Scholz requests suspension of deforestation directive

German chancellor Olaf Scholz has formally asked the EU for a suspension of the implementation of the European Union Deforestation Regulation (EUDR), which is scheduled to come into effect on 30 December 2024.

Major agricultural exporters to the EU in countries such as Indonesia, Malaysia and Brazil will be delighted to hear of the German chancellor’s request as they believe the directive will hammer their trade.

The EUDR is basically a ban on products linked to deforestation. The EU mandates that anyone importing or exporting commodities linked to forest degradation into or out of the EU market must prove that the products do not originate from recently deforested land or have contributed to forest degradation. Commodities heavily linked to deforestation include cattle, coca, coffee, palm oil, rubber, soy, and wood.

Penalties for non-compliance include the confiscation and denial into the EU market of non-compliant products, as well as a fine of up to 4% of total annual turnover in the EU.

Both Indonesia and Malaysia, which account for 85% of the world’s palm oil, have filed complaints about the directive with the World Trade Organisation (WTO).

The WTO ruled in favour of the EU earlier this year but did agree that the directive represented “unjustifiable discrimination” against the two emerging nations.

FEFAC, the federation of the European compound feed and premix sector in Europe, strongly opposes the EUDR because it believes that it will hit supply of core materials such as soy bean meal for the European livestock industry and add billions of costs for all.

It reported last week that Scholz has raised his concerns directly with European Commission President Ursula von der Leyen, emphasising the need to resolve “outstanding issues”.

FEFAC said that agriculture ministers, European Parliament members and international trade partners have also expressed concerns about the regulation’s complexity and its potential impact on global trade.

“Exporting countries like Brazil, Indonesia, and Malaysia have warned that the EUDR could act as a trade barrier, negatively affecting small farmers and disrupting supply chains,” said the federation.

“Additionally, the World Trade Organisation’s director general Mrs Ngozi Okonjo-Iweala has urged the EU to reconsider the regulation’s global trade implications, jeopardising a trade value estimated at €110bn,” added FEFAC.

FEFAC published an Economic Impact Assessment on 13 September that concludes that currently, the total EU feed market demand for 2025 of 30m tons of soybean meal cannot be met with EUDR-compliant products, due to the absence of clear operational guidance to soy value chain partners for imports and EU origin.

It adds that market information received by suppliers indicates extra costs for providing EUDR-compliant soybean meal of 5-10% on top of normal market price quotations.

“The market supply for EU soy demand will be adversely impacted by current EUDR legal uncertainties, leading to a potential supply chain disruption due to the low availability of EUDR-compliant soybean meal that is currently offered and with higher costs linked to transport logistics and warehousing/storage,” says FEFAC.

Interestingly, FEFAC says there is sufficient market availability of certified/verified deforestation-free soy products to cover the needs of the EU feed market.

“However, the delay of practical guidance in support of EUDR implementation by the European Commission significantly reduces the availability of ‘EUDR-compliant’ products. In addition, the global EU market share for soy usage is less than 15% and falling, meaning soy exporters have sufficient market alternatives,” it points out.

The risk for the EU, as with other areas of legislation designed to force major European companies to clean up their supply chains such as the Corporate Sustainability Due Diligence Directive (CSDDD), is that suppliers will divert their marketing efforts elsewhere and leave the EU short of supply and facing higher costs.

Malaysia, for example, announced a deal with China in September 2023 to double its palm oil exports in response to the EUDR. The $533m (2.5bn ringgit) deal followed the signing of an MoU in April 2023, promising to enhance palm oil trade and stabilise the palm oil global supply chain, reported Bloomberg at the time.