Explaining Brazil #319: Delaying the EUDR?

In early 2023, the European Parliament passed a law that would force companies exporting to the EU to comply with a series of rules and ensure that their products have not led to the degradation of forest biomes.

The EU Regulation on Deforestation-free Products, or EUDR for short, caused some degree of commotion in Brazil where major export products such as soy and beef have historically been linked to the cutting down of forest biomes across the country, including in parts of the Amazon.

But time has passed and companies have worked to prove their deforestation-free status to continue being able to export to the European Union. But a spanner was thrown in the works this year, as the bloc voted to delay the EUDR’s implementation for another 12 months.

This week’s episode features a conversation with Niels Wielaard, head of satellite-powered geo-data analytics company Satelligence, as we break down their findings on how compliant Brazil’s soy is with the incoming EUDR rules, and what the implementation’s delay means to exporters, importers, and the environment.

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This episode used music from Uppbeat and Envato. License codes: Fairytales by Daniel Zambo, Aspire by Pryces (B6TUQLVYOWVKY02S), and Private Investigation by AMZA (V9ZG3LD).

In this episode:

• Niels Wielaard is the head of satellite-powered geo-data analytics company Satelligence, a world leader in using remote sensing technology for sustainable commodity supply chain risk management.

Background reading:

• After the EUDR’s approval, we explored how the rule could affect Brazilian exporters.

• Late last year, Brazil’s Agriculture Minister Carlos Fávaro claimed the EUDR “harmed the country’s sovereignty” and that it would not be accepted.

• A number of companies have used the EUDR as an opening, such as Canadian startup Dimitra, which offers small Brazilian companies traceability solutions to comply with EUDR rules.

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Transcript 

In early 2023, the European Parliament passed a law that would force companies exporting to the EU to comply with a series of rules and ensure that their products have not led to the degradation of forest biomes. When first announced in the 2021, the EU Regulation on Deforestation Free Products or UDR for short cause some degree of commotion in Brazil, where major export products such as soy and beef have historically been linked to the cutting down of forest biomes across the country, including even in parts of the Amazon.

But time has passed, and companies have worked to prove their deforestation free status to continue being able to export to the European Union. But a spanner was thrown in the works this year, as the bloc voted to delay the EU implementation for another 12 months. This week's episode features a conversation with Niels Wieland, head of satellite Paju data analytics company SAP halogens, and we break down the findings on how compliant Brazil's soy is with the incoming UDR rules and what the implementations delay means to importers, exporters and the environment.

I'm Ewen Marshall, deputy editor of the Brazilian report, and this is explaining Brazil.

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Niels, thanks a lot for joining us. If we could just begin then, because, I mean, the topic of our conversation today is obviously the EU deforestation regulation. Or the UDR, as it is often known. And just if you could just give us a bit of context for our listeners, that might not be 100% up to speed on what the regulation says and maybe what effects we expect it to have on countries like Brazil.

Right. First of all, thanks for having us. Exciting to talk about this subject under the EU Deforestation Regulation. Basically, UDR requires that commodities such as soy, coffee, palm oil or certain products derive from them, that are imported to the European Union as proof evidence of no deforestation and legal production. So the effect it has is that you need to have this proof.

And when it's not there, there's quite some work needed, for example, to know the origin, what kind of farm blocks or plantation, are these coming, these, these commodities coming from such as soy, coffee, etc.? So that's the effect it has. And I think Brazil is quite well positioned, because of a cadastral system in place, which is the car system.

Recently there's also been the launch of the Brazilian Digital agriculture traceability tool, which is called the Agro Brazil system sustainable platform. And also for a few decades, Brazil has been, has very respected, forest monitoring system. Although that's not entirely tuned to, under specifications. That's also where it's intelligence can help.

So I would say that the fact it has, even though, Brazil is running well positioned, a lot of activities are ongoing from the government side, but also from the private side. There are specific, challenges, especially in getting the proof of also, legality. Where you need to have a match between the forest code of Brazil and, and the other specifications.

No. Perfect, perfect. I think that's really useful, actually, for just to get them situate our listeners a little bit there. But I mean, one of the main topics then for bringing the UDR up to date is that it looks like it's the implementation of the regulation is about to be delayed. Is that that's going to happen? Why make that happen?And what are the risks of delaying the implementation of a regulation like this, which has been in the making for such a long time that.

You're so right? It's been in the making for, rather long time. But also, getting overnight changes in, traceability, knowing the origins of the plots, all the, the trade relations and getting the proof for in the whole world a huge task. So, yeah, the the discussion on the imminent delay. Indeed.

There have been votes, to delay, with one year. The problem is that there have also been, some requests for changing the law, not just delaying it. And that is caused, quite some confusion. I think these delays are of the not the delays, the changes of the timing out. But there is still, there has to be agreement in the process and it's not there.

But, in my opinion, my feeling is, that it is likely that the delay will be there. Well, what that means is that, why it is happening, is that, quite a lot of producers and producer countries, yeah. Have said what I just mentioned, that it's not so easy to get all the evidence, ready in time.

Supply chains can be, very complex, from the source to, to the buyer. And also the European I.D. system that is needed to, upload the proof has not been ready. EU is now working hard to get it fixed, but it wasn't there. And that's, means that you want to test it out, right?So the more time you have to test it out, the better. And lastly, certain guidance was also not not provided. So to be honest, from our position, it's dangerous. Having many clients, it's, are getting ready. Quite a lot of, our clients are happy. The ones that have not, have already full traceability to the origins.

But on the other hand, there is also quite a few clients that have invested a lot of money in mapping out all the plots, all the relations, the due diligence, the risk assessment approaches and the EU wide integration as far as they could, they're not happy. So for us, it's like, both ways.

Yeah. No, I can imagine. So I mean, in that last example that you, you're talking about clients that are would be ready for the implementation as it stands just now. And they've invested all this time and money and effort. And they're about to see that the at the end they have maybe a another year of deadline. You know, that's I think everyone knows that feeling very well.

Yeah. And there's also financial aspect that some of them had counted on premium price for being, fully compliant. Which is not enough going out for a year. So,And if we're talking about late, the impacts of this potential delay, for, you know, the world, like the climate in general, is there any way that we can quantify this, you know, if you have a 12 month delay to this sort of regulation, what's the market? The size of the European Union? Is there any way that we can kind of put that into numbers or put that into a way that people can understand?What does this mean, delaying it for 12 months?Yes, of course. That's also where intelligence, is focusing on. Specifically we are looking into what is the cause of deforestation, is it related to any of these commodities that we're talking about and that fall near the EU, the UDR? If we talk about soy, coffee only or other, that's rather important. The good news from Brazil is that in the as just reported, that Amazon deforestation, in Brazil has plunged, 31% to the lowest levels in nine years, I believe.

So that's the good news. After a beacon deforestation. Recently in 2021, 22, also in the Cerrado, it has been dropping. So overall, that's looking good. But if you look, into the drivers of deforestation, the policies, we we see that, not everywhere. The, the the impact of, of soy is also decreasing. On the contrary, in some areas, deforestation due to soy driven by soy is, is increasing.

So with those kind of analysis, we can, get an impression of, how much more deforestation is happening, the coming year that is not covered by New York. However, from that said, actually discovered because the reporting has to be done since, December 2020. So it's very possible that, deforestation happening the coming year during a delay that it's also non-compliant because we're looking back in time, we're looking at any deforestation that is happening after 31st December 2020.

So yeah, what it means is, companies should not sit back. Unfortunately, that is also what many of our prospects and current clients are not doing. They say, yeah, delay. Okay. It's, some cash is welcome. And most of them are just continuing their preparations until getting the data right and the integration with, our risk assessment using satellites.

The interface with the European, system. That's good news. Actually, it's like around 80% of the planes that recently signed up with us are continuing. So that's a positive. Positive situation.

Okay. Yeah. Fantastic. And I mean, something you mentioned there in your in your answer was, I mean, you mentioned the difference between the Amazon and the on the say how do, what so, you know, two huge really important for Brazil when we talk about commodities and, and and raw materials like soy, we're more talking about this a handful than the Amazon.

To be honest here. And that's where Brazil's major kind of soy belt is. And a lot of the, a lot of the area in this, how do is well is kind of wooded forest. It doesn't technically get classified as forest. And so if I, you know, with my understanding of the of the regulation is correct, does that mean then that that is that massive part of this agenda is not going to be covered by this regulation?And you know, how much of an effect can I have in that case?You're absolutely right. This is, one of the, yeah, I think some points for, for UDR. To be honest, when we were reading, the regulation, in there, it's states that, the EU has to take a decision within two years whether or not to add other ecosystems. And of course, Sardo and jako, those ecosystems where there is a mix of forest and fauna and other types of land that is basically, yeah, putting the UDR to the decision has to be taken.

And it's very important because indeed, as you indicate, actually a majority of the EU soy, and beef imports are sourced from risotto, almost through fair a through search I think of the EU soy related deforestation exposure and, more than a third of the beef, relate deforestation as well. So it means that, the approaches to risk monitoring, management and monitoring, free Amazon area, are they equally, should apply to, the Cerrado and other ecosystems as well?Fortunately, many leading, companies, some soy clients, that we work with, such as Cargill and others, they are, of course, already, doing this. They even look at multiple, countries, offering, the monitoring not only for fauna, the moist forests, but also for, the more mixed force often, etc. so it's absolutely necessary.

Otherwise this regulation, doesn't make a lot of, impacts that that was foreseen.

Yeah. No. Very interesting. And I mean, some of the, some of the analysis, that you guys have been doing, etc., it's been quite interesting looking at the, you know, the data on kind of non-compliant farms and like non-compliant soy in Brazil because when you look at the data, I mean, the percentage of these places which, are non-compliant is really quite small.

I think a lot of people would have an image that, you know, there's so much of these places which are stained by deforestation. But in terms of this forested land, if we're talking about the Amazon Sahaba, the percentage of these places which is is producing non-compliant soy, it's it's really quite small. So but still, even with that small percentage, if you could just maybe go through the data a little bit and explain why this is still such a kind of pressing issue, for sure.

Yeah. You can see it this way. Certainly. Well, first kind of a Google Earth, with Track and trace. So it's based on satellite data and the clients of ours, for example, the Mondelez and PepsiCo's the first of these worlds. They often source their commodities from multiple countries. So, of course, this is going far beyond, Brazil alone.

If we look, for example, at palm oil, for, for cookies, then the, the, the oil, might come from around 1500, mills and factories around the world and dozens of countries, which means that our monitoring system has to go for all those countries. We can do that. In the cloud. Very powerful cloud computing.

Getting satellite data every day. Since the 1980s. But it means that we can see the the evolution of the images tells us something about, the the deforestation. And as I noted before, also we look into what is causing the deforestation. So with that set up, we have been able to look at, the awesome soy harvest in Brazil for, for the season, 2324 and we're zooming in to, all of Brazil.

And what we found was that, the land deforested after the UDR starting dates of the 31st of December 2020. Only 1.5 of the total land area dedicated to, soy. It's, little, over 700,000 hectares. Was non-compliant, meaning that the vast majority is compliant. We looked at the number of farms thanks to the cadastral system, the land rights system of Brazil.

You can do that? It's over a million of, farms, of farm fields that we we assessed. So, yeah, even though the amount of land and the number of farms is relatively low as a producer and, as a buyer, you want to be sure, that you find these deals in the haystack. And, that is why it's important also because we find a increasing trend of deforestation due to soy.

So despite what I just said about overall, deforestation in Brazil falling, but deforestation, specifically due to soy is increasing. But that's that's why, we can be positive, about soy from Brazil, but, we should also, find all these needles in Aztec and reports, on them. And so that is our, our goal.

Together with our clients, producers, actors in Brazil.

Excellent, excellent. And so, I mean, what? No. Then, because, you know, what what are these steps that the industry can take? At this potentially late stage of of of preparing for the, the EU, the, I mean, with less or without a delay, but what are the what are the steps that the industry can take?Yeah. Work on marketing. Collective action is also, always good. There is, for example, the Arcturus. Soy and the roundtable, responsible soy, and others, where the industry is already working, collectively and, addressing, traceability, traceability and transparency, specifically building on that, we are working with our clients to make sure that the plots that they source from are digitized.

That requires also engagement between, buyers and suppliers. Very important to build trust. Also where we see that not all the, the producers want to share their plot data, even though it's mandatory by the UDR. So there are we are figuring out ways that we can analyze these plots in an encrypted way to ensure that the sensitivity of this data is, taken into account.

So that's one, continue working on the, the trends, the traceability, getting the data right. Working with us to, do the risk assessments, finding out where there is safe supply. Right. As I said, like 95% of, the soy, is compliant. Well, where is it? So if you know, you can safely send that to Europe and, also with increasing, or continuing, I should say continuing deforestation for soy or crops, figure out and do the ongoing monitoring, not wait until the, the start date, in the next year, but already start monitoring, to make sure that you understand your risk.

And several kinds of, are doing that, continuing, the work.

Excellent. So, Niels, we liked the CEO. Satya. Audience. Thanks very much for joining us this week.

Thanks so much.

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