EU pressured to ease deforestation regulation

The European Union is coming under increasing pressure to delay and to soften its proposed deforestation regulation.

And that could “limit the upside” canola exporters were anticipating because of the new law, says an analyst.

The regulation will ban the import of products linked to the destruction of the world’s forests, including soybeans and palm oil.

The expectation is that will result in increased canola imports to help fill the oilseed void.

However, the regulation is facing significant resistance as it nears the Dec. 30 implementation date.

Brazil has formally asked the EU not to implement the law as scheduled at the end of the year.

Brazil’s ministers of agriculture and foreign affairs sent a letter to the European Commission stating that the law banning the import of products linked to the destruction of the world’s forests could affect almost one-third of Brazil’s exports to the EU.

The law applies to soybeans, beef, palm oil, coffee, cocoa, rubber, wood and derivatives, including leather and furniture.

“Brazil is one of the main suppliers to the EU of most of the products covered by the legislation, which correspond to more than 30 per cent of our exports to the community bloc,” stated the letter.

“In order to avoid impact on our trade relations, we request that the EU not implement the EUDR (EU Deforestation-free Regulation) at the end of 2024 and urgently reassess its approach to the issue.”

The EUDR has been an irritant in trade talks between the EU and the South American Mercosur trade bloc.

It has also become a sticking point in free trade negotiations with Indonesia, according to Dennis Voznesenski, agricultural economist with the Commonwealth Bank of Australia.

That pact could soon be finalized after eight years of negotiation.

“Indonesia is requesting the EU soften its stance on palm oil import restrictions,” he said in a recent Agri Commodity Weekly Alert report.

The two countries are currently ironing out differences in how they track deforestation.

“A softer EU stance on palm oil imports would limit the upside canola could otherwise experience following implementation of the EU’s new deforestation regulation,” said Voznesenski.

He also noted that the EU may delay implementation of the regulation under pressure from Eastern European countries and exporters to the EU.

“The regulation was expected to result in less soy and palm oil being used in biofuels in favour of more canola,” he said.

“A delay would push further into the future any potential demand increase for canola.”

In an email to the Western Producer, he said canola will be the biggest beneficiary of the proposed regulation.

“Waste oils and animal fat demand will also benefit for use in biofuel. However, due to insufficient volumes, the new demand will overflow to canola,” he said.

The EU imported 3.8 million tonnes of palm oil and 13.8 million tonnes of soybeans in 2023-24, according to the USDA.

It is impossible to predict how much of those commodities will be redirected to other markets because the regulation has yet to be finalized.

The amount of extra EU canola demand generated by the regulation will depend on how strict the deforestation law ends up being as soybean and palm oil exporters ratchet up the pressure to ease the regulation.

Voznesenski expects Australia’s canola growers will be the biggest beneficiaries due to the EU’s preference to import non-GM canola, which is in ample supply in Australia.

Canada should also see a bump in volumes traded to the EU. Ukraine already ships most of its canola to the EU, so there won’t be much of a change for them.

All three exporters should see price support resulting from increased EU demand, he said.

For almost 30 years of expertise in the agri markets, UkrAgroConsult has accumulated an extensive database, which became the basis of the platform AgriSupp.

It is a multi-functional online platform with market intelligence for grains and oilseeds that enables to get access to daily operational information on the Black Sea & Danube markets, analytical reports, historical data.

You are welcome to get a 7-day free demo access!!!

Tags: EUDR, EU Deforestation-Free Regulation, deforestation regulation, Brazil, canola, soybeans, European Union, palm oil, imports