Earlier this year, commodity-trading giant Cargill exported a shipment of soy from Brazil to Europe, aiming to test whether it would comply with the European Union’s new regulation on deforestation-free products, or EUDR. It found that although the shipment met several of the EUDR’s requirements, it still faced several challenges to reach full compliance.

The EUDR, once it comes into effect at the end of 2025 (delayed from this year), will require suppliers to prove that their products exported to the EU aren’t sourced from illegally deforested areas. It’s meant to address increasing claims of products imported into the EU being linked to illegal deforestation, including in the Amazon Rainforest, and will target products containing one of seven commodities: soy, cattle, rubber, palm oil, coffee, cocoa and timber.

A report on Cargill’s dry run was released in October, authored by Brazil-based strategy consultancy Olab, specialized in food systems, forests and land use, and the government of the Netherlands. It analyzes the shipment exported to Europe in July, accompanied by the mandatory documents to demonstrate EUDR compliance, and focuses on the lessons arising from the challenges to meet the law’s requirements.

The dry run resulted from a partnership of the Dutch Embassy in Brazil, Dutch food safety regulator NVWA, Olab and Cargill. Olab reviewed the documentation and presented the results to the NVWA responsible for receiving the shipment in the Netherlands on two separate occasions, according to the report.

“While the vast majority of requisites under the EUDR were met by the Trader [Cargill], there remained some outstanding issues, from which these Lessons Learned are drawn,” the report says.

Cargill didn’t respond to several Mongabay requests for comment about the dry run’s results. When previously asked for an interview about the EUDR in general, the company deferred questions to the Brazilian Association of Vegetable Oil Industries (Abiove), of which it’s a member, stating that it was the best source to speak with.

The dry run showed that the EUDR demands geolocation data for all the plots of land supplying the commodity, even when intermediaries are involved. Providing that data and assessing the information requires “an immense amount of work,” the report says. One way to do this would be to provide data from a wider universe of suppliers whose soy ends up in a particular silo, known as a declaration in excess. 

The report also highlights that geolocation plots from supplier farms that fill 200% of the silo capacity must be provided on a rolling basis throughout the year. Silos are used as aggregation points to store soy before being sold to traders and third parties. The report warns that requiring the geolocation for plots throughout the year “may be inefficient and may not reflect the way the supply chain operates,” given the huge variations of stocks throughout the year, of which a big share might not be going into the EU.

In some cases, deforestation might occur after soy has entered the supply chain, switching the commodity from compliant to noncompliant before it reaches the EU. Official data confirming land-use change by the country’s National Space Research Institute (INPE) may only become publicly available more than a year after a deforestation event occurs. In such cases, the authors propose that the shipment should still be considered compliant, as it can take up to two years to convert forest to soy crops, and for the plot in question to be eliminated from a compliant supply chain.

Another challenge is how to comply with the EUDR requirement to verify an incident of deforestation down to a resolution of 0.5 hectares (1.24 acres) — a plot of land of approximately 70 by 70 meters (230 by 230 feet). That’s because INPE’s annual deforestation system, PRODES, monitors at a much coarser resolution of 6.25 hectares (15.44 acres), or more than 12 times as large. Despite the risk of false positives or data “bumps” for small-scale areas, operators and supply chain partners are expected to carry out further investigation up to a unit size of 0.5 hectares and discard any suspicion of deforestation through complementary tools such as Global Forest Watch’s (GWF) GLAD system, which has a resolution of about 0.3 by 0.3 m (1 by 1 ft).

“However, the circumstances under which a small deforestation alert would be expected to be field verified are not clear,” the report says.

Although most soy producers in the country say they’re committed to best industry practices, the report says, a residual level of “laundering” from a small number of growers that may seek to sell from deforested areas via fully compliant properties “may be unavoidable in such a large supply chain.” Overcoming that means that traders need to implement measures to minimize these risks, including “volume reconciliation and checking family ties between farms.” The regulatory authority also proposed including checks during harvest and transportation, even though costs “may be prohibitive,” the report adds.

Providing evidence of compliance with tax, anticorruption, trade and customs regulations “is not a straightforward task,” it goes on. It notes that some databases in Brazil only list individuals or institutions that have been registered as noncompliant, and some databases also have issues related to data protection.

“It is unclear how operators can do more than show evidence that their suppliers have not been blacklisted for tax or anti-corruption infringements,” the report says. It advises companies to provide, at a minimum, a file with certificates of debt related to federal tax credits and the federal government’s outstanding debt.

