A Danone paid for the language and opened a new chapter in what promises to be a recurring crisis among companies in the European Union with the main exporting countries of the agribusinessespecially Brazil. The recent fight between Brazilian farmers and the French multinational that owns the YoPro has as its backdrop a controversial anti-deforestation law for industries operating in the European bloc.
Juergen EsserCFO and number two in the Danone hierarchy, said on Friday (25) that the company stopped purchasing soy from Brazil and highlighted that the company only purchases “sustainable ingredients”. Esser stated that the company was sourcing soybeans “produced in Asia”, without specifying the country. It is worth remembering that the continent is, historically, more of an importer of grains, especially Brazilian grains, than a producer.
The speech hit Brazilian agribusiness hard. Its representatives allege a protectionist and defamatory stance. As a result, they threatened, on Tuesday (29), seek compensation with the World Trade Organization (OMC), in addition to signaling a boycott of the brand’s products. The crisis escalated so quickly that the Brazilian government spoke out and Danone itself had to go public and deny its top executive.
Esser’s speech involves the so-called European Union Deforestation Regulation (EUDRin English), which determines that companies operating in the European bloc must prove that their raw materials did not contribute to the deforestation of forests around the world after December 2020. The rule was approved in 2022 and will come into effect in December this year. However, at the request of Brazil and other countriesthe European Commission signaled that it may postpone the start to 2025 – the approval of the European Parliament is still needed.
The EUDR targets the commercialization of cattle, soybeans, cocoa, coffee, palm oil, soybeans, wood, leather, chocolate and furniture. The Brazilian biomes covered by the law include the Amazon and part of the Cerrado. The regulation also provides for fines of up to 20% of the revenue of the company that fails to comply with it.
“Brazil considers the EUDR standards to be arbitrary, unilateral and punitive, considering that they disregard the particularities of producing countries”, the Ministry of Agriculturein note. You soy producers went after Danonecalling the CFO’s statement an “act of discrimination.” “This act is subject to complaint by the Brazilian government in the bodies that regulate world trade,” said Aprosoja Brasil, an entity that represents farmers.
On the defensive after the scams, Danone, which sold €2.3 billion from January to September in seven countries in Latin America and has one of its main revenues in the region in Brazil, limited itself to saying that “the information is not valid”.
“Danone continues to purchase Brazilian soy in compliance with local and international regulations,” added the president of the company’s Brazilian operation, Tiago Santos. “Brazilian soy is an essential input in the company’s supply chain in Brazil and continues to be used.”
New normal
Crises like these tend to be more common with the EUDR imminent. The reason is that Brazil and agribusiness here see European legislation as an interference with sovereignty. Just like the InvestNews recently showed on clash involving the “Soy Moratorium”government and farmers argue that there is already a sufficiently restrictive law in relation to deforestation: the Brazilian Forest Code.
The law, which was updated in 2012, sets out the percentages that a farmer can deforest in each of the country’s biomes (Amazon, Caatinga, Cerrado, Pantanal, Atlantic Forest and Pampa).
For example, if a farmer wants to produce in the Amazon, he can only use 20% of the area for the activity, the other 80% needs to be preserved. This is the legal deforestation. The big obstacle is that Europeans want zero deforestation – that not one millimeter of tree is felled after December 2020, as determined by the EUDR.
In Brazil’s view, the requirement for zero deforestation would, in fact, be another device to impose a trade barrier on the country. Behind this analysis are the hefty subsidies that the European Union supplies to its rural producers, especially those in France and Germany, who frequently lobby with the EU to avoid the excessive entry of agricultural products from other countries, which tend to be cheaper than European ones.
The uproar is one of the obstacles to the principle of a trade agreement between Mercosur-European Unionwhich is on the table of Europeans and South Americans since 2019 without an outcome. And, like the EU-Mercosur trade agreement that has been negotiated for almost 30 years, the tendency is for the trade dispute around the EUDR to continue for a good few years.
