The EUDR needs corrective action to work

The EU Deforestation Regulation in its current form will result in perverse outcomes that harm the world’s poorest farmers – but they can be avoided, writes Eddy Martono.

Palm oil is Indonesia’s largest non-mineral export. It is Indonesia’s largest export to the European Union. It supports 2.6 million smallholders in Indonesia, employing 17 million people. It supports jobs and livelihoods across the country, particularly in rural areas. It’s lifted millions of people out of poverty across Indonesia’s 17,000 islands.

Europe is one of the largest global consumers of palm oil, but it has a love-hate relationship with the crop. It‘s an essential in European staples, from hazelnut spreads to detergents. It had – up until recently – even found a place within Europe’s renewable energy programs. Why? Because it is cheap, useful across a range of industries, and extremely competitive.

This competitiveness – particularly in renewable fuels – has led to a backlash. The EU has imposed a broad swathe of protectionist barriers through antidumping duties, countervailing duties and an effective renewables ban. Some of these have attempted a justification – Indonesia’s historic deforestation rates have been mentioned – but others are just plain protectionism.

These measures have brought EU-Indonesia relations to a nadir, with direct rebukes from Indonesia’s president.

It’s no surprise, then, that Indonesia – along with many other countries across the globe -- has reacted with alarm to the recent European Union Deforestation Regulation (EUDR).

The alarm is not to the objectives of the regulation, i.e. reducing deforestation. Indonesia has been pursuing this objective unilaterally – and succeeding – for the past decade. Reforms to land use rules have resulted in Indonesia recording its lowest-ever deforestation rates in 2022.

No, the alarm is from the sheer unwillingness of the EU’s institutions to reasonably consider the impact of the regulation on its trading partners.

One exporter estimates each shipment will require 6 million data points under EUDR. It means that a silo of liquid pulp or palm oil from one source needs to be emptied entirely if it’s going to be filled with material from another source. It also means that traceable and non-traceable material can’t be mixed.

For smallholders, this means exclusion from EU supply chains. Not because the smallholders don’t meet the EUDR’s deforestation rules, but because the compliance requirements are too great. In rural areas, the technological equipment does not exist, nor does the level of education, nor do the institutions to supply detailed mapping of thousands of data points.

This isn’t exclusive to Indonesia, nor to palm oil. Coffee, cocoa and timber producers from Brazil, Nigeria, and Malaysia have all raised similar issues.

Western countries – including the US, Australia and Canada – have also pointed out that the EUDR’s rules are virtually impossible to meet given the nature of existing supply chains.

And notably, EU member states have objected. Last month’s meeting of agricultural ministers was effectively a unanimous call for the EUDR to be changed. The EPP’s environmental spokesperson, Peter Liese MEP, has called for a two-year delay in the implementation process and a review.

The Indonesian palm oil sector and government echo these European sentiments, calling for a delay. This is essential. If a delay is agreed upon, that time should be used for a constructive discussion on improving EUDR.

First is smallholders. The EUDR offers an ‘exemption’ for smallholders that is of no practical help. The EU’s arbitrary definition of smallholders differs significantly from that used elsewhere. This must be changed, and a genuine exemption included.

The second is certification. The palm oil industry has been acknowledged as the “most prepared” of all commodity industries. Indonesia’s national certification scheme – ISPO – is the world’s largest palm oil certification scheme. Some recognition must be given to this, whether in the form of increased capacity building for the scheme or explicit recognition in the EU’s guidelines.

Third is deforestation benchmarking. The EUDR requires that countries be benchmarked for deforestation risk, as high, standard or low. The benchmarking process needs to consider the reductions that Indonesia has made and its cooperation with the EU and Norway on deforestation. Not doing so sends a negative signal to Indonesia and other developing countries.

The controversy around the EUDR could have been avoided. Consultations with trading partners must now take place, and they must be meaningful. This is precisely what Indonesia’s delegates are seeking this week in Brussels.

Eddy Martono is the Chair of the Indonesian Palm Oil Association (GAPKI).