By Brian Monteith – 7 minute read
IT IS GENERALLY not known but after a great deal of lobbying between different interest groups in the European Parliament a law was passed last year to ban, or tax punitively, particular agricultural products that could be traced to have benefitted from forest clearance since 2020.
It is the sort of regulation that many people will automatically think is a sensible and sensitive law that nobody could be against. After all, who could be for illegal deforestation?
It was in the context of reducing emissions from forest clearance and maintaining natural habitats that the political blocks of the European Parliament sought to consider what to do, but with the typical ideological purity of European greens all nuance was lost and countries that have been introducing their own sustainability requirements were ignored. Likewise, a deaf ear was turned to whole industries seeking practical changes – and only now as lawyers advise what the real effects will be are some producers realising they too will be caught in the EU’s broad and sweeping approach.
While produce like rubber, palm oil and soy or the rearing of beef cattle were the most quoted examples of foods or ingredients that would be scrutinised and penalised the impact has been far more wide-ranging, unpredictable and surprising. As is often the case, the unintended consequences of their good intentions have surprised the politicians.
The law in question is the EU Regulation on Deforestation-free Products (known as EUDR) and became effective in June 2023, but most people are only hearing about it now because the key sections were not to be implemented until 30 December 2024. Small businesses will have to comply from 30 June 2025. It effects any forest land cleared for agricultural production or logging from 2020.
Research from GlobalData estimated it could add $1.5 billion in compliance costs for palm oil and rubber producers alone. This estimate is based on the implementation of systems to trace palm oil back to its plantation of origin, along with certification costs for standards like RSPO (Roundtable on Sustainable Palm Oil), legal support and maintenance of compliance records as well as a potential increase in sustainable raw material costs of 15%-25%.
Industry sources are suggesting imported EUDR-compliant oil palm products and their derivatives could carry premiums of between $300-$600 per ton for palm kernel oil and $50-$100 per ton for palm oil, while those importing EUDR-compliant cocoa beans could see premiums of around $20-$30 per ton.
Calculating a similar impact across all products from soy to cocoa to coffee to wood pulp have been identified as impacting trade worth a staggering $110bn annually, leading to cumulative price price increases for consumers.
As well as trying to create higher compliance standards across Europe the EU Commission views its actions as a driving force in creating global standards – what is known as the ‘Brussels effect’. EU laws can become ‘externalized’ because with 448 million people the EU bloc is one of the largest consumer markets in the world, guarded by the high tariff wall and regulations of its Customs Union.
The threat of the external effects of EUDR was enough for the US Trade Department to write a letter to the EU Commission signed by US Trade Representative Katherine Tai, US Agriculture Secretary Thomas Vilsack and US Commerce Secretary Gina Raimondo, reporting that American producers were struggling to prepare to comply and that a delay in the introduction of the law was required.
As the run-up to the introduction of the EUDR looms on 30 December a spate of warnings has begun to emerge about how various popular products will become more expensive – putting the law into controversial focus.
The fourth generation Chairman of Lavazza coffee, Giuseppe Lavazza, warned the EUDR would push thousands of farmers out of business and drive up coffee prices across Europe. He revealed the regulations were not drafted with the input of the coffee industry but would prevent businesses from importing goods, including coffee beans, if they have been grown on recently deforested land, commenting, “This is introducing a big limitation, a very strong distortion of the market. For all of the European roasters, this is very challenging. Think about farmers in Central America, I think very few of them are ready to be compliant with the regulation.”
Scottish farmers have raised the threat to their sales of beef and beef products to the EU (now including Northern Ireland), which accounts for 73% of their red meat exports. Farmers will have to prove cattle were not raised on land that was deforested illegally to make space for grazing and also have to demonstrate the animals have not been fed animal feed that contains soy or palm oil that is driving deforestation abroad. They will have to provide geolocation coordinates of the cattle as evidence for this. Pig breeders are particularly concerned about obtaining approved soy-based animal feed and expect prices to rise.
Thanks to its stability at high temperatures, neutral taste, and long shelf life palm oil is highly versatile and widely used by food manufacturers in chocolate, ice cream, bakery products, snack and canned goods to. As a result high street bakers and confectioners are now realising they too could be caught in the EUDR net.
Failure to comply could result in EU fines of up to 4% of a company’s annual turnover within the EU, the confiscation of product supplies and reputational damage from a published list of details on the EU Commission’s website.
