The climate crisis, aided by deforestation, has emerged as one of the most pressing environmental challenges of our time. Deforestation is responsible for approximately 11% of global greenhouse gas emissions, making it the second-largest contributor after fossil fuel combustion.
In recognition of this urgent issue, the European Union (EU) introduced the European Union Deforestation Regulation (EUDR) in June 2023. This regulation is part of the EU’s broader commitment to combat climate change and promote sustainability across global supply chains. It targets deforestation linked to the production of commodities such as soy, cocoa, coffee, palm oil, and timber, and aims to eliminate deforestation from EU supply chains by 2030.
By addressing the root causes of deforestation, the EU aims to significantly reduce its environmental footprint and promote more sustainable agricultural practices both within and outside its borders.
Implementation
The EUDR is to be followed by all companies that operate and trade with the EU. All companies involved in harvesting, processing, selling, or marketing agricultural products must comply with these regulations. According to these regulations the companies need to certify that the product is deforestation-free and follows the relevant legislations of its country of production.
Companies must submit a due diligence statement that follows a three-step process:
- Collection of Information: Provide detailed data about the product, including the geolocation of the land where the commodity was produced.
- Risk Assessment: Evaluate risks related to deforestation, Indigenous rights, forest damage, information reliability, product contamination, and broader issues like corruption, human rights violations, and armed conflicts.
- Risk Mitigation: Implement measures to reduce risks, such as independent audits, additional documentation, or closer collaboration with suppliers.
Each supply chain must follow the due diligence and submit statements to a deforestation registry managed by the European Commission. EU authorities will review submissions based on factors like product type, supply chain complexity, and compliance history.
Failure to comply with the EUDR can result in serious repercussions, including fines of up to 4% of annual turnover, limited access to the EU market, and substantial reputational harm.
The EUDR will be enforceable from 30 December 2024 (except for micro and small companies, where the date is 30 June 2026).
Impact On India
In 2023, the EU was India’s largest trading partner for goods, accounting for 12.2% of India’s total trade. India exports a range of products to the EU valued at USD 75.9 billion as of FY24. India is a major supplier of coffee with over 57% of the Indian coffee, 25% of rubber, and 30-40% of leather is exported to the EU. The exports of all these commodities will be severely affected by the regulations. As per the reports from GTRI (Global Trade Research Initiative), the regulations would hit India’s agriculture exports worth USD 1.3 billion to the EU starting in December 2024.
The implementation of EUDR could affect SMEs as they need to spend huge amounts to implement advanced data management and information-sharing systems to track commodities in great detail.
To mitigate the situation, India is currently negotiating a free trade agreement in which the concerns of Indian stakeholders regarding the EU’s sustainability measures, such as CBAM, deforestation, and others, will be discussed with the EU. Additionally, to make the companies in India ready to comply with the new regulations the Indian government must help companies in adjusting to the latest regulations by setting up infrastructure and providing aid for research on sustainable practices. Furthermore, different industries could collaborate and develop common data-sharing platforms. By complying with the EUDR, the companies can work on building a positive reputation and appeal to a new set of environmentally conscious customers. By adopting different technologies companies can keep an eye on the supply chain, which can help them in improving their efficiency and in cutting costs where needed.
CONCLUSION
These new regulations threaten to undermine India’s position as a major supplier to the EU market, especially in sectors like coffee, where more than half of India’s production is sent to the EU, as well as in rubber and leather exports.
Such disruptions would not only impact India’s agricultural sector but could also affect the broader economy by reducing export revenues, causing supply chain bottlenecks, and undermining the livelihoods of millions of farmers and workers reliant on these industries. Therefore, while India continues to benefit from strong trade relations with the EU, the evolving regulatory landscape demands proactive engagement and adaptation strategies to mitigate adverse effects and ensure sustained access to this vital market.
