EU Deforestation Regulation (EUDR): What it means for your supply chain

Every year, a total of 15 billion trees are cut down, contributing to the loss of 10 million hectares of forest annually – an area about the size of Scotland and Wales combined.¹ This not only devastates ecosystems and accelerates biodiversity loss but also poses significant challenges to global supply chains and businesses worldwide. 

In response, the EU Deforestation Regulation (EUDR) aims to promote the use of “deforestation-free” products and reduce the EU's contribution to global deforestation.² It applies to both products produced within the EU and potentially exported, as well as products imported into the EU market. EUDR covers key goods like cattle, cocoa, coffee, palm oil, rubber, soy, and wood, along with their by-products. 

Under the EUDR, companies have to ensure their products originate from land where no deforestation or forest degradation has occurred since 31 December 2020 and comply with relevant laws in the country of production. In order to comply, businesses must go beyond basic compliance and leverage innovative digital traceability solutions. 

This article will explore the nuances of the EUDR, its purpose, implementation timeline, the businesses and products affected, and the data requirements for compliance. It will also examine how technologies like blockchain and digital product passports can simplify and enhance EUDR due diligence processes. 

What is the context of the EUDR?

As global warming becomes an increasing concern worldwide, one of the main responses from the EU is the Green Deal. The Green Deal policy aims to make the EU the world’s first climate-neutral continent by 2050. Its focus lies in reducing greenhouse gas emissions, promoting sustainable practices, and transforming various sectors such as energy, agriculture, and industry.³ 

The EUDR is a key component of the broader Green Deal, complementing other targeted policies to address the most critical sectors. Together, these measures drive progress toward the ultimate goal of climate neutrality by 2050. EUDR replaced the EU Timber Regulation (EUTR), which was primarily focused on fighting illegal logging⁴, while the EUDR expanded its scope to include a wider range of activities that are linked to deforestation. 

This change in scope acknowledges that a large portion of deforestation is actually legal. Therefore, the EUDR aims to combat both legal and illegal deforestation. Aligning EUDR with the Green Deal highlights the EU’s commitment to reducing its impact on global forests and combating climate change, reflecting a comprehensive approach to address environmental concerns and promote sustainable supply chains. 

What is the purpose of EUDR? 

The main objective of the EU Deforestation Regulation (EUDR) is to address global deforestation and promote sustainable supply chains by⁵: 

• Avoiding that the listed products Europeans buy, use and consume contribute to deforestation and forest degradation in the EU and globally. 
• Reducing carbon emissions caused by EU consumption and production of the relevant commodities by at least 32 million metric tonnes a year. 
• Addressing all deforestation driven by agricultural expansion to produce the commodities in the scope of the regulation, as well as forest degradation. 

The policy aims to fight global deforestation and promote sustainable supply chains through several core objectives: 

• Prevent deforestation in global supply chains by prohibiting products linked to forest degradation. 
• Improve supply chain transparency and traceability by mandating due diligence systems and detailed documentation. 
• Hold businesses accountable for sourcing sustainable materials, requiring proof of deforestation-free and legally produced products. 
• Promote ethical business practices and reduce environmental harm by increasing demand for sustainable products and addressing human rights concerns. 

These objectives collectively work to protect forests, reduce carbon emissions, and foster responsible business practices worldwide, widening the impact far beyond EU borders. However, this has implications for businesses, mainly increased due diligence obligations and restrictions to market access. 

What is the timeline for EUDR implementation? 

The EUDR’s revised implementation dates are set for 30 December 2025 for large businesses and 30 June 2026 for micro and small enterprises.⁶ This delay was given to grant third countries, member states, operators, and traders more time to prepare for the extensive due diligence obligations required due to concerns of not being able to comply in time. 

Despite the postponement of a year, businesses must still prepare for the regulation's complex and wide-ranging requirements. EUDR demands rigorous supply chain monitoring and geolocation data collection, down to the level of "plots of land".⁷ Therefore, mapping your supply chain to implement an end-to-end traceability solution is essential for compliance. 

What businesses and products are affected by EUDR? 

The scope of industries affected by the EU Deforestation Regulation (EUDR) includes agriculture, timber, soy, palm oil, cocoa, and rubber. In all cases, the responsibility to comply falls on the business placing the product on the EU market, not on the producer.⁸ Companies in these sectors must ensure their products are deforestation-free, traceable to their source, and compliant with local laws. 

For the palm oil industry, this regulation affects producers of food, cosmetics, and cleaning products, requiring detailed geolocation data and documentation to prove sustainable sourcing. Similarly, the rubber industry faces strict requirements for products like tyres and inner tubes, which fall under EUDR’s scope. Businesses must implement robust traceability systems, conduct supply chain audits, and mitigate risks of deforestation. 

The regulation especially impacts supply chains and market competitiveness, potentially shifting trade patterns and restricting market access for non-compliant products. While this can lead to increased operational costs, it can also create competitive business advantages for early adopters of sustainable practices as more businesses seek out EUDR-compliant suppliers. 

What are the data requirements for EUDR compliance?

