The EU Deforestation Regulation: The challenge and importance of inclusive implementation in palm oil

In the second half of April, the European Parliament and the European Council are expected to adopt the new EU regulation against deforestation (EUDR). The new regulation is a major milestone showing the commitment of the European Union to contribute to reducing global deforestation.

It should strengthen the EU’s position as the champion of deforestation-free supply chains. However, while this all sounds promising, it will also mark a race against the clock for millions of smallholders in the global south. This can be seen clearly when we look at the palm oil supply chain. This week The Netherlands Oils and Fats Industry (MVO), the Council for Palm Oil Producing Countries (CPOPC) and Solidaridad published a briefing paper to explain the implications of the new Regulation for oil palm smallholders at the beginning of the palm oil value chain. The paper includes recommendations for how the EUDR can be implemented in a way to avoid smallholder exclusion and ensure a just transition.

With the aim of  limiting the EU’s contribution to deforestation, the EUDR requires that only deforestation-free commodities and products enter the EU market. To demonstrate this, products will need to be traceable back to the production location. With this requirement, the EUDR starts a 1,5 year race against the clock for millions of smallholders and the companies in the value chains to ensure they can comply by November 2024.

However, there is a risk that millions of oil palm smallholders will not make the deadline and will be further excluded from the EU and global supply chain, limiting market access to palm oil produced by bigger players only. As it is, smallholders are the weakest link in the global palm oil supply chain and yet they are expected to bear much of the burden of proof that their production has not caused deforestation. Lacking resources and expertise, they are already facing challenges to comply with existing sustainability standards. Imposition of new sustainability and traceability requirements would further exacerbate their exclusion from the EU market.

Oil palm smallholders are a crucial link in the palm oil value chain, representing between 35% – 40% of the global production of palm oil. They are small-scale farmers growing oil palm as their primary source of income, often using family labour to cultivate the land.

The oil palm industry plays a key role in transforming the livelihood of the rural communities in palm oil producing countries, alleviating poverty by providing employment opportunities and generating income as well as enhancing social development. As such, the oil palm industry can play an important role in contributing positively towards achieving the EU Green Deal, as well as the United Nations’ 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), as such, careful regulation can encourage smallholders to produce more sustainably.

Inclusion of smallholders in the premium-paying EU market with high sustainability standards diminishes the risk of deforestation. Exclusion of smallholders from the EU market could encourage them to export more of their commodities to countries with weaker environmental regulations, shifting the problem to other regions.

The EU already leads the world in the procurement and use of certified sustainable palm oil (CSPO) that meet certification standards such as the Roundtable on Sustainable Palm Oil (RSPO). In 2021, 93% of European imports of palm oil were certified as sustainable, of which 67%. However, the EU’s demand for CSPO is mainly satisfied by the larger producers who are capable of meeting the stringent sustainability and traceability requirements. Smallholders have only a small share of the EU market. Globally, smallholders produce less than 10% of the total RSPO Certified Sustainable production, while independent smallholders (who are not formally associated with plantation companies)  account for less than 2% of total volume of RSPO-certified palm oil.  Implementation of the EUDR is likely to further exclude smallholders from the EU market as they will face problems showing proof of the legality of their land and the traceability from their production areas.

This is not just speculation. A recent survey by researchers from the Indonesian environmental NGO Madani in four surveyed palm-oil producing districts found that only smallholders in the region Tanjung Jabung Barat are ready to comply with the EUDR. The researchers identified traceability as the biggest challenge for independent smallholders to overcome. Only 0.2% of respondents were able to sell their palm fruit to mills directly or through cooperatives. The rest rely on informal networks of intermediaries, making it difficult to trace the palm oil back to its origin. This problem is worsened by a lack of documentation of transactions, with only 12.8% of respondents keeping sales records of every transaction. Such issues will exclude smallholders from the EU market, unless these complex and deeply entrenched issues are dealt with.

The EUDR has the potential to be a game changer in the fight against deforestation, and we are excited to see how it sets the stage for things to come. There are risks, of course, but if its implementation takes account of lessons from ground and addresses specific challenges of each commodity, it can really drive meaningful impact. With the right additional measures and approach to implementation, the EUDR can help smallholders be part of the Green Deal. This should be taken into account.  To quote Von der Leyen, the transition will “either be working for all and be just, or it will not work at all”.

To support the EU in implementing the EUDR with regard to palm oil, we offer this briefing paper ‘Implications of the EU Deforestation Regulation (EUDR) for oil palm smallholders’ to explain the supply chain realities and dynamics at work in this complicated chain and to suggest ways in which the EUDR can be made to include and support smallholders on their way to sustainability, and ensuring that they too can benefit from the global market.

Tags: European Council, EU, European Union, palm oil, deforestation, Market, European Parliament, supply chain, smallholders, EUDR