- Earthsight analyses of trade data and companies’ turnover show that exemptions being considered for the UK Environment Act would create dangerous loopholes
- If applied, trade and turnover thresholds would exempt many key importers from regulation meant to keep commodities linked to illegal deforestation out of the UK market
- The law’s intended goal to minimise British consumers’ contribution to illegal deforestation abroad could be seriously undermined as a result
- Authorities must focus on the Environment Act’s declared objectives as their guiding principle and avoid unnecessary exemptions that would reduce the regulation’s effectiveness
The UK Environment Act approved by Parliament last year includes provisions under its Schedule 17 to ban the use of commodities and derived products in UK commercial activities that are linked to illegal deforestation overseas. It’s a welcome first step to regulate British supply chains of forest-risk commodities, even if significantly less ambitious than Earthsight and other organisations had advocated for.
The following analysis is not about these weaknesses. It’s about worrying signs that secondary legislation currently under preparation to operationalise Schedule 17 may end up undermining the law’s stated goals of ending the UK market’s contribution to illegal deforestation. The Department for Environment, Food and Rural Affairs (Defra) is considering a number of exemptions to the law that could create loopholes and seriously reduce its effectiveness.
These exemptions refer to the size of businesses to be covered by the legislation, as well as minimum volumes of trade. Earthsight used a number of data sources to analyse the potential impact of such exemptions on the new law’s ability to actually reduce Britain’s global forest footprint.
Palace of Westminster.
Defra is proposing that only businesses with a turnover above a certain threshold be subjected to the law. In the public consultation it ran earlier this year, the department offered threshold options ranging from £50m to £200m.
The aim is to implement a regulation that achieves its declared goals while avoiding undue burden on businesses that allegedly play a smaller role in deforestation. However, Earthsight analyses show that even the lowest turnover threshold would exclude several of the largest UK importers of these commodities and undermine the law’s effectiveness.
Brazilian beef is the top commodity in the UK’s deforestation footprint, followed by Indonesian palm. These are some examples of how the lowest turnover threshold could let key importers off the hook:
- Towers & Co Ltd, the fourth largest UK importer of Brazilian beef, has a UK turnover of £49m. The local subsidiaries of the big multinationals importing most of the beef from Brazil and palm from Indonesia also have turnover far lower than £50m.
- Olam Food Ingredients UK Ltd, one of the top importers of Indonesian palm oil, has a turnover of just £20m.
- Of the five companies that imported Indonesian palm meal into the UK in 2021, Prime Organic Ltd has turnover lower than £1m.
- Of the five firms importing palm oil for cosmetics, Whitman Laboratories Ltd had a recorded 2020 turnover of less than £1m.
For non-UK businesses with operations in Britain, Defra is considering the option of using their global turnover as the metric to decide on their exemption from or inclusion in the law. Using global turnover would help. It is true that the overseas owners of many UK importers have global turnover larger than £50m. Prime Organic’s parent company, Peter Cremer GmbH, has a turnover of half a billion pounds. Whitman Laboratories’ parent firm, Estee Lauder Companies, has annual revenues of billions of dollars.
But UK enforcement authorities may find it hard to consistently prove this. Such information is not required to be submitted to UK authorities and may not be publicly available. Earthsight has seen evidence of major Brazilian beef firms importing into the UK using shell companies and secrecy jurisdictions to hide their subsidiaries’ beneficial ownership.
Even if the turnover thresholds could be enforced, they could be easily circumvented. This is something that Earthsight has already observed in practice with timber since the passing of the EU Timber Regulation. In 2018, we revealed how many of the biggest importers of Ukrainian wood in Europe were handing over paper responsibility to tiny shell firms, including one registered to a flat above a shop in a small village in eastern Poland.
Even including global revenues would still leave many important importers exempt. One of the top seven importers of beef from Brazil into the UK (Importo Limited) had global revenues of £49m.
If Defra decides to apply the highest suggested turnover (£200m) and disregard firms’ global operations, the number of companies exempted from the law would increase dramatically. Seventeen firms are known to have imported beef from Brazil into the UK in 2021. None of these would be covered by the legislation if the strictest metrics were applied. Only one of the importers has UK revenues in excess of £100m. Many have UK revenues below £50m.
