It’s reality. The EU’s new Deforestation-Free Supply Chain Regulation, with far-reaching impacts on farmers and food companies across the globe, will enter into force on June 29, 2023
This first-of-its kind law turns market-led sustainability initiatives into mandatory due diligence requirements for commodities contributing to deforestation, climate change, and biodiversity loss. For food companies, this means, for the first time, they must carry out due diligence checks to identify any risks of deforestation in their supply chains before placing their products into the EU market. Fines and penalties will be imposed for non-compliance. Products that have been produced on land converted from forest to farmland after December 31, 2020, or primary products that contain, have been fed with, or have been made using those will be prohibited from being sold in the EU or exported from the EU starting December 2024. In addition, products must be produced in accordance with the relevant legislation of the country of production, including land-use rights, labor rights, or rights of indigenous people.
Food commodities currently in scope of the law are soy, beef, palm oil, coffee, and cocoa as they are considered main contributors to deforestation and biodiversity loss. With low conversion rates of forest land into agricultural land in the U.S., this law could offer a real competitive advantage for U.S. soy and beef when compared to other suppliers.
Key implications for affected commodities and companies:
- Origin markets will be classified as low-risk, standard, or high-risk by the European Commission based on a benchmarking process. Due diligence requirements will vary with the sourcing or producing region’s risk profile and compliance checks will be risk-based.
- The new law will likely trigger demands by European importers and distributors for information related to upstream production. Products with a risk of non-compliance that is non-negligible will be barred from the EU market.
- Certificates of compliance – required at the border – will require traceability to the exact GPS coordinates of the production plot and verifiable information that the product is deforestation-free and compliant with all relevant domestic laws.
- A non-compliant EU operator or trader may face fines as high as 4% of their total annual EU-wide turnover.
The law makes the EU the first region in the world to launch mandatory due diligence requirements to prevent deforestation associated with products placed on its market. But it is a nascent global trend - a similar initiative is in the final phase in the United Kingdom and a business tool is expected to be released by the Organisation of Economic Cooperation and Development (OECD) and the Food and Agriculture Organization (FAO) to help companies meet consumer demand for transparency about production practices and environmental impacts.
Expansion beyond the initial list of affected commodities is being considered by the European Union. During the legislative negotiations corn, poultry, pork, and bioethanol were floated as well as a broader definition of ecosystems to be protected from conversion into land for agricultural use.
Meeting the important goals of sustainability while providing an adequate supply of nutritious food is a worthy but daunting challenge not only for farmers around the world, but for the whole global food value chain. BCI monitors global regulatory announcements daily and has eyes on impactful draft regulations as they move from the distant policy horizon to implementation in your business. If staying on top of global regulatory developments is a challenge, we would like to hear from you. Please let us know at firstname.lastname@example.org.
Companies will be required to collect precise geographical information on the farmland where the commodities that they source have been grown, so that these commodities can be checked for compliance.” (European Commission’s press release from December 2022)