Indonesia and Malaysia assail new EU ban on ‘dirty commodities’ trade
- The governments of Indonesia and Malaysia have lambasted the EU regulation that will ban the trade of “dirty commodities,” including palm oil sourced from illegal plantations and deforestation.
- They argue that the regulation will harm the palm oil industry by increasing the cost of production.
- Activists, however, see the regulation as an opportunity for palm oil producing countries like Indonesia and Malaysia to have their palm oil globally recognized as legal and sustainable.
JAKARTA — The governments of Indonesia and Malaysia, two of the world’s largest palm oil producers, have intensified their criticisms against European Union trade policies, which they deem to be discriminatory toward palm oil.
Indonesia’s and Malaysia’s outcry has sown doubts over the two countries’ commitments to combat deforestation, with palm oil being a contributor to forest loss in the region.
Central to the outcry is a new European Union regulation that will block the import of “dirty commodities,” including palm oil sourced from illegal plantations and deforestation.
On Dec. 6, the European Council, Parliament and Commission struck a preliminary deal to adopt the deforestation-free regulation, proposed by the European Commission in 2021.
On Jan. 12, Malaysian commodities minister Fadillah Yusof said the two neighboring countries would discuss the law.
He added that Malaysia could stop exporting palm oil to the EU “if they [the EU] are giving us all a difficult time to export to them.”
The Council of Palm Oil Producing Countries (CPOPC), an intergovernmental organization for palm oil producing countries established by Indonesia and Malaysia, said that the EU regulation is discriminatory because it “will create an unfair level [of] playing field for the palm oil industry in the EU, particularly against locally produced rapeseed oil.”
“From the economic perspective, the EU regulation on deforestation-free products can impact the palm oil price in this market,” CPOPC secretary general Rizal Affandi Lukman told Mongabay. “It may no longer be competitive because it will increase the cost of production and administrative burden to fulfil the due diligence requirements for the exporters of palm oil and its products.”
Therefore, the regulation might be against the WTO rules by singling out selected imported commodities, he said.
To counter any policies that could harm the palm oil industry, Indonesian President Joko “Jokowi” Widodo said that the two Southeast Asian nations would work together and strengthen cooperation through the CPOPC to “fight discrimination against palm oil.”
President Widodo had previously expressed his concerns about the regulation during a special EU-ASEAN summit in Brussels on Dec. 14.
He said the law could hurt the nation’s development and exports due to its inflexible approach. He also called the policy discriminatory.
“Partnerships must be based on equality. There must be no coercion,” the president said in his speech, in an allusion to the new regulation. “There can no longer be one side that always dictates to the other and assumes that ‘my standard is better than yours.’”
Once adopted, the EU regulation will be the first of its kind in the world to tackle global deforestation by banning from supply chains products tied to deforestation and forest degradation, regardless of whether it’s legal or not.
The regulation covers commodities that represent the largest share of EU-driven deforestation, such as palm oil (33.95%), soy (32.83%), wood (8.62%), cocoa (7.54%), coffee (7.01%) and beef (5.01%).
Palm oil is the world’s most widely used vegetable oil, found in countless supermarket products, including soap and chocolate.
And the EU is one of the largest markets, importing 8 million metric tons of palm oil and its products from non-EU countries in 2021. It is the third-largest palm oil market for Indonesia, after its own domestic market and Asia.
Data from palm oil supply chain mapping initiative Trase show that EU sources from more than 400 mills across Indonesia, and there is significant forest cover surrounding these mills.
These forests can’t be cleared if the concession owners want to export their palm oil to the EU once the regulation is in effect.
Therefore, the EU regulation is actually positive for the planet as it tries to curb global warming by stopping deforestation caused by the production of various commodities consumed by the European market, according to Greenpeace Indonesia forest campaign head Kiki Taufik.
This goal, he noted, is the same as the one that Indonesia and Malaysia have.
Indonesia, for instance, has a target to turn its forests into a carbon sink by 2030, which will be achieved by halting deforestation and ramping up reforestation efforts.
Therefore, both the Indonesian and Malaysian governments should see the EU regulation as something that’s in line with their own policy to halt deforestation in the future, rather than something that’s discriminatory in nature, Kiki said.
“The regulation shouldn’t be a threat if the governments of Indonesia and Malaysia are committed to stop deforestation for palm oil,” he said. “But [President Widodo’s] statement of ‘fight discrimination against palm oil’ indicates that both countries still have the intention to allow deforestation to happen.”
The governments’ stance on the EU regulation also raises questions on their commitments to support palm oil smallholders and increase their welfare.
The association of Indonesian palm oil farmers, or SPKS, said the EU regulation would actually benefit smallholders, instead of harming them.
This is because once the regulation is in effect, smallholders who produce palm oil sustainably and legally could gain access to the European market, and working together with the EU could ensure that, SPKS head Mansuetus Darto said. A clause in the EU regulation says “when sourcing products, reasonable efforts should be undertaken to ensure that a fair price is paid to producers, in particular smallholders, so as to enable a living income and effectively address poverty as a root cause of deforestation.”
“If they [smallholders] have market in the EU, this will help them to partner with domestic companies, but why [the regulation] is rejected by [President] Jokowi?” he said as quoted by news outlet CNN Indonesia.
Mansuetus said it’s not the EU, but Indonesian companies that discriminates smallholders by neglecting smallholders and leaving them to their own devices without any support.
As a result, 78% of independent small farmers are forced to sell their palm oil to middlemen at low prices, he said.
The EU regulation could address this issue and increase smallholders’ income, with a clause in the regulation saying “when sourcing products, reasonable efforts should be undertaken to ensure that a fair price is paid to producers, in particular smallholders, so as to enable a living income and effectively address poverty as a root cause of deforestation.”
“Fighting the EU policy is the same as maintaining the dirty practices of palm oil companies, who are actually the actors [that discriminate smallholders],” Mansuetus said.
Kiki pointed out that it shouldn’t be too difficult for Indonesian producers to comply with the law, since the EU banned only commodities that come from lands that are deforested after 2020, not before.
And because the majority of plantations in Indonesia are already established before 2020, the country should have no hard time in producing palm oil from non-deforested land, he added.
“Especially with the government stating that we’ve been able to reduce deforestation [in recent years]. It shouldn’t be difficult [for Indonesia to follow the no-deforestation rule],” he said.
Rizal said CPOPC member countries are ready to comply with the EU regulation, as they’re committed to not expanding into new land while still meeting the growing demand for oils and fats. This will be achieved through producing palm oil sustainably and enhancing productivity.
“All plantations have been established before Dec. 31, 2020,” he said. “We focus on raising the productivity of the oil palm plantations without expanding new areas.”
While the EU deforestation regulation is expected to increase cost of production, it is also an opportunity for producers and traders to gain access to the sustainable market, according to Helge Elisabeth Zeitler, the deputy head of deforestation at the European Commission.
“We also see this increasing demand for deforestation-free product, of course in other countries, other major consumer market,” she said during a recent webinar organized by Brussels-based forests NGO Fern. “So that’s why we consider this regulation really also an opportunity for all of those who can have this transparent and deforestation-free supply chain.”
Zeitler said there had already been operators and producers who implemented the criteria set by the EU in the regulation.
“They show it’s possible,” she said. “If this [regulation] gets rolled out, it really opens up a lot of opportunities also to meet this increasing demand [of sustainable and legal commodities].”
The EU regulation is also an opportunity for palm oil producing countries like Indonesia to make their palm oil industry more sustainable, according to experts and activists.
Proponents of the palm oil industry argued that the industry had made strides in sustainability through initiatives such as the Indonesian Sustainable Palm Oil (ISPO) and the Malaysia Sustainable Palm Oil, a mandatory certification scheme that assures the legality and sustainability of plantations.
They also pointed out that Indonesia’s deforestation had declined in recent years, falling by more than three-quarters over the past two decades and reaching an all-time low in 2021.
Deforestation for palm oil in Indonesia had also fallen by 82% over the past decade to 45,285 hectares (111,902 acres) annually from 2018-2020, only 18% of its peak from 2008-2012, according to an analysis by palm oil supply chain mapping initiative Trase.
However, experts pointed out that the palm oil industry is still rife with issues.
In Indonesia, some companies still operate illegally without permits and in forest areas, do not pay taxes, are embroiled in conflicts with local and Indigenous communities and pollute the environment.
The Indonesian government itself has admitted that the plantation industry is rife with irregularities.
The Indonesian Ministry of Environment and Forestry estimated there are 3.37 million hectares (8.33 million acres) of illegal palm oil plantations inside forest areas.
A recent nationwide audit of all palm oil companies in Indonesia has found that many firms are operating without licenses, and some of them are encroaching protected forest areas.
These illegal plantations are disastrous for the environment, as some occupy protected areas such as national parks and UNESCO World Heritage Sites and overlap with the habitat of threatened wildlife like orangutans, resulting in the loss of biodiversity, release of carbon emissions and loss of local livelihoods.
Hariadi Kartodihardjo, a forestry policy lecturer at the Bogor Institute of Agriculture, said these findings of irregularities within the plantation industry can’t be denied.
“If people say [the plantation industry] is already sustainable in Riau [province], but they only show what’s on paper,” he told Mongabay in Jakarta. “But how could it be [sustainable] when conflicts [between palm oil companies and local communities] keep flaring up?”
While Indonesia’s deforestation, both in total and that which is tied to palm oil, has been declining in recent years, activists point out that the country’s forests are still under threat from palm oil expansion.
Some 3.1 million hectares (7.66 million acres) of natural forests — an area the size of Belgium — are estimated to remain inside palm oil concessions in Indonesia.
And an analysis by palm oil watchdog Sawit Watch found that there had been an increase of palm oil permits issued following the end of the government’s moratorium policy in September 2021.
The moratorium, enacted by Widodo in 2018, froze the issuance of permits for new plantations.
The idea behind the moratorium was to give the industry time to address the problems of deforestation, land conflicts and labor abuses long associated with palm oil. It expired at the end of September 2021, and although the government had the option of renewing it, it chose not to do so.
“After the moratorium ended, there’s been massive issuance of palm oil permits,” Sawit Watch executive director Achmad Surambo told Mongabay. “[Based on our calculation], there’s nearly 25 million hectares [61.78 million acres] of palm oil concessions [in Indonesia].”
Not renewing the moratorium is a missed opportunity for Indonesia, according to Mardi Minangsari, the director of Indonesian environmental NGO Kaoem Telapak.
She said Indonesia could’ve been much more prepared in anticipating the EU no-deforestation regulation if the government had continued with the moratorium policy.
“And the moratorium policy also mandated evaluation of plantation permits, which if it’s carried out properly, it’s a breeze [for Indonesian palm oil to enter Europe],” she said during a recent press conference. “Indonesia should have no issue [once the EU regulation is in effect]. So it’s a missed opportunity.”
With the moratorium no longer in place, the least the government could do would be to carry out the mandates stipulated in the moratorium, such as permit evaluation, to prepare for the upcoming EU regulation, Minangsari said.
Another initiative that Indonesia could strengthen is ISPO.
Rizal of CPOPC said the council will work to get ISPO and MSPO recognized by the EU.
“We are addressing this issue using diplomatic approach through communication and engagement to put forward our concerns and scientific evidence, as we are aware that there are misinformation and misperception on palm oil in the EU,” he said.
But a new report by Kaoem Telapak and the Environmental Investigation Agency finds ISPO to still be lacking in some aspects.
For one, there has never been a website or information system platform available to the public regarding the implementation of ISPO, which includes a list of certification holders and their certification status, according to the report.
Furthermore, ISPO also lacks clear and specific provisions requiring certification bodies to publish a summary of their audit reports, the report said.
This absence of information makes it difficult for the public to participate in monitoring the compliance of palm oil companies in Indonesia, the report noted.
While the certification scheme is far from ideal, it’s still a good start, Minangsari said.
Greenpeace’s Taufik said Indonesia should develop ISPO to be as strong as, if not more than, the Roundtable on Sustainable Palm Oil (RSPO), the world’s largest association for ethical palm oil production, which has a grievance mechanism, unlike ISPO.
This is especially important, as Indonesia’s main palm oil business association, GAPKI, exited RSPO in September 2011.
“If Indonesia wants to have a high credibility and strengthen its palm oil, then it should develop its ISPO to be at least as strong as RSPO,” he said. “The fact is, it’s not. Even though ISPO is mandatory, it’s very weak, and as a result, it’s not recognized by the world. Since GAPKI is out from RSPO, ISPO should’ve been strengthened.”
Another initiative that could help Indonesia in meeting the requirements set by the EU regulation is the national action plan on sustainable palm oil, which Widodo signed in 2019 and will last until 2024.
Madani forest and climate program director Anggalia Putri said that the action plan had a lot of important elements that could improve the management of the palm oil industry, such as transparency of data, increasing smallholder capacity, better environmental management and resolution of land conflicts.
All these governance reform initiatives will need support from the EU, Achmad of Sawit Watch said.
“It’s important for the EU to help [Indonesia] so that these initiatives could be implemented,” he said. “Zero deforestation could be achieved if the national action plan on sustainable palm oil is implemented.”
Food and Agriculture Organization of the United Nations. (2020). Global Forest Resources Assessment 2020: Main report. Retrieved from https://www.fao.org/3/ca9825en/ca9825en.pdf
Indonesian Ministry of Environment and Forestry. (2022). The State of Indonesia’s Forests 2022: Towards FOLU Net Sink 2030. Retrieved from https://www.menlhk.go.id/uploads/site/post/1664894502.pdf
Barahamin, A., Bhatara, D., Minangsari, M., Pearce, S., & Tumbelaka, O. (2022). Creating Clarity: an Analysis of the Challenges and Opportunities in the New Indonesian Sustainable Palm Oil (ISPO). Retrