EU’s new deforestation rules are set to reshape global supply chains

The European Deforestation Regulation (EUDR) is set to reshape global supply chains, making it essential for businesses handling key commodities to prepare for its impact.

With the recent decisions taken in Brussels, large and medium-sized companies must ensure EUDR compliance by December 30, 2025, while small and micro enterprises have until June 30, 2026. While this adjustment offers slightly more preparation time, the need for proactive adaptation remains urgent.

According to an in-depth assessment by Kuehne + Nagel, the EUDR is designed to prevent products linked to deforestation or forest degradation from entering or leaving the European market.

Under this regulation, products can only be placed on the European market or exported from the region if they are deforestation-free—meaning no deforestation or forest degradation occurred after December 31, 2020—produced in accordance with the laws of the country of production, and supported by a due diligence statement.

The regulation covers both traditional import and export activities as well as online commerce, making it a sweeping regulatory measure that will affect many businesses. The EUDR’s main goals are to curb biodiversity loss and reduce greenhouse gas emissions by promoting the consumption of deforestation-free products. It also replaces the previous EU Timber Regulation, substantially expanding regulatory oversight from just timber to several globally traded commodities.

The new rules will directly affect operators, defined as those importing, exporting, or first making available in-scope products on the EU market, along with traders responsible for distributing these goods within the European bloc. These legal definitions are strict, and compliance is mandatory. Dealers, distributors, and all parties handling regulated commodities must prepare for new requirements.

Seven major commodities are targeted by the EUDR: cocoa, coffee, palm oil, soy, beef, rubber, and wood. However, only specific products listed in Annex I of the regulation fall within its scope. For example, a soap containing palm oil would not be covered unless it is specifically listed in Annex I. Regulators have committed to updating these lists, so companies must remain vigilant to any changes that may affect their business.

Before placing or distributing covered goods in Europe, all operators and traders must complete a detailed due diligence process. The European Commission will publish a risk classification system that divides countries and regions into four categories: high, standard, low, or no risk. This classification will be based on factors such as deforestation rates and agricultural expansion.

Companies sourcing only from low- or no-risk areas will face simpler compliance obligations, but due diligence will still be required for all.

The due diligence process is composed of three critical stages: access to information, risk assessment, and risk mitigation. In the access to information stage, operators and traders must collect relevant data to confirm that their products have not been produced on land deforested or degraded after December 31, 2020.

The European Union has created the Deforestation Due Diligence Statement Registry, an online tool for companies to create and submit due diligence statements electronically. This registry streamlines compliance and provides a centralised way to demonstrate adherence to the EUDR. Registration began in November 2024, with micro-, small-, and medium-sized enterprises subject to a mitigated regime to ease their compliance burden.

The risk assessment step requires verifying and analysing the collected information thoroughly to establish whether a particular product risks non-compliance. This assessment involves evaluating geographic origins, supplier reliability, and documentation integrity to detect any risk of deforestation or illegality.

If a risk other than negligible is found, operators and traders must implement risk mitigation measures before placing the products on the market or exporting them. Mitigation can include switching to verified suppliers, sourcing from safer regions, or increasing supply chain transparency and monitoring.

Enforcement and compliance will be managed at the national level, with each EU country appointing a competent authority to oversee the process. Penalties for non-compliance include fines of at least 4 per cent of annual EU turnover, confiscation of goods and related revenues, exclusion from public procurement for up to a year, and, in the case of serious or repeated violations, bans on placing or exporting affected products.

Although the timeline for enforcement has been pushed back, this window provides businesses the ideal opportunity to prepare. Companies should begin by mapping their supply chains and engaging with suppliers about the new compliance requirements.

The bar for responsible sourcing has been raised, and companies that delay adaptation risk losing access to the lucrative EU market or facing expensive penalties. The EUDR is not just another administrative hurdle but a mandate for sustainable supply chains and a significant driver of change in global trade practices.

Industry leaders have called for further delays over compliance concerns, while analysts warn that exporters may be forced to split supply chains between EUDR-compliant and non-compliant markets. Meanwhile, studies suggest timber supply chains are relatively better positioned than commodities like coffee and rubber, which face significant risks due to smallholder dependence and the challenge of keeping compliant and non-compliant goods physically separated.

According to a recent report by Forbes, fewer than one in three upstream suppliers (30%) and just 12% of downstream suppliers have established formal systems to trace deforestation. Despite zero-deforestation commitments becoming industry practise, the majority of supply chain actors continue to struggle with securing consistent, reliable data across complex and opaque networks—leaving billions of dollars of EU trade at risk as the EUDR compliance deadline approaches.