both an operator and a trader—such as a coffee company importing beans and then reselling roasted beans—their specific obligations include:

• Due Diligence for Imports: Submit a due diligence statement specifically for the imported product.
• Transaction Data Collection: Gather and maintain detailed records of transactions.
• Data Dissemination: Pass relevant information along the supply chain or to authorities as required.

These refined definitions offer clear distinctions between the responsibilities of operators and traders under the EUDR, helping companies understand their compliance obligations more clearly.

5. What is the Scope of the EUDR?

Objective Scope:

The EUDR targets a wide range of products and commodities that are commonly associated with deforestation risks. These include both the raw commodities and the products derived from them:

• Cattle
• Cocoa
• Coffee
• Oil Palm
• Rubber
• Soy
• Wood

These commodities and their derived products must meet specific criteria set by the EUDR to ensure they are not linked to deforestation.

Subjective Scope:

The EUDR applies to entities of various sizes, including large corporations and small and medium-sized enterprises (SMEs). However, the obligations for SMEs come into effect later, with a delayed deadline until June 30, 2025. This allows SMEs additional time to adapt to the requirements. SME traders also have simplified obligations to ease their compliance burden.

The regulation's scope also extends to composite products, such as wooden furniture that may contain multiple wood or wood-derived components. This ensures that all relevant products entering or leaving the EU market adhere to the EUDR's standards against deforestation.

6. How Does the EUDR Address Derived Products?

The EUDR applies not only to primary commodities but also to "derived products," which include items that contain, have been fed with, or are made using relevant commodities. Examples of derived products include chocolate, leather, furniture, and selected palm oil-based derivatives. This broadens the scope of compliance and requires companies to carefully trace their entire supply chain.

7. What are the Key Requirements of the EUDR?

The EU Deforestation Regulation (EUDR) sets several requirements for operators and traders to ensure that commodities and products placed on the EU market are deforestation-free and legally produced. Companies must conduct due diligence to prove that the products they place or export on the EU market are free from deforestation. This requires tracing products back to the specific plot of land where the commodities were produced and ensuring compliance with local legislation. Key due diligence steps include data collection, risk assessment, risk mitigation, and submission of a due diligence statement.

Key Requirements

• Deforestation-Free Due Diligence Check:
  Companies must conduct due diligence to prove that their products are deforestation-free, by tracing them back to the specific plot of land where they were produced and ensuring compliance with the relevant legislation of the production country.
• Compliance with Local Legislation:
  Verify that the commodities and products comply with relevant local legislation, including land use rights, environmental protection, labor rights, human rights, and the rights of indigenous peoples.
• Due Diligence Statement:
  Submit an electronic due diligence statement to the European Commission and competent authorities in each EU member state, declaring that due diligence has been exercised and that there is no or negligible risk of non-compliance.
• Traceability and Geolocation:
  Operators and traders (non-SMEs) must collect geographic coordinates of the plots of land where the commodities were produced.
• Plot Size Guidelines:
  - For plots larger than 4 hectares, polygons describing the perimeter are required.
  - For plots smaller than 4 hectares or cattle farms, a single geolocation point is sufficient.
• Supply Chain Traceability: Each batch of imported/exported/traded commodities must be traceable to the plot of land.
• Due Diligence Requirements:
  - Information Collection (Article 9):
  - Description and quantity of the commodity/product.
  - Supplier information.
  - Country of production.
  - Geolocation coordinates of the production plot(s).
  - Evidence of compliance with legal requirements.
• Risk Assessment (Article 10): Evaluate the risk of non-compliance by considering:
  - Complexity of the supply chain.
  - Prevalence of deforestation and forest degradation in the region.
  - Legality of production according to the country’s laws.
  - If a non-negligible risk is found, apply mitigation measures until the risk is negligible.
• Due Diligence Statement:
  - Operators (and non-SME traders) must submit a due diligence statement via the Information System before placing commodities or products on the market.
  - The statement should confirm compliance with EUDR requirements.
• Compliance Obligations for Operators and Traders:
  - Operators: Must ensure that products are deforestation-free, legally produced, and covered by a due diligence statement.
  - Traders (Non-SMEs): Must conduct due diligence but can refer to upstream statements.
  - SME Traders: Must maintain information on supply chains but are not required to submit due diligence statements.
• Record-Keeping:
  - Operators and Non-SME Traders: Must retain information and due diligence documentation for 5 years.

8. What Is the Benchmarking System Under the EUDR?

The EUDR includes a benchmarking system administered by the European Commission, which categorizes countries or parts of countries into three risk levels based on the likelihood of producing commodities that are not deforestation-free:

1. High Risk: Countries or regions classified as high risk have the highest likelihood of deforestation associated with the production of commodities. These areas are subject to the most stringent due diligence and verification requirements to prevent products linked to deforestation from entering the EU market.

2. Standard Risk: This category applies to countries or regions with a moderate risk of deforestation. Standard due diligence processes are required for operators sourcing commodities from these areas, ensuring a balanced approach to risk management.

3. Low Risk: Countries categorized as low risk are considered to have minimal concerns regarding deforestation. Operators sourcing from these areas can benefit from simplified due diligence procedures, reflecting the lower risk of deforestation in their commodity production.

9. When Do I Need to Be Ready for the EUDR?

• December 30, 2024: Implementation by EU member states.
• June 2025: SMEs have until this date to adapt to the requirements.
• June 2024: Guidelines and impact assessments will be issued.
• June 2028: Policy review, and every five years thereafter.

​​10. What Are the Penalties for Non-Compliance With the EUDR?

The penalties for non-compliance with the EU Deforestation Regulation (EUDR) reflect the severity and environmental impact of the violations. National laws within each EU member state will determine the specific penalties, but they generally include several types of consequences to enforce compliance. Here's a detailed look at the potential penalties:

• Fines: Financial penalties can be imposed, which are proportionate to the environmental damage caused by the non-compliance. These fines can reach up to 4% of the annual turnover in the EU of the company responsible, underlining the seriousness of the offenses.
• Confiscation: Authorities may confiscate the non-compliant products or any revenues gained directly from these products. This measure prevents the sale and distribution of goods linked to deforestation.
• Temporary Exclusion: Companies found non-compliant may be temporarily excluded from participating in public procurement processes and from receiving public funding. This acts as a deterrent by limiting access to lucrative government contracts and subsidies.
• Ban: There might be a temporary prohibition imposed on trading within the EU market or on using the simplified due diligence process designed for lower-risk regions. This ensures that only compliant companies can benefit from less stringent regulations.

These penalties are designed to ensure adherence to the EUDR's objectives of preventing the import and export of products associated with deforestation and to promote sustainable trade practices within the EU.

Achieving Compliance and Sustainable Success

The EUDR will require many economic operators to carry out rigorous analyses of their supply chains to guarantee that the products they introduce to the market do not contribute to deforestation. With just 6 months left before these obligations come into force, in-scope companies should prepare now for the EUDR's considerable demands on data management, supply chain due diligence, and key systems and processes.

This regulation marks a turning point for the global trade of forest-risk commodities. It's not just about compliance but also about reshaping supply chains for a sustainable future. By prioritizing transparency and sustainability, your business can thrive in this new era of ethical trade.

At Orbify, we are here to assist you in this process of becoming compliant. If you want to learn more and see how we can help, book a demo with us today!