Deforestation free Supply Chains for EUDR Compliance

Deforestation-free supply chains have emerged as a critical component of sustainable and responsible business practices. With an alarming rate of deforestation and its devastating impact on ecosystems, climate change and local communities, companies are increasingly recognizing the need to address deforestation in their supply chains.mate and nature emergency! 

Do you know that around 10 million hectares of forest are lost every year and 80 % of deforestation is caused by expansion of agriculture production. Tropical forest commodity supply chains are the reason for the alarmingly high rate of global deforestation. This negatively impacts the associated ecosystems like soil carbon and biodiversity. 

Also, the global increase in population demands a 60 % increase in food production by 2050 and this will need millions of hectares of land for crop and livestock production, which is today covered by forests and other ecosystems. It is just not enough to increase yields, there should be other interventions like restoration of degraded land, protection of forests and eliminate deforestation to increase food security. In this blog post we will explore the importance of deforestation-free supply chains and the key strategies and tools that companies can adopt to achieve this vital sustainability goal.

Global forest loss continues at a rate of around 25 million hectares a year.  

What is causing this deforestation? 

Globalization, population growth, food loss and waste, dietary shifts among consumers are few of the factors that push for variety in agriculture production. The land degradation and climate change is reducing the available arable land. In the ‘business as usual scenario, this will lead to conversion of forest lands into agriculture that will have a huge impact on climate and biodiversity. 

Palm oil, Soy, Cocoa, Rubber, Beef, timber and coffee are the major agriculture commodities that drive deforestation and ecosystem conversion. These are largely produced in tropical countries like Brazil and Indonesia where largest tracts of forests are at risk. Some of these products are direct drivers of deforestation. A forest can be cut down and sown with grass to create pasture for the cattle. The forest can be cut down to plant palm trees. A large proportion of forests are also cut down to grow cocoa and soy. Deforestation drivers can also be indirect, where forest land is gradually degraded by shifting cultivation and timber extraction and replacing by cash crops. 

Timber harvesting, Cattle ranching and soy production have different deforestation profiles. Cattle ranching and soy farming accounts for 80% of deforestation in Amazon. 80% of soy is used to feed animals to produce beef and other dairy products. 

Deforestation due to cattle ranching releases 340 million tons of carbon into the atmosphere, most of it coming from the Amazon region. 

Palm oil is a key ingredient that is found in almost every product in a supermarket store. Right from the soaps, shampoos to cookies and snacks have palm oil as one of its ingredients. This palm oil is extracted from the fruits grown on palm trees. The growing demand has resulted in significant destruction of rainforests in Indonesia. The forests are slashed and burnt to pave  way for palm plantations. This has not only caused biodiversity losses but also has  displaced a number of indigenous communities from their lands. 

Timber production is another major driver of deforestation due to logging. Many types of wood used for furniture, flooring and construction are harvested from tropical forests in Africa, south America and Asia. Large trees are cut down and dragged through the forests. 

What is the Impact of Deforestation? 

The four forest-risk commodities are found in many value chains across a number of sectors and an average company generates almost 24% of revenue from them. According to CDP reports, some companies report that they are still unaware of the presence of these forest commodities and their impact. Forests are cleared at alarming rates to grow palm and soy and provide grazing land for livestock. Agriculture is the clear cause of deforestation to produce these commodities with large scale commercial agriculture accounting for 40% of deforestation and local subsistence farming accounting for 33 % of deforestation. 

In the food and beverage sector, deforestation is due to meat, soy and palm oil. Meat production is a major driver for deforestation with vast areas of land being cleared for grazing livestock and growing soya for the animal feed. The animal products that we consume like the meat, egg and dairy all contribute to deforestation. Soyabeans are also used as vegetable oil, as an emulsifying agent in food products and other soya products. Palm oil is a widely consumed oil in our planet with many of the delicacies like chocolates, ice cream, cookies and pizza dough having them as an ingredient. 

The food packaging also hurts as the pulp and paper are derived from timber. 90% of natural rubber is produced in Southeast Asia and it has been the largest driver for deforestation. The automatable industry is the biggest consumer of rubber. 

