Understanding EUDR: what commodity players need to know?

In December 2024, the European Union (EU) will implement the Regulation for Deforestation-free Products (EUDR), a critical step towards combating global deforestation. Commodity producers worldwide and importers to the European Union must understand EUDR and take action to maintain market access and ensure compliance. Failure to comply can lead to fines of up to 4% of company turnover within the EU.

KPMG Origins has a comprehensive set of capabilities to help you meet the requirements of EUDR for commodity players. Want to find out more? Check out our KPMG Origins EUDR solution page and explore future blog posts in this series focussing on key challenges, considerations and how to prepare for the regulation going live.

What’s the aim of EUDR?

The EUDR aims to reduce EU’s contribution to deforestation and global carbon emissions by preventing the importation of commodities linked to deforestation, which contribute to loss of biodiversity and ecosystem disruption. The EUDR seeks to:

• Prevent deforestation: Reduce impact of commodity supply chains on global forests, helping avoid biodiversity loss.
• Reduce carbon emissions: Limit forest loss that contributes to global greenhouse gas emissions.
• Promote sustainable practices: Encourage producers and suppliers to adopt sustainable practices, creating a level playing field for those committed to responsible business.
• Enhance market transparency: Increase transparency in global supply chains, allowing informed consumer choices.

Who does EUDR apply to?

The seven commodities covered by Regulation for Deforestation-free Products (EUDR) are palm oil, cocoa, cattle, soy, coffee, timber, and rubber. The regulation applies to all companies that place and make available these commodities and their derivatives on the EU market. Detailed list of covered commodities and derivatives is described in Annex I of the Regulation.

The Regulation applies to both Operators (those who place the product on the market) and Traders (not an Operator that commercialises the products under the regulation – such as a supermarket chain). Operators include importers, producers, processors and retailers. They are responsible for exercising comprehensive due diligence and submitting a due diligence statement to the regulator before placing any of the covered products in the EU market. Operators are required to communicate to other Operators and Traders further down the supply chain all information necessary to demonstrate that due diligence was exercised and no significant risks were identified.

Traders buy or sell the products within the EU but are not necessarily the party that places it on the market for the first time. Traders that are not classified as small and medium-sized enterprises (SMEs) have the same responsibilities as Operators. Traders classified as SMEs are not required to conduct due diligence, but they must collect and maintain the due diligence statement numbers before placing any covered products in the EU market.

What are the requirements of EUDR?

Complying with EUDR requirements is not easy and requires careful understanding of your supply chain due diligence practices, data capture and ongoing monitoring.

Due Diligence System

Operators and Traders will need to establish a rigorous due diligence system made up of:

1. Data collection: Collect data that demonstrate product compliance with the regulation. This means understanding key data points relating to harvest (or cattle-rearing for cattle) locations, end-to-end traceability and demonstration of no-comingling within the supply chain.

1. Risk assessment: Assess the risk of commodities coming from deforested land based on a mix of criteria such as country-specific risk, presence of forests and complexity of the supply chain.
2. Risk mitigation: Reduce the risk levels identified in the previous activity by enacting risk mitigation measures such as additional information gathering activities or audits.

Due Diligence Statement

With each shipment being placed on the European market, Operators and Traders will need to submit a due diligence statement to the EU single window system declaring their due diligence and summarising key data points relating to the commodities placed on the market.

Reporting and Transparency

Those under the regulation must provide public reports on an annual basis describing their due diligence system and keep all required information for up to five years.

How can you prepare for EUDR?

Preparing for EUDR requires a strategic approach to sourcing and data collection practices. You can start with the following easy steps to get ahead of regulatory requirements:

• Understand your supply chain: Understand key players in your supply chain and their harvest (or cattle-rearing) practices.
• Define and standardise data collection: Review your access to data required to submit the due diligence statement, with extra focus on location-specific and traceability data (as one of the hardest to access).
• Build your risk-mitigation approach: Understand your key risk factors and establish an ongoing program of risk mitigation.
• Implement ongoing monitoring: Incorporate the above practices into your regular supplier due diligence practices and ensure ongoing monitoring of compliance.

As the EUDR deadline approaches, commodity importers and producers must act now to prepare for implementing EUDR compliance and contributing to a sustainable future.

Find out more about preparing for EUDR;

1. Join our webinar on 14 August in Spanish focused on EUDR compliance and KPMG Origins for Central and South American commodity traders.
   
   
2. Follow us on LinkedIn for more blog posts about EUDR preparation.
   
   
3. Get in touch with KPMG Origins to learn more about our EUDR Compliance Solution