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Will new deforestation-free sourcing rules upend soy imports in the EU?
EU LEGISLATION
Will new deforestation-free sourcing rules upend soy imports in the EU?
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“Having legislation [eliminating deforestation in commodity supply chains] is certainly welcomed. It shows the urgency, that this is something that needs to be tackled. But we’re just asking for something that is pragmatic, and will not leave the European continent with burdens without actually leading to solutions.”
In early December — not coincidentally, on the eve of the UN’s COP 15 Biodiversity Conference — the European Commission, European Parliament, and the Council announced that they had come to a provisional agreement for a regulation on deforestation-free supply chains. Seven commodities, including soy, cattle, and palm oil, are covered by the framework, which requires that anyone placing these commodities or goods made from them on the market in the EU must demonstrate that they were not produced on recently deforested land.
When Feedinfo spoke with Anton van den Brink, Deputy Secretary General of FEFAC, the European Feed Manufacturers’ Federation, just days following the announcement, the text to which the three EU lawmaking bodies had agreed was not yet available (something he says is not particularly unusual for these sorts of negotiations.) However, this is likely to be a temporary state of affairs; as van den Brink understands it, the goal is to wrap up the negotiations on the deforestation regulation before the end of the Czech presidency of the Council at the close of December, rather than passing it on to the next Council presidency. Ultimately, he estimates that we might see the legislation formally published in the Official Journal of the EU around May or June of 2023. Given the 18-month implementation period for the most relevant provisions, its entry into force might be expected in early 2024.
The journey to this point, though, has passed at “lightning speed”, in van den Brink’s words. “This proposal was first made by the Commission in November last year, so [in] a little bit more than a year, they managed to squeeze out this agreement.”
It is understood that there’s a lot of technical work still to be done, including decisions to be made about the inclusion of different provisions in the legal text.
Perhaps the most critical of the outstanding points for him is the need for implementation guidelines which would explain how the new law should be applied, commodity by commodity, with more specificity than has been available in the high-level discussions.
“We do believe that there is agreement that the European Commission will develop what they call commodity-specific implementation guidelines, and that they would commit to getting that done within 12 months after the publication in the Official Journal,” he says.
“I would expect that authorities [such as] customs authorities at ports are eagerly anticipating these implementation guidelines, just as we are, because they also probably do have questions about how they’re actually supposed to enforce this, and determine whether something is compliant or not.”
PROBLEMATIC LACK OF CLARITY ABOUT TRACEABILITY REQUIREMENTS
Why are these guidelines so important? To begin with, there is a feeling that those who operate in these commodity markets, who have first-hand experience in how these markets function and the impacts that different changes will have, have not been heard in the drafting of the agreement to this point. “It hasn’t been written through, let’s say, the perspective of logistical supply chains,” says van den Brink.
“We’ve had a lot of questions about how this is actually supposed to work in practice…with these implementation guidelines, where there should be stakeholder consultation foreseen, hopefully, there will be a closer look into the functioning of bulk commodity trade, and how this legislation could best be adapted to [those realities], or the other way around.”
More specifically, many of the industry’s questions are centred around the traceability requirements which are a key feature of the new law. The different commodities covered by the deforestation regulation — palm oil, cattle, soy, coffee, cocoa, timber and rubber, as well as products derived from any of these raw materials — have very different supply chains, with different chain of custody models.
“So in the [deforestation] legislation, it doesn’t say ‘you must use this kind of chain of custody model’,” explains van den Brink.
“A legislative text will be silent on any chain of custody model. That’s going to be [in] the implementation guidelines.”
This means that it is currently unclear to what standard of
EU LEGISLATION
traceability these different commodities will be held. And that standard could make the difference between a rule that the industry can work with, and one which imposes huge costs for little benefit.
An example: in statements such as the one FEFAC put out with FEDIOL and COCERAL (associations representing the EU’s oilseed crushing and agricommodity trading sectors) after this political deal had been reached, the associations refer to an implied chain of custody. “In our sector, it’s often understood to [mean] segregation…if you need to be able to trace [for example, 50,000 tonnes of soy entering the harbour] back to the farm plot level… you would need to have segregated supply chains…dedicated silos [at] dedicated ports,” explains van den Brink.
“That’s been the key question: is that the way we need to understand [the traceability requirements of the new rule]? Ok, then we are looking at supply chain disruption, then we are looking at a lot of elevated costs, then we are looking at elevated administrative burden.”
Let’s break that down a bit. If, ultimately, a maximalist view of the concepts of traceability and chain of custody is taken, soy destined for the European market might need to be physically segregated off all throughout the supply chain. Building and maintaining a parallel system of infrastructure to do so would take time, hence the possibility of supply chain disruption. It would also be mind-bogglingly expensive, and those costs would be passed on to the final users (such as those purchasing animal feed), who are already struggling with low margins.
“In Europe [animal feed will] need to be deforestation-free now, by law. But if you talk about animal production outside of Europe, they will have no such obligation to use deforestation-free soy,” observes van den Brink.
Industry associations such as AVEC, which represents the EU poultry production sector, have expressed the unfairness of having to pay a significant premium for their feed compared to producers in Brazil, Thailand, or Ukraine; interestingly, the solution AVEC have identified is that EU authorities “should correct their mistake as soon as possible by including poultry meat in the scope of the next revision of the legislation to ensure a level playing field for our producers.” And in some cases, it could be simply physically impossible to add dedicated silos to busy ports already straining at the seams. “If you go to Brazil, you go to the Santos port, for example, they have limited storage capacity, and they ship not only to the EU, they also ship to China, or Thailand. We just don’t have dedicated EU infrastructure in these countries,” van den Brink notes.
