Oil palm plantation in Muara Kaman Ilir village, Kutai Kartanegara, East Kalimantan, Indonesia. Photo by Ricky Martin/CIFOR-ICRAF

Indonesia is the world’s largest palm oil producer. The versatile and edible oil can be found in everything from pizza dough to instant noodles and bread. Favoured for its relatively high yield, low cost and diversity of use, especially among food manufacturers, palm oil is found in about half of all packaged products sold in supermarkets around the world.

Over the past two decades, palm oil has become essential to Indonesia’s economy. Today, more than 30 million tons a year is produced, employing more than 3 million people. But the production of palm oil has triggered global concern over its association with tropical forest loss.

To tackle these challenges, the European Union – one of the world’s major trading blocs – agreed in December 2022 on a regulation to be adopted in 2023 prohibiting the trade of products that are not deforestation-free. The implementation of the European Union Deforestation Regulation (EUDR) could contribute to reduced deforestation and greenhouse gas emissions from consumption within the EU.

However, experts at the GCRF Trade Hub High-Level Policy Dialogue in April 2023 in Indonesia raised concerns that such a regulation could have impacts on farmers and palm oil-producing countries.

Climate and biodiversity threat

According to the Food and Agriculture Organization of the United Nations (FAO), the world has lost 178 million hectares of forest since 1990, an area about the size of Libya. About half of the total 23 percent of anthropogenic greenhouse gas emissions from agriculture and forestry are from forestry and land-use change, mostly deforestation.

The EUDR affects seven commodities – soy, beef, palm oil, wood, cocoa, coffee and rubber – and derived products such as leather, chocolate or furniture. The regulation aims to reduce greenhouse gas emissions from deforestation and fight climate change as well as biodiversity loss by preventing companies from trading deforestation-linked commodities.

Since the EU is Indonesia’s fourth-largest export destination for palm oil and accounts for 11 percent of the country’s total palm oil export market share­­, Indonesia will need to demonstrate that commodities have not been produced on land that has been subject to deforestation or forest degradation after 31 December 2020, to comply with the EUDR.

Syncing existing policy

Experts speaking at the GCRF Trade Hub High-Level Policy Dialogue emphasized that policies already exist to deliver benefits for Indonesia while reducing impacts to high-risk forested landscapes and rural communities. These policies include Indonesia’s national climate change mitigation strategy: the Forestry and Other Land Uses (FOLU) Net Sink 2030.

“Indonesia’s ambition to reach FOLU Net Sink by 2030 is commended globally,” said Sonya Dewi, CIFOR-ICRAF’s Asia director. “And the Ministry of Environment and Forestry has very actively socialized the commitment with subnational stakeholders in order to strive towards implementation.

“Avoiding and controlling deforestation is one of the few most important strategies to meet the targets of FOLU Net Sink, and therefore there is a very strong synergy between the EU deforestation-free declaration and FOLU Net Sink, launched by the Government of Indonesia.”

Musdhalifah Machmud, deputy minister for food and agriculture at the Coordinating Ministry for Economic Affairs, Indonesia, agreed that regulations are critical to the long-term sustainability of the sector.

“All of us here have the same vision, spirit and willingness,” she said. “We would like to have all of our resources managed in a sustainable way.”

Machmud noted that a balance is needed to create economic, social and environmental gains from palm oil.

Consumer focus

A key part of the April 2023 dialogue in Indonesia involved understanding consumer country demand for sustainable palm oil; related policies such as the EUDR; and impacts on smallholder producers.

Rizal Affandi Lukman, secretary general of the Council of Palm Oil Producing Countries, said that because palm oil is a market-driven commodity, both consumers and producers should be considered in its trade.

“The governments of Indonesia and Malaysia have made great efforts in promoting sustainable palm oil,” he said. “Respectively, we already have national certification schemes, therefore I think the EU also needs to listen and look into the efforts done in meeting these sustainability standards.”

Lukman added that smallholder farmers should not be burdened with the costs of meeting new due-diligence standards.

This was a point echoed by Abetnego Tarigan, deputy chief of staff for human development in the Executive Office of the President of the Republic of Indonesia. He emphasized that Indonesia is committed to reducing deforestation, the rate of which has declined.

Ensuring sustainable palm oil production, without policies becoming burdensome to some countries, is important, according to Tarigan, who said that each country has its own priorities. For example, in Indonesia, poverty reduction and development are prioritized policy issues, perhaps more so than in Europe.

Fitri Nurfatriani, coordinator for environment, forestry and water resources conservation, and deputy of policy development at the National Research and Innovation Agency (BRIN), said the Government of Indonesia has improved certification systems and has declared a national action plan on sustainable palm oil to accelerate sustainability, market access and resolution conflict. It is working alongside smallholder farmers to reduce the expansion of farming into forest areas, while increasing their productivity and meeting FOLU targets to cut greenhouse gas emissions.

Robert Nasi, who is now chief operating officer of CIFOR-ICRAF, said: “There is a long history of agriculture and deforestation. We tend to forget that most of Europe has been deforested for agriculture. Is there any wheat or potato produced in Europe or the US that is coming from land that was not forest before?

“Now 80 percent of deforestation in tropical forests is linked to agriculture.” But replacing palm oil with any other crop would require 10 times the area of land, and improving biodiversity is critical for long-term sustainability, he added.

Middle ground

Finding the middle ground to address the complexity is vital. If exports to Europe decline, other major buyers – including India, China and Pakistan – will become increasingly important. While encouraging deforestation-free palm oil can help Indonesia achieve its emissions targets and reduce deforestation, it will not be a win-win situation if farmers do not benefit.

Mansuetus Darto, secretary general of the Oil Palm Farmers Union (SPKS), said the regulations could create positive impacts for smallholders if exporters provide them with training and investment assistance. Some of the regulation impacts will only occur in the next five years, and monitoring them will be an ongoing part of the due-diligence process, which will include Indigenous communities, he said.

But Indonesian Palm Oil Farmers Association (APKASINDO) representative Maria Goldameir Mektania – who is also a second-generation smallholder oil palm farmer – said shifting trade from Europe to China may be a better long-term strategy.

“It seems we are being dictated to by the EUDR,” she said. “If we are not complying with their demands, then they are not going to purchase our commodities. Meanwhile, Indonesian smallholders are already starting to apply sustainable practices.”

She added that “sudden regulation will only put us in a corner.”

Agus Purnomo, a senior advisor on sustainability at Sinar Mas Agribusiness and Food, said: “Can Indonesia supply deforestation-free and sustainable palm oil to Europe? The answer is yes. We can deliver it today, we can deliver it next year, tomorrow… We are not debating whether we can deliver the products, but the different priorities of Indonesia and Europe… Let’s work on that. No one wants to destroy our own forests. We have the calculations, we follow the international regulations.”

The dialogue was organized by the Center for International Forestry Research and World Agroforestry (CIFOR-ICRAF) and the Trade, Development and the Environment Hub (TRADE Hub) established across five countries – Brazil, Central Africa (Cameroon, Gabon, Democratic Republic of Congo, Republic of Congo), Tanzania, China and Indonesia – to illuminate the negative impacts of trade. The global research consortium is 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 more information on this topic, contact Herry Purnomo at h.purnomo@cifor-icraf.org