The Likely Impacts of the EU Deforestation Regulation

The EU Deforestation Regulation (EUDR) will introduce stringent due diligence requirements on the import of seven major tropical agricultural commodities into the EU, with the objective of limiting deforestation in the producing countries. The greatest impact is likely to be in cocoa and coffee, where Europe is responsible for a large share of world consumption, and in palm oil, which has driven substantial deforestation. The commodity supply chains are complex. In particular, crop produced by smallholder farmers is aggregated prior to export. Tracking the deforestation status of these aggregated packets is a major and potentially costly undertaking. It is likely that this will involve some restructuring of supply chains, favoring large farms over smallholdings and international trading companies over only-based exporters. These developments are seen by some producing country governments as imperialism. EUDR-compliant supplies will earn a premium and this will raise prices for European consumers. Producers who are able to comply will benefit from the premium but will bear the compliance cost. Overall there will be a net pecuniary loss. Deforestation benefits will only emerge as new planning takes place and will depend on whether other consuming countries introduce similar legislation.