What is the EU Deforestation Regulation — and who is impacted by the policy?

A 2023 regulation introduced by the European Union (EU) to curb deforestation from global supply chains is placing a disproportionate burden on developing countries, raising concerns over economic vulnerability, smallholder exclusion and the fairness of imposing one-size-fits-all standards on the Global South.

The regulation seeks to halt deforestation associated with the EU’s consumption of seven agricultural and forest-based commodities: Cattle, coffee, cocoa, oil palm, soya, rubber and wood.

Known as the EU Deforestation Regulation (EUDR), it subjects the relevant commodities and their products to a ‘due diligence’ process that must be undertaken by operators (individuals or entities) before they place them on the EU’s market.

The impetus for this goes back to 2019, when, in a bid to halt deforestation, the European Commission established an action plan to protect and restore the world’s forests. Thereafter, assessing additional demand-side regulatory and non-regulatory measures emerged as a key area of focus.

Building on a 2020 report by Food and Agriculture Organization of the United Nations’s (FAO), which argued that agricultural expansion is responsible for 90 per cent of global deforestation, the EU Commission in 2021 published an impact assessment that highlighted the impact of a few commodities of which the EU is a major consumer.

When we look at contribution to deforestation risk for the seven commodities imported by EU, cattle, cocoa and oil palm contribute two-thirds of the total.

When a patch of forest is cleared to grow crops, the land is usually used for several years. The dataset assumes an average of five years of harvest. So, the total deforestation is spread over five years to estimate how much of it is linked to one year of production. This is called deforestation risk.

Breaking down the EU’s methodology

Recently, the EU published a list of countries assessed under a three-tier risk categorisation system, divided into low, standard and high risk. The implications for countries in each of these categories entail differential treatment by the competent authorities of each EU member state.

For example, as per the official list, the United States and India were assessed as low-risk, Indonesia; Ivory Coast as standard-risk and Myanmar and Russia as high-risk countries—subject to checks on 1 per cent, 3 per cent and 9 per cent of their operators, respectively. In the context of the EUDR, operators are people or companies that place products on the EU market. They are responsible for submitting due diligence reports to the authorities.

The methodology for creating such a benchmarking system hinges on a set of primary and secondary criteria. 

The primary criteria are:

• Rate of deforestation and forest degradation

• Rate of expansion of agricultural land for relevant commodities

• Production trends of relevant commodities and of relevant products.

The secondary criterion is a scoring system that combines the list of all elements under each primary criterion, evaluates them on a scale of 1-5 and averages the scores to produce a single value. A country would be assessed as low-risk if the final value is equal to or more than 3 out of 5.

What happens in the case of non-compliance?

Non-compliance with the regulation could occur at any step of a commodity’s supply chain by any stakeholder from the respective country. For example, even if we assume a smallholder has sourced products from non-deforested land and shared the geographical coordinates with the manufacturer, if the latter does not separate the compliant shipment from the non-compliant one when sending it to a trader, there would be a significant risk of the shipment being considered non-compliant. It would then be difficult for the remaining stakeholders to establish the chain of due diligence.

Consequently, three types of penalties are envisaged in the regulation and would be imposed on operators depending on the degree and history of their non-compliance. 

1. These include fines proportional to the environmental damage and value of the relevant commodities and products.  In the case of an operator being a business or organisation, the maximum fine imposed could be at least four percent of their total annual Union-wide turnover in the financial year preceding the fining decision.

2. Additionally, the relevant products and revenues from the operator and / or trader could also be confiscated. 

3. Lastly, in serious cases of non-compliance, an operator and / or trader would be temporarily prohibited from placing or making relevant commodities and products available on the market or from exporting them.

The EUDR has been subject to global scrutiny since its inception, with concerns raised by countries such as Brazil, Indonesia and India at the World Trade Organization, as the scope of the regulation extends beyond the 27 EU member states. In doing so, it places the administrative, technical and financial burden of compliance on the rest of the world.

It is also considered a unilateral trade measure — an issue that has gained increasing prominence even in climate negotiations, including at 29th Conference of Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC) and June Climate Meetings, also known as the UNFCCC’s 62nd session of the Subsidiary Bodies (SB62) in Bonn.

Impact on developing world is disproportionate

To gauge the impact of the regulation, we at Delhi-based think tank Centre for Science and Environment (CSE) used UN Comtrade data and selected the top 10 countries based on the volume of exports to the EU for each of the seven commodities. We then correlated this list with data on deforestation for each country and commodity from a 2024 study titled Commodity-driven deforestation, associated carbon emissions and trade 2001-2022 by Chandrakant Singh and U Martin Persson in the journal Sustainability Science.

If deforestation data was unavailable for a country, we selected the next country based on export volume according to trade database UN Comtrade. For the figures on export volumes and revenues, we used the universal codes listed under the EUDR for each commodity.

What did a commodity-wise analysis show?

Our analysis found that 31 countries in the Global South and seven in the Global North are among the largest exporters to the EU for the seven commodities. Below, we illustrate the deforestation profiles of specific countries and their trade based on the top three commodities — cattle, cocoa and oil palm — which contribute two-thirds of the total deforestation associated with EU imports, as shown earlier.

i. Cattle

We see that most of the cattle to the EU is exported from the Latin American countries, especially with Brazil and Uruguay accounting for almost 73 per cent of the total trade volume. Although the deforestation risk between the two countries differs significantly, with Brazil contributing more than one-third to the total deforestation risk. The top 10 countries generate more than 70 per cent of the total revenue from exports of cattle to the EU.

