Palm oil giants Indonesia, Malaysia start talks with EU over deforestation rule

Indonesia and Malaysia, the world’s top two producers of palm oil, have set up a joint task force with the European Union to address their differences over a new law making it harder for the ubiquitous commodity to enter the EU.

The governments of Indonesia and Malaysia, which together account for about 85% of global palm oil exports, have criticized the EU Deforestation-Free Regulation (EUDR), calling it discriminatory and saying its requirements are too strict for producers, particularly small farmers, to comply with.

The palm oil task force is aimed at resolving these issues, and held its first meeting in Jakarta on Aug. 4. Airlangga Hartanto, Indonesia’s chief economics minister, said one of the main topics on the agenda was the risk classification that the EUDR assigns to producer countries.

Under the EUDR, countries deemed low risk will undergo a simpler due diligence procedure to get their products into the EU, while high-risk countries will have to go through more rigorous checks. The Indonesian government is concerned that if Indonesia is labeled a high-risk country, it’ll be more difficult to export its palm oil into the EU, Airlangga said.

“During the [first] negotiation, it looks like they could understand and accept concerns [regarding the classification system] from Indonesia, Malaysia and like-minded countries,” Airlangga said at a press conference in Jakarta.

Also discussed was the role of sustainability certification schemes, like the Roundtable on Sustainable Palm Oil (RSPO), in the EUDR, to avoid having to draw up new standards for compliance.

“We talked about RSPO [and other standards] so that we don’t have to reinvent the wheel [and can keep] using existing standards,” Airlangga said.

Musdhalifah Machmud, Airlangga’s adviser on agricultural issues and co-chair of the Jakarta meeting, said the government would ensure its palm oil exports to the EU were certified to the latter’s standards. In turn, she said, the EU should also recognize certification schemes like the RSPO and Indonesia’s own ISPO in its no-deforestation law.

“That’s what we’re asking from the EU, so that they know that ISPO and RSPO have been able to trace [palm oil] to plantation level,” Musdhalifah said.

Airlangga said the EU delegation had shown a positive attitude toward Indonesia’s proposals during the meeting. The joint task force will conclude its work by the end of 2024, with the possibility of an extension.

“So we’re in a [good] mood to negotiate with Europe,” Airlangga said.

The EUDR prohibits imports into the EU of commodities sourced by clearing forests. It’s an attempt to eliminate deforestation from the supply chains of a range of everyday items — including beef, soy and timber — sold in the EU, which is responsible for 16% of tropical deforestation associated with international trade.

The law also bans commodities coming from illegal sources.

To ensure compliance, the law requires buyers to trace commodities like palm oil back to the farm where the fruit was grown, including precise geographical coordinates.

Critics of the new law said it’s unlikely that small farmers will be able to meet the legality and sustainability criteria set by the EU due to cost and other limitations, effectively locking them out of the global supply chain.

They note the impact will be felt keenly in Indonesia, the world’s top palm oil producer, where small farmers manage 6.72 million hectares (16.6 million acres) of plantations, or 41% of the country’s total oil palm area.

To address these concerns, the joint task force brings together stakeholders who will identify practical solutions and means of implementing the new regulation.

Besides the issue of smallholders’ inclusivity in the supply chain, the task force will also work on other issues such as relevant national certification schemes, traceability from producer to end consumer, scientific data on deforestation and forest degradation, and protection of data.

Following the adoption of the EUDR earlier this year, Indonesian President Joko Widodo said his country had made major strides in reducing deforestation.

He cited official data showing Indonesia’s most recent annual deforestation rate is the lowest since 1990, and down 75% from the 2019-2020 period. The government attributes the decline to a number of policies aimed at protecting forests and improving the sustainability of the plantation industry.

Prior to the formation of the joint task force, the Indonesian government raised its concerns about the EUDR in a number of other platforms, including at negotiations on the Indonesia-EU Comprehensive Economic Partnership Agreement (CEPA) and at the World Trade Organization (WTO), according to Trade Minister Zulkifli Hasan.

“The policy could hamper trade and harm small farmers,” Zulkifli said at a recent event in Jakarta. “Indonesia exported $6.7 billion worth of palm oil, rubber, cacao, coffee and timber to the EU in 2022. Meanwhile, 8 million small farmers will also be affected by the policy.”

Linda Rosalina, executive director of TuK Indonesia, an NGO that advocates for social justice in the agribusiness sector, said the Indonesian government should see the EUDR as an opportunity to improve the country’s governance of its plantation industry, instead of blaming the regulation as discriminatory.

Despite the progress made in improving the industry’s sustainability, there’s still a lot of work left to do, she said. A key contentious issue is the government’s plan to provide a sweeping amnesty for 3.37 million hectares (8.33 million acres) of illegal oil palm plantations — an area the size of the Netherlands — established in forest areas. The government’s justification is that there are so many of these illegal plantations that it simply has no other option than to legalize them.

Activists have criticized this reasoning, saying it shows yet again how the government continues to put corporate interests over environmental ones.

“Based on these facts, Zulkifli as the trade minister shouldn’t panic and paint himself as a victim of the [EUDR] law,” Linda said. “Zulkifli should realize that these [issues of illegal plantations] are a result of the sins [he made] when he served as forestry minister.”

During that previous tenure, Zulkifli authorized the redesignation of vast swaths of forest areas across Indonesia so that they could be cleared and converted into oil palm plantations.

According to data from the NGO Greenomics Indonesia, Zulkifli rezoned 1.64 million hectares (4.05 million acres) of forest area — half the size of Belgium — during his time as forestry minister from 2009-2014, paving the way for their conversion to plantations.

Tags: exports, Indonesia, EU, European Union, Malaysia, palm oil, RSPO, Roundtable on Sustainable Palm Oil, EUDR, EU Deforestation-Free Regulation