Popular articles
Recent discussions on forum
EUDR and Downstream Traceability: A New Era of Accountability
A new path towards complete traceability for farmed commodities
Published October 29, 2024
Asharita D'Silva
Coffee experts@Era of We
The European Union Deforestation Regulation (EUDR) has introduced a significant shift in the global supply chain, aiming to combat deforestation linked to the production and trade of commodities. This regulation places an enormous responsibility on companies to trace their products and ensure they do not contribute to deforestation. The EUDR impacts businesses by mandating enhanced transparency and traceability within their supply chains, pushing companies to rethink how they manage downstream traceability.
While there is the possibility of a postponement of the deadline to 2025, companies cannot afford to become complacent with their preparations for EUDR. The work to be done is extensive and companies should use this time to prepare their systems for the data requirements of the legislation. Now instead of scrambling to find new suppliers, businesses can work with their existing suppliers to implement traceability from the ground up.
In this article, we will explore the key components of EUDR and examine the challenges companies face in meeting these stringent requirements.
What Is Downstream Traceability?
Downstream traceability refers to the ability to trace a product through every stage of the supply chain, from the origin of raw materials to the final consumer. In the context of EUDR, it means tracking commodities back to their source and verifying that they were produced in compliance with the regulation’s environmental standards. This level of transparency is essential for companies to demonstrate that their products do not contribute to deforestation.
The traceability requirement within EUDR is extensive, encompassing multiple layers of the supply chain. Companies must maintain a clear record of where their commodities are sourced from, whether through direct suppliers or complex, multi-tiered supply chains. In addition, they will have to manage multiple reference numbers for different batches of commodities imported into the EU. This poses a significant increase in workload to ensure compliance.
Increased Workload and Challenges for Companies
The introduction of EUDR has dramatically increased the workload for companies, especially those dealing with commodities linked to deforestation. To comply with the regulation, companies must implement new systems and processes to track their products throughout the entire supply chain. Below are some of the key challenges they face:
1. Enhanced Supply Chain Monitoring
To comply with EUDR, companies are required to monitor their supply chains with increased precision. This involves not only knowing the immediate suppliers but also gathering information on the origin of raw materials, including agricultural practices and land use history. For many businesses, particularly small and medium enterprises (SMEs), this requires significant investment in supply chain management tools and technologies.
The need for continuous monitoring also adds to the operational burden, as businesses must ensure their supply chain remains compliant throughout production cycles.
2. Data Collection and Verification
Collecting reliable data on commodity origins is a significant challenge under the EUDR. Companies must gather geolocation data, land use records, and evidence of compliance with environmental regulations. This requires strong collaboration with suppliers and possibly third-party verification agencies to certify the authenticity of the data.
The volume of data that needs to be processed can be overwhelming, especially when dealing with global supply chains. For many companies, this creates a need for new tools, platforms, and technologies to manage and verify the information.
3. Increased Due Diligence Obligations
EUDR imposes strict due diligence obligations on companies, requiring them to actively seek out information about potential risks of deforestation in their supply chains. Companies must assess whether any part of their supply chain is linked to deforested land and take corrective actions if necessary. This added due diligence requirement creates more risk, legal and administrative workload, as businesses must maintain detailed documentation of their compliance efforts. This means businesses and operators must take stronger responsibility for their supply chains and not pass the buck on to their suppliers.
4. Cost of Compliance
One of the most significant challenges is the financial cost of compliance. Setting up traceability systems, conducting regular audits, and verifying data requires considerable investment. For companies with long, complex supply chains, these costs can be even more substantial.
Moreover, failure to comply with the EUDR can result in hefty fines and reputational damage. Even though it is likely that the EU will implement a grace period when turned into law, the fine structure has been set to up to 4% of annual turnover. Thus, companies must weigh the cost of implementing the necessary systems against the risks of non-compliance. Moreover, it’s important to note that if even a part of a batch is found to be non-compliant, the entire batch is removed from the market. This can cause significant losses for businesses if they aren’t careful.
5. Collaboration with Suppliers
Many companies rely on suppliers in regions where regulations around deforestation are less stringent or poorly enforced. EUDR forces companies to engage more closely with their suppliers to ensure they adhere to sustainable land-use practices. This could mean renegotiating contracts, finding new suppliers, or offering support to help suppliers meet compliance standards. Something smallholder producers are often unable to do.
This creates a complex dynamic where companies must balance the pressure of compliance with maintaining supplier relationships.
Overall, the key challenges include obtaining and maintaining accurate geolocation data and ensuring that verified and non-verified commodities do not mix. This puts additional strain on companies and traders to manage their data efficiently and monitor their due diligence rigorously to avoid the penalties associated with EUDR which includes fines and even having products removed from the EU market.
Conclusion
The EUDR represents a significant step forward in the global fight against deforestation, but it also places considerable pressure on companies to ensure compliance through enhanced downstream traceability. While the regulation aims to create a more sustainable and environmentally responsible supply chain, it also imposes substantial challenges in terms of monitoring, data collection, and collaboration with suppliers.
Businesses that are proactive in adopting new technologies and improving their supply chain transparency will be better positioned to meet the demands of the EUDR. However, the increased workload, financial burden, and operational complexity will remain key concerns for many companies, especially those with deep, global supply chains.
A potential stay on the deadline is an opportunity for businesses and operators within the EU to strengthen their supply chains and bolster their systems to manage the increased data requirements.
Era of We can help companies automate their EUDR reference number generation processes related to importing raw materials, producing finished goods mixed from several raw materials, and exporting/re-importing the goods in distribution. We also enable downstream customers to access the RNs related to any product packaging and specific export/re-import shipments. To learn more about how we secure downstream traceability for companies, contact us here.
About the author
Asharita D'Silva
Join me in discovering the wonderful world of coffee! As a writer, coffee is my fuel and newfound passion. I love writing about new coffees, sustainability, and coffee culture around the world. I'm always discovering new things about coffee and the industry, which I share with the great community here at Era Of We.
Add comment
More on the coffee lab
Sign up and contribute now