Consumers and companies could be hit with $1.5 billion bill for EUDR compliance for cocoa and palm oil

Consumers and businesses across Europe could be hit with a bill of at least $1.5 billion over compliance costs of the fast-approaching EUDR regulations governing supply chains in key commodities including cocoa and palm oil, reports Neill Barston.

The financial study made by Globaldata warned that costs surrounding the certification of the incoming environmental laws could spiral further surrounding the scheme that has been  devised to drive higher environmental standards in ensuring that companies are now responsible for ensuring deforestation-free trading and guaranteeing of human rights within agricultural communities.

Under the EUDR plans due to be introduced in December 2024, mid-to-large scale European businesses are being encouraged to cut their greenhouse gas emissions and help limit biodiversity loss by influencing global action on climate change targeting commodities linked to deforestation.

But as reported by Confectionery Production, considerable concerns have been raised over implementation of the programme, namely fears that its central satellite geomapping system presently lacks the level of accuracy required to ensure full traceability of the scheme down to individual farm level.

Consequently, the US government has waded into the situation in calling for the EUDR to be delayed in its introduction, as well as a large percentage of farmers working within cocoa farming within Ivory Coast, as well as in Indonesia and Malaysia. They have collective expressed concerns over just who will be expected to pay for the monitoring, and precisely how will such checks be carried out.

According to the latest Globaldata study, “Food, drink and personal care categories likely to be most affected by retail price hikes due to the EUDR include coffee, chocolate, soy-based meat alternatives and oil palm products and their derivatives including hundreds of personal care products such as shampoo.”

The regulations, which are being introduced in tandem with separate, yet linked, corporate due diligence legislation requirements in the EU, are considered to offer landmark protection for supplier nations in terms of targeting reductions in deforestation within market categories covering cocoa, cattle farming, palm oil, soy and paper, chocolates, rubber, tyres and furniture, among many others.

However, according to agribusiness consultants at Globaldata, it estimates that compliance premiums for companies operating in the supply chain for just two of the targeted commodities, oil palm products and their derivatives (such as crude palm oil (CPO) and palm kernel oil (KPO)), and rubber could be in excess of $1.5 billion alone, based on present elevated cocoa prices.

As the organisation noted, while companies operating in these supply chains may be able to handle some of the costs themselves a good proportion of these compliance premiums are likely to be passed onto EU consumers in the form of food and drinks and product price increases.

With the EUDR coming into full force on 30th December 2024 for large companies (2025 for SME’s), the new study is also a timely reminder for large companies operating in the Food & Beverages, Foodservice, Retail and Packaging sectors to finalise their EUDR compliance strategy over the next six months to avoid being late in aligning their operations with the new EUDR rules.

It could be argued that the EU aims to use the ‘Brussels effect’ to direct global policy on sustainability. This is the idea that the global landscape responds to the EU ‘externalizing’ its laws because the bloc is such a significant global consumer market. According to Eurostat, the EU has a population of over 448.7 million people, one of the biggest consumer markets in the world.

Furthermore, Globaldate explained that the European Investment Bank predicts that the EUs various climate actions could result in a potential hit to EU-wide GDP of -0.4% by 2030, taking into account all of the EUs sustainability initiatives, but says the costs of not acting would be greater.

Fred Diamond, Senior Food & Beverages Consultant and Analyst at GlobalData comments: “The aims of the EUDR are understandable and cutting greenhouse gas emissions and protecting biodiversity is essential. However, there could be some disruption ahead. The extra demands of the EUDR could lead some commodity suppliers in what the EU terms ‘third countries’ to move away from the EU and increase trade with countries that impose fewer regulatory requirements such as China. Some food categories, such as plant-based meat, may have to reformulate and switch to other protein sources, such as pea protein if the result of the EUDR is an increase in the price of soya for food production.

“The gap between big and small companies could get wider as larger companies are more able to shoulder the additional regulatory burden. The exact impact on consumers will depend on a variety of factors, including how companies choose to respond to the regulation, the extent to which the regulation is enforced, and how much assistance EU member states are willing to give to supplier countries to help them align with the new rules. However, with recent news reports confirming that the world’s top climate scientists expect global heating to go well beyond the current 1.5C target, sustainability regulation associated with cutting greenhouse gas emissions, such as the EUDR which targets deforestation, remains an urgent priority for the planet.”

 

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