With the upcoming EUDR regulations and compliance deadlines approaching, big changes are coming to the rubber supply chain. Because by year end, natural rubber, along with six other commodities and their derived products, will be prohibited from entering the European Union market if they fail to meet certain requirements, according to a new regulation passed by the European Commission. The EU Regulation on Deforestation Free Products, or EUDR, entered into force in June 2023. It will go into effect for large businesses on Dec. 30, 2024, and for small and medium enterprises (SMEs) on June 30, 2025.
EUDR, according to the EC, is intended to reduce the EU's impact on global deforestation and forest degradation as well as reduce greenhouse gas emissions and biodiversity loss. It's part of the EU's broader plan of actions outlined in its European Green Deal and Biodiversity Strategy for 2030. Included in the scope of this regulation, in addition to rubber, is cattle, wood, cocoa, soy, palm oil and coffee. Derived products would include things like furniture, leather, beef, tires and chocolate, among many others.
As a major economy and consumer of these commodities linked to deforestation and forest degradation, the EU is partly responsible for this problem and it wants to lead the way to solving it. Under the regulation, any operator or trader who places these commodities on the EU market, or exports from it, must be able to prove that the products do not originate from recently deforested land or have contributed to forest degradation. Specifically, commodities must come from land that wasn't deforested after Dec. 31, 2020. So, what does this mean for the rubber industry? To understand EUDR's impact on rubber, we must first understand the complexity of the natural rubber supply chain. The NR supply chain is one of the few industries that has most production coming from independent smallholders.
About 85 percent of the world's natural rubber is produced by smallholders, according to GPSNR. The supply chain is super complex. And when it comes to EUDR, what you're looking at is really a supply chain mapping and traceability exercise. Before EUDR, he said, the rubber industry was starting to make strides toward a more traceable and transparent supply chain, but the preparedness was not really there. It's a gargantuan task. And EUDR has really accelerated very steeply the amount of resources and investments and time that the companies are now having to put into ensuring their suppliers are traceable and, of course, also compliant. And when it comes to compliance with EUDR, the regulation is asking that commodities are produced in compliance with local laws and regulations. Rubber is produced in many countries that are developing countries, where enforcement of local regulation is not always at its best. It's progressing, it's developing, but there are some areas where there's still many gaps.