Businesses must collect, organise, and retain the following information for five years from the date of placing relevant products on the market or exporting them:

1. Product description, including trade name, type, and for wood products, common and scientific names of species.
2. Quantity of products, expressed in kilograms of net mass and supplementary units where applicable.
3. Country of production and specific parts, if relevant.
4. Geolocation coordinates of all plots of land where commodities were produced, including production dates or time ranges.
5. Name, postal address, and email of suppliers, as well as businesses, operators, or traders to whom products were supplied.
6. Verifiable information demonstrating that products are deforestation-free, and showing production complied with the relevant legislation of the country of production.

The regulation highlights a three-tier system which will be used to assess countries or specific regions within them. Member States and third countries, or their subdivisions, will be categorised into one of the following risk levels⁹:

1. 'High risk' represents countries or regions where the assessment indicates a significant likelihood that relevant commodities produced there, or products derived from them, may not meet the deforestation-free requirements outlined in Article 3, point (a).
2. 'Low risk' refers to countries or regions where the assessment concludes there is adequate assurance that non-compliance with the deforestation-free requirements of Article 3, point (a) for relevant commodities or products is rare or exceptional.
3. 'Standard risk' applies to countries or regions that are not classified as either 'high risk' or 'low risk', basically serving as a default middle category. 

Companies sourcing from high-risk areas face stricter due diligence requirements, increased compliance costs, and potential market access challenges. Those sourcing from low-risk regions may benefit from simplified procedures and easier market entry. This system will likely influence supply chain management strategies, with companies potentially shifting away from high-risk sources. It also requires enhanced supply chain traceability and transparency, especially for high-risk products. 

This risk-based approach could influence how businesses adjust their operations and risk mitigation strategies as businesses navigate compliance with the EU’s zero-deforestation goals. At the same time, companies must balance these adjustments with managing compliance costs and maintaining market access.

What are some solutions for EUDR compliance?

EUDR presents both significant challenges and opportunities for businesses. Businesses face implementation difficulties due to limited guidance from the EU Commission and concerns about the reliability of the proposed IT system for registering due diligence information.¹⁰ There's also a risk of smallholder exclusion as larger companies may opt to simplify their supply chains for compliance. Legal and trade-related issues arise from potential conflicts between geolocation data sharing and national regulations, with some countries viewing EUDR as a technical trade barrier. The increased administrative burden and compliance costs pose additional challenges.¹¹ 

To address these issues, businesses are adopting various solutions and preparation strategies:

• Early preparation is crucial, with companies implementing robust risk assessment and mitigation measures, particularly for high-risk sourcing. 
• Developing rigorous traceability systems and engaging closely with suppliers are key steps in ensuring compliance. Digital product passports are a popular solution.  
• Establishing systems for documentation and annual public reporting on due diligence is also essential.
• Many businesses are investing in technologies to aid geolocation tracking and supply chain transparency, while also focusing on training and capacity building for staff and suppliers¹¹.

Collaboration has emerged as a vital strategy, with companies engaging industry associations, NGOs, and government bodies to share best practices and collectively address challenges. Various consultancy firms, technology providers, and certification bodies are also developing solutions to assist businesses in complying with EUDR requirements. As the regulation's implementation date approaches, these preparatory actions are becoming increasingly critical for affected industries. Companies need to implement effective traceability systems that ensure the origins of their raw materials are well-documented. This is where understanding the different chain of custody models becomes essential for managing risk and proving compliance. 

Who is responsible for ensuring EUDR compliance?

Under the EUDR, the primary responsibility for compliance lies with economic operators and traders active in the EU market for relevant commodities and products¹².

• Economic operators, such as importers, manufacturers, and companies involved in harvesting or processing commodities, carry the heaviest compliance burden, as they are the first to place these products on the EU market or export them.
• Traders, who distribute products after they’ve been placed on the market, have different obligations depending on their size:
  
  • Large traders face stricter requirements
  • Small and medium-sized enterprise (SME) traders have lighter responsibilities under the regulation.

Non-compliance is heavily penalised, including fines of up to 4% of EU annual turnover, temporary bans from public contracts and funding, and potential confiscation of non-compliant goods¹³. Under EU law, greenwashing could also lead to severe consequences for companies that inadvertently mislead consumers about the environmental impact of their products or services. Regulatory crackdowns, hefty fines, and reputational damage are all risks businesses face if their sustainability claims are not backed by verifiable data.

Conclusion 

Beyond mere compliance, EUDR preparation offers long-term benefits in traceability, sustainability, and risk mitigation. Despite the implementation deadline being extended to 30 December 2025, businesses should not delay their preparations. Early compliance efforts can also help align with other sustainability regulations, such as the Ecodesign for Sustainable Products (ESPR), as well as the US Inflation Reduction Act (IRA). 

Early adopters of digital compliance tools can gain a significant competitive advantage by demonstrating a commitment to sustainability. This not only strengthens brand reputation but also enhances market positioning.¹⁴ Businesses should proactively explore digital traceability solutions that help ensure regulatory compliance and drive operational efficiency and sustainability. 

Circularise offers a leading platform for end-to-end traceability, providing solutions like digital product passports to streamline data collection and sharing while safeguarding sensitive information.