In the dry run, Cargill provided documents showing that none of the soy traded to the EU originated from Indigenous territories that were fully demarcated. However, the regulator’s view was that compliant soy can’t come from any Indigenous territories, regardless of its stage of demarcation. For risk assessments, the report recommends the inclusion of all Indigenous territories, since the United Nations Declaration on the Rights of Indigenous Peoples, ratified by Brazil, doesn’t distinguish between Indigenous lands that are ratified or not.

Mongabay previously reported that Cargill had been accused of sourcing soy from Indigenous territories in the Brazilian Amazon and protected forests in Bolivia. The report urges the EU to provide more clarity on the definition of Indigenous territories, including those not yet formally recognized under local laws.

The report also says the establishment of a management system alone may not be enough to demonstrate EUDR compliance, as the regulation requires the provision of all documentation for each shipment.

“The main challenge with assessing on a case-by-case basis, rather than assessing the overall management system is the workload: a large amount and variety of documents must be provided, uploaded and assessed with every shipment, no matter how small,” the report says. “EUDR requirements must be followed assiduously, with documentation provided from all supplier farms,” it adds.

‘There’s no question of losing the European market’

Soy meal accounts for a third of Brazil exports, of which half goes to Europe, according to Abiove.

“Our entire industrial capacity depends on the export of [soy] meal, so there’s no question of losing the European market under any circumstances,” André Nassar, Abiove’s executive president, told Mongabay by phone. “How are you going to have soybean meal that complies with the EUDR? You have to have the soy that complies with the EUDR. And you have to have a factory line or the whole factory serving the EUDR.” Another alternative is to have the factory operating during a period of the year only for EUDR, he added.

To comply with the EUDR requirements, companies are setting up a new business structure to provide 100% traceability point by point from the producer to the port, until it enters the ship, and also 100% segregated traceability, Nassar said, adding that  overcoming logistics challenges to track soy production is key.

He said the most effective way to track soy transportation compliant with the EUDR is by truck, as each load can be discretely tracked by satellite; by train, however, there’s a risk of mixture. Currently, half of Brazil’s soy meal exports are transported to port by truck, almost 40% by rail, and 10% by a combination of waterway and truck, Nassar added.

To ensure no mixing between verified and unverified products, companies must define which assets will be 100% dedicated to EUDR exports, including warehouses and port terminals, Nassar told Mongabay. Port terminals where companies operate in a pool will unlikely be able to handle EUDR requirements, Nassar said.

“We’re going to try to operate our own terminals. The big companies have their own terminals, with their own logistics, that is, the truck unloads at their warehouse at the terminal. So they have to set up these logistics,” he said.

He added it’s also very common for soy companies to pool their produce to fill up a ship for export. Yet it may be challenging to get all the companies to instate the same controls over their respective cargoes, he said. “These are the major logistics challenges that companies are facing, which is very specific to soybeans.”

Nassar said other obstacles remain, like the lack of geographical coordinates for all soybean production areas in the country.

“The first thing the company has to do is to be able to have this basic information, which is the plot of land, because that has to be uploaded to a system in the European Union, and the companies don’t have this plot of land for the whole of Brazil,” he said. “They have it for certain regions, so they’ve chosen regions where they’re going to source their soy [to the EU] where they have this information.”

According to Nassar, Abiove’s member companies already have geospatial tools to carry out a socioenvironmental analysis of the properties before the purchase. But when a company buys soy from a cooperative, a reseller or a cereal merchant, usually the owner of the warehouse, the sellers don’t necessarily have this geolocation and verification system of origin in place. In these cases, this soy can’t be sent to the European Union.

Clashing requirements

Abiove has a public guide for verifying compliance with the law, which includes procedures on how to deal with issues related to slave labor, conflicts with Indigenous territories and conservation units, embargos for illegal deforestation, and more. Its member companies follow the guide, Nassar said, and they expected the EU would accept this verification model. But the dry run report showed that the Dutch authorities have stricter requirements that require companies to apply risk assessments in a previous stage.

One example is the exclusion of any Indigenous territories from soy production, regardless of its state of demarcation, Nassar said. “Our companies don’t buy [soy from] fully demarcated Indigenous territories,” he said. “But if it isn’t homologated [fully demarcated], they buy it.”

The EUDR also expects additional practices from companies beyond just checking the slave labor list and ensuring current human rights procedures are in place, like checking whether the supplier has conflict mitigation practices, Nassar said.

