The EU Deforestation Regulation (EUDR) requires companies to prove that their products are not linked to deforestation. To do this, businesses need to trace their products back to the exact place they were produced. This article gives an overview of what EUDR Traceability entails. It shows how different ways of storing goods affect how well you can track them—and how that impacts your ability to stay compliant.
Introduction
Under the EUDR, robust traceability is no longer optional, it is essential. Companies must demonstrate that products are not linked to recent deforestation, requiring traceability down to the specific plot of land where commodities were produced. For aggregated Due Diligence Statements, the regulation mandates predefined geodata and producer information, making granular traceability a strict compliance requirement. Internal traceability within the organization also plays a vital role: without adequate physical separation and detailed tracking, a single non-compliant inbound batch can compromise multiple outbound shipments. As such, traceability has evolved from a logistical tool to a central pillar of regulatory compliance, demanding advanced systems capable of end-to-end product-to-land linkage and full auditability.
EUDR traceability in practice
Understanding traceability granularity and its EUDR significance
Traceability granularity refers to the level of detail with which products and their associated information (such as origin, batch number, and DDS reference) can be tracked and distinguished throughout the supply chain. In the context of EUDR, the storage of goods and physical separation determines and limits granularity of traceability in case of non-compliant DDS. This means that the way companies manage the physical flow and storage of their commodities directly impacts their ability to achieve the fine-grained traceability required by the regulation.
High granularity allows businesses to pinpoint the origin of specific product units and link them accurately to their respective Due Diligence Statements and the geolocation data of their production plots. This capability is crucial not only for demonstrating compliance proactively but also for effectively managing risk. If a particular batch of a commodity is found to be non-compliant (e.g., linked to deforestation or covered by a non-compliant DDS), high traceability granularity enables the company to isolate that specific batch without implicating larger volumes of compliant products. Conversely, low granularity, often resulting from the commingling of products from different origins or with different compliance statuses, can lead to widespread "contamination" where entire stocks may be deemed non-compliant due to the inability to segregate the problematic items. Therefore, storage and handling practices are not just operational decisions but critical compliance factors that directly influence regulatory risk and market eligibility.
Scenario analysis – impact of physical separation on traceability
The practical implementation of EUDR traceability is heavily influenced by how goods are physically managed. Three distinct scenarios, based on the degree of physical separation in storage, illustrate the varying levels of traceability achievable and the consequent risk exposure.
No physical separation (e.g., pile storage of o-rings)
Description: This scenario involves the commingling of products from different origins, batches, or supplier DDS in a single storage unit, such as a silo or a common pile. There is no physical distinction maintained between these different inputs.
Reasons for Use: This approach is often adopted when physical separation is considered not economically or practically feasible, particularly for high-volume, low-value bulk commodities where the cost of segregated storage might outweigh the perceived benefits.
Methodology: Traceability in such systems typically relies on mass balance accounting methods like First-In, First-Out (FIFO) or Last-In, First-Out (LIFO). These methods might be supplemented with timestamps and quantity specifications to manage inventory flow.
Traceability Granularity: This scenario offers very low granularity.
Impact of Negative DDS: In the absence of physical separation, a single negative DDS can affect the entire commingled stock, as compliant and non-compliant goods can no longer be distinguished. This loss of traceability means all outbound products must be treated as non-compliant under the EUDR. In severe cases, it may even require the recall and disposal of previously shipped goods. While avoiding separation may reduce operational costs, it exposes companies to significant financial, regulatory and reputational risks.
Broad physical separation (e.g., mixed batch of tires stored separately by purchase orders, time of delivery etc.)
Description: In this scenario, a degree of physical separation is maintained, for instance, by keeping different shipments, purchase orders, or deliveries from distinct suppliers in separate storage areas or containers. However, within these broadly separated units, batches from various origins might still be mixed.
Reasons for Use: This approach may be used when inbound deliveries naturally contain mixed batches, or when business operations allow for some level of segregation but not down to the individual batch level.
Methodology: Traceability involves the aggregation of DDS corresponding to the broadly separated units, potentially using timestamps and quantity specifications to manage the inventory within each unit. Goods are separated based on criteria such as purchase orders, time of delivery, or specific quantities.
Traceability Granularity: This scenario offers medium granularity. While it's not possible to trace individual items to their precise origin if mixed within a separated unit, it is possible to link products to a specific aggregated pool of DDS.
Impact of Negative DDS: With broad physical separation, the impact of a negative DDS is limited to the affected segment, reducing the risk of widespread contamination. Broad physical separation limits the impact of a negative DDS to the affected segment, as partial traceability ensures that other storage units remain unaffected. Outbound batches in such setups typically rely on aggregated DDS, making accurate quantity tracking essential.
Stringent physical separation (e.g., tires stored separately by individual batches)
Description: This scenario involves maintaining complete physical separation of products by individual batch or by each incoming supplier DDS throughout the entire storage and handling process.4 Each distinct consignment is kept isolated.
Reasons for Use: This method is typically applied to low-volume, high-value products, or in supply chains where precise, unambiguous traceability is paramount for quality control, regulatory compliance, or brand reputation.4
Methodology: Traceability is based on tracking specific, individual batches. All inbound batches are stored separately, and their identity is maintained from reception through to dispatch.4
Traceability Granularity: This scenario provides high, or even perfect, granularity.
Impact of Negative DDS: This approach offers optimal risk containment under EUDR. "Separation of batches throughout the whole storage process enables perfect tracing and hence prevents potential 'contamination' of non-compliance".4 If a specific batch is associated with a negative DDS, that non-compliance is strictly isolated to that batch. It does not affect any unrelated, separately stored batches.4 Outbound DDS can then confidently reference specific, compliant inbound shipments and their associated DDS. Even in this ideal scenario, the integrity of the entire system relies on the accuracy of the initial data associated with each batch, including the supplier DDS and geolocation data. If this foundational data is flawed, even perfect physical separation cannot guarantee compliance. This underscores the universal need for robust data verification and management processes, regardless of the physical separation strategy employed.#
Comparative Analysis of EUDR Traceability Scenarios
To provide a clearer understanding of these scenarios and their implications, the following table offers a comparative overview:
Feature | No Physical Separation | Broad Physical Separation | Stringent Physical Separation |
Example | e.g., Pile storage of o-rings; products commingled | e.g., Tires stored separately by shipment (mixed batches within) | e.g., Tires stored separately by individual, pure batches |
Typical Reasons | Economically/practically infeasible (high volume, low value) | Inbound deliveries with mixed batches; ops allow some separation | Low volume/high value products; precise traceability critical |
Storage/Traceability Methodology | FIFO/LIFO, mass balance; timestamps, quantity specs | Aggregation of DDS by shipment/PO; timestamps, quantity specs | Tracking based on distinct batches, shipments or DDS |
Traceability Granularity | Low; max. granularity dependent on supplier DDS | Medium; dependent on supplier DDS within aggregated unit | High; batch/DDS level traceability |
Impact of a Negative DDS | Entire commingled stock "contaminated"; no traceability for affected goods; whole chain impacted | "Contamination" limited to the specific aggregated segment; partial traceability possible | Negative DDS isolated to specific batch; no effect on unrelated batches; stringent traceability |
This comparative analysis highlights the direct correlation between the chosen physical separation strategy and a company's ability to manage EUDR compliance risks effectively. While things like operational costs and product type usually guide storage choices, EUDR changes the game. It makes a strong case for companies to rethink their storage methods to improve traceability and reduce the risks of dealing with non-compliant goods.
Please read more about Prewave’s approach to address EUDR traceability in our Quantity Accounting Module article.