The EU Deforestation Regulation

SummaryThe EU Deforestation Regulation (EUDR) will introduce stringent due diligence requirements on the sale of seven major agricultural commodities in the EU with the objective of limiting deforestation in the producing countries. The greatest impact is likely to be in cocoa and coffee where the EU, and Europe more widely, are responsible for a large share of world consumption; and possibly also in palm oil which has seen substantial deforestation. Commodity supply chains are complex. In particular, crops produced by smallholder farmers are aggregated into larger packets prior to export. Tracking the deforestation status of these aggregated packets will be a major and potentially costly undertaking. This will result in the restructuring of supply chains, favouring large farms over smallholdings and international trading companies over nationally‐based exporters. These developments are seen by some producing country governments as imperialistic. EUDR‐compliant supplies will earn a premium and this will raise the prices faced by European consumers. Producers who are able to comply will benefit from the premium but will bear the compliance cost. Overall, there will be a net pecuniary loss. Benefits to deforestation will only emerge as new planting takes place and will depend on whether other consuming countries introduce similar legislation. I estimate that, despite the reduction in deforestation embodied in EU imports, the overall impact on deforestation will be minor but with high associated compliance costs.