- A recent report from the Dutch NGO Profundo suggests that complying with the EUDR, the regulation designed to root out deforestation in the supply chains of products entering the European Union, will add little cost to companies’ bottom lines.
- Researchers from Profundo used available customs data for 12 small, medium and large companies that import one or more of the seven commodities regulated by the EUDR.
- On average, it will cost companies about 0.1% of their annual revenues, though the cost will likely be higher for smaller companies, according to the report. The impact on the prices consumers pay will be even smaller.
- Industry sources told Mongabay that the report’s methodology was “flawed,” however, and said the authors did not take into account the full suite of accommodations companies must make.
The costs that companies will have to bear in complying with the EU regulation on deforestation-free products, or EUDR, are “negligible,” according to a recent report published Feb. 12 by Profundo, a nonprofit research organization based in the Netherlands. The analysis found they will amount to 0.1% of annual revenues and less than 2% of net profits on average for the companies they analyzed.
Industry sources who spoke to Mongabay have raised concerns about the report’s findings, however. Nathalie Lecocq, the director general of the EU vegetable oil industry association, calls the assumptions used in the assessment “flawed.”
“Overall, the report is underestimating the efforts in the value chain to comply and goes as far as to discredit all actors working towards implementing EUDR by conveying the message that these efforts are plainly overstated,” Lecocq told Mongabay in an email.
The EUDR will require that importers demonstrate that seven commodities frequently linked to the destruction of forests did not come from land deforested after Dec. 31, 2020. Initially set to go into effect on Dec. 30, 2024, the EUDR was postponed as companies and industry groups called for a delay to allow them to meet the new requirements. The EUDR will become mandatory for large companies on Dec. 30, 2025. Smaller enterprises will have another six months to comply.
Part of the motivation behind the Profundo report was to understand the burden the EUDR puts on companies and, ultimately, on consumers who purchase their products, Gerard Rijk, a senior equity analyst with Profundo, told Mongabay. Rijk and co-author Barbara Kuepper started with a selection of companies that varied in size from small to large and are involved in importing different commodities covered by the EUDR. They used available customs data to estimate import volumes for each company and then modeled the potential costs for setting up and maintaining an EUDR-compliant due diligence system.
Estimated compliance costs for small and medium-size companies, at an average of 0.17% of revenues, were around three times higher than for the large companies in the analysis.
The impact on consumers — an important consideration at a time when widespread inflation has goaded the prices of many goods upward — would be even smaller: The authors expect coffee drinkers to pay an additional 0.018%, for example, and the retail price of beef to rise by 0.066%.
Rijk and Kuepper also compared the estimated costs with the compensation of company leaders when that information was available. For example, the costs for Swiss-Belgian chocolate maker Barry Callebaut to set up an EUDR due diligence system would be less than 3% of the amount it pays its top executives. Ongoing costs would add up to about 11.5% of those salaries for Barry Callebaut, though for the large companies included in the analysis that disclosed this information, the average would be around 59% of upper management pay.
But Lecocq says the report’s figures likely don’t capture the full set of compliance costs, in part because the scope of the regulation and how it will be applied remain unclear.
“Critical aspects of the EUDR implementation and enforcement are still under discussion,” she adds. “Uncertainty around implementation of the regulation is affecting the ability of stakeholders across the chain to precisely know what is expected from them in order to be compliant.”
Lecocq also notes in her email that Profundo’s due diligence-based approach doesn’t adequately reflect what it will take to meet EUDR requirements because the EUDR will “affect supply chain organisation and logistics.”
“Setting up and maintaining supply chains that are compliant with the traceability, physical segregation, information and extensive legality requirements, involves additional steps and obligations that require investments — in services, staff, infrastructure — which are not accounted for in this modelling approach,” she adds.
Rijk and Kuepper’s estimated costs are also below those projected by the European Commission’s 2021 impact assessment, according to industry sources. However, Rijk says that companies can enlist outside groups involved in collecting satellite data and other types of information to fulfill part of their EUDR obligations instead of having to set up bespoke staffing structures.
“They can hand off the whole process to all kinds of data providers,” he adds.
Rijk acknowledges that their methodology doesn’t account for the costs of compliance further upstream in supply chains.
“That’s something for further research,” he says.
He also notes that the greatest expense may not be the direct costs of compliance with the EUDR, but instead what could amount to “a big hunt” for commodities that are in compliance. In essence, rising demand for deforestation-free commodities could push up costs for companies once the EUDR goes into force, which Lecocq also cites as a concern.
“The difficulty of meeting legality requirements and the risk of liability in case of non-compliance is likely to influence the volumes of commodities that will be available for the EU market and to adversely impact costs for the value chain,” Lecocq says.
Still, the report suggests that the impact on consumers will be muted, largely because the final product that reaches consumers typically requires only a small amount of the source commodity. Rijk points to the fact that soy milk is mostly water, not soybeans grown abroad that are regulated by the EUDR. In effect, that “dilution” means the final price paid will be less, he adds.
The authors write that the increases in consumer prices related to EUDR compliance, ranging between 0.001% and 0.07%, are “a fraction” of the acceptable target inflation rate. And that would leave end users little affected by the regulation, Rijk says.
“For the European consumer, it probably costs nearly nothing.”
Banner image: Logging operation for Brazilian Amazon timber. Image by Fabio Nascimento.
John Cannon is a staff features writer with Mongabay. Find him on Bluesky and LinkedIn.
Companies banking on tech and collaboration to comply with EUDR
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