Moreover, it is important to understand that other options exist; physical segregation with dedicated infrastructure is not the only way to ensure that Europe’s consumption of these commodities does not drive net deforestation. Van den Brink points to options such as “book and claim” or “mass balance” chain of custody models, which feature in discussions about green energy (and indeed, mass balance was used in the EU’s Renewable Energy Directive).
In such systems, it is volumes or credits, not the physical products themselves, which must be traceable to deforestationfree commodity production. He explains: “If you buy credits [for deforestation-free soy, for example], it’s a system outside of the supply chain functioning. It’s like with green electricity: you cannot control what you get out of the grid [i.e. whether a given unit of electricity delivered to you was produced with renewables or traditional sources]. That’s a system that has worked for many countries, and I think it has its merits.”
Unfortunately, it is not clear that such a system would satisfy those who are leading the charge against deforestation in the EU supply chains. “You can look at initiatives like from the Consumer Goods Forum, for example, or you see different types of soy
© Alexandros Michailidis / Shutterstock.com
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ANTON VAN DEN BRINK
EU LEGISLATION
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manifestos in several countries; they all want to have an increased level of physical traceability,” observes van den Brink.
Moreover, he fears that the mass balance concept may be perceived as a bit of a soft option, a half measure. “Mass balance, from what [environmental legislators and regulators] know of it, is a system that allows a certain level of mixing,” he explains. “The political goal in mind [is made clear by] Commissioner Timmermans always using the coffee reference: any European should be able to buy a cup of coffee anywhere in Europe and not feel a guilty conscience that there could be deforestation at the heart of it. So segregation for them sounds like something that will do the trick.”
Still, this remains one of the main hopes from the implementation guidelines: that they will make clear exactly what form the traceability demanded by the deforestation legislation will take. “That’s exactly why we need these words of guidance from the Commission or an authority [ensuring] that there must be the possibility of some kind of aggregated traceability…the Commission will have to address [the possibility that] you cannot 100% exclude it.”
LEGALITY AND EFFECTIVENESS IN COUNTRIES OF ORIGIN
There are other concerns about the deforestation regulation beyond the headaches that an insistence on physical segregation would create.
For one thing, even if it is data, and not the physical commodities themselves, which must be traced through the chain of custody, European schemes could raise data privacy concerns in the countries of origin — which span the globe from Canada to Indonesia to Argentina. FEFAC and its partners have been warning since February that mandating the collection of geolocation coordinates from producers would be incompatible with the laws in some jurisdictions. “[EU trading partners are] not exactly happy with this idea of having to provide all that data. You always have to prove your innocence, with a whole batch of data about the location of where [commodities] are growing.”
Perhaps most ironically, though, there are also worries that the regulation will not do very much when it comes to influencing the net deforestation taking place. One reason for this is because the regulation divides countries up into high, standard, and low risks for deforestation, something which FEFAC and others have criticised because it will lead to risk avoidance. In other words, conscientious buyers will decide that the potential damage to their reputation from dealing in commodities from country classed as “high risk” is too great, and they will stick to those produced in areas where there is no risk of deforestation — meaning that the only buyers left for soy or beef from countries where there is a risk of deforestation will be less conscientious buyers, those who will put no pressure on the producers to do the right thing or pay no premium for responsibly-produced soy.
Or as van den Brink puts it: “In the areas, particularly in South America, where soy expansion still can [sometimes] be a driver of deforestation, we [in Europe] would be disconnected from those places. It would be impossible to do business with these farms, with the farms that would want to have Europe as a partner for sustainable trade.”
THE OUTLOOK
In spite of his serious reservations about the ways in which the EU authorities could yet decide to implement the deforestation regulation and concerns about potential effects throughout the value chain, van den Brink says he “wants to be fairly optimistic” about the possibility of a somewhat positive resolution to the dossier.
For one thing, he says, the fact that food security has taken centre stage in the light of world events recently makes him hopeful that lawmakers will not take decisions that render imported feed ingredients inaccessible. “Politically-speaking, you cannot imagine the EU would shoot themselves in the foot, kind of consciously saying ‘oh, we’ve just developed something that is completely going to cause the breakdown of soy imports from entire regions of the world.’”
And for another, he was encouraged to see that the idea of implementation guidelines — which were not even part of the original EC proposal but which were added in by the Parliament — reportedly made it into the final political agreement. “[The commitment to implementation guidelines] gives us some hope that there is room to really look into practical solutions.”
More generally, he is pragmatic about the fact that the world is changing, and the industry must change with it, about the fact that the demand for sustainable supply chains is coming not only from the EU authorities, but also from the market, and indeed from society at large.
“The idea that the origin [of commodities] is behind closed curtains, I think that’s a paradigm we’re going to have to let go. Because of the pressures that are on us, we need to know where we get [our raw materials] from. Otherwise, it’s the license to produce [livestock] that is at stake…the concerns around feed production, soy production and cultivation specifically, it’s one of the key concerns for people [deciding] to eat meat or not.
“We’re going to pay for [responsibly-produced soy] somehow, either with money or with reputation.”
By Shannon Behary, senior editor
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