A similar situation is observed for palm oil imports. The second largest UK importer of Indonesian palm oil in 2021 was the international agri-giant ADM. However, ADM’s local subsidiary’s reported turnover was just £26m.
When it comes to leather, another sector heavily associated with illegal deforestation in major cattle-producing countries such as Paraguay and Brazil, exemptions would also be widespread even if based on the lowest UK-only turnover threshold. Several key importers, including Bevan Harris, Maple Leaves, Leathorpe, IPECO Holdings, Holland and Sherry, and Knoll International have UK turnovers lower than £20m.
Of the largest eight UK importers of soy, a commodity with widespread links to illegal deforestation, at least two – The Tofoo Company Ltd and DCI&E Food Ltd – wouldn’t meet even the lowest turnover threshold, while Gemcom Ltd has a turnover below £90m (Gemcom is also one of the only five UK firms to import palm meal from Indonesia and would similarly be exempt from the regulation in relation to this commodity).
Palm oil plantation in Malaysia
Defra is also proposing minimum volumes traded before regulatory obligations kick in. The lowest proposed threshold is a nominal one (one tonne) and the highest is 1,000 tonnes.
Our analyses regarding beef and palm oil importers shows that if volume-based exemptions were to be introduced, a significant share of UK trade would not be covered. This is especially true if it is introduced in addition to an annual turnover threshold.
If the highest threshold is chosen, importers that play a significant role in the forest-risk commodities trade would be exempt. Only the top three UK importers of Brazilian beef (Marfrig, JBS and Princes) import more than 1,000 tonnes annually. While the three firms account for 90 per cent of UK imports, failing to capture the remaining 10 per cent is hardly ideal for a commodity so closely linked to one of the worst deforestation crises in the world.
The largest palm oil traders, such as ADM, AAK and Cefetra, import more than 1,000 tonnes a year and would still be captured at that largest suggested threshold. However, a large proportion of the nearly 100 firms importing raw palm products would almost certainly be excluded.
When it comes to beef from Paraguay and leather from Brazil, again commodities with high forest footprints, the entire UK trade would be missed. This is because the country imported less than 1,000 tonnes of each during 2021.
For all the commodities, any volume-based exemption threshold may create significant loopholes, as importers could set up subsidiaries to avoid regulation
Cattle truck in Paraguay
Ultimately it doesn’t matter where these lines are drawn, since any exemptions can be easily exploited by industry as loopholes. Earthsight knows from past experience investigating timber and agribusiness supply chains that firms actively seek ways to evade regulatory obligations as much as possible. Some of the largest firms involved in importing chicken to the UK, for example, use more than 100 small subsidiaries to do so, and even appear to be using such subsidiaries for single shipments before dissolving them and creating new ones.
Hoping that action on the largest businesses only will have the desired effect throughout supply chains is hardly a recipe for success. Years of research have shown Earthsight time and again that big consumer firms cannot rely on assurances given to them by importers, especially if those importers are not themselves legally liable. The question arises as to whether an enforcement authority would treat a large UK supermarket chain leniently if that company were able to show that its non-compliance was due to false information provided to it by a supplier. In such cases the supermarket would get off lightly while the supplier – because it falls below exemption thresholds – would get away scot-free.
Another key point is that the UK government doesn’t actually know what impact the different thresholds would have on Britain’s global forest footprint. In the impact assessment Defra published alongside the consultation, the only estimates given refer to numbers of businesses affected, not the forest footprint those numbers represent.
In other words, the impact assessment is unbalanced. It focuses on how the burden on companies might be reduced but refuses to put a figure on what such thresholds would mean for the end goal of the law, which is to reduce British consumers’ impact on forests.
When responding to Defra’s consultation, Earthsight and other organisations called for ambitious secondary legislation that will capture all relevant trade and be guided by what the law was intended to achieve. Any exemptions for importers would create loopholes that may directly undermine the law’s efficacy and impact. There is no requirement in the Environment Act for such exemptions. It would be dangerous for climate-critical forests if they were to be introduced.
Defra’s first analysis of the consultation’s submissions is expected during the week of 30 May.
