Anti-deforestation regulation enters the final stretch: supply chains under the microscope

The countdown has begun. Following two postponements over two years and a series of simplifications to address the concerns of the businesses affected, the EU Regulation on Deforestation (EUDR) must be applied from 30 December by large and medium-sized enterprises that fall within its scope. For small and micro-enterprises, however, the requirement will come into force on 30 June 2027.

The aim of the new rules is to help curb deforestation, which accounts for 11 per cent of global greenhouse gas emissions. The focus is on seven commodities that are the main drivers of deforestation globally: palm oil, soya, timber, cocoa, coffee, beef and rubber. EU companies that import, sell or export these commodities and hundreds of products derived from them – identified by specific customs codes – will have to demonstrate that they do not originate from deforested or degraded land as of 31 December 2020. They must also demonstrate that their production complies with the laws of the country of origin. They will do so by means of a due diligence statement (DDS), which must be uploaded to TRACES, the EU Commission’s online platform, before the products are placed on the market or exported. ‘By December,’ explains Fabio Favorido, partner and associate director of Nature and Climate Impact at BCG, ‘companies must have put in place the infrastructure to generate real-time mapping of suppliers and their geolocation, through a tried-and-tested internal process of data compilation and uploading. Because from the end of 2026, no shipment will be allowed to proceed without a due diligence declaration.”

This is a significant exercise in transparency for certain strategic sectors of ‘Made in Italy’, such as food, paper and wood-based furniture. Complicating matters further is the list of product codes, which has been amended several times but is now final. A few examples? With the latest revision in July – approved by the European Parliament and the Council of the EU in mid-September – instant coffee, certain palm oil derivatives (including bar and flake soaps) and frozen beef tongues have also been included. For the newly included products, businesses will only be required to comply with the due diligence obligation from December 2027. Meanwhile, raw bovine hides and leather have been excluded, along with soya beans intended for sowing, certain rubber articles, and seats for aircraft and motor vehicles.

Last May, Brussels also narrowed the scope and introduced a series of simplifications. “These,” emphasises Favorido, “are genuine measures, not merely cosmetic changes. The most significant change lies in the distribution of obligations along the supply chain: today, the burden falls on the upstream operator – that is, the party who first places the product on the EU market – who must submit the due diligence declaration.” Downstream operators are no longer required to collect and pass on the reference numbers of their suppliers’ declarations. A simplified, one-off scheme is also in place for small primary operators. According to Brussels, all these measures would reduce compliance costs by 75 per cent.

There is no official aggregate figure for the number of Italian businesses affected by the legislation as upstream operators: ‘As a rough guide, by cross-referencing the available data,’ notes Favorido, ‘a plausible figure could be between 25,000 and 30,000: of these, around 24,400 are in the timber and furniture sector, which has been subject to the EUTR since 2010, (the timber regulation that came into force in 2013). The remainder, on the other hand, relates to other sectors.”