Investigating the European Union Deforestation Regulation and its Impact on Producers

"If a tree falls in a forest and no one is around to hear it, does it make a sound?"

This timeless philosophical thought raises questions regarding observation and perception, and it may finally be answered: at least in the case of the European Union (EU) and its importers around the world.

With the development of the European Union Deforestation Regulation (EUDR), the answer is yes, as this critical piece of legislation necessitates all producers exporting to the EU to observe and monitor their farms and production areas to ensure their commodities have not caused deforestation or forest degradation after 30 December 2020. 

The European Union is the world's second largest contributor to deforestation as a result of its imports, according to data from WWF, second only to China. With the implementation of the EUDR, the EU aims to lead by example and address their role in the global deforestation crisis.

What is the EUDR?

Known also as EU anti-deforestation regulation or EU deforestation-free regulation, the EUDR is essential to minimise deforestation, greenhouse gas emissions and biodiversity loss across the globe. The legislation requires farm mapping to ensure traceable and sustainable supply chains for several commodities our customers work with. 

While the obvious benefit is tackling deforestation, smallholder farmers hope to benefit from the legislation in other ways. These include:

• Increased transparency
• Legal compliance
• Access to credit
• More direct purchases
• Supply chain co-operation
• Data management tools for knowledge transfer

However, for co-operatives, this new legislation adds a greater burden as they are required to gather much larger amounts of data on their farmers, as well as evidence of land titles, which is often difficult, particularly in Africa. 

Why is the EUDR Important?

Deforestation is the purposeful clearing of forested land. Throughout history and into modern times, forests have been razed to make space for agriculture and animal grazing, and to obtain wood for fuel, manufacturing and construction. 

Clearing forests for agricultural expansion is the largest driver of tropical deforestation and ecosystem loss. The World Wildlife Fund announced that 80 per cent of global deforestation is linked to altering natural landscapes for crops and livestock. 

This rampant destruction of forests contributes to habitat loss and biodiversity decline, while also exacerbating the effects of climate change. Shared Interest promotes sustainable agricultural production and supports producers who meet strict criteria for forest and farm management.

Which products will be impacted by EUDR?

The commodity supply chains affected by EUDR, including products derived from these commodities, are:

• Cocoa
• Coffee
• Soy
• Cattle
• Timber
• Rubber
• Palm oil

Several of our customers' supply chains will be affected by EUDR, including producers who work with coffee, cocoa, soy and timber. 

Under the EUDR, any operator (buyer) who places any of these commodities on the EU market, or exports these products through the EU, must be able to prove that the products do not originate from recently deforested land or have contributed to forest degradation. Relevant goods must also be covered by a due diligence statement and be produced in accordance with applicable local laws.

How does EUDR work?

The ‘Operator’ (Buyer) must be able to demonstrate compliance with the regulation.  This requires them to have evidence of two things:

1. Through geo-referencing, to enable traceability (mapping the farmland used to grow the commodity: there are various tools and systems to facilitate this such as FarmForce and Agros)
2. Through due diligence, to demonstrate that the product is deforestation free and legally produced (according to the laws of the origin country, such as ownership of land, labour rights and human rights)

EUDR compliance

While the responsibility of complying with EUDR lies with the buyer, we are seeing this passed down the supply chain, with producers often expected to provide this information to the buyer.

What does the regulation part mean? It means that this is a legal requirement. Penalties for non-compliance will be laid down under national law. In due course, the intention is for breaches of the EUDR to lead to criminal penalties, which may include: fines and confiscation of the covered products.

When Will the EUDR be Implemented?

The original commencement date for enforcement of the EUDR was 30th December 2024 for large and medium sized companies and June 2025 for micro and small companies.

On 14th November 2024, the European Parliament voted in favour of the European Commission’s proposal to postpone the implementation of the EUDR by 12 months, stating 'that additional time is required to allow global stakeholders, Member States and third world countries time to prepare.'

This news, however, has been met with concern over progress towards tackling the climate crisis. Fairtrade chocolate brand Tony's Chocolonely stated that 'the decision to move the regulation's implementation date back by 12 months poses negative consequences and further risks to farmers' livelihoods'.

EUDR Timeline

17th November 2021
Initial proposal of the EU Commission

6th December 2022 
Agreement between the Council and the European Parliament

16th May 2023
Approval of text

29th June 2023 
Entry into force (+20 days after publication in the EU's official journal)

November / December 2023
Designation of competent authorities of Member States and communication to the Commission (+6 months)

30th December 2024
Obligations for large and medium-sized companies enter into force (+18 months)

30th June 2025
Obligations for micro and small companies and individuals enter into force (+24 months)

EUDR: Explained

While many view the new EU law on deforestation as a milestone, others have raised questions. In the video beneath, which features members of Ivorian cocoa co-operative and Shared Interest customer CAYAT, we take a look at what's in the law and what the biggest concerns are. 