“The companies are going to have to ask for a declaration from each producer and make some kind of human rights risk map and prove that they know the regions that have a risk of conflict?” he said.

The requirements for corruption and tax evasion risks are another constraint, Nassar said. “You have to investigate your supplier and that created a total impasse,” he said.^[1] “They want proof that in Brazil we don’t have.”

Amid this uncertainty, Nassar said, Abiove and other industry associations have asked the government to come up with a way of verifying these requirements. Otherwise, each company will have to do its own verification, with no guarantee of whether it would be accepted by Europe.

“We want the government to recognize the relevant legislation [to] the European Union,” Nassar said. “We would like the government to do a job of convincing them that for the Brazilian case this is the way you check. It will reduce the uncertainty for the companies.”

Brazil’s Ministry of Agriculture and Livestock and Ministry of Foreign Affairs didn’t respond to several Mongabay requests for interviews.

Given the remaining challenges, especially for segregating compliant with non-compliant commodities in the logistics chain, Nassar said the EUDR postponement will allow more companies to meet the requirements. If the regulation had come into force this month as initially planned, he added, only the biggest companies with assets like their own warehouses, port terminals and truck fleets would be able to comply.

Impact on Indigenous peoples and local communities?

For Aijing Li, research and engagement specialist at California-based nonprofit CTrees, government-led traceability systems are among “the most promising developments” triggered by the EUDR. She cites reports showing that countries like Indonesia, Malaysia, Côte d’Ivoire, Ghana and Uganda are either enhancing their existing public traceability systems, or developing new ones to assist with EUDR implementation.

“Governments can also play a critical role in legality due diligence. The complexity and breadth of local laws and regulations relevant to the EUDR’s legality requirements can be overwhelming for companies,” Li told Mongabay in an email. “An official, consolidated list of applicable local laws and regulations — clarifying issues such as customary land rights — can be a valuable resource for companies navigating these requirements.”

Local governments are pivotal in addressing deforestation, she adds, citing a study showing that half of all deforested land in tropical regions isn’t converted into active agricultural production but instead results from land title disputes, speculative clearing, poor land suitability, or accidental fires.

“These drivers largely fall outside the scope of the EUDR. Improved spatial planning and proactive enforcement by local governments are essential to address these challenges,” Li said.

Each sector has its peculiarities, but most companies are choosing to segregate their supply chains, she added. However, this study shows the potential impacts of anticipated measures on smallholders, Indigenous peoples and local communities, including their exclusion from high-value supply chains of commodities and potential increase of risk of land conflicts between large-scale and small-scale agriculture.

Whether the EUDR will result in a significant reduction in deforestation is uncertain, Li said, pointing to an analysis showing that the EU import market represents a limited portion of the global commodity market, and that deforestation-linked products could simply be redirected to non-EU markets.

“I am concerned that companies will respond by sourcing products from established plantations, or their own operations to reduce costs and minimize the risk of non-compliance,” Li said. “These lands, which were not at the deforestation frontiers before the EUDR’s introduction, carry minimal deforestation risk.”

Nevertheless, she said EU authorities have an opportunity to drive innovative solutions through the implementation of the EUDR with public traceability systems and provide a solid starting point, given the challenging complexity of supply chains, especially in the case of smallholders in indirect sourcing.

“The EUDR presents an opportunity for consensus and clear guidelines on a compliance pathway that is tailored to the realities of these complex supply chains,” Li told Mongabay. “Without such clarity, particularly in terms of enforcement, companies may avoid engaging with these complicated supply chains, missing the chance to drive positive change for these stakeholders.”

Banner image: A harvester harvesting soy in Brazil. Image by charlesricardo via Pixabay (Public domain).

Citations:

Pendrill, F., Gardner, T. A., Meyfroidt, P., Persson, U. M., Adams, J., Azevedo, T., … West, C. (2022). Disentangling the numbers behind agriculture-driven tropical deforestation. Science, 377(6611). doi:10.1126/science.abm9267

Zhunusova, E., Ahimbisibwe, V., Sen, L. T., Sadeghi, A., Toledo-Aceves, T., Kabwe, G., & Günter, S. (2022). Potential impacts of the proposed EU regulation on deforestation-free supply chains on smallholders, indigenous peoples, and local communities in producer countries outside the EU. Forest Policy and Economics, 143, 102817. doi:10.1016/j.forpol.2022.10281

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