The Road Ahead: EUDR’s Influence on North American Hardwood Markets

September 10, 2024
by NHLA
American ExportsAmerican Hardwood Export CouncilBucky PescagliaEU Deforestation-Free RegulationEUDRHardwood Compliance ChallengesHartzell HardwoodsLumber Export RegulationsMike Snow AHECMissouri Pacific Lumber CompanyNorth American Hardwood IndustrySustainable Wood TradeTom Coble

Will the EU Deforestation-Free Regulation be the most significant export barrier the North American Hardwood industry has ever faced?

Welcome to the third edition of our quarterly column from the Market Impacts Committee (MIC). In this installment, we focus on a crucial and timely issue: the influence of the EU Deforestation-Free Regulation (EUDR) on the North American hardwood markets. As this new regulation imposes strict and often unclear requirements, its impact on the North American hardwood industry is becoming increasingly evident. In our first quarter, Mike Snow, Executive Director of the American Hardwood Export Council (AHEC), highlighted the complexities and unresolved issues surrounding the EUDR. To better understand how the industry can prepare on a smaller scale, the NHLA has narrowed the scope to focus on individual businesses. We draw insights from key industry figures, including Bucky Pescaglia, President of Missouri Pacific Lumber Company (MO PAC), and Tom Coble, Vice President of Hartzell Hardwoods Sales, to explore these challenges and their implications for our industry.

In 2023, Europe was the United States’ fourth-largest market for hardwood, with lumber export volumes reaching an impressive 106,221,150 board feet. This substantial market presence underscores Europe’s vital role in the North American hardwood industries overall health and growth. Snow highlighted the sweeping implications of the new regulation: “The EU Deforestation Regulation (EUDR) represents a significant change in the regulatory environment not only for the primary wood products exported to the EU but also because of the global nature of trade in finished wood products.” This means that the EUDR’s impact extends beyond raw lumber, influencing a broad spectrum of finished products that incorporate North American hardwood, thereby affecting supply chains and market dynamics on a global scale.

Processing the intricacies of new regulations can indeed be overwhelming. To gain clarity, NHLA spoke with Pescaglia about how individual businesses can navigate these stringent requirements. Pescaglia revealed that even the most proactive businesses face significant challenges. At the Missouri Forest Products Association Summer Meeting held July 26-27 in Branson, MO, he was surprised to find many industry peers were either unaware of or did not fully grasp the EUDR’s extensive impact on the American hardwood industry. “No one knew the facts…Many don’t know this exists,” he remarked. This shared lack of awareness underscores the need for collective action and mutual support. Despite MO PAC’s diligent preparations, Pescaglia highlighted that the regulations are only one aspect of the industry’s broader challenges. He noted that European customers knew the rules but struggled to understand North American forest management practices. As Pescaglia elaborated, “When I was explaining to a European customer that this was ridiculous because of how we manage our forests, he said, ‘You have to understand that your most liberal-leaning people in the United States could be considered conservative in Europe . . . You’re not going to delay it. You need to prepare for it.’”

The EUDR was rapidly implemented due to the impending EU elections and the environmental urgency of the European Green Deal, which aims for climate neutrality by 2050 with an interim goal of reducing carbon emissions by at least 55% by 2030. This swift passage with minimal stakeholder consultation has caused widespread confusion and concern within the industry. The significant regulatory shift has frustrated many, mainly due to the challenge of identifying geolocation coordinates for all hardwood harvest sites. This requirement is especially burdensome for the North American hardwood industry, where 90% of logs come from private non-industrial family forest owners.

Coble expressed similar concerns: “We can meet five of the six requirements, but the requirement asking for ‘Geo-Coordinates of all plots of land where the wood was harvested’ is extremely challenging, if not impossible, for sawmills like ourselves. We strongly feel that this requirement needs to be revised to allow mills to provide the county of harvest for each log. Using counties to fulfill the location requirements will provide the EUDR with all the necessary compliance information.”

In addition to these logistical challenges, there are antitrust and confidentiality concerns surrounding the geolocation of individual properties, including the disclosure of names and addresses. The AHEC has proposed a “county-level” geolocation option to address these issues. This option suggests using county-level data instead of specific geolocation coordinates, which would still provide the necessary compliance information while addressing the concerns of individual property owners. However, as of the drafting of this article, the EU has yet to accept this proposal. Further complicating matters, the US Departments of Agriculture and Commerce, along with the Executive Office of the President, sent Mr. Maroš Šefčovič, Executive Vice President of the European Commission, a letter highlighting the fact that “the EU has yet to establish a final version of the EUDR Information System for producers to submit mandatory due diligence statements” and “many EU member states have not designated a competent authority to enforce the regulation.”

Furthermore, the EU’s definition of “deforestation” is straightforward: it does not consider land deforested if it is used for harvesting timber rather than being converted for agricultural purposes. However, the regulations extend this definition to speculate on the future use of such land, complicating compliance for the hardwood industry. This complexity arises particularly for timber harvested from private property. Pescaglia stressed this issue, annoyed with the regulation’s ambiguous scope: “We have no way of knowing what someone is going to do with their private property the minute we leave.” The economic impact is substantial. Coble explained, “To meet the geolocation requirements, mills must invest in additional technology and add processes and headcount to track and trace the material through the system. This will ultimately drive the cost of lumber and limit the number of mills that can comply.”

Non-compliance with the EUDR can lead to significant penalties, including fines of up to 4% of a company’s annual EU revenue, confiscation of non-compliant products, and exclusion from public procurement processes. This complex regulatory environment will undoubtedly impact global trade, even affecting countries exporting to the EU if products are processed outside the EU before reaching their markets. In addition, the regulation allows NGOs and competitors to file complaints. This heightened scrutiny underscores the need for North American exporters to remain vigilant and proactive in their compliance efforts.

As businesses brace for the EUDR’s rigorous criteria, they must prepare to supply the following information to their EU customers starting in January 2025 for large importers and June 2025 for “small and medium” importers:

• Tree species: Scientific name of harvested logs.
• Country of harvest: The country where logs were sourced.
• Geolocation coordinates: These are the specific coordinates for all plots of land where timber was (or may have been) harvested.
• Date or time range of harvest: When the timber was harvested.
• Legal harvesting evidence: Documentation proving the timber was harvested in compliance with local and international laws.
• Deforestation-free proof: Certification or evidence that the harvested timber did not contribute to deforestation.

To meet these requirements, companies must invest in new technology. Coble noted, “At Hartzell, we will be forced to adopt new processes internally to track the incoming lumber through our system so we can provide the needed data once the material is dried and ready for shipment. We will also have to work with our suppliers to educate and help them adopt new practices to provide the necessary location information for each log cut and processed.”

Snow pointed out a silver lining amid these challenges. He suggested that the EUDR’s concise definition of “deforestation” could position the North American hardwood industry as a leader in sustainable practices. As consumers become more aware of greenwashing, having verifiable proof that North American hardwood is environmentally conscious and harvested ethically can enhance its market appeal. This added layer of transparency aligns with global sustainability trends and offers a competitive edge in a marketplace that values ethical sourcing.

Lastly, the EUDR may disadvantage smallholders in developing countries as companies prefer larger suppliers who can more easily meet the stringent requirements. Engaging in ongoing dialogue with EU customers and regulatory bodies will be crucial for navigating these challenges and ensuring continued market access. As Pescaglia advised, “Follow the lead of AHEC and NHLA. They are leading this change by communicating with the EU and the industry.”

By BRENNAH HUTCHISON,
Junior Copywriter

by NHLA

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