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How to Get Ready for the EUDR
Harry Marshall on the EUDR and how to get started
Gowtham Ramachandran
August 06, 2024
The European Union (EU) is taking big steps to combat global deforestation.
They are implementing a new regulation called the European Union Deforestation Regulation (EUDR) to address the 10% of deforestation the bloc accounts for.
Starting December 2024, businesses using commodities like timber, beef, coffee, and cocoa must trace them back to their origins and ensure they weren’t grown on deforested land.
Failure to comply can result in severe consequences, including financial penalties and product seizures.
So, what can you do to comply with these regulations?
I sat down with Harry Marshall, founder and CEO of OpenAtlas, a supply chain traceability company, to dive deeper into the topic.
OpenAtlas, based in the Netherlands, provides a deforestation monitoring solution that uses satellite imagery and AI to track changes in land use. Their product helps businesses prove compliance with the EUDR.
In this piece, you’ll learn:
About the EUDR,
Harry’s framework to get started today,
How the EUDR could expand its scope in the future,
And more…
PS: OpenAtlas has a ChatGPT plugin called the EUDR Guru that can answer any questions you might have about the regulation.
Let’s dive in. 👇
EUDR - Background and Goals
On April 19, 2023, the European Parliament adopted the EUDR, a groundbreaking law aimed at making sure that products sold in the EU do not contribute to deforestation or forest degradation worldwide.
According to the regulations, businesses handling seven key commodities - coffee, cocoa, soy, palm oil, cattle, rubber, and wood - must prove that their supply chains didn't involve land deforested after 2020, legally or illegally.
This means tracing every coffee bean, beef carcass, and log of wood — along with products like chocolate, tires, and books — back to their exact origins.
Share of deforestation caused by the EU on the seven commodities targeted by the EUDR. (EPRS)
Large companies must comply by December 30, 2024, whereas small and medium-sized enterprises (SMEs) have until June 30, 2025. This regulation applies to any quantity of product, large or small.
From a producer’s perspective, over 55 countries export at least $100 million annually to the EU that will be affected by the EUDR.
The impact on producer businesses will depend on the commodities they ship, who buys them, and their resources to handle farm mapping and compliance paperwork. But Harry believes that smaller farms may face the greatest challenges because they have limited resources to help their EU buyers simplify the compliance process.
Harry Marshall: "Coffee comes from many parts of the world, including Central and South America, Africa, Asia, and the Caribbean.
Although the supply chain for coffee looks similar globally, the details can vary significantly at the endpoint. Different countries and geographies have varying levels of supply chain maturity. In some regions, you find larger plantations owned by corporations, while in others, the supply chain consists of hundreds of thousands, even millions, of smallholder farmers. African coffee, for instance, tends to come from more smallholders, whereas Colombian coffee comes from both smallholders and larger players with huge plantations.
This variation makes it challenging to give general advice to businesses on how to comply with regulations, as each situation is unique. But the maturity of the supply chain greatly influences the steps needed for compliance."
How to Get Started Today
The amount of information on the EUDR website and the details required to comply can seem daunting, especially for SMEs struggling to allocate resources.
So, I asked Harry to help simplify the process for me.
I asked Harry to assume he was a chocolate manufacturer sourcing from a cooperative that works with small and mid-size plantations, and give me a step-by-step guide on how he’d get started today.
Here’s his recommendation:
Determine if your commodities are covered by the EUDR. If yes, establish a due diligence system.
Talk to your suppliers and explain why they need to follow the EUDR.
Push your suppliers to inform the cooperatives they work with about the compliance requirements.
Have cooperative representatives visit farms and take photos with their smartphones that record GPS coordinates.
Work with a company like OpenAtlas that can use the geolocation data to verify if the farm meets EUDR standards.
Monitor your supply chain data and update it regularly to stay in compliance.
Harry also emphasized that the EUDR will hold businesses liable for non-compliance.
Harry Marshall: “At the end of the day, the EUDR holds businesses liable.
You must prove that you’ve done enough due diligence. You can’t be right 100% of the time, but if an auditor comes knocking, you’ll have to prove you have more of a process in place than just accepting whatever your supplier tells you.”
So it’s crucial for you to separate compliant sources from non-compliant ones as a key strategy to manage your risk.
In terms of compliance costs, Harry roughly expects:
10% on data gathering,
12% on remote sensing,
70% on traceability, and
8% on miscellaneous expenses, such as consultants.
But then again, “there will be huge variance” on costs depending on factors such as the maturity of your supply chain, commodity type, etc., Harry said.
Penalties
That begs the next question… what happens if you can’t prove compliance?
The EUDR states that failure to comply can result in penalties such as:
Financial penalties, up to 4% of annual revenues,
Product seizures and recalls, and
Restricted market access.
If you are an SME, you likely have limited resources. And you are more likely to source from cooperatives and smallholder farms, which will make it harder to prove compliance.
But Harry noted that the EUDR understands the difficulty in achieving 100% certainty about commodity origins, especially for SMEs:
Harry Marshall: "I work with a small coffee importing business where they try to work closely with farmers to get them more money.
They’re tiny, you know, very, very small. They don't have the resources to do this entire process. When I talked to her, she said, 'This is what we've done. It's not perfect, but if we're audited, we can show that we're genuinely trying to do something. It's imperfect, but we're trying our hardest.
Now, if you apply that to Lindt on the other side, they also need to prove that they’re trying. They’re not going to be perfect. Data will be wrong at some stage—that’s always going to happen—but the standard of truth is a lot higher for them. It has to be more accurate than what’s expected from smaller businesses."
The bottom line is, you will need to prove that you have a robust process in place to prove compliance, and auditors are likely to take your side as long as you can demonstrate that.
Beyond the EUDR
While the EUDR currently covers just seven commodities, they are likely to expand into other products associated with deforestation or ecosystem degradation.
In fact, the European Commission has already mentioned the possibility of extending regulatory protection to commodities sourced from other threatened ecosystems, such as wetlands, and future iterations might include products like sugar, maize, and other agricultural commodities linked to land-use change.
Harry Marshall: “I see maybe less of a commodity expansion but definitely an expansion of ecosystems as well. Because it stands to reason that if we're controlling deforestation, why not stop other things as well?
So instead of just protecting forests or mitigating risk against deforestation, also addressing the negative impacts on other ecosystems as well, like grasslands, swamps, or waterways.“
The EUDR is just the beginning of a broader trend towards stricter environmental regulations in international trade.
For instance:
The UK has introduced its own due diligence legislation on forest-risk commodities
The US is exploring measures to combat illegal deforestation through its FOREST Act
The global “shift towards right-wing governments may slow down ESG efforts”, Harry said, but the long-term trend remains firmly oriented towards increased ESG regulations driven by growing public awareness, investor pressure, and the increasing urgency of climate change.
So preparing for the EUDR today will position companies to adapt to future regulations, both in the EU and other markets.
Besides compliance, investing in traceability systems and sustainable sourcing strategies will also help companies improve operational efficiency and open new opportunities such as the growing market for environmentally responsible products.
PS: Do you have any questions for Harry? Reach out to me at [email protected] and I can pass it on.
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