Understanding the EUDR

Understanding the EUDR

The European Union Deforestation Regulation (EUDR) requires companies that source or trade certain commodities to ensure their products do not contribute to deforestation. The regulation replaces the EU Timber Regulation (EUTR), but has stricter traceability and due diligence requirements, and an expanded scope to include more commodities. Where the EUTR focused on preventing illegal deforestation, the EUDR aims to eliminate all deforestation, including legal deforestation. Commodities within the scope of the EUDR include cattle, cocoa, coffee, oil palm, rubber, soya and wood, as well as products derived from these commodities.

 

Who needs to comply?

All companies operating in the EU that deal with the in-scope commodities must comply with the EUDR. This applies to both large companies and small and medium enterprises (SMEs), though SMEs face slightly less stringent rules. The EUDR divides companies into two categories: operators and traders. 

 

• Operators are companies that make a relevant product available on the EU market for the first time or export it from the EU. For example, if company A is based in the EU and it imports cocoa butter from a non-EU country, it is considered an operator. The definition of operator also covers companies that transform one product into another product included in the EUDR’s Annex 1. For example, if company B uses company A’s cocoa butter to produce chocolate and places that on the market, company B is also considered an operator. 
• Traders are companies that make a relevant product available on the EU market repeatedly. This definition covers companies that are not operators and that commercialise products on the EU market. For example, if company C is a supermarket that sells company B’s chocolate, it is considered a trader.

 

Following a 12-month postponement, large companies now need to comply with the EUDR from 30 December 2025, and SMEs from 30 June 2026. 

 

EUDR requirements

The EUDR prohibits relevant products from being imported into the EU, placed on the EU market or exported from the EU unless they fulfil the following three criteria:

 

• 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.

 

Under the EUDR, a product is considered deforestation-free if it does not contain, has not been fed, or has not been made with in-scope commodities that were produced on land that was deforested or forest that was degraded after 31 December 2020. 

The EUDR defines deforestation as the conversion of forest to agricultural use, and forest degradation as the conversion of a primary or naturally regenerating forest into plantation forests or planted forests. This means that converting a natural forest into a wood plantation, for example, would not meet the EUDR’s deforestation-free requirement.

 

Due diligence

To ascertain that products are deforestation-free and have been produced in accordance with legislation of the country of production, companies must fulfil due diligence obligations. Under EUDR, this consists of three key steps. 

1. Companies must collect extensive information, data, and documents about the product, country of production, and the geolocations of all plots of land where the relevant commodities were produced. The EUDR therefore expects companies to meet strict traceability requirements. Companies also need to collect information on the businesses and people from whom they bought or to whom they sold the relevant products, as well as conclusive and verifiable information that shows that the relevant products are deforestation-free and have been produced in accordance with the relevant legislation of the country of production. 
2. Based on the collected information, a risk assessment should be conducted to determine whether a product carries the risk of being non-compliant. This needs to take into account, among others, criteria such as the level of risk assigned to the country of production by the European Commission, the presence of forests, the presence of Indigenous Peoples, the prevalence of deforestation or forest degradation, concerns in relation to the country of production (for example on levels of corruption or violations of human rights), and the complexity of the supply chain. 
3. Except if the risk assessment in step 2 found that there was no or only a negligible risk that the products are non-compliant, companies are required to adopt risk mitigation procedures. These may include gathering additional information, data or documents, or carrying out independent surveys or audits. It can also include supporting compliance of suppliers, in particular smallholders, through capacity building and investments. 

Additionally, the EUDR requires that companies publicly report on their due diligence system annually, and to keep all documentation related to due diligence for at least five years. 

 

SME exceptions

The requirements described above apply to operators and non-SME traders. SME traders do not need to exercise due diligence or submit a due diligence statement. They are only obliged to collect relevant information regarding their suppliers, unlike non-SME traders who need to ascertain that due diligence has been carried out. SME operators also enjoy certain exceptions. They are for example not subject to the annual reporting obligations of their due diligence system and only need to apply lighter risk mitigation measures. In addition, downstream SME operators do not need to exercise due diligence or submit a due diligence statement if this was already done by an upstream operator. However, all operators and traders retain responsibility for the compliance of the relevant product they place on the market, make available, or export. 

 

Enforcement and penalties

EU Member States are required to designate one or more competent authorities responsible for fulfilling the obligations arising from the EUDR. These competent authorities will carry out checks to establish if companies comply with the regulation. These checks may include examinations of companies’ due diligence systems or of their documentation and records that demonstrate that products are EUDR compliant. 

Members States must also create rules on penalties applicable to infringements. Potential penalties include fines proportionate to the environmental damage and the value of the relevant commodities or relevant products concerned, confiscation of products, or temporary exclusion from public procurement processes or prohibition from placing or making available on the market relevant products. 

 

What can companies do to prepare? 

• Update or establish a no-deforestation policy: make sure this is aligned with the EUDR by including a cutoff date of 31 December 2020 or earlier.
• Map the supply chain and work on traceability: the EUDR requires companies to identify the geolocations of plots of land where commodities have been produced. It is therefore essential to know where products come from.
• Engage with your suppliers: suppliers, in particular smallholders, may need support in order to meet the EUDR requirements.
   

Conclusion

The EUDR introduces stricter requirements for companies sourcing or trading key commodities. Setting up robust traceability and due diligence systems will be crucial for ensuring that products do not contribute to deforestation. As the deadline for compliance approaches, it is essential that companies prepare by learning what the EUDR means for their business, gathering information - for example by talking to relevant suppliers—and coming up with a compliance plan. While the EUDR comes with significant obligations, it has the potential to create real change by ensuring that products entering the EU market are not linked to deforestation.