The Little-Known Green Rule That Could Increase Prices on Everything From Lipstick to Coffee

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Omar and Dino is huddled over a smartphone in a lush forest in Honduras's mountainous euroregion. He's confirming details about the boundaries of the small plot where he grows coffee beans.

So do.

It's something and Dino has never done before, mapping his farm. This exercise won't help Endino's harvest, but it's become a crucial part of his work because of regulations that were passed thousands of miles away.

We have to reduce the use consumption footprint on land and forest around the world.

That's President of the European Commission Ursula vonderlyon in twenty twenty one, pledging to introduce new rules to protect global forces.

European voters and consumers no longer want to buy products that are responsible for deforestation or forest degradation.

The rules she's talking about ended up being called the European Union Deforestation Regulation. It tackles deforestation risks in the supply chain and goes into effect later this year.

Bear with me.

I know there are few things that can make a brain shut down faster than the words new EU regulations. But these new rules are keeping people all over the world up at night.

You know, we're talking about anxiety, fear, panic, hope that maybe something will be postponed, something will be tweaked.

Bloomberg's Agneshka Desausa says that's because these rules have reached. They reach into the mountains of Honduras and the forests of Indonesia. They reach into your coffee cut, your lipstick tube, and even the tires on your car.

It's a hotly discussed topic. It's something that many traders, producers, food producers are really really worrying about and are watching. And yet you know, it's something that I think most of the people are not even aware of.

Today on the show, how a little known piece of regulation intended to save the world's forests could have huge, unintended consequences for billions of dollars in trade. This is the big take from Bloomberg News. I'm Sarah Holder.

I'm Agnetka de Souza, senior food and agricultural reporter based in London, and I'm also Bloomberg's Global Foods.

Are That is a fabulous title. That's the best title I've heard a Bloomberg so far.

It's a great job.

Agneshka has been looking into this new law, known as the EUDR since it was passed last year.

I think this is a fascinating example of a green policy and how it's rolled out works in practice. What are the shortcomings, what are the challenges, what are the economic tradeoffs?

The regulation started off with one simple goal, to make sure the EU is doing its best to stop deforestation. In just the last thirty years, the world lost woodlands equivalent to an area larger than the European Union itself. A lot of that forest was cleared to make way for farms or cattle grazing land.

Essentially, the key purpose of this legislation is to help REGs or hold deforestation around the world. It is a big issue, one of the greatest environmental challenges the world faces, and it's still pretty behind where it should be in terms of tackling it.

The EUDR mandates that all of the companies and cont trees that sell products to the EU must prove those products did not come from land that was deforested after twenty twenty, whether legally or illegally. The new regulations target some of the products that have historically been some of the worst offenders.

Those seven commodities are soy, cattle, palm oil, rubber wood, coffee and cocoa, and any related product so chocolate, furniture, tires. It's a pretty long list. It could be books, wow, newspapers, plywood.

Pretty much anything you might touch on a given day that's right. To prove these products don't come from recently deforested land, companies, producers and farmers have to submit paperwork that traces every raw material back to where it came from.

So that goes all the way to farm They need to prepare the geofencing of arms, for example, so they have to draw those show where exactly every cocoa, bean or carcass of beef came from. It has to be fully traced doing that.

Meticulous tracing can involve everything from visits from field agents like we heard earlier, to reports from neighbors, to mapping previously unmapped land. The responsibility forgetting this proof mostly rests with the companies themselves.

And that includes pretty much like all the household names. Think about food giants like Nestle, Uniliver, chocolate makers, cosmetics producers that need palm oil for the lipsticks. It is a pretty wide range of companies.

The law also touches smaller companies, which will have a bit longer to comply with the regulations. All told, more than fifty five countries will be affected, along with millions of farmers and producers all across the globe.

We've calculated that the EUDR will tackle at least one hundred and ten billion dollars in trade.

And can you talk more about why this was such a priority for the EU.

Deforestation is a major source of global greenhouse gas emissions, of biodiversity laws. It is a very, very big problem. The European Union is one of the biggest marketplaces in the world and it does import huge amounts of those commodities. You know, it is a huge consumer of coffee and for many years the European Union faced criticism that very much it's demand and it's appetite for those goods fuel deforestation elsewhere.

And what happens if companies don't comply with these new regulations that are meant to curb deforestation.

If they don't comply, they cannot shift those goods to the EU. If they are found in breach of the regulations, they face have to finds, and that could include being banned or suspended from doing business dirt, being suspended from public procurement, their cargo being confiscated.

So not complying means fines, loss of business, and pain for companies, but complying could mean layers of regulation, red tape, and lots of paperwork. This is hard on farmers and businesses, but consumers will see the effect of these rules as well. That is, buyers of all that coffee, chocolate, lipstick, books,

Right now, you know the coco market, right now, there's not enough coco. There's a coco shortage, which naturally means higher prices. Traders have worn that sustainability does cost, and European consumers will bear that cost eventually.