EUDR Compliance: In Summary

• For farms below 4 hectares, producer organisations must visit farms and capture precise GPS coordinates to define the farm boundaries.
• For farms above 4 hectares, the process has involved creating polygon maps.
• Physical visits to collect precise farm boundaries has presented an additional cost that was initially not incurred.
• EUDR compliance has not reflected in any changes in pricing of contracts to meet the additional costs of traceability.
• Currently, there is no centralised system to upload the data and buyers ask for the data for their own analysis.

Investigating our customers' EUDR compliance journey in East Africa

Overview

• In Uganda, 100% of our active portfolio export to Europe and are impacted by EUDR

• In Rwanda, 80% of our customers are impacted by EUDR, however, an early harvest and shipment challenges has resulted in an unavailability of customer mapping data.

Producer Preparedness

• For Banyankole Coffee Services, 90% of farms have been mapped.

• For Bukonzo, 100% of farms have been mapped.

• For Gisha Coffee, over 50% of farms have been mapped.

In the video beneath, Shared Interest customer and Ugandan coffee producer Gisha Coffee share their EUDR compliance journey, with Hussein Ssibwa, the co-operative’s Sustainability Manager, who is in charge of ensuring compliance to certifications and quality control.

Investigating our customers’ EUDR compliance journey in West Africa

Overview

• 85% of our active portfolio in West Africa will be affected by EUDR. Affected customers in this region produce cocoa, coffee and soybean.

Producer Preparedness

• 85% to 100% of cocoa plantations are geo-referenced and mapped (supported by government, buyers, partners). 
• 80% of commodities (cocoa, coffee and soy) are exported to Europe
• 50% of our customers have progressed with the requirement to meet the regulations

CARGILL WA and CARGILL BV are a buyer for many producer organisations we support. Speaking about SOCODD’s compliance journey, they told us:

"In short, we are satisfied with their current level of compliance and confident in their ability to meet the EUDR implementation deadlines and ensure the delivery of contracts for 2024/2025.’’

In the video beneath, Shared Interest customer and Ivorian cocoa producer SOCODD shares how they are using certification and technology to map plantations and improve traceability to a degree that meets the requirements of EUDR, with the support of their buyer Cargill.

Investigating our customers’ EUDR compliance journey in Central America

Overview

• 55% of our portfolio is fully georeferenced.
• 45% of our portfolio is above 80% of progress.
• 47% of total production is exported to Europe.

Producer Preparedness

Mario Chavarría of UCA SJRC, a Shared Interest customer and Nicaraguan coffee producer, said:

"UCA SJRC had made progress on monitoring deforestation because we are Rainforest Certified and we already had a risk map of our producers' farms.Thanks to the support of the NGO Solidaridad, we were able to map 80% of the coffee farms. UCA SJRC has acquired a traceability system to upload the information and we have completed all the polygons."

Investigating our customers’ EUDR compliance journey in Central America

Overview

• 47% of our portfolio is fully georeferenced
• 32% of our portfolio is above 80% of progress
• 75% of total production is exported to Europe.

Producer Preparedness

Benji Poma, General Manager of Sangareni, a Peruvian coffee co-operative which exports 85% of its total production to Europe, told us:

“Adapting to the new requirements of the European standard in terms of georeferencing involved a greater effort in the technical area. It also required the organisation to have an understanding of the regulations and to train the technical staff to be able to adapt.

“Complying with the requirements of EU regulations allows us to maintain our export activities with our main customers, which are located in Europe. It allows us to have better control of the coffee growing area and control deforestation on the farmers' farms.”

Looking to the Future

While we have heard some positive examples of EUDR compliance progress from our customers, our understanding is that there is a range of readiness across our affected producers, with some a long way from being compliant. We await official outcomes of last week's vote, to understand when EUDR obligations will definitively be implemented.

In two years time, EUDR will be followed with CSDDD (Corporate Sustainability Due Diligence Directive) and legislation concerning forced labour, among other matters.

The CSDDD sets out a corporate due diligence duty for large companies to identify and address adverse human rights impacts (such as child labour) and environmental impacts (such as pollution) in their own operations, those of their subsidiaries and in their “chain(s) of activities”.

Support the World's Farming Communities

Thank you for reading. EUDR remains a challenging and complex subject which will impact farmers and craftspeople around the world in a variety of ways.

However, through the investments of our members, we will continue to provide finance producers and business support to producers, ensuring enterprises in the most disadvantaged regions of the globe remain supported and empowered towards growth.

Now, more than ever, it is vital that we unite to protect and preserve the world's farming communities. 

In 2023, 153 producer organisations accessed fair finance through Shared Interest across 45 different countries, supporting the livelihoods of 9,519 employees and 412,628 farmers and artisans, including 131,415 women.

The far-reaching impacts of our work could not be made possible without the support of our community of over 10,000 ethical investor members based in the UK. To find out more about becoming a Shared Interest member, click here.