The food industry has until the end of this year to comply with the EU Deforestation Regulation (EUDR) for cocoa, coffee, soy, palm oil, beef, and their derivatives. Is this going to be doable? Fi Global Insights speaks to a sustainable supply chain expert at Solidaridad Network.
The new EU Deforestation Regulation provides a legislative framework for ensuring that certain commodities traded and consumed in the EU no longer contribute to deforestation. With just months to go before the regulation is enforced, the food industry’s preparations should be well underway.
“I hope that affected companies are already actively working on meeting the EUDR requirements. If not, they should start right away,” Gert van der Bijl, senior EU policy advisor with NGO Solidaridad Network, told this publication.
From a food or ingredient manufacturer perspective, the starting point for ensuring compliance is to ascertain which of the products listed in Annex I of the regulation they are bringing into the EU, according to van der Bijl.
As well as the commodities cocoa, coffee, soy, palm oil and beef, the list includes derivatives of these products, such as cocoa beans, shells, husk, powder and butter, soybean flour, oil and meal, and glycerol, palmitic acid, stearic acid, and saturated acyclic monocarboxylic acids.
The formal responsibility for demonstrating compliance sits with the companies who place these products on the EU market or export them out of the EU – but that doesn’t mean other supply chain members are absolved of responsibility.
In practice, the burden of proof that no deforestation has taken place is shifted onto the shoulders of producers and farmers at the source of supply, whilst brand owners and manufacturers have a vested interest in gathering evidence of the ethical practices increasingly being demanded by retailers, investors, and consumers.
In short, eliminating the products of deforestation from the food production system is a multi-stakeholder matter that requires supply chain cooperation and relies on downwards pressure.
Take, for example, a margarine that uses a palm oil derivative; the supplier that brought this ingredient onto the EU market will be responsible for EUDR compliance, but this will require intelligence from those further up the chain - farmers, cooperatives, and traders. Therefore, the key to ensuring products meet the requirements of the new legislation is supply chain knowledge.
“It is all about knowing your supply chains. Companies can only ensure their supply chains are deforestation free if they know where their coffee or cocoa is grown or where their beef has been grazing,” said van der Bijl.
Companies need to provide the geolocation of all plots of land where the relevant commodities were produced, as well as the date or time range of production. Where the area is more than four hectares in size, they need to supply polygons showing the boundaries.
Once operators have established where their products are coming from, the next step – and the core of the new regulation – is ensuring that they are not from land that has been deforested since 31st December 2020. This requires a due diligence system, explained van der Bijl.
“There are no predefined rules for how this due diligence system should look, but it should allow operators to ascertain that the risk of deforestation is close to zero or negligible,” he advised.
To this end, he said the Organisation for Economic Cooperation and Development (OECD) has developed support tools, such as guidance on deforestation and due diligence in agricultural supply chains.
“Ultimately though, it is up to each individual company to implement a system that shows that the risk is close to zero,” he added.
Van der Bijl said that meeting these demands was a “considerable undertaking” for sectors such as coffee, cocoa, and beef because, until recently, most companies buying these commodities did not know exactly where they were coming from. He added that in coffee supply chains this challenge is compounded by the number of middlemen involved.
“In some regions, such as Indonesia or Uganda, there are three or four middlemen between the farmer and the first point of processing, in which case the product becomes ‘anonymous’. This is no longer allowed; companies need to trace their products right back to source and cannot allow them to be mixed with unknown sources.”
In this respect, he said the requirement for full traceability provides an incentive for companies to shorten their supply chains and deal directly with growers and cooperatives.
“Cooperatives need to cut out these middlemen to ensure they have more direct relations with the farmers. This is the only way that they can definitively say what the origin of the coffee is and show that it is not coming from land that is recently deforested,"
A less desirable consequence of the regulation might be that companies rationalise their supplier bases to work with fewer suppliers.
“This is a potential concern as if companies reduce the number of suppliers they work with, there is a risk they will elect to buy from larger suppliers rather than smallholders. It could threaten the livelihoods of smaller farmers who are less ‘organised’ or located in regions where the infrastructure is less developed,” warned van der Bijl.
Taking the coffee supply chain as an example, he said that 40% of the global supply comes from Brazil where farmers tend to be larger and better organised in terms of their readiness to meet EUDR requirements than in African countries.
“Some coffee companies have already indicated that they would have difficulty buying more coffee from countries like Tanzania, Ethiopia or Uganda, where they would be dealing with a large number of smallholders, and that it would be easier for them to buy coffee from Vietnam or Brazil,” said van der Bijl.
The trouble with sourcing from a more concentrated supply base is that in the long term, it could result in tighter supplies, he explained: “Climate change is already reducing the amount of coffee produced in some origins. Therefore, it is in the interests of coffee companies to maintain broad supply chains that include African countries.”
To avoid this situation, Solidaridad is calling on companies and governments to invest in improvements to infrastructure to ensure farmers of all sizes can supply the required data.
Asked how ready stakeholders are for the new requirements, van der Bijl said he was sensing “some nervousness”.
“Across the different sectors and countries there is still an awful lot that needs to be done and it remains to be seen whether everything will be ready by the end of the year. A major factor is that the Commission is still to provide additional guidance on quite a few areas,” he said.
One of the areas where guidance is outstanding is so called ‘country benchmarking’, whereby origin countries (and regions) are ranked according to the risk of the occurrence of deforestation. Products sourced from high-risk zones will be subject to additional due diligence requirements and scrutiny when imported into the EU.
Another area where the Commission has yet to provide guidance is on certification systems and the role they can play in demonstrating compliance, said van der Bijl.
“If a company buys Rainforest Alliance-certified coffee or Fair-trade cocoa, they still have to show they meet the requirements of the regulation. These certification schemes are not a ‘green light’ to compliance. The Commission therefore needs to clarify how companies can use these schemes within their own due diligence systems.”
The requirement for suppliers to demonstrate compliance with local laws on areas such as human rights and tax is a third area that is awaiting clarification.
“The Commission needs to provide guidance on exactly how this will be done and has asked countries to come up with lists of local laws that will apply here,” said van der Bijl.
But he emphasised that the industry needs to press on with its preparations rather than waiting for clarification on these points, as the drive towards sustainable, transparent supply chains is only going to intensify.
“Ultimately, this is about more than legal compliance; a sustainable future is what is really at stake. In order to operate sustainably, businesses need to know where their products come from and work with their suppliers to ensure they are produced in a responsible way.”