Yea, But chocolate prices aren't the only thing at stake here. Coming up after the break, what these new rules could do to hundreds of thousands of farmers who desperately rely on these crops to survive. Mapping the world is no easy task. Mapping one farm on a shoe string budget in a remote area is particularly tricky. Bloomberg Global Foods are Agneshka de Sauza says, that's why these new European Union rules could be very difficult for smaller farmers. That is, if they even know they exist.

Many farmers are not even aware of this regulation. And the people who have been really leading the efforts so that we see our copperatives, so there are many members within those farmer cooperatives that go out there help farmers try to do all the mapping in touch with the buyers. And also we've seen big companies doing a lot of those efforts as well.

There are smartphone apps and other tools to help farmers submit land titles, boundaries and coordinates of their farms, but many of the farmers in the most remote locations don't even have cell phone service.

It's something that requires training and very often farmers may not have that training. So this is where companies, copper chafes and even governments can come in and lead those efforts.

Some businesses have spotted an opportunity here, like the Dutch company Meridia. It's seen its business double since the EUDR was announced in twenty twenty one. It's one contracts from companies like Unilever and Cargill who are scrambling to source all of the materials in all of the thousands of products they sell to the EU.

They're a mapping company, but primarily there are data verification company. They call themselves data doctors, and their job is to get the list of farms from their clients and verify them and make sure that they're actually solid, that they make sense, that there are no flows, because at the end of the day, it actually mapping something. Mapping a farm is an effort and it does take work, and you cannot be sloppy.

Meridia and other data companies like it send teams of people from farm to farm to help trace their boundaries.

They have people on the ground. They start early. They go to a village, They find out where are the farmers, what they grow could They take them to the land. They will hold a long gpis stick that will receive the satellite signal. They will have the tablet. They will ask a lot of questions to a farmer and then the farmers will take them around the land and show

For some countries, figuring out how to answer all these questions, how do identify the origins of every coffee bean and every rubber tree by the end of the year is causing a lot of concern.

You know. One of the examples we are citing is Honduras. It's a small country, it doesn't have that many farmers. You could argue, Okay, it doesn't really matter, you know, on the grand scheme of things. But for Honduras it's a big deal. As my colleagues calculated, the exposure of Honduran economy to the EUDR is something like three point five percent of the GDP.

Many of the countries that have a high number of smaller farmers have come together to lobby the EU to lighten up a little or at least to give them extra time or guidance in complying with the new rules.

You know, commodities have complex supply chains. There's a lot of questions how things will get done, who's going to police it, who's going to handle the cargo when it arrives at the port, what does that mean? And that is a source of a lot of anxiety for a lot of companies, for a lot of countries, because they still do not understand all the details of it, and

Some countries are going even further and looking for other places to sell their goods outside of the EU, which could undermine efforts to stop deforestation. For example, Ethiopia's coffee farmers have started exploring markets in Saudi Arabia, China and Russia.

Nobody we've spoken to denies that the forestation is problem and it needs to be tackled. But I think one key issue that those countries and companies have is the implementation of the regulations, so in a way, the devil is in the implementation of it.

Agniashka says. One country has even accused the EU of regulatory imperialism.

Indonesia, just like several other countries, wrote a letter to the new expressing concern it's in this industry minister brandeded a form of regulator imperialism. You know, the EU imposing their way of thinking, their requirements, their regulations onto the rest of the world. It's a pretty sensitive topic.

Still. Environmental advocates argue curbing deforestation just can't wait. European regulators are trying to balance the sense of urgency against the economic concerns of farmers and small businesses. To start, they've set aside a fund of seventy six million dollars to help support small producers in complying with regulations. But ultimately, the law is the law. EU member states voted on it, and now everyone just has to figure out how to make it work best.

Rolling out green policies does require trade off. It is challenging, it does require thoughts. There could be unintended consequences stemming from it, but it's something that countries are going through and could learn from their mistakes.

Agnoshka says that her role as global Foods are means she's seen a lot of these regulations over the years to make supply chains greener or more transparent, and she's come away with one big lesson.

You know, it's something that it is a big challenge, but it's not a reason not to do it. It's just the question of how it gets done and how regulators can improve Going forward.

Mre and Dino, the farmer from Honduras who already struggles to get by selling coffee. The new rule came as a surprise, as it did to so many, but with the help of his local farming collective and a supply chain mapping company, he's finally adding his plot to the map. Little by little, regulators hope that a new picture will start to emerge, tree by tree, farm by farm of where the world's goods really come from. This is the big take from Bloomberg News. I'm Sarah Holder. This episode