Demystifying the EUDR Regulation: Understanding Its Impact on Commodities and Compliance Requirements

Discover how the European Union Deforestation Regulation (EUDR) is reshaping the landscape for commodities and the compliance requirements that businesses need to navigate. The EUDR builds on previous frameworks such as the EU Timber Regulation and was adopted by the European Parliament to address global deforestation. This regulation aligns with both national and international law to ensure comprehensive environmental protection.

This informative article breaks down the impact of EUDR on various commodities, addresses common questions, and provides valuable insights for business owners and stakeholders looking to understand and adapt to this new regulatory framework.

Table of Contents

• What is the EUDR Regulation?

• What is the problem and why is it a problem at EU level?

• Overview of the EUDR

• Objectives of the EUDR

• Scope of the EUDR

• Compliance Requirements under EUDR

  • Understanding due diligence requirements

  • Documentation and traceability

  • Risk Assessment

  • Risk mitigation

  • Penalties for non-compliance

• The role of the EU single customs window

• Navigating EUDR for Business Owners

• Common Questions about EUDR

• Embracing sustainability as a competitive advantage

What is the EUDR Regulation?

The European Union Deforestation Regulation (EUDR) is a significant legislative initiative aimed at addressing the impact of deforestation and forest degradation on global supply chains. Next to CSRD and CBAM it is one of the key initiatives coming out of the EU’s Green Deal.

The Regulation on deforestation-free products, effective as of 29 June 2023, aims to address the expansion of agricultural land linked to the production of commodities such as cattle, wood, cocoa, soy, palm oil, coffee, and rubber. Commodities produced illegally on deforested land after 31 December 2020 cannot be placed on the EU market or exported.

Cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products like leather, chocolate, tires, and furniture.

The EUDR defines its product scope based on these seven commodities, covering both raw materials and timber products, as well as their derived products. This includes the classification, tracking, and verification of these products to ensure compliance with the regulation.

Palm oil (34%) and soy (33%) are by far the most significant products according to the impact assessment by the European Commission. The EU, as a major economy and consumer of these commodities, acknowledges its partial responsibility for deforestation and forest degradation and seeks to take a leading role in addressing this issue. The regulation aims to ensure deforestation free supply chains for all products placed on the union market.

Under this Regulation, any operator or trader placing these commodities on the EU market or exporting from it must demonstrate that the products do not originate from recently deforested land or have contributed to forest degradation. Operators must ensure that commodities are not mixed with those of unknown origin or from areas deforested after the cut-off date of 31 December 2020.

What is the problem and why is it a problem at EU level?

Deforestation and forest degradation are rapidly worsening, contributing to climate change and the decline of biodiversity. The primary cause of these issues is the expansion of agricultural land for the production of commodities like cattle, wood, palm oil, soy, cocoa, and coffee. The EUDR addresses deforestation risk not only within the EU but also in partner countries and other countries that supply these commodities, emphasizing international cooperation to promote sustainable, deforestation-free supply chains.

As the global population continues to grow, the demand for agricultural land is expected to rise, further straining forests. Additionally, shifting climate patterns are projected to impact food production.

Biodiversity loss poses a significant threat to the sustainability of water cycles and food systems, which in turn jeopardizes food security and nutrition. Over 75% of global food crop varieties depend on animal pollination for reproduction. Additionally, genetic diversity and ecosystem services are vital inputs for various industrial sectors, especially for the production of medicines such as antimicrobials. This highlights the crucial role of biodiversity in supporting not only food production but also other essential aspects of human well-being and economic activities. Environmental protection is therefore a core objective of the regulation, ensuring compliance with laws and practices that safeguard land use, forest management, and biodiversity conservation.

UDR in Practice: Industry Voices on the Frontline of Compliance

Overview of the EUDR

The EUDR aims to tackle the issue of deforestation and forest degradation by prohibiting the placing of products linked to deforestation on the EU market. It requires businesses to conduct due diligence to ensure that the products they place on the EU market are not associated with deforestation or forest degradation.

The EUDR acts as a repealing regulation, replacing previous laws such as Regulation (EU) No 995/2010 to strengthen the EU's approach to combating deforestation and forest degradation.

Competent authorities and enforcing authorities are responsible for overseeing compliance with the EUDR, ensuring that operators and traders adhere to the regulation's requirements.