As the deadline fast approaches so the politicians who enabled the legislation are beginning to doubt its remedies and appropriateness. The EU President Ursula von der Leyen’s own political party in Germany, the European People’s Party (EPP), called for a two-year delay to EUDR, followed by the SPD German Chancellor Olaf Scholz himself also requesting a delay, this time because of the impact the EUDR will have on print and packaging products.
Geneviève Pons, Director General and Vice President of Europe Jacques Delors and an honorary Director of the European Commission admitted a delay was likely, “It will be very difficult to avoid a postponement” of implementation EUDR provisions. “It will be more, I think, a political question than a legal question”.
A range of EU member states also called for a delay, the most recent being Czechia, joining Austria, Finland, Italy, Poland, Slovakia, Slovenia, and Sweden. The concerns aired were not about the principle of preventing deforestation itself but more about the effectiveness of the regulations, their complexity, the IT systems being inadequate and the ability of producers – especially the poorer farmers –being able to cope without going out of business.
There were also concerns raised that the law creates a perverse incentive for farmers in South America to leave formal markets and instead switch to cultivating illegal narcotics under the protection of drug lords who have their own armies able to protect them from prying officials.
The IT system designed to support the process is reportedly inadequate and behind schedule. The system’s file size limit is claimed to be too small for the necessary due diligence statements, which could be exceeded in a single shipment. Moreover, the system failed during pilot testing, yet the Commission decided against a second pilot phase.
Such indifference points to a lack of understanding within the Commission about the complexity of supply chains for even simple commodities and products, such as paper and animal feed. Identifying the production location is straightforward, but tracing through the entire supply chain is much more complicated.
The Stockholm Environment Institute has published its independent research about the plight of smallholder farmers in Southeast Asia and how they will be impacted by EUDR.
It drew attention to the local challenges and potential implications, reporting, “Many smallholders already struggle to obtain the necessary certifications. It is estimated that only 10% of them have obtained Roundtable on Sustainable Palm Oil (RSPO) Certification, and the number is even less when it comes to independent smallholders that are not affiliated with big traders or companies.”
This compares poorly and is in stark contrast to the example of the Malaysian Sustainable Palm Oil (MSPO) certification scheme that covers around 98% of the Malaysian palm oil industry, including most of the country’s smallholder farmers. Due to such initiatives as the MSPO the rate of deforestation in Malaysia has been trending lower since 2017, with Global Forest Watch in June 2023 reporting a sharp reduction in forest loss, showing that reversing the rising deforestation in other countries is achievable.
Positive government action has continued in recent years, with a plantation area cap established in 2019 through 2023, and new forestry laws enacted in 2022 to stiffen penalties for illegal logging. Malaysian oil palm corporations appear to be taking action with some 83% of palm oil refining capacity now operating under a ‘No Deforestation, Peat and Exploitation (NDPE)’ commitment. Annual loss of primary forest in Malaysia had fallen by more than half between 2016 and 2023, down from 189,999 hectares a year to 74,449.
Unfortunately the EU has not yet agreed to accept the sustainability credentials of the MSPO nor give any encouragement to countries that seek to introduce tighter controls. Then, lo and behold, after all the pressure and the concerns raised, a report by Reuters suggests the EU Commission is indeed going to climb down and delay the introduction of the EUDR by a full year, subject to member state and European Parliament approval.
This is not a victory for common sense – it is only a delay of bureaucratic overreach – but it does provide time to convince the EU Commission to make its law more practical and to take account of existing sustainability measures that are already delivering environmental improvements.
After all, at a time when Europeans are suffering from higher bills, why enforce new legislation that does not take account of existing and successful sustainability certification initiatives and will lead to big price increases for consumers? Just what is the point of penalising countries such as Malaysia that are working to counter deforestation when around 93% of the palm oil entering Europe is already certified sustainable and free of deforestation?
The EU’s typical approach of one-size-fits-all risked setting back the advances already being made before it started to legislate. Let us hope the Commission sees sense and alters the final implementation of its laws so food producers can deliver the environmental improvements all parties desire.
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Brian Monteith is a former member of the Scottish and European Parliaments and has worked on many development projects across Africa, Asia and the Caribbean.
Photo of Brazilian coffee plantation by sidneydealmeida from Adobe Stock