India agri-based sector to get opportunities amid EU's deforestation norms

The European Union's (EU) stringent deforestation regulation would provide new opportunities for domestic agro-based industry players, as against their global competitors, as forest cover in India is increasing significantly, an official said.

While several countries in Latin America and Africa have cleared their forests for agricultural purposes, India's forest cover is increasing and there is no practice here in the country to cut forest for agri activities.

The government official said these regulations provide an opportunity for "our industry because our forest cover has increased, our reserve forest is strong and it is increasing.

"Our forest land is different from agri land. We can demonstrate these facts to the EU and converge to some kind of understanding on this regulation".

According to a report by think tank Global Trade Research Initiative (GTRI), India's exports of products like coffee, leather hides and paperboard worth USD 1.3 billion annually to the European Union will get impacted due to the deforestation regulation adopted by the EU.

Within three weeks of introducing the carbon border tax, the EU Council on May 16, adopted the European Union Deforestation-Free Products Regulation (EU-DR).

The report has also stated that the EU-DR appears to prioritise protecting its own agricultural sector and promoting exports, making imports more difficult, as it is a trade barrier disguised as a green measure.

The regulation covers cattle, buffalo, the meat of bovine animals, preparations, oil cake, soya beans, palm oil, cocoa bean, powder, chocolate, coffee, leather hide, skin, paper, paperboard, wood, wood articles, wood pulp, boards and wood furniture.

According to a trade expert, as the country's forest cover continues to witness an encouraging upward trend, Indian agricultural producers find themselves in a favourable position to cater to the EU's sustainable demands without resorting to forest clearance for agricultural purposes.

As per the India State of Forest Report (ISFR) 2021, India's forest and tree cover has risen by 2,261 square kilometres in the last two years with Andhra Pradesh growing the maximum forest cover of 647 square kilometres.

According to the report, India's total forest and tree cover is now spread across 80.9 million hectares, which is 24.62 per cent of the geographical area of the country.

Indian officials are continuously engaged with the EU on these issues, including CBAM (carbon border adjustment mechanism) on different platforms.

"However, one thing is clear that this is a new way of doing business and we have to conform to this. You can not just fight or sit outside as it will not help our industry," the official, who did not wish to be named, said.

The expert said that India has limited options to counter these measures as they are for all countries which trade with the EU and not against India.

Taking the matter to the WTO dispute settlement mechanism too would not help more, because the mechanism is kind of defunct at present and imposing similar tariffs on EU products may also hurt Indian industry, the expert added.

India has to engage with the EU as it would not be possible to stop doing business with them.

EU measures are showing that they want to reduce their dependency on China and develop technologies and future-ready industry.

"It looks like some re-alignment is going on in the EU. So we have to see how we can participate in that re-alignment," the official added.

As per the deforestation regulation, Indian exporters have to ensure that these products have been grown on land, which has not been deforested after December 31, 2020.

The new rules will apply to large firms after 18 months and small firms after 24 months. Thus, the timeline for large firms is December 2024 and for small firms is June 2025.

For the products covered under the carbon tax and EU-DR, the EU's share in India's global exports is 23.6 per cent.

The EU claims it wants to reduce its contribution to global deforestation by promoting 'deforestation-free' products, but this is seen as a deceptive narrative, the GTRI report has said.

"India has a functioning blockchain-enabled trace and track system being implemented by the Agricultural & Processed Food Products Export Development Authority (APEDA) for grape exports to the EU and other regions.

"It needs to be adopted for all covered products, and make exporters aware of the compliance requirement," GTRI co-founder Ajay Srivastava has said.