Companies placing the commodity items of cocoa, coffee, soy, palm or cattle; or products derived from them such as chocolate, on the EU market or exports them from it, should familiarise themselves with the new EU Deforestation Regulation (EUDR) as this will apply to your business.
The 2024 Forest Declaration Assessment report revealed that in 2023, the world lost around 16 million acres of forest. With deforestation having such a damaging impact on the world’s eco-system, the EU introduced the EUDR which aims to curb deforestation and forest degradation linked to EU consumption and is expected to reduce greenhouse gas emissions and biodiversity loss. This will replace the soon to be repealed EU Timber Regulation, which will continue apply to timber and timber products harvested before 29 June 2023 and placed on the market between 30 December 2025 and 30 December 2028.
Whilst the EUDR does not directly apply to the UK post-Brexit, UK businesses of all sizes engaged in trade (or are potentially looking to trade) with the EU must ensure compliance to maintain market access. Compliance includes due diligence requirements and supply chain transparency to avoid potential penalties (see below).
The EUDR distinguishes between operators and traders, which are both subject to the EUDR. Whilst the operator is the first entity that introduces the product, by either being a producer, importer or exporter, traders make the product available to consumers through distribution, consumption or use.
The EUDR mandates certain commodities – cocoa, coffee, soy, palm oil, wood, rubber and cattle – must not be produced on land that has been deforested or degraded since 31 December 2020. This applies to both legal and illegal deforestation and encompasses certain derived products including beef, leather, chocolate, and furniture. It also requires that the products have been produced in accordance with the source country’s laws, and that the product is covered by a due diligence statement (see below).
If an item is not listed in Annex I, it is outside the scope of the EUDR. For example, soya is listed in Annex I as a relevant commodity, and soya bean flour is listed as a relevant product derived from soya, therefore are both subject to the requirements. However, tofu, which is made from soya beans is not listed as a relevant product, and is therefore outside the scope of the EUDR. However, the European Commission will keep Annex I under review over the next two years during which time additional products may be added. Therefore, whilst the EUDR may not apply to a particular business now, it may in the future.
The EUDR will apply on 30 December 2025 for medium and large companies, and 30 June 2026 for micro and small enterprises. It is important for businesses to take necessary steps to ensure compliance, as non-compliance can result in penalties such as fines of up to 4% of annual EU-wide turnover, confiscation of products or revenues, and temporary bans on market access.
Due Diligence Requirements: The regulation requires companies to follow due diligence procedures. This includes providing detailed information about the origin of these commodities, including geolocation data, risk assessments considering indigenous communities and forest resources, and developing strategies and controls to mitigate non-compliance risk. The responsibilities of operators and traders differ in these requirements:
Supply chain transparency: Companies will need to map their supply chains comprehensively to trace the origins of their raw materials. This can be particularly challenging for businesses with complex supply chains, potentially leading to increased administrative costs.
Reputational risks: Non-compliance with the EUDR can damage a company's reputation and result in exclusion from the EU market. Given the EU's significant role in global trade, maintaining access to this market is crucial for UK businesses. Further, consumers increasingly place value on brands demonstrating corporate social responsibility, and therefore may switch to a competitor if news transpires that a particular product is produced or marketed in non-compliance of the EUDR.
Conduct Supply Chain Audits Businesses should assess their supply chains to identify commodities covered by the EUDR and determine their sources. This audit will help in understanding the scope of compliance efforts required.
Engage with Suppliers: Establish communication with suppliers to obtain necessary documentation and ensure they can provide the required information for the due diligence statement. Collaboration is key to meeting compliance standards.
Implement Traceability Systems: Invest in systems that enhance traceability of raw materials, such as blockchain technology or certification schemes like the Forest Stewardship Council, which is developing tools to assist with EUDR compliance.There are many software solutions available which are designed to enhance sustainability, supply chain transparency and carbon footprint tracking, management and reporting. The use of such software solutions may be worth investigating to see if these can help mitigate against non-compliance risk under the EUDR, but also other supply chain obligations.
Stay Informed on Regulatory Developments: Regularly monitor updates from the EU and relevant UK authorities regarding the EUDR and its implementation. Being proactive can help in adapting to any changes or clarifications in the regulation.
While the EUDR represents a significant step towards environmental sustainability, it poses challenges for UK businesses engaged in trade with the EU. By taking proactive measures to ensure compliance, UK companies can not only avoid penalties but also enhance their reputation as responsible and sustainable operators in the global market.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.
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