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<\/p>\nSoutheast Asian politicians have been locking horns with the EU over a law they say will disenfranchise smallholder palm oil farmers. Environmentalists support the law but worry about a just transition for the smallholder farmers who supply 40 per cent of the market.<\/p>\n
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Officials from Indonesia and Malaysia are currently locked in heated talks with their counterparts from the European Union (EU) over a law designed to stop deforestation-linked products from entering Europe.<\/p>\n
The\u00a0rule, known as the EU Deforestation Regulation (EUDR), was formally adopted by the regional bloc on 16 May 2023. Producers of forest-risk products such as\u00a0palm oil, rubber,\u00a0cocoa, coffee, soya, timber and cattle\u00a0are waiting for implementation guidelines and have until late-2024 to comply.<\/p>\n
Southeast Asian policymakers worry that the law will hurt trade for palm oil, of which Indonesia and Malaysia are the biggest producers. The most widely used edible oil has been responsible for\u00a0extensive\u00a0loss of\u00a0forest\u00a0and\u00a0wildlife\u00a0in tropical grower countries, but lobbyists\u00a0including Indonesia\u2019s prime minister Joko Widodo, argue that the industry has dramatically improved its deforestation track record and should be\u00a0allowed to\u00a0access\u00a0European supply chains.<\/p>\n
The palm oil lobby also contends that the\u00a0EUDR\u2019s rules will\u00a0make it difficult for\u00a0smallholder farmers\u00a0to comply. To sell into the EU,\u00a0businesses\u00a0must provide maps and satellite data to prove exactly where their crops were\u00a0grown. Smallholders,\u00a0who\u00a0produce roughly 40 per cent of Malaysia and Indonesia\u2019s palm output, are at risk of being removed from supplier lists \u2013 a similar fate seen following\u00a0an\u00a0iconic confectionary brand\u00a0that declared itself \u201cdeforestation-free\u201d\u00a0in 2020.<\/p>\n
Speaking at an Eco-Business event in June 2023, Megan Willis, head of sustainable sourcing at consumer goods\u00a0company\u00a0Unilever, said her company \u2013 which is the world\u2019s biggest buyer of oil palm\u00a0\u2013 welcomed the EU\u2019s move to address deforestation, but warned of the transition risk embedded in the law. \u201cWe don\u2019t want to leave out smallholders and we also don\u2019t want to create a leakage market. Not all boats rise with the tide,\u201d she said.<\/p>\n
The leakage market refers to countries and companies with lower environmental standards that will buy oil palm regardless of how and where it was grown.\u00a0The EU imports about\u00a03.5 million tonnes of oil palm worth \u20ac2.2 billion a year \u2013 small compared to India, the world\u2019s biggest oil palm importer, which buys 4.5 times that of the EU in terms of import value, and without conditions that penalise deforestation-linked commodities.<\/p>\n
Another complaint volleyed against\u00a0the EUDR is that\u00a0it does not consider any certification scheme, including the Roundtable on Sustainable Palm Oil (RSPO),\u00a0as a proxy for deforestation-free.\u00a0The RSPO\u00a0has tightened its standards in recent years and\u00a0emerged as the strongest\u00a0of the forest-risk certification schemes in a 2021 study by environmental campaign group Greenpeace.<\/p>\n
Europe is by far the world\u2019s largest consumer of sustainable palm oil, accounting for 45 per cent of total global use of RSPO-certified oil. But only one-fifth of the global palm oil trade is RSPO-certified, a proportion that has not grown since 2014, mainly\u00a0due to low\u00a0demand from\u00a0India and China.\u00a0While the two nations are the\u00a0biggest\u00a0importers\u00a0of palm oil globally, a mere 4 per cent and\u00a03 percent\u00a0of their imported palm oil is\u00a0RSPO-certified, respectively.<\/p>\n
The RSPO has\u00a0long\u00a0received criticism\u00a0for\u00a0failing to police members who have broken RSPO standards. A\u00a02020 study\u00a0found that\u00a0some RSPO-certified\u00a0palm\u00a0oil concessions\u00a0led to the deforestation of\u00a0biodiverse tropical forests in Indonesia and Malaysia over the last few decades.\u00a0Despite this, Chris Humphrey, executive director of the\u00a0EU-Asean Business Council, has\u00a0called on the EU\u00a0to accept RSPO as\u00a0the basis for allowing palm oil exports from Indonesia and Malaysia.<\/p>\n
Not everyone believes that the EUDR will marginalise smallholders. If smallholders are provided with \u201ctargeted support\u201d by the public and private sectors\u00a0to\u00a0supply farm-level traceability to commodity buyers, these farmers will be in a stronger competitive position to sell their crops into global value chains, argues environmental group\u00a0Mighty Earth.<\/p>\n
\u201cThat means the EU,\u00a0working alongside public and private sector actors,\u00a0offering practical measures and on-the-ground engagement with farmers so they meet all the compliance requirements before the EUDR comes into force in late 2024,\u201d\u00a0Amanda Hurowitz, senior director, Asia, Mighty Earth, told Eco-Business.<\/p>\n
