More detailed information must be provided on the application and implications of proposed new European Union (EU) legislation on palm oil production – particularly, impacts on and incentives for small producers, stakeholders said during a roundtable organized by the Center for International Forestry Research-World Agroforestry (CIFOR-ICRAF).
Specifics of the EU’s proposed regulation on deforestation-free products (EUDR) must be clarified, because “people don’t know what will be their required actions or what will be the possible consequences of this legislation,” Agus Purnomo, senior advisor on sustainability with Sinar Mas Agribusiness and Food (PT SMART Tbk), said during the 8 December 2022 roundtable held in Jakarta and online.
Some 79 participants including producers, representatives from NGOs, government and embassy officials, the private sector, scientists, researchers and civil society groups, registered at the event focused particularly on the EUDR, which stipulates that commodities placed on the European market should not contribute to deforestation and forest degradation in the EU or elsewhere in the world. To comply with the upcoming Regulation, companies will have to conduct strict due diligence if they place on the EU market, or export from it, key commodities associated with deforestation globally, including palm oil, cattle, soy, coffee, cocoa, timber and rubber as well as derived products (such as beef, furniture, or chocolate).
Palm oil contributes significantly to Indonesia’s economic development, with about 60 percent of the country’s palm oil production exported in 2019. In 2020, the export value of palm oil reached USD 17.4 billion. Indonesia has seen various sustainable oil palm development efforts, including the National Action Plan for Sustainable Oil Palm for 2019–2024.
The EU is the world’s second-largest palm oil importer and because the commodity is subject to the proposed new EUDR, the roundtable provided a forum for key stakeholders –particularly from the palm oil and environmental sectors – to discuss possible foreseen impacts of the legislation.
Such sustainable trade initiatives are significant in promoting environment sustainability, but an incentive mechanism is essential to offset economic losses producers may face. Incentives could include premium pricing and exclusive market access, for example, under the EUDR, said speakers.
The EUDR requirements for deforestation-free products should dovetail with already existing certification measures to avoid overlap, wasted efforts, and confusion – particularly among smallholders, said Agus Purnomo. Many speakers also emphasized the need for increased technical support for producers in order to meet the EUDR requirements on traceability. These are essentially measures aimed at demonstrating the origins of commodities to show they were harvested without causing deforestation and forest degradation.
The EUDR, introduced in November 2021, received political approval by the EU Parliament, EU Commission and EU Council on 5 December 2022, with formal adoption expected in May 2023, said Henriette Faergemann, first counsellor at the Delegation of the European Union to Indonesia and Brunei Darussalam.
The EUDR would enter into force about 18 months after that, she told the roundtable, adding that the EU doesn’t want to block countries but instead aims to exclude products from deforestation or forest degradation, while increasing EU demand for deforestation-free commodities.
The main driver of deforestation and forest degradation is expansion of agricultural land which, according to the EU, is linked to the production of key commodities covered by the EUDR.
Moving forward, stakeholders at every level will need specifics on the EUDR implementation in practice, including how to apply the new regulation, and smaller players need particular support “so they can be part of the larger, global palm oil value chain to benefit from the palm oil economy” said Herry Purnomo, senior scientist with CIFOR-ICRAF and its Indonesia deputy director.
Without due support, the proposed EU Regulation could impose too heavy a burden and threaten the viability of some producers, warned the Council of Palm Oil Producing Countries (CPOPC). Negative impacts may include an administrative burden that will push up prices and make palm oil uncompetitive with other vegetable oils, said a spokeswoman for the council. That would amount to a non-tariff trade barrier, she said.
Beyond the specific implications of the EUDR, roundtable participants also discussed whether global sustainable palm oil policies, such as the EUDR, could strengthen existing national initiatives in Indonesia towards the climate crisis. They also looked at potential synergies between the EUDR and national climate change mitigation strategies, especially the Forestry and Other Land Use (FOLU) Net Sink 2030, which has the goal of reducing 60 percent of national emissions by 2030. That would set Indonesia on the path to achieving net-zero emissions by 2060.
Next steps for deforestation-free production in 2023 should include continued discussions between the EU and commodity-producing countries, alignment of policies and regulations, and scaling-up existing successful approaches, said Mathieu Lamolle, senior advisor, International Trade Centre (ITC) in Geneva. He emphasized the importance of inclusive policies and support to enhance resilience and increase competitive abilities among micro-, small-, and medium-sized businesses in the oil palm value chain.
The December 2022 roundtable followed a high-level policy dialogue in August 2022, that examined policy coherence with Indonesia’s FOLU Net Sink 2030.
CIFOR-ICRAF has been researching the sustainable palm oil trade in Indonesia under the Trade, Development and the Environment Hub (TRADE Hub) – a global research consortium led by the UN Environment Programme World Conservation Monitoring Centre (UNEP WCMC) and supported by the UK Research and Innovation Global Challenges Research Fund (UKRI GCRF).
For further information, please contact Herry Purnomo at h.purnomo@cifor-icraf.org
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