The hype around word of the year seems to start earlier each time. After the shortlist, public voting and the big reveal, 2023 has produced ‘rizz’ ‘authentic’ and ‘hallucinate’ amongst others. For those interested in sustainable commodities, ‘segregated’ is going to be on everybody’s lips in 2024. It means that sustainably produced goods are kept separate from their conventional counterparts throughout storage, transport and processing. Last year I picked ‘mass balance’ as word of the year, which is arguably the opposite to ‘segregated’ in the context of supply chains. Mass balance allows sustainable and conventional commodities to be physically mixed, whilst being accounted for separately on paper. The reason for such an about-face, is the EU’s Deforestation free products regulation (EUDR), which seeks to end Europe's role in destruction of the world's forests.
For the first time, the EUDR requires segregation of certain commodities throughout the supply chain, right from the point of production to their placement on the EU market. It stipulates that all beef, cocoa, coffee, palm oil, soy, wood, rubber and certain products must be traced back to land that has not been deforested since the end of 2020. And these compliant consignments must be kept entirely separate from others. Producers within the EU and exporters are also covered by the EUDR. The regulation came into effect in the middle of 2023 with compliance required by December of this year, for most operators.
As farmers, traders and end-users started adapting their supply chains during 2023, the implications of traceability and segregation became clearer. Providing the geo-location of the parcels of land where the crops originated and their status, is proving difficult for small farmers. Some customers are changing to bigger suppliers who can afford the tracking solutions. There are also predictions of price rises. The Commission has always been adamant that any extra costs will be offset by a contraction in supply chains, with fewer companies having to add a margin to the commodity.
A glimpse of the future could be provided by Switzerland, which requires both sustainable palm oil and biofuels made from wastes to be segregated. Anecdotal evidence does point to shorter supply chains, as it is difficult for traders to keep the identity of their suppliers hidden, in the Swiss system. It remains to be seen what will happen in the EU, as there is a pledge to ensure the ‘integrity and confidentiality’ of information.
Sustainability Schemes for agricultural products such as RSPO (Roundtable on Sustainable Palm Oil), have always required crops to be from land that has not been deforested, and the cut-off dates are considerably earlier than those in the EUDR. They offer certification options for both segregated and mass balance chains of custody. But, as segregation comes at a cost, the mass balanced option has always been more popular. Indeed, the EU allows for mass balance of sustainable feedstocks for biofuels with their conventional counterparts, as set out in successive Renewable Energy Directives. But the ideal is still that that ongoing pressure from regulators and consumers will prompt companies to set up more segregated supply chains with some units dedicated to processing only sustainable raw materials.
Ironically, Sustainability Schemes offer a lower tech solution with extra help for smallholders. They rely on a trained auditor to check on deforestation with a programme of physical visits to a sample of farmers in a group, every year, to verify the evidence. Once a certificate has been issued, there is no need to supply the proof down the supply chain. The European Commission has emphasised that sustainability certification alone cannot be used for compliance with the EUDR, and that both additional work and a declaration are needed. Member States may not appreciate that, in effect, the EU is turning over verification work that an auditor for a Sustainability Scheme would have carried out, to them. They will have to check the documentation accompanying a certain percentage of the consignments of the affected commodities.
Now that the EUDR is in force, there is no going back on the main requirement, at least until the next review. The new system will certainly take time to bed-in, and it will be a while before the implications are clear. One likely consequence is that non-compliant commodities will be routed to non-EU countries. This might increase the scrutiny of high risk products in these markets, as they are more likely to be ‘unsustainable’.
A positive outcome would be that segregation of many more sustainably certified products becomes the norm. Big companies could embrace the new developments and proudly publicise their dedication to protecting forests, nature and indigenous people. That really would make ‘segregated’ a Word of the Year.
Published: 15 January 24
