A new European Union (EU) regulation was introduced in June 2023 to prevent the importation of commodities linked to deforestation with the goal of curbing forest loss, land degradation and biodiversity loss. The EU Deforestation Regulation (EUDR) will apply to commodities including palm oil and other derivative products.
The regulation is perceived by countries including Indonesia and Malaysia as a protectionist measure under the guise of environmental sustainability. There are concerns that the EUDR may lead to the exclusion of smaller producers, who make up a large part of the commodity production in developing countries.
As crucial palm oil producing countries, Indonesia and Malaysia are calling the EUDR ‘discriminatory’ and Malaysia is even looking to double palm oil exports to China in the face of EU restrictions. Still, both countries have established a task force with the European Union to implement the EUDR.
The EUDR’s regulatory requirements represent the latest effort by the EU to exert normative influence on environmental sustainability. Its effects extend beyond EU member states as its enforcement will affect third-party countries exporting commodities to the European Union.
The EUDR stipulates that commodities cannot be grown from land deforested after 2020. Palm oil producers must prove that their products are deforestation-free before selling to the European Union’s 27 member states. It also requires extensive due diligence and reporting for commodity buyers. Companies must conduct due diligence and submit reports to a relevant competent authority. The report must include the quantity, supplier, country of production and the exact geolocation coordinates of the plots of land where the commodities were sourced.
The EUDR comes amid increasing conversations about transparency and traceability. There is a growing belief that climate change mitigation cannot be achieved without regulating commodities associated with deforestation. Investors and consumers are urging companies to embrace a transformative vision of corporate responsibility along supply chains and are demanding that commodities are sourced sustainably. Verified Sourcing Areas have become a growing trend — sites where large volumes of sustainable commodities can be produced at a competitive price and scale.
However, concerns have been raised that the EUDR and related developments favour larger palm oil companies at the expense of smaller producers. Larger companies have the financial resources and technical capacity to provide traceability reports and comply with sustainability requirements. Smaller producers may be cut off from the supply chain if they cannot meet these requirements.
Smaller palm oil producers often need more resources and are typically seen as the weakest link in the supply chain. Independent smallholders are often disorganised and lack strong cooperatives to help them lift standards. Livelihood constraints can also distract smallholders from adopting global norms on environmental sustainability.
Eugene Mark is a PhD Candidate in the S Rajaratnam School of International Studies, Nanyang Technological
University, Singapore.
East Asia Forum
