Tracing Sustainable Value Chains: Is India Ready for the EU’s Deforestation Regulation?

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The European Union’s Deforestation Regulation, aimed at combating global deforestation, is set to commence in December 2025. It is likely to have a significant impact on trade and value chains across sectors such as agriculture, textiles and automobiles, especially for low- and middle-income economies. Under the regulation, traders of cattle, cocoa, coffee, palm oil, rubber, soy, and wood must clearly demonstrate that the commodities were not sourced from recently deforested land or contribute to forest degradation. Non-compliance with the regulation could lead to the confiscation of goods, bans on placing products in the EU market, and other monetary penalties. The regulation’s impact will be felt not only across Asia but also in Latin America and Africa. Some countries that would be hit hardest include São Tomé and Príncipe, Grenada, Bosnia and Herzegovina, Ukraine, and Uganda. 

For India, its US$1.3 billion worth of agricultural exports to the EU is at risk of taking a significant hit. India’s exported products, such as coffee, oil cake, and leather, account for exports worth US$435.4 million, US$174.5 million and US$83.5 million, respectively. India faces a higher comparative market risk as it records a higher rate of deforestation compared to competing countries. India has experienced about 668,400 hectares of deforestation in recent years and ranks second-highest globally, after Brazil. 

While efforts to compile traceability evidence by Indian exporters are underway, the procedure will prove to be highly cumbersome for smallholder farmers.

Additionally, India does not have well-defined traceability and compliance standards in place as compared to competing countries such as Malaysia and Indonesia. The regulation requires extensive compliance procedures, including detailed commodity information, supplier names, and the addresses of production land plots. While efforts to compile traceability evidence by Indian exporters are underway, the procedure will prove to be highly cumbersome for smallholder farmers. For instance, India’s soybean trade association, the Soybean Processors Association of India (SOPA), claims that the country’s soybean produce is mostly cultivated by smallholder farmers and is traded across multiple markets and processing plants, making traceability more difficult due to the fragmentation of supply chains.

The move will also disproportionately affect small and medium enterprises (SMEs), which will face increasing compliance costs and added financial strain. In developing economies, 80 percent to 90 percent of forest-related businesses are small and locally operated. In India, several trade associations have also raised concerns over their wooden handicraft exports being affected due to the EUDR’s stringent regulations.

Initiatives towards Compliance with EUDR

South-east Asia is already making strides towards compliance with the EUDR. Vietnam has introduced technical exchanges, stakeholder meetings, and a pilot program for data collection in coffee areas to improve traceability standards. The Malaysian government is working towards capacity-building initiatives to support the transition to EUDR compliance. Indonesia is on its way to set up a digital dashboard to track its US$6.5 billion worth of products that have to comply with the EUDR. Thailand has introduced initiatives to map natural rubber production regions, register smallholder farmers, trace supply chains, and build capacity in the sector. Similarly, Japan has enacted the Clean Wood Act to undertake due diligence and data collection to ensure sustainable supply chains.

Table 1: Country Initiatives 

Source: Author’s own compilation

Challenges and Way Forward for India

Despite being in the low-risk category (with simpler due diligence standards), the path to complying with EUDR will not be straightforward for India. India is likely to face several challenges due to its fragmented supply chains, lack of digital traceability, geolocation tools, data availability, and capacity-building mechanisms. 

Because a large proportion of farmers are smallholders who sell their produce through several stakeholders and markets, their traceability and due diligence become difficult. Smallholder farmers and SMEs face the risk of incurring high compliance costs under international sustainability standards. Differing state and forest policies make compliance for smallholder stakeholders more complex. Additionally, despite making strides in digital documentation, India still lacks adequate tools for geospatial mapping, digital logs, data collection, and certifications. Most stakeholders are also unaware of, and lack literacy in, sustainable practices and traceability. 

For India, the way forward requires state-led interventions that are supported by the private sector. There is a need to bolster efforts towards the digitalisation of agricultural value chains through geolocation, digital logs, and traceability platforms. Emerging technology includes the provision of a unified digital network that connects cooperatives, farmers, and exporters on a single platform and verifies geolocation for farm-to-exportcf shipment. Mobile applications also provide automatically generated EUDR-compliant Due Diligence Statements for shipments, ensuring data accuracy and a reduction in compliance timelines. Smallholder farmers can be digitally onboarded to enable their farms to be GPS-mapped and to facilitate easy access to land-use documents as well as sustainability certificates. Farmer-Producer Organisations, Self-Help Groups, and SME clusters can be utilised to equip SMEs and farmers with relevant information and technology. Further, state-led subsidies, tax incentives, and concessional finance can help SMEs and farmers invest in digitalisation and meet certification costs. Capacity building through awareness campaigns and training can enable producers and SMEs to unlock opportunities linked to building green supply chains.

Because a large proportion of farmers are smallholders who sell their produce through several stakeholders and markets, their traceability and due diligence become difficult. Smallholder farmers and SMEs face the risk of incurring high compliance costs under international sustainability standards.

Moreover, private players can step in by supporting stakeholders with the digitalisation of supply chains through blockchain technology, geotagging apps, and digital dashboards. They can enable the crowding-in of finance through sustainability-linked credit for sustainably sourced products.

Overall, given India’s low-risk status, the EUDR can allow the country an edge over competitors if it manages to build credible green supply chains. Utilising this opportunity can carve new pathways for the country to graduate to higher global value chains and niche markets.

Shruti Jain is an Associate Fellow with the Centre of Development Studies at the Observer Research Foundation.

NOTE – This article was originally published in ORF Online and can be viewed here