“A titanic challenge”: Policy institute warns EU’s deforestation rules threaten key stakeholders

17 Sep 2024 --- Competere has written to the European Commission (EC), proposing an approach that reduces costs for vulnerable smallholder farmers and European consumers in light of the incoming European Deforestation Regulation (EUDR). The policy institute has concerns that the EUDR in its current form alienates critical stakeholders.

“There are tens of millions of smallholders with diverse roles in complex supply chains. Some are well-integrated, but most operate within a very intricate system due to geographical complexity, long supply chains, numerous intermediaries, government roles, land ownership and more,” Pietro Paganini, president of Competere, tells Food Ingredients First.

“The EUDR overlooks their contribution, which is why producer countries are requesting exemptions. Integration is feasible but requires time, resources, education and a complicated, time-consuming rethinking of supply chains — a titanic challenge.”

The regulation will come into effect on December 30, 2024, and mark a turning point in the EU’s fight against deforestation. Companies placing oil, cattle, soy, coffee, cocoa and derived commodities like beef and chocolate on the EU market or exporting from the region must prove that their products are deforestation-free and did not contribute to forest degradation or illegal harvesting and trade.

Costs and confusion

The letter, signed by Paganini and addressed to Ursula von der Leyen, president of the EC, highlights a series of outstanding issues and subsequent corrective actions to ensure the implementation of EUDR is a “win-win” in protecting biodiversity and promoting market competition.

Competere highlights that many companies affected by EUDR are not prepared for the transition due to a lack of information and tools by the EC, which can hinder full compliance.

Inflation, the cost-of-living crisis and geopolitical tensions weigh heavily on Europe’s economy. It asserts that the EUDR will impact diverse supply chains with specific needs that were not wholly accounted for in the drafting phase. Instead, the authorities adopted a “generalist one size fits all” approach, alienating producing countries from the decision-making process.

“By excluding smallholders, the EU does not reduce but rather promotes deforestation,” reads the letter.

Meanwhile, palm oil stakeholders from Indonesia and Malaysia called for the regulation’s postponement in critical talks with counterparts in Brussels and Rotterdam last week to discuss sustainable vegetable oils.

Fairtrade published a similar statement last month, demanding financial support for small-scale farmers and a clarification of the regulation’s technical terms.

Additionally, Competere notes that commodities reaching European ports after December 30 have already been purchased and are in transit. As immediate solutions to avoid disruption at the ports seem elusive, Paganini says operators are left confused.

“If the Commission hasn’t yet updated its FAQs or issued clear guidelines, most operators are left in the dark, making it difficult to foresee how port controls will work. There’s also a risk of trade deflection, where some ports may be more lenient than others, potentially leading to uneven enforcement and unpredictable consequences.”

Inflation, the cost-of-living crisis and geopolitical tensions weigh heavily on Europe’s economy. Competere suspects that the burden on consumers and smallholders could worsen as prices might increase after the implementation of EUDR.

“It’s difficult, under current conditions, with just four months to go, to estimate the exact price impact on consumers, as supply chains vary significantly. Palm oil prices, for instance, are rising by up to 40% in some cases, depending on usage, with increases ranging from US$80 to US$200-300, according to industry sources.”

“While some of these costs can be absorbed by the supply chain, a portion will inevitably fall on the consumer, leading to imported inflation at a challenging time for European households,” Paganini says.

Recommendations for a “successful” implementation

The institute recommends a transition period of at least two years to implement EUDR, which it says will provide ample time for all stakeholders. It also asks for a temporary suspension of sanctions during this phase while maintaining the controls specified in the regulation.The formation of a permanent committee with commodity-based workgroups is a key demand.

The formation of a permanent committee with commodity-based workgroups is a key demand.

“The Standing Committee and the workgroups need to be as broad as possible, involving producer countries, supply chain operators and industry associations, national authorities — all the key players who manage, produce and trade every day, with firsthand knowledge of what’s happening on the ground,” says Paganini.

According to Competere, the committee should facilitate technical discussions and exchange information in accordance with Articles 21 and 27 of the EUDR. It should propose necessary adjustments and ensure collaboration among stakeholders, especially underrepresented groups.

Paganini admits that creating such a working group “is complex and may seem idealistic, but it’s necessary to address the challenges that will arise. The Commission must take responsibility for resolving the situation it has created. It’s a duty toward the citizens.”

He warns that once the EUDR comes into effect, several disruptive issues that the regulation has either “neglected or failed” will crop up and impact trade.

“Supply chains are complex and cannot be treated with a ‘one-size-fits-all’ approach — each has its specific challenges that need to be handled separately. This requires time and a thorough discussion of the emerging problems,” Paganini concludes.

By Anvisha Manral