Objectives of the EUDR

The primary objective of the EUDR is to contribute to the global fight against deforestation and promote sustainable development. By regulating the import of certain commodities linked to deforestation, the EU aims to encourage responsible sourcing practices and support sustainable land use.

The EUDR also aims to ensure that all commodities are produced legally, with proper forest management practices in place.

Country risk ratings are used to assess the likelihood of non-compliance and guide enforcement priorities.

Scope of the EUDR

The EUDR applies to the following products:

• cattle, cocoa, coffee, oil palm, rubber, soya, and wood.

The regulation also covers products sourced from wooded land and other wooded land, not just traditional forests.

It covers not only the direct import of these products but also their inclusion in other goods, such as processed food, animal feed, and biofuels. Product classification is determined using customs codes, HS codes, and the EU's Combined Nomenclature.

Deforestation-free means that products are made in a way that doesn’t harm the forests. It also means that any wood used in the products comes from the forest in a way that doesn’t hurt the trees or the land.

Businesses operating within the EU market must adhere to specific compliance requirements outlined in the EUDR to ensure responsible sourcing and trade practices. Operators must provide relevant information, including accurate production dates, to demonstrate compliance. Companies must submit a due diligence statement to their competent national authority before placing products on the EU market. Relevant commodities and relevant products shall not be placed or made available on the market or exported unless all the following conditions are fulfilled:

• they are deforestation-free;

• they have been produced in accordance with the relevant legislation of the country of production;

• and they are covered by a due diligence statement.

Understanding due diligence requirements

Under the EUDR, businesses are required to exercise due diligence by implementing measures to identify, prevent, and mitigate the risks of placing products associated with deforestation on the EU market.

Operators have specific diligence obligations, including the need to collect data on the origin and production of commodities to ensure they are deforestation-free and legally produced.

A simplified due diligence process may apply for products sourced from low risk countries, reducing the compliance burden for operators while maintaining regulatory standards.

Documentation and traceability

Compliance with the EUDR necessitates comprehensive documentation and traceability of supply chains to provide evidence of sustainable sourcing practices and the absence of deforestation. The geolocation information obligation must be provided in the due diligence statements for each relevant product.

Operators must gather information, documents, and data to prove that relevant products comply with Article 3. This information must be collected, organized, and kept for five years from the date the products are placed on the market or exported. The required information includes:

• Product Description: A detailed description of the relevant products, including their trade name and type. For products containing or made using wood, the common and full scientific names of the species must be included. The description should list all relevant commodities or products used.

• Quantity: The amount of the relevant products, expressed in kilograms of net mass and, if applicable, in the supplementary unit defined in Annex I to Council Regulation (EEC) No 2658/87, along with the Harmonized System code.

• Country of Production: The country, and relevant regions, where the products were produced.

• Geolocation: The exact locations of all plots of land where the relevant commodities were produced, along with the production date or time range. If different plots were used, include the geolocation for each. Any deforestation or forest degradation on these plots disqualifies the products from being marketed or exported. For cattle products, include all establishments where the cattle were kept. Operators must provide geolocation coordinates for all plots of land involved in production to ensure traceability and compliance with EUDR requirements.

• Supplier Information: The name, postal address, and email address of the business or person who supplied the relevant products.

• Customer Information: The name, postal address, and email address of the business, operator, or trader to whom the products were supplied.

• Deforestation-Free Evidence: Reliable and verifiable proof that the products are deforestation-free.

• Legal Compliance Evidence: Reliable and verifiable proof that the commodities were produced in accordance with the relevant legislation of the country of production, including any rights to use the land for production purposes.

Competent authorities may request further information to verify compliance with EUDR obligations.

Risk Assessment

Based on the information and documents mentioned above, companies must assess whether there is any risk that the products they want to sell or export do not meet the regulations. Companies can only sell or export the products if their assessment shows there is no risk, or only a very small risk, of non-compliance. The EUDR includes a requirement for operators to assess the risk of circumvention of the Regulation and the risk of mixing with products of unknown origin. If a product is determined to have negligible risk, less extensive mitigation measures may be needed.

• Country Risk: Evaluate the risk level of the production country or region. Countries may be classified as low risk, standard risk, or high risk, which determines the level of due diligence required.

• Forest Presence: Check if forests are present in the production area.

• Indigenous Peoples: Note the presence and involvement of indigenous peoples.

