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Special Report

New EU anti-deforestation law poised to roil markets

By Greg Knowler

Difficulties complying with a new EU rule that aims to curb imports of products originating from deforested land could cause significant disruption to agricultural supply chains , according to exporters in the US and Asia and market risk analysts .

Starting Dec . 31 , the European Union Deforestation Regulation ( EUDR ) will require importers of seven commodities — cattle , cocoa , coffee , palm oil , rubber , soy and timber — to provide documentary proof that the products did not originate from land that has been deforested dating back to Dec . 31 , 2020 . The law is part of broader efforts by the EU to incentivize more responsible production methods across supply chains and align with global initiatives to preserve ecosystems and biodiversity .

Although producers of commodities linked to deforestation generally support the goals of the EUDR , they warn that it will be difficult — if not impossible — to comply with the rules as currently laid out . the mingling of batches becomes very difficult to trace for each individual shipment ,” Hegarty explained . “ One estimate has a million data points for a single shipment of palm oil . This isn ’ t just the case for palm oil , but for multiple commodities ... the pulp industry has voiced similar concerns .”

The American Forest and Paper Association ( AF & PA ), which estimated the total value of US pulp and paper shipments to the EU at roughly $ 3.5 billion last year , warned that the traceability requirement could represent a “ technical trade barrier .”

Leftover materials from sawmills and forest residues are blended multiple times throughout the pulp and paper production process , making it “ effectively impossible ” to trace each individual wood chip from the original forest plot of land to a final product , AF & PA told members in a recent update on the EUDR .

Mark Pitts , executive director at AF & PA , said the association has urged the European Commission to delay implementing the regulation to give the industry time to overcome technical hurdles , “ avoid chaotic and potentially

“ The traceability downstream is a major concern ... This isn ’ t just the case for palm oil , but for multiple commodities .”

Tracing individual elements of blended products like palm oil or pulp and paper to a specific plot of land , for example , can be complicated , and mixing compliant and non-compliant commodities , or commodities of unknown origin , would render the entire shipment non-compliant . “ Tracing products back [ to their origin ] might be a major challenge , particularly in multi-tier supply chains , and banks may no longer be able to finance certain businesses ,” Wolfgang Lehmacher , an author and supply chain expert , told the Journal of Commerce . “ Cost of compliance is not excessive , but fines are significant and represent a high risk ; non-compliance is not an option .”

Khalil Manaf Hegarty , a trade and sustainability consultant for the palm oil industry , said the EUDR ’ s traceability requirements are “ a major concern ” for producers .

“ Once multiple batches of palm oil are processed , stored and refined for different customer requirements ,

48 Journal of Commerce | September 9 , 2024 www . joc . com