Intercontinental Exchange is moving forward with a new platform to make it easier for coffee and cocoa traders to comply with the new European Union Regulation for Deforestation-Free Products (EUDR) in time for a 30 December deadline, even as other organizations have requested a delay in implementing the regulation.
The ICE Benchmark Administration (IBA) has begun uploading farm geolocation data to its new platform, the ICE Commodity Traceability Service (ICE CoT). “We started our trials of the deforestation map-check module in July,” said Toby Brandon, chief operating officer of the IBA. Brandon noted his business unit developed the platform in collaboration with Meridia, an agricultural technology company specializing in the verification of farm origin and supply chain data.
Other organizations, however, have expressed less confidence with the looming deadline. On 25 July, EuroCommerce, a trade group representing five million retailers and wholesalers in 27 countries, became the latest entity to complain to the European Commission about a lack of detail in the new rules.
Questions unanswered
Although EuroCommerce said it supported the regulation’s objective of preventing deforestation, “the many questions we have shared with the Commission during the past year have so far remained unanswered,” according to a release.
“This situation makes it impossible to prepare in an appropriate and timely manner,” the organization concluded in the same statement, before demanding a delay in implementation by a minimum of six months. EuroCommerce’s complaints follow others made by 20 EU countries, as well as other agricultural-exporting countries from Indonesia to Brazil.
The new rules prohibit operators and traders from placing specific commodities in the EU market, including cattle, cocoa, coffee, palm oil, rubber, soya and wood grown on land converted from forest to agricultural use after 31 December 2020. The rules also cover products derived from those commodities such as meat, leather, books and chocolate.
In addition, the regulation requires that producers comply with all local social and environmental laws, regardless of the location of the land. “It’s not just laws about not cutting down trees or even not doing environmental damage – it’s tax and human rights and property law and possibly even contracts,” said Julie Vaughan, counsel at Reed Smith in London.
In the near term, some companies may face legal limbo if goods put up for sale after 30 December do not comply, as they could end up in a situation where they can neither sell them nor ship them back to the originating country.
The law takes effect for large companies on 30 December 2024 and for small companies on 30 June 2025. Penalties for non-compliance include fines of up to 4% of the company’s EU turnover and a ban on access to the EU market for products in the category in which the firm is judged to be non-compliant.
As well as preparing for the EU regulations, global companies must adapt their supply chains for similar scrutiny in the UK and the US, according to IBA’s Brandon. He noted a similar law on the way in the UK and expects that the Western markets will eventually follow suit.
“These are global brands, and they don’t see that they can save the world in Europe by having deforestation-free coffee but not in the US, so some companies that we know are already anticipating this coming to the US. They are going to get ready early,” he said.
Thinking inside the box
Vaughan said many details of the EUDR require additional attention, such as a definition of deforestation. “The regulation has got lots of these sorts of issues in it, which need guidance from the Commission for people to actually operationalize,” she said.
Another issue revolves around how EUDR interacts with other rules. For instance, in her firm’s work for a retailer, it found that a cardboard box does not have to follow EUDR rules if it’s already packaging for another product. However, an empty box the retailer intends to use for packaging must comply.
Despite the concerns, Vaughan does not hold an optimistic view that the European Commission will postpone implementation of the new rule. “I haven’t seen any sign coming from the Commission that they are going to accede to that and delay it. It seems quite gung-ho at this point to carry on,” Vaughan said.
Instead, she foresees a lot of improvisation ahead. “It might be that some guidance emerges in the next couple of months, but even so, these things take time to put into place. In the absence of that, companies will have to figure it out for themselves and do the best they can to comply with it,” she said.
ICE’s IBA plans to forge ahead. In September, it will take the map module live, after which it will begin working on another module that will cover supply chain issues, such as land use rights and human rights.
“We’re working with consultants country by country. We’re stipulating what is required to meet local rules of production, which can be laws about land use rights, human rights, child labor laws, and so on. It’s different in each country, and in order to prove your legal production you have different documents and different processes,” Brandon said.
The complete platform, which the IBA hopes to take live in October, will keep coffee and cocoa trading smoothly, according to Brandon. “Otherwise, every time a buyer in Europe goes to buy from an origin country, they’re going to have to stop and go through hundreds of pieces of paperwork, showing that they’re okay to trade with that seller,” he said.
Nevertheless, setting up the platform in time presents numerous challenges. “It's simple on paper, but it’s difficult in practice. These are smallholder supply chains, millions of farmers in Vietnam or Colombia or the Ivory Coast and you’ve got to somehow digitize their records. It’s all possible, but it’s a lot to do in a short period of time,” Brandon said.
