The EUTR: cause and effect:

The EU Timber Regulation (EUTR) has been designed to reduce and remove the risk of illegally harvested material from entering the supply chain. The regulation forces market players in the EU to conduct due diligence on their supply chains, specifically by assessing the risk of the products they are purchasing coming from an illegal source; if there is a risk identified, appropriate and proportionate mitigation measures must be put into place prior to purchase.

By introducing best practice in supply chain management, namely greater supply chain transparency, it is hoped that buyers will ultimately have a greater influence on forestry management practices, removing not just illegal material but illegal activity by increasing demand for documented and verified legal products.

To see whether such changes are occurring, the Timber Trade Federation (TTF) conducted some initial research in June. First we analysed market trends by looking at import and trade statistics for March and April 2013, the first two months of the EUTR. Then we conducted a quick survey of the TTF membership. Although a little crude, the findings are nonetheless interesting. They were initially presented at the 22nd Chatham House Illegal Stakeholder Meeting on July 8.

From previous analysis of TTF members' purchases, based on their annual selfdeclaration for the Responsible Purchasing Policy (RPP), we know that between 3-6% of timber products traded in the UK are categorised as "high risk". Tropical hardwoods and plywood form the bulk of high-risk material, so we focused our research in these areas.

The survey asked TTF members to respond to five open questions, along with some more in-depth discussion with the major players in the industry. The questions were:

• Have you seen any direct impact on procurement and sourcing following the introduction of the EUTR?
• Which products or regions have become challenging for sourcing?
• What has the response been from the upstream supply chain (ie towards the forest)?
• What are the key remaining business challenges?
• Do you have one key point of feedback for policy makers?

The statistics showed that tropical hardwood imports have declined markedly, falling 37% since the same period in 2012, with the largest decreases in hardwoods sourced from Asia.

This needs to be seen in the context of a shrinking market over the same period, with plywood imports down 5%, hardwoods down 18% and softwood imports down 8%.

However, the noticeably higher percentage decrease in tropical hardwoods could suggest that the EUTR has had an impact on this aspect of the market. This is perhaps not surprising given the perception that tropical products have a higher risk of illegality. If this trend continues into the medium to long term, the lofty ambitions of the EUTR will have failed, given the high level of investment by the EU in the VPAs which are currently all focused on tropical producing countries. The last thing producer countries need is for the EU market to shy away from their products and, by implication, from trading in such countries.

Product substitution
One can draw similar conclusions from the plywood statistics. It is well documented that large quantities of plywood were imported into the EU market ahead of the introduction of the EUTR in March, and this surplus may have accounted for lower import figures during March and April. However, at the same time, there was a corresponding rise in the purchase of OSB and MDF which is perhaps a sign that some product substitution has taken place during this period. It will be interesting to see whether this trend continues, with products such as OSB taking market share from plywood.

It is important, however, not to get carried away with what the data shows at this early stage. There are other factors that should also be taken into account to explain the trends highlighted above: poor construction demand; extremely bad weather delaying the projects which were in progress; and fluctuating freight costs have all had an effect. Perhaps the biggest influence is that some tropical producers in Africa have achieved higher prices by selling into other markets outside the UK and EU, most notably the Middle East and Asia, without any such laws in place as yet.

The trends shown by the statistical work are, however, also supported by the TTF member survey. The key findings were:

• Roughly half of those interviewed stated that the EUTR had "minimal impact" on their core business, reporting that the main effect was on administrative time and the tightening of purchasing criteria. The companies that stated there was minimal impact are all early adopters of the TTF's RPP due diligence system - hence they had already tightened their purchasing criteria and processes prior to implementation of the EUTR.
• Asked about products and regions, it has been clear from the replies that there is more anxiety over origin than product type. In most cases alternative sources of supply are being sought to reduce reliance on high-risk areas, in the short term at least.
• Participants reported positive feedback from their supply chain upstream, with increasing understanding of the need to provide documented legal products. There is, however, still an issue with the identification of fraud, or so-called "false" legal products. Producer markets continue to ask for greater consistency in due diligence across buyers in the EU, in order to reduce admin costs.

In summary, the TTF's indicative analysis reveals that:

• Statistical trends show a move away from higher risk products and sources of supply, however, they need to be seen in a wider context and treated with caution.
• Companies are showing much better discipline with regards to undertaking due diligence. The process of due diligence is, within TTF member companies, fully operational.
• Existing risk mitigation systems such as CITES are not perfect but the EUTR must be used as a way to build their capacity and increase confidence in them rather than replace the need for them.
• There needs to be an increased level of trust in the trade's involvement in developing practical solutions to meet the EUTR's requirements. The most robust solutions are likely to be those developed by partnerships of private, public and NGO sector organisations.