Europe is now at risk of running out of “fluff pulp” used to produce diapers, nappies, sanitary pads and other hygienic products should the European Union’s signature EUDR proceed unabated without delay.
That is according to the American Forest and Paper Association, which last month pushed senior Biden officials to formally push back against the new regulation amid fears that it will cause chaos in the global trade of pulp and paper products.
Now, it argues that the US $3.5 billion Euro-American trade in forest products is in serious jeopardy because the “impossible standards” fail to account for the two-year lag between trees being cut down and harvested before being converted into fibre products.
The upshot is that Proctor & Gamble and Kimberly-Clark, the world’s largest producers of personal care products, could be shut out of the world’s largest consumer market, cutting off 60% of Europe’s supply unless changes are made to the current regulation.
“The EUDR as it is currently written will raise the costs significantly for US producers, and it will translate to inflationary pressures in the EU,” according to Mark Pitts, Executive Director of the American Forest and Paper Association, who spoke to Bloomberg on Friday.
“Is this really necessary?”
As it stands, Proctor & Gamble and Kimberly-Clark (through Huggies) are the top suppliers of diapers (and nappies) in Europe, with Proctor & Gamble also the largest supplier of menstrual care products. For what it’s worth, Proctor & Gamble confirmed that it will comply with the new regulations in accordance with its sourcing guidelines.
According to Mr Pitts, the regulations have already had repercussions for American pulp and paper producers in several swing states in the American South, who have had supply agreements “derailed.”
“It’s already affecting supply-chain contracts for the fall,” he said, adding that “it puts those contracts in jeopardy.”
Why do the new rules create chaos for pulp and paper?
According to a report produced by Fast Markets last month, more than 6 million tonnes of pulp are imported into the European Union every year, with fears that the paper and board industries are amongst the most exposed and unprepared for the EUDR, which could, in turn, lead to massive supply shortages and price hikes in European supply chains.
As a result, a large share of trade that currently enters the EU could be traded through Asia instead, “leading to an unintended increase in the use of high-deforestation-risk pulp and paper outside Europe.”
The issue for pulp and paper producers is that the new rules require supply chains to provide a geolocational dataset for every shipment of forest products entering the one – which China, Europe’s largest supplier of timber products, has outright rejected.
“The EUDR mandates that companies document the geolocational of all relevant plots of land for commodities traded in bulk,” according to Abalbert Jahnz, a spokesperson for the European Union. “This requirement is not about tracing each wood fibre to a single plot.”
However, industry sources argue that it is almost only possible to split up bulk commodities by running two separate supply chains – one for the EU and the other for the rest of the world.
“Take woodchips. If the manufacturer takes fibre from both plantations and private lands, for example, off agroforestry lands, and if the private land is classified as “deforested,” all woodchips produced from the manufacturer using that source will be considered “deforestation,” an expert involved in analysing the EUDR told Wood Central in May.
According to the expert, it’s conceivable that exporters may need to run two separate supply chains, “one that is EUDR-ready, and the other which is not” – it’s up to exporters to “make a commercial and ethical decision whether to stay in EU supply chains.”
Could a reclassification of risk prevent a supply chain catastrophe?
In March, Wood Central revealed that the EU could be delayed, with key rules changed in response to global concerns that global producers are not EUDR-ready, with the Financial Times reporting that the controversial traffic light system could be shelved, with a regional or industry-based classification replacing the current country risk classification.
For Mr Pitts, simply reclassifying the American pulp and paper industry as “low risk” is an important first step. Speaking to Bloomberg, he said that a decision to reclassify the industry as “low risk” would exempt producers from the traceability requirements – and thus provide far greater security to the supply chain for companies using “fluff pulp” trading into the EU.
How the EUDR will work
- The regulation will assign a low, standard, or high-risk level associated with deforestation and forest degradation to regions within countries inside and outside the EU.
- This risk classification will guide the obligations of various operators and the authorities in member states to perform inspections and controls. Consequently, this will streamline monitoring for high-risk regions and simplify due diligence processes for low-risk regions.
- Authorities responsible for these areas must inspect 9% of operators and traders dealing with products from high-risk regions, 3% from standard-risk areas, and 1% from low-risk regions. This inspection aims to confirm whether they are effectively meeting the obligations stipulated by the regulation.
- Further, these competent authorities will inspect 9% of relevant goods and products either placed on their market, made available, or exported by high-risk regions.
- Lastly, the EU plans to enhance its cooperation with partner countries, focusing primarily on high-risk areas.
For more information, visit Wood Central’s special feature on EUDR and its implications for the global supply chain of forest products from July 2023.
