The introduction of new sustainability regulations, such as the EU Deforestation Regulation (EUDR), could have a marked impact on commodity supply chains, resulting in price increases for consumers, GlobalData has said.
The EUDR, which aims to cut greenhouse gas emissions and reduce biodiversity loss by targeting commodities linked to deforestation, will require firms trading with the EU to prove that their products and supply chains are deforestation free.
As a result, EUDR compliance premiums for companies operating in palm oil and rubber, two of the commodities targeted by the EUDR regulations, could be in excess of $1.5 billion (€1.4 billion), with affected firms likely to pass on these extra costs to consumers, GlobalData said.
Price Increases
'Food, drink and personal care categories likely to be most affected by retail price hikes due to the EUDR include coffee, chocolate, soy-based meat alternatives and oil palm products and their derivatives including hundreds of personal care products such as shampoo,' GlobalData said.
The EUDR is set to come into force at the end of the year, and forms a key part of the European Green Deal and the bloc's ambition to achieve net zero greenhouse gases by 2050.
Commodities In Focus
The legislation, which is 'arguably one of the most far reaching and impactful pieces of EU sustainability regulation', according to GlobalData, targets commodities including cattle, cocoa, coffee, oil palm, rubber, soya, and wood as well as some of their derived products, such as paper/paperboard, leather, shampoo, chocolate, tyres, and furniture.
“The aims of the EUDR are understandable and cutting greenhouse gas emissions and protecting biodiversity is essential," commented Fred Diamond, senior food and beverages consultant and analyst at GlobalData. "However, there could be some disruption ahead.
"The extra demands of the EUDR could lead some commodity suppliers in what the EU terms ‘third countries’ to move away from the EU and increase trade with countries that impose fewer regulatory requirements such as China. Some food categories, such as plant-based meat, may have to reformulate and switch to other protein sources, such as pea protein if the result of the EUDR is an increase in the price of soya for food production."
Polarising Effect
Diamond added that the implementation of the EUDR could have a polarising effect on businesses, with larger companies more equipped to shoulder the regulatory burden associated with the legislation.
"The exact impact on consumers will depend on a variety of factors, including how companies choose to respond to the regulation, the extent to which the regulation is enforced, and how much assistance EU member states are willing to give to supplier countries to help them align with the new rules," he added.
"However, with recent news reports confirming that the world’s top climate scientists expect global heating to go well beyond the current 1.5C target, sustainability regulation associated with cutting greenhouse gas emissions, such as the EUDR, which targets deforestation, remains an urgent priority for the planet.”