• Consultation with Indigenous Peoples: Ensure good faith consultation and cooperation.

• Indigenous Claims: Consider any valid claims by indigenous peoples regarding land use or ownership.

• Deforestation Prevalence: Assess the rate of deforestation or forest degradation in the production area.

• Information Reliability: Verify the reliability and validity of collected information.

• Country Concerns: Consider issues like corruption, document falsification, law enforcement, human rights violations, armed conflict, or sanctions.

• Supply Chain Complexity: Assess difficulties in tracing products back to their origin.

• Regulation Circumvention Risk: Be aware of potential attempts to bypass regulations.

• Expert Group Conclusions: Take into account expert group findings.

• Non-Compliance History: Look at previous compliance issues in the supply chain.

• Risk Indicators: Consider any signs that products might not comply with regulations.

• Supplementary Compliance Information: Use additional info from certification or third-party schemes if it meets regulatory standards.

Risk mitigation

1. Risk Assessment and Mitigation:

• Before selling or exporting products, companies must ensure there’s no risk or only a very small risk of non-compliance by using risk mitigation measures.

As part of their risk mitigation strategy, companies must document their diligence efforts and due diligence efforts, especially to comply with legal frameworks and regulations related to forest management and agricultural supply chains.

These measures can include:

• Asking for more information or documents

• Conducting independent surveys or audits

• Taking other information-related actions

Measures may also involve helping suppliers, especially smallholders, to comply through training and investment.

2. Risk Management Policies:

• Companies should have proper policies, controls, and procedures to handle non-compliance risks.

These should include:

• Best practices for risk management, record-keeping, internal control, and appointing a compliance officer for larger operators

• An independent audit function to check these policies and controls for larger operators

3. Documentation and Review:

• Companies must document and review their risk mitigation decisions at least once a year and provide this information to authorities upon request. They should be able to explain how these decisions were made.

All these proccesses can also feed into establishing ESRS reporting practice, as outlined in this article

Penalties for non-compliance

Penalties for non-compliance will be effective, fair, and deterrent. They include fines based on the environmental damage and the value of the products, ensuring those responsible lose any economic benefits, with higher fines for repeat offenses. Penalties for non-compliance with the EUDR will be laid down under national law.

Fines for companies can be up to 4% of their total annual turnover.

Penalties also include confiscating the non-compliant products and any related revenues, excluding offenders from public contracts and funding for up to 12 months, banning them from selling or exporting relevant products temporarily, and restricting the use of simplified due diligence for serious or repeated violations.

The role of the EU single customs window

The Single Window will improve cooperation and coordination between different authorities and support automatic checks of non-customs formalities for goods entering or leaving the EU. This will be done through a digital solution that allows electronic data exchange between authorities, enabling businesses to complete border formalities in one place within a Member State, thus reducing duplication, time, and costs.

The European Commission proposal reveals that the Single Window concept encompasses multiple platforms operating at various levels. So it is, in fact, not single. The single customs window aims to make information exchange between customs and partner authorities simpler, resulting in significant efficiency gains and time savings for clearing goods. Economic operators will benefit from automated exchanges between authorities and won’t need to present physical documents for customs clearance. Customs authorities will be able to verify documents automatically, reducing the time and effort required for document checks. With the automated system available 24/7, standard cases can be cleared even outside of working hours. This single portal will also simplify regulatory requirements and eliminate the need to submit the same information to multiple authorities for the same shipments.

The Deforestation Due Diligence Statement Registry is a website that helps companies to make sure they are not contributing to the cutting down of trees. It will start in November 2024 and everyone can use it in December 2024.

Downstream operators, such as EU traders, must reference customs codes (including CN and HS codes) and collaborate with partner countries to ensure compliance with regulatory requirements when using the Registry.

Using the Registry, companies can precisely identify the origins of products and materials by mapping specific areas or providing individual or bulk coordinates. To simplify the process for companies dealing with products from multiple locations, the system offers options for uploading, copying, or reusing location information. Bulk coordinates can be entered in a file using the GeoJSON standard format.

When creating a Due Diligence Statement, the operator selects the product type and specifies characteristics such as quantity and volume. Furthermore, downstream supply chain operators (such as EU traders) can reference previously created Statements, streamlining the due diligence process.

Navigating EUDR for Business Owners

Navigating the EUDR requires proactive measures and strategic approaches to ensure compliance and uphold sustainable trade practices.

