The forthcoming EU Deforestation Regulation (EUDR) may significantly affect commodity supply chains, leading to higher prices for consumers, according to Fred Diamond, a senior consultant and analyst at GlobalData.
“The aims of the EUDR are understandable and cutting greenhouse gas emissions and protecting biodiversity is essential,” Diamond said. “However, there could be some disruption ahead.”
About the EUDR
The EUDR, which will be implemented at the end of the year, aims to reduce greenhouse gas emissions and biodiversity loss by targeting commodities linked to deforestation. It requires companies trading with the EU to prove their products and supply chains are deforestation-free.
A crucial component of the European Green Deal, which aims for net-zero greenhouse gases by 2050, the regulation targets commodities including cattle, cocoa, coffee, oil palm, rubber, soy, and wood, as well as derived products such as paper, leather, shampoo, chocolate, tires, and furniture.
Costs ‘passed on’ to consumers
GlobalData predicts that compliance with the EUDR could cost companies operating in palm oil and rubber over $1.5 billion (€1.4 billion), costs that are likely to be passed on to consumers.
‘Whilst companies operating in these supply chains will be able to absorb some of the costs themselves a good proportion of these compliance premiums are likely to be passed onto EU consumers in the form of food and drinks and product price increases,’ GlobalData said.
Affected categories in such a scenario are likely to include food, drink, and personal care products, such as coffee, chocolate, soy-based meat alternatives, and numerous oil palm derivatives, including shampoos.
“The extra demands of the EUDR could lead some commodity suppliers in what the EU terms ‘third countries’ to move away from the EU and increase trade with countries that impose fewer regulatory requirements such as China,” Diamond added.
“Some food categories, such as plant-based meat, may have to reformulate and switch to other protein sources, such as pea protein if the result of the EUDR is an increase in the price of soya for food production.”
Polarising effect
According to Diamond, the EUDR could polarise businesses, with larger companies better positioned to manage the regulatory demands.
“The exact impact on consumers will depend on a variety of factors, including how companies choose to respond to the regulation, the extent to which the regulation is enforced, and how much assistance EU member states are willing to give to supplier countries to help them align with the new rules,” he added.
“However, with recent news reports confirming that the world’s top climate scientists expect global heating to go well beyond the current 1.5C target, sustainability regulation associated with cutting greenhouse gas emissions, such as the EUDR which targets deforestation, remains an urgent priority for the planet.”
