EU deforestation regulation and its impact on the oil and fat industry

The EU Deforestation Regulation (EUDR)

EU deforestation regulation

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The EU Deforestation Regulation (EUDR) is a major change for industries that rely on agricultural goods. Among the sectors likely to be significantly affected are the oil and fat industries, which rely heavily on products such as palm oil, soy oil and other ingredients linked to deforestation risks. Let's explore what the EUDR regulation includes and how it is expected to reshape the landscape for these industries.

What is the EUDR regulation?

The Regulation is a new regulatory framework introduced by the EU aimed at reducing global deforestation and forest degradation linked to the production of specific goods. The regulation states that products sold in the EU must not be linked to deforestation, whether legal or illegal, and must comply with traceability requirements to prove that they are free of deforestation. The goods covered in the regulation include palm oil, soy, cocoa, coffee, cattle, wood and its derived products.

The regulation was introduced in response to growing global concern about deforestation, which contributes to climate change and biodiversity loss and threatens the livelihoods of local communities and indigenous people. By ensuring that products linked to deforestation do not enter the EU market, the EUDR regulation aims to create more sustainable supply chains and pressure producers to adopt forest-friendly practices.

The main requirements for compliance

Companies that want to sell goods within the EU must comply with several key requirements under the Regulation:

1. Due diligence duties: Companies need to perform due diligence to prove that their supply chains are free of deforestation. This includes providing accurate information on the geographical origin of goods and ensuring that land transfer has not occurred after December 31, 2020.
2. Geolocation data: Importers must provide the geolocation coordinates of the place where the goods were obtained. For the oil and fat industries, this means that palm or soy oil producers, for example, will need to accurately locate and verify the actual location of their farms.
3. Risk Assessment and Reporting: Companies will be obliged to conduct risk assessments to determine if there are risks associated with deforestation in their supply chains. If risks are identified, companies should take steps to mitigate these risks and report their actions.

Effects on the oil and fat industry

The oil and fat industry, especially the sectors that rely on palm oil and soy oil, will face significant changes under the EUDR regulation.

• Supply chain transparency: The regulation focuses heavily on the transparency of the supply chain. Companies involved in the production or sale of oils extracted from areas prone to deforestation have to improve their tracking systems, which can lead to increased costs. Producers will need to invest in better methods of tracking and collecting data to meet stringent positioning requirements.
• Shifting towards sustainable practices: There is likely to be a push towards certification programs and partnerships that prioritize sustainable agriculture. Producers may be encouraged to adopt sustainability standards such as the RSPO (Roundtable of Sustainable Palm Oil) certification to ensure compliance with the EUDR regulation. The regulation may act as a catalyst for the widespread adoption of sustainable farming practices in the oil and fat sector.
• market dynamics: With the entry into force of the EUDR Regulation, European buyers may shift their focus to suppliers who can demonstrate compliance with anti-deforestation requirements. This is likely to create a market incentive for producers to comply with sustainability guidelines or face exclusion from one of the world's largest markets. Smaller producers, who may find it difficult to bear the costs of compliance, may face challenges in accessing the EU market.

Challenges and expected opportunities

• challenges: For many producers, the main challenge will be the ability to meet traceability and compliance requirements without significantly increasing production costs. Smaller producers may find it difficult to invest in the infrastructure needed to comply, leading to the possibility of market concentration as big companies take over.
• opportunities: On the other hand, the EUDR regulation opens up opportunities for companies that are already committed to sustainable practices. Companies that invest in transparent supply chains and environmental care may be able to strengthen their position in the market and attract the increasing number of consumers who prefer sustainability. There is also potential for increased cooperation between interested parties, including NGOs, governments, and companies, to develop support systems for sustainable production.

Moving forward

The oil and fat industry will need to adapt to the EUDR regulation by making significant adjustments in supply chain management and sustainable practices. Companies should develop robust due diligence systems, use technology to track geographic locations, and collaborate with suppliers to ensure compliance. Despite the challenges, the regulation offers an opportunity to make significant progress towards sustainability, in line with global efforts to combat deforestation and protect natural resources.

As the EUDR regulation begins to be implemented, it will be necessary for companies in the oil and fat industry to prepare early and work collaboratively to meet these new requirements. By doing so, they can maintain access to the EU market and also contribute to the broader goal of reducing deforestation and promoting a more sustainable global food system.

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