One of\u00a0Indonesia\u2019s smallholder\u00a0unions holds a similar view.\u00a0Serikat Petani Kelapa Sawit\u00a0(SPKS), an Indonesian palm oil farmers union, has\u00a0played down the objections of Malaysian and Indonesian officials to the EUDR as \u201cexcessive\u201d\u00a0and welcomed the proposed\u00a0financial and technical compliance support, as well as a living wage for farmers that the law pushes for.<\/p>\n
Helping smallholders work towards\u00a0fulfilling\u00a0EUDR\u00a0requirements will not be prohibitively costly for big palm oil companies.\u00a0A\u00a0study\u00a0by non-profit\u00a0Chain Reaction Research (CRR)\u00a0found that supporting smallholders with\u00a0traceability efforts could cost up to 3.5 per cent of company revenues. The study also suggests that helping smallholders with EUDR compliance would protect an estimated\u00a0US$14.3 billion in reputational value.<\/p>\n
Gerard Rijk, a Netherlands-based equity analyst at Profundo, one of the co-creators of\u00a0CRR, noted that smallholders\u00a0contracted to work for big palm oil\u00a0companies, known as \u201cplasma\u201d smallholders, will find compliance easier than independent smallholders, who are often blamed for deforestation and starting fires to clear land as they lack the means to grow palm oil sustainably.<\/p>\n
\u201cIndependent smallholders face increasing problems gaining access to sustainable markets. Infrastructure needs to be built around independent smallholders to avoid further deforestation,\u201d Rijk\u00a0said. An example of this is granting smallholders\u00a0access to low-interest loans that enable them to\u00a0replace ageing, unproductive trees without the need to clear more forest to plant new trees.<\/p>\n
\u201cSmallholders cut\u00a0down trees\u00a0because they have no choice. There needs to be a programme that supports them in bridging the gap in cash flow decline as their trees age and yield falls,\u201d he told Eco-Business.<\/p>\n
One palm oil company that has invested in helping farmers transition to sustainable methods is Indonesia\u2019s Musim Mas, which sources 40 per cent of its fresh fruit bunches from independent smallholders and trains thousands in sustainable cultivation. Olivier Tichit, Musim Mas\u2019 director of sustainable supply chain, said\u00a0the company\u2019s\u00a0capacity-building programme is \u201cnot about being nice to smallholders\u201d, but rather\u00a0\u201ca matter of extreme self-interest.\u201d<\/p>\n
Smallholders that grow palm oil sustainably are more productive and earn more, while the industry gets more volume without having to expand further, Tichit noted.<\/p>\n
\u201cWe need to give smallholders access to technology and knowhow and better integrate them into the formal economy \u2013 that way they will be more compliant with the law [and less likely to cut trees],\u201d he said.<\/p>\n
\u201cWe need to recognise smallholders as a key part of the ecosystem \u2013 not just as producers, but as people with their own decisions to make.\u00a0They have to feel part of the greater market and understand that consumers care about how they work [in driving sustainable palm production],\u201d he said.<\/p>\n
Tichit added that some smallholders may\u00a0have reservations about sharing data to meet EUDR requirements. \u201cFarmers not only have to share their data with their immediate buyers, but also with someone sitting in Brussels.\u00a0It\u2019s an unbalanced relationship,\u201d he said, referring to the capital city of\u00a0Belgium,\u00a0which is one of the 27 member states of the EU.<\/p>\n
Musim Mas has had to make tough decisions\u00a0about who among its smallholder suppliers can feed into the EU system, and who can\u2019t, he said.<\/p>\n
The EUDR, Tichit\u00a0argues,\u00a0contradicts one key pillar\u00a0of the European Green Deal,\u00a0a set of proposals\u00a0unveiled in 2019 to make the\u00a0EU\u2019s\u00a0climate,\u00a0energy and transport policies fit for cutting greenhouse gas to net zero by 2050. One of the three core principles of the deal is \u201cno person and no place left behind.\u201d \u201cThe EU is missing that target with the EUDR,\u201d Tichit said.<\/p>\n
Tichit hopes that Southeast Asian policymakers will\u00a0emphasise\u00a0the importance of smallholder inclusion in their negotiations with their European counterparts.\u00a0\u201cThe implementation guidelines [which have yet to be released by the EU] are essential to see how inclusive the regulations are,\u201d Tichit noted.<\/p>\n
He added that palm oil-related deforestation, however,\u00a0has been slashed \u2013 forest conversion for oil palm in Indonesia, Malaysia and Papua New Guinea\u00a0fell in 2021 to its lowest level since 2017, according to\u00a0analysis by CRR\u00a0\u2013 mainly through engagement with the palm supply chain, not from punitive legislation.<\/p>\n
\u201cThe EU is pushing fast and hard [with regulation]. It\u2019s not supportive of engagement. Palm-linked deforestation has been reduced, and engagement was a big part of that,\u201d Tichit said, but noted that\u00a0\u201cthis regulation is not helping to drive further improvements in forest loss through the value chain.\u201d<\/p>\n
\u201cIndonesia has made great strides in reducing deforestation from the palm oil sector. The EUDR was a missed opportunity to expand that good work to other commodities,\u201d he said.<\/p>\n