NextBillion - A WDI Publication

The European Union Deforestation Regulation (EUDR) represents one of the most ambitious and well-meaning legislative efforts to protect our planet’s remaining forests. For the global development community, it’s a monumental step forward. 

But as the twice-delayed compliance deadline looms at the end of 2026, a potential flaw threatens to undermine the legislation. 

To meet strict EUDR data requirements, major commodity buyers are turning to remote sensing and satellite AI to prove that their cocoa, coffee, palm oil, soya, timber, cattle and rubber are deforestation-free.

But what happens when an algorithm misreads the landscape? More importantly, what happens to the vulnerable small farmers who are abruptly cut out of the market due to this sort of error?

If the industry relies solely on automated compliance without human input and context, we risk creating a massive “leakage” problem, where deforestation-linked goods are simply rerouted and sold to countries with no anti-deforestation laws. Overreliance on algorithms may ultimately clean up European corporate markets and spreadsheets while quietly pushing smallholders and deforestation itself into the shadows of the grey market. That isn’t the intended aim of EUDR, but it’s a very real possibility. 

The Limitations of Automated Compliance

The Earth Observation sector is in the middle of a golden age, as satellites and data analytics tools enable canopy and other landscape changes to be mapped from space with astonishing precision. For buyers hoping to avoid sizeable EUDR non-compliance fines, this capability offers a viable solution: They can now conduct risk mitigation without ever having to set foot in the plantation. 

However, satellite algorithms have a key limitation: they can identify changes in forest cover but cannot determine intent or causality, nor can they account for complex realities on the ground. 

In my work at MosaiX and the Earthqualizer Foundation, I bridge the gap between digital innovation and local realities every day. By helping global fast-moving consumer goods brands and supply chain partners navigate EUDR compliance using tools like satellite imagery and land plot mapping, I’ve seen firsthand the limitations of these technologies. When satellite data is processed blindly without human insight and local context, it oversimplifies complex geographies. For a small farmer wrongly accused of deforestation who lacks the resources to prove their innocence, a false positive can be devastating.

The Illusion of Compliance and the Threat of Leakage

Under the EUDR, the law is unyielding: Any plot of land deforested after the December 31, 2020 cut-off date is permanently barred from the EU market. And while the law states that companies must mitigate “non-negligible” deforestation risk before a product can enter Europe, it leaves the actual response entirely up to the discretion of the corporate buyer. Faced with a red pixel indicating tree-cover loss and no response protocol issued by EUDR, the path of least resistance for a corporate buyer is often to immediately exclude the supplier entirely rather than investigate. This creates the illusion of compliance, but it is a failure in the context of sustainable development. 

When small farmers are frozen out of premium, regulated markets, they do not simply pack up their tools and stop farming. Survival dictates that they find another buyer. So instead, they are often driven into “leakage markets” — i.e., regions or buyers with lower environmental standards, less scrutiny and lower prices. In these grey markets, deforestation continues while the farmers risk being pushed into poverty.

We cannot achieve environmental sustainability by sacrificing social equity. We need to design systems that keep smallholders and small suppliers included in sustainable markets and allow for their re-entry, rather than erecting algorithmic walls they struggle to climb.

Three Ways to Prevent Supply Chain Exclusion in the EUDR Era

To ensure regulations like the EUDR achieve their goals without over-reliance on satellite technology, we must fundamentally shift how supply chain data is managed and applied. Companies need to move beyond simple automated compliance and exclusion and prioritize social equity alongside environmental protection. Here are three steps companies aiming to comply with both the letter and the spirit of the law can take to bridge the gap between orbital tech and human geography. 

1. Anchor monitoring systems to accurate, up-to-date baselines: Companies must ensure that deforestation alerts are generated from verified, current land-use baselines rather than outdated or generic datasets. Weak baseline maps lead to overwhelming false positives, as they struggle to distinguish between a protected natural forest and an active agricultural plot. This often results in misdirected resources and unnecessary supplier friction, ultimately penalizing those at the very bottom of the supply chain. Monitoring systems must also enable precise supplier attribution, with traceability that connects the full supply chain directly to a specific plot of land. Without this granular traceability, automated alerts drive inaccurate accountability — resulting in blanket bans on entire regions or cooperatives, rather than targeted corrective action.

2. Implement an alert response protocol grounded in human-verified data: While the EUDR mandates zero tolerance for deforestation, corporate buyers shouldn’t treat an algorithmic red flag as an automatic suspension. Detection should trigger a conversation and a field verification, not an immediate ban. Automated screening must activate a clear response protocol for high-risk tree-cover loss alerts. This protocol should include on-the-ground verification to establish the true context of the clearing — determining whether it represents an actual land-use conversion, a natural event, or third-party encroachment along disputed land boundaries. Ultimately, automated alerts flag risk; field verification determines accountability.

To execute this verification fairly and interpret satellite data accurately, companies must invest in localized partnerships. Collaborating with local implementation experts and community organizations provides the nuanced knowledge required to investigate alerts thoroughly, ensuring that strict regulatory compliance doesn’t come at the cost of unjust supplier exclusion.

3. Shift from supply chain exclusion to Recovery and Re-entry Programmes: Perhaps the most significant flaw in the current EUDR compliance landscape is the lack of a route to redemption. Fearing massive fines for non-compliance, risk-averse corporate buyers are reacting with blanket, permanent expulsions of the smallholders themselves. Instead, companies should look to collaborate and pioneer Recovery and Re-Entry Programmes. By providing a structured pathway for suppliers to acknowledge responsibility, restore affected areas and safely regain market access, these programmes transform a rigid compliance risk into a genuine opportunity for landscape-level rehabilitation.

Conclusion 

The EUDR is a landmark piece of legislation, and satellites and AI have given us indispensable visibility into our supply chains. But at the end of the day, they are only tools. 

Laws and satellites do not save forests; people do. Getting compliance data from space is an incredible first step, but it fails without accurate baselines and verifiable, on-the-ground action. 

Priscillia Moulin is Director of Strategy for MosaiX’s Europe branch and Senior Advisor to both Inovasi Digital and Earthqualizer.

Photo credit: Matthew de Lange