Cattle exports to the EU for top 10 producer countries

ii. Cocoa

Cocoa production is mainly concentrated in West Africa. Ivory Coast and Ghana account for 70 per cent of the total deforestation risk arising from the EU’s consumption of cocoa. These two countries also account for 63 per cent of the total trade volume.

Cocoa exports to the EU for top 10 producer countries

iii. Oil palm

Indonesia and Malaysia are the leading exporters of oil palm to the EU. Together, they account for 70 per cent of the total revenue from oil palm trade, generating an average of $6.4 billion annually.

Oil palm exports to the EU for top 10 producer countries

What about the other commodities?

Among the remaining commodities subject to EUDR, coffee exports to the EU come from a wider range of regions, covering Latin America, Central America, East Africa and Southeast Asia. Brazil and Vietnam are the top exporters, together accounting for 54 per cent of the EU’s total coffee trade volume.

EU imports of soya come primarily from Brazil and Argentina, which account for 45 per cent and 24 per cent respectively of total trade volumes. Brazil’s deforestation risk from soya production for the EU is more than seven times higher than Argentina’s, contributing 52 per cent of the total deforestation linked to EU-bound soya. Production is largely concentrated in North and South America, with the top producer countries making up 96 per cent of the total trade volume.

Rubber production is predominantly concentrated in South and Southeast Asia. Countries such as China, Thailand, Indonesia, Malaysia, India, Vietnam and Sri Lanka together account for nearly 70 per cent of the total volume of rubber exported to the EU and generate over 50 per cent of the associated trade revenue.

China’s exports of wood and related products to the EU account for 48 per cent of the deforestation associated with total wood trade. The country also earns 35 per cent of the total revenue from EU wood imports. In addition, several countries in the Global North, such as Belarus, the United States and Ukraine, are among the top exporters of wood to the EU.

What did a country-wise analysis reveal?

Here, we considered the 38 countries that are among the largest exporters to the EU for these commodities, each ranking in the top 10 for at least one of the seven. For these countries, we calculated the total deforestation risk and the trade revenue generated from all EUDR-relevant products.

Our analysis showed that between 2016 and 2022, the top 38 countries accounted for an average annual deforestation of 193,600 hectares linked to the export of EUDR-regulated commodities to the EU. These exports generated approximately $81.1 billion in trade revenue each year.

Globally, deforestation associated with these commodity exports to EU stood at 238,600 hectares annually, with trade revenue averaging $97.1 billion per year over the same period.

The combined EU-induced deforestation risk and the trade in EUDR-subject commodities for 38 countries account for 81 per cent and 91.7 per cent, respectively, of the global totals generated by all countries.

While there may be large differences in the absolute value of trade revenue generated by countries, analysing the data more granularly alongside indicators such as gross domestic product (GDP) reveals that countries dependent on agricultural and forest-based commodities would be severely impacted by the regulation.

Share of GDP from EUDR-related trade in the top 38 countries

Countries such as Ivory Coast, Honduras, Liberia, Papua New Guinea, Cameroon and Ghana are the most economically dependent on the EU, with revenue from relevant commodities making up 6.5 per cent, 4 per cent, 2.5 per cent, 2.3 per cent, 2.2 per cent and 2 per cent of their GDP respectively between 2016–2022 on an annual average basis. Their dependence on the EU is among the highest of the top 38 producer countries, according to our analysis.

All of these countries except Honduras are classified as commodity-dependent developing countries (CDDC) by UNCTAD, which means that 60 per cent or more of a country’s merchandise exports come from primary commodities. By virtue of being CDDCs, these countries are highly exposed to economic vulnerability due to climate change.

The grouping of countries into the Global North and Global South follows UNCTAD’s classification of developed and developing countries. Although the above-mentioned countries are among the most affected, the fact that all of them are from the Global South points towards a disproportionate impact of the regulation in future.

Between 2016 and 2022, out of the 38 countries, the 31 Global South countries accounted for 97 per cent of the deforestation risk associated with exports of EUDR-regulated commodities to the EU, while the Global North ones contributed only 3 per cent.

Despite this, the Global South generated just 73.7 per cent of the trade revenue, even though it supplied 55.6 per cent of the trade volume. In contrast, the Global North, with a smaller share of trade volume at 44.4 per cent, secured 26.3 per cent of the revenue.

In the context of the regulation, this means Global South coutries' revenue is at a significantly higher risk of non-compliance than that of the Global North, regardless of risk categorisation.

In addition to the volume of trade that could be exposed to penalties and confiscation of goods, the additional transaction costs of due diligence for companies and smallholders would exacerbate the economic vulnerability. This depends mainly on the complexity of a commodity’s supply chain, administrative procedures and the methods and technology used to collect geolocation data.

Beyond the numbers

While the numbers tell a story of the regulation’s unequal impact on the Global South, there are several other issues that need addressing. To begin with and perhaps most fundamentally, how will the EU measure deforestation across the globe? It is not just about having data, but about recognising that a one-size-fits-all approach does not align with the diversity of definitions of “forest” across countries.

Secondly, what are the implications for smallholders or farmers? Studies show that smallholders usually receive the smallest share of the final product's value. In the context of the EUDR, large companies are likely to shorten their supply chains and source raw materials from fewer individuals to reduce the complexity and cost of their due diligence.

The regulation is set to be enforced at the end of 2025. Given current geopolitical dynamics, further inquiry is needed into potential pathways for the Global South to participate meaningfully in the new green economy, especially in the face of climate change, commodity dependence and rising protectionism through tariffs and measures such as the EUDR.