• To ensure compliance, business owners should:

• Understand the EUDR requirements.

• Develop processes to meet compliance standards.

• Use technology for transparency and traceability.

• Collaborate with supply chain partners.

Large and medium companies, including medium companies specifically, must meet EUDR compliance deadlines and understand their diligence obligations to ensure they are prepared for regulatory enforcement.

Alternatively, you can strategically move away from EUDR by discontinuing the use of those high-risk commodities, following the footsteps of Rügenwalder Mühle’s proactive approach

Frequently Asked Questions (FAQ) – EUDR Regulation

What is the EUDR Regulation?

The European Union Deforestation Regulation (EUDR) aims to prevent deforestation by requiring companies to prove that products sold in the EU are deforestation-free and legally produced.

Who needs to comply with the EUDR, and from when?

Large companies and non-SME traders must comply by 30 December 2024. SMEs have until 30 June 2025 to meet the same due diligence requirements.

Which commodities are covered by the EUDR?

The regulation currently applies to cattle, cocoa, coffee, palm oil, soy, rubber, and wood – and also to derived products like chocolate, leather, tyres, and furniture.

In addition, the EUDR covers timber products and raw materials derived from these seven key commodities, ensuring that both unprocessed and processed inputs are subject to compliance.

How does EUDR define deforestation?

Deforestation means converting forest into non-forest land, typically due to agriculture, mining, or infrastructure development – regardless of legality in the producing country.

Are SMEs exempt from the EUDR?

No. SMEs must also comply – they just have a later deadline (30 June 2025). Proportional enforcement may apply, but the obligations remain the same.

Is FSC or other certification enough to comply with the EUDR?

No. Certifications like FSC help, but they don't replace the company's legal responsibility to conduct full due diligence – including traceability and risk mitigation.

How will the EU verify deforestation-free claims?

Authorities will check declarations and supporting evidence, such as geolocation data, risk assessments, and supplier documentation. Competent authorities and enforcing authorities are responsible for checking compliance with the EUDR, conducting audits, and ensuring that operators and traders meet regulatory requirements. Enforcement includes audits and inspections.

How can companies ensure EUDR compliance?

By mapping supply chains, conducting risk assessments, gathering geo-data, and setting up traceability systems. As part of their compliance process, companies must collect data and provide geolocation coordinates to demonstrate adherence to regulations. Collaboration with suppliers and tech tools also help.

What are the penalties for non-compliance with the EUDR?

Fines up to 4% of annual turnover, product confiscation, exclusion from public contracts or funding, and restrictions on selling affected goods in the EU.

Will the scope of EUDR expand in the future?

Yes, the EU is expected to add more commodities and tighten requirements over time, based on reviews and data collected after implementation.

Embracing sustainability as a competitive advantage

Embracing sustainability as a competitive advantage can position businesses as leaders in responsible sourcing and trade practices, appealing to conscientious consumers and investors.

In conclusion, the EUDR represents a pivotal development in the global effort to combat deforestation and achieve sustainable development goals. Business owners and stakeholders must proactively engage with the regulation, understand its implications, and adapt their practices to ensure compliance and contribute to sustainable and ethical trade practices. By embracing the principles of the EUDR, businesses can not only meet regulatory requirements but also demonstrate their commitment to environmental stewardship and responsible global trade.

In a survey carried out among timber and forest risk commodity operators across Europe, the following picture emerged:

This is due to the fact that traceability systems can greatly enhance the efficiency of timber sourcing. Interestingly, a significantly higher number of larger enterprises believe that regulations will not only positively impact customer growth, profitability, and market share but also compared to smaller companies with fewer than 50 employees.

This variation could indicate the differing resources at the disposal of enterprises or their familiarity with the implementation of other impactful regulations.

As companies look to navigate these complex regulations, it's also essential to consider how greenwashing can be avoided in their marketing strategies. Understanding the impact of regulations like the Green Claims Directive can further help companies align their communication with sustainable practices.

Additionally, companies interested in enhancing their sustainability strategies might benefit from exploring Life Cycle Assessment (LCA) as a tool for evaluating their environmental impact.

If there are any open questions, please do not hesitate to reach out. As an experienced sustainability consultant, I am available to assist you in navigating the complexities of these regulations and to help your company strengthen its sustainable practices and market position.