Over 150 million trees are logged annually for cellulose fibres for clothing 

Why is Deforestation- free supply chains gaining momentum?

The European commission approved a first of its kind EU deforestation-free regulation last year, signalling that European supply chains of cocoa, coffee, soy , wood, palm oil, rubber and cattle need to prepare for closer due diligence. The new regulation will require any company importing or exporting commodities from EU to prove the products are deforestation-free.

Imports to the EU are one of the biggest drivers of global deforestation. The implementation of EU deforestation-free regulations aims to reduce the impact of deforestation and forest degradation by 71.92kha per year and reduce CO2 emissions by 31.9 million metric tonnes per year. Given the scale of impact, EU deforestation-free regulation is essential in minimizing deforestation, GHG emissions and biodiversity loss.

What should a Company due to tackle the problem of deforestation? 

Companies need to be transparent about how they are using cattle, soy, palm oil and timber to enable the tracking of deforestation embedded in the supply chain. It is a corporate responsibility that they must address. The companies need to work with their direct and indirect suppliers to understand  the risks in their supply chains. This would prevent deforestation and promote sustainable production.

According to the Paris agreement, while companies are responsible for 90 % of their Scope 3 emissions, they are also responsible for delivering the necessary reduction in emissions. 

Deforestation eliminates 0.5 to 1.2 billion metric tons of emissions. 

Deforestation is a global issue extending across many industries and businesses need to work to restore forests that have been degraded and destroyed. A number of companies have set deadlines to eliminate deforestation in their supply chains that include soy, palm oil, meat and timber. Food giants like Nestle, Unilever, Mondelez and Mars have made commitments to ensure that rainforest destruction is not a part of their supply chains. Deforestation is wiping out biodiversity and driving a climate crisis that needs to be addressed urgently to meet the 1.5˚C target.

Companies need to 

• Build greater transparency and traceability in their supply chains 
• Focus on suppliers who share their sustainability ambitions 
• Empower the smallholder farmers and improve their livelihoods. 

While companies that produce or source these products have started taking steps to address deforestation, the  extent of action taken is insufficient and  does not match the urgency. 

33% companies have a policy related to deforestation 

25% companies have some level of traceability for at least one commodity 

7% companies have certifications addressing deforestation 

Technology drivers for Deforestation 

Traceability is one of the significant tool to identify deforestation risks in supply chains. The end to end traceability from production to consumption in the value chain helps to locate and address deforestation hot spots. The real-time tracking and monitoring enables companies to address the risks. Mapping and tracking of suppliers bring in transparency into the system. Traceability is useful in fragmented supply chains. 

The palm oil supply chain is very complex and fragmented. Indonesia has the largest number of palm plantations where smallholder farmers grow the fruit on palm plantations. These farmers sell their produce to middlemen who in turn sell them to mills where the fruits are processed. These processed fruits are transported to refineries for oil extraction. Traceability brings in end to end visibility and ensures authentic and ethical sourcing at origin. 

The first mile traceability of these products help to know where and how the raw materials  are grown and processed. Satellite monitoring and AI enabled devices help to provide greater insights and identify risk areas. The data driven solutions help to identify hotspots and  address the problem areas. 

TraceX’s blockchain powered traceability solutions provides the right edge to counter these challenges and ensure deforestation free supply chains. Real-time capture of data in immutable ledgers provides a single source of truth and ensures end to end traceability. The permanent record of data along the supply chain covering the sourcing of raw materials, production, processing, transport and  distribution brings in credibility into the system. 

These scalable technology solutions bring in greater transparency and help to collaborate among the various stakeholders, driving sustainability and regenerating nature for years to come. 

We need to drive a better alignment between technology and the  environmental goals. Deforestation is the third largest source of greenhouse gas emissions generating 15 to 20 % of the carbon emissions and it is essential for companies to disclose the impact of forest and ecosystems to achieve the climate and nature targets. The disclosure of Scope 3 emissions, investor pressures to manage deforestation risk and due diligence due to regulatory requirements will mandate the need for traceability in these supply chains to manage deforestation risks.