EU deforestation law delay brings losses to most vigilant

Deforestation is the second largest source of the greenhouse gas emissions that cause climate change after the burning of fossil fuels, according to the European Commission. The EU had planned to ban the import of commodities from suppliers unable to prove their goods were not linked to deforestation.

The EU Deforestation Regulation (EUDR) would have impacted imports of cocoa, coffee, cattle, soy, oil palm, timber, rubber and related products like chocolate and leather.

It was scheduled to come into effect on Dec. 30, but last week the EU Commission proposed a 12-month delay, under pressure from industries and governments who said it would cause supply chain disruptions, exclude poor, small-scale farmers from the EU market, and drive up the cost of basic foodstuffs because many farmers and suppliers were not ready to comply.

The EU's vegoil and oilmeal group Fediol said its members - which include trading giants such as Cargill and food processors like AAK (AAK.ST), opens new tab - will suffer losses from a delay after paying premiums to secure raw materials that comply with the law.

"It's a financial loss they are making by having been ready on time," Fediol director general Nathalie Lecocq told Reuters.

Cocoa processors and chocolate makers face the same scenario with traders saying they had sold deforestation free beans to them at a premium of up to 6%, amounting up to 300 pounds a ton.

The premium will now likely fall to zero as consumers won't be willing to pay more for cocoa that complies with a law that has been pushed back.

That will leave the processors and chocolate-makers unable to pass on the cost and forced to absorb it.

"There's real world implications to this. Whoever agreed to buy and pay that premium paid for nothing," said a Europe-based cocoa trader.

Research published last month by Fefac, an EU animal feed industry body, estimated that EUDR compliant soybeans would cost 5-10% above regular beans.

Fefac, EU farmers lobby Copa-Cogeca, and various other EUDR-impacted industries welcomed the delay proposal, having previously warned that implementing the rules on time would result in many small businesses suffering.

The EUDR will require importers of commodities to prove their goods weren't grown on land deforested anywhere in the world, or face fines of up to 20% of their turnover.

The law requires companies map and trace their supply chains down to the plot where their raw materials were grown.

Critics said the measure is too complex as supply chains involve millions of farms and multiple intermediaries whose data is often difficult to obtain or verify.

The Commission's delay proposal still needs to be approved by the European Parliament and member states.

The majority of members asked Brussels in March to scale back and possibly suspend the law while parliament members who oppose the delay do not have a majority.

The Commission said the vote would likely happen in November or December at the latest.