EUDR in Focus: Debunking 5 Misconceptions About the EU Deforestation Regulation

The good news: The loss of pristine tropical forests slowed last year. The sad news: The world is still falling far off track on the global goal of ending deforestation by 2030.

Based on data from the World Resources Institute (WRI), in 2023, the world witnessed the loss of 3.7 million hectares of tropical primary forest. This statistic is equivalent to losing 10 football fields’ worth of forest every minute. This massive deforestation contributed to 2.4 billion tons of carbon dioxide emissions. To put this in perspective, this amount is nearly half of the annual emissions of the United States from fossil fuels alone. To combat this, the European Union enacted the Deforestation Regulation (EUDR) in 2023, which requires companies to ensure their supply chains are deforestation-free.

With the application date of December 30, 2024, rapidly approaching, companies must act immediately to prepare. Failure to comply by the deadline could result in severe penalties, including fines of up to 4% of the company’s EU turnover and the confiscation of non-compliant products and revenues. Given the complexity and breadth of the EUDR, it is imperative that companies begin their compliance efforts now to avoid the significant risks associated with non-compliance. There are several misconceptions about the EUDR that need to be addressed to ensure companies are properly informed.

Misconception 1: Companies Have Plenty of Time to Comply with EUDR

The EUDR requires that raw materials such as cattle, palm oil, soy, cocoa, timber, coffee, and rubber, and products made from them, must meet these conditions: they must be deforestation-free, comply with the laws of the country of production, and be covered by a due diligence statement.

The EUDR targets areas where transparency is currently lacking for many companies – their deep supply chains. Ensuring this transparency is challenging, especially with raw materials produced by small farmers and multiple stakeholders involved in the supply chain. Companies must establish due diligence and traceability systems to communicate geolocational information and become EUDR compliant within less than five months. The regulation came into force on June 29, 2023, and will start to apply on December 30, 2024, for non-SMEs. As a side note, operators and traders do not have to comply with the requirements for products placed on the Union market before the application date. This means products that have entered the European market before the deadline, but used afterward, are exempt from compliance and do not require a due diligence statement (DDS).

Misconception 2: Existing Certifications Prove EUDR Compliance

Many companies with existing sustainability certifications assume that these are sufficient under the EUDR, but this is not the case. Public or private certification schemes cannot meet the due diligence requirements. Certified supply chains do not automatically get a “green light” under the Deforestation Regulation, and even if a certification system is in place, it does not relieve operators and traders of their legal responsibilities under the EUDR. In fact, the EUDR does not allow reliance on certification schemes alone; companies must provide detailed information, including the description and quantity of the goods, the country and region of origin, geo-location data, and proof of deforestation-free status. Companies must still carefully assess whether they are contributing to deforestation, regardless of any certifications they may have.

Certified sustainable supply chains are usually more organized, transparent, and traceable, which helps companies get a head start on meeting the strict requirements of the EUDR. Members of the supply chain can use certification schemes to help with their risk assessments, as long as the certifications provide the required information to meet their obligations under the Regulation. However, operators and traders that are not small or medium-sized enterprises (SMEs) must still carry out due diligence and will be held responsible for any violations.

Misconception 3: Sourcing from European Suppliers Exempts Companies from EUDR requirements

The origin of products or components is scrutinized, irrespective of whether they come from European suppliers or not. The EUDR focuses on ensuring that goods placed on the EU market do not contribute to deforestation, regardless of their source. Even if the direct suppliers are based in Europe, their upstream supply chains may still include materials from deforestation-prone regions or high-risk countries. Companies will therefore need to conduct due diligence to verify compliance with the EUDR requirements. Importantly, the regulation applies to both imports and exports involving the EU market, underscoring the need for thorough documentation and risk assessments regardless of the supplier’s location. Failure to comply with the EUDR will preclude access to and exports from the EU.

Misconception 4: Resellers Are Not Affected by EUDR

Resellers are an integral part of the supply chain and therefore have legal obligations under the EUDR. The regulation requires all entities placing products on the EU market to ensure deforestation-free supply chains. This means that resellers must ensure that their suppliers comply with the regulation. Non-compliance can lead to legal risks, penalties and reputational damage. Specifically, the regulation imposes requirements on downstream businesses, including distributors and retailers, such as requiring proof of compliance, conducting audits, or establishing transparent supply chain practices. Small and medium-sized enterprises (SMEs) are also required to comply, with larger market participants having full due diligence responsibilities, while micro-enterprises and natural persons are allowed to pass on their due diligence requirements to the next entity in the supply chain – the mandating operator remains responsible for the compliance of the product.

Misconception 5: Small Businesses Get a Break

The EUDR applies to all companies, regardless of size, that import or export goods to the EU potentially linked to deforestation. Small businesses cannot ignore these regulations, even though micro and small enterprises are given an additional 6-month transition period until June 30, 2025. Failing to comply can lead to significant penalties and loss of access to the market. All operators must keep documentation of their due diligence efforts for five years and may be subject to unannounced inspections, especially in higher-risk countries and products. SME traders must retain the information specified in Article 5(3), including due diligence reference numbers, for at least five years from the date the products are made available on the market or exported. Although the regulation poses challenges, some smallholders see it as a valuable opportunity. The increased transparency can help them eliminate many intermediaries, potentially leading to a fairer income for their products.

Preparing for EUDR Compliance

In summary, the Deforestation Regulation will require a thorough examination of supply chains and will impact several internal processes due to its due diligence requirements. Despite uncertainties around information system interfaces and the long-promised but still unpublished EU operational guidance, companies need to start preparing for compliance now. To prepare effectively, companies should conduct impact and process analyses and implement data management and risk analysis platforms. The regulation outlines a three-step due diligence process, including information gathering, risk assessment and risk mitigation, which must be documented and reviewed annually.

Given the complexity of due diligence processes and the vast amount of data that must be collected and analyzed, companies need automated software tools that can streamline their compliance efforts. Software solutions such as the osapiens HUB for EUDR can help companies meet these regulatory challenges by providing the tools and expertise needed to achieve end-to-end compliance.

For more in-depth insight into EUDR compliance, read our comprehensive white paper or check out our upcoming events with regular EUDR webinars to stay fully compliant and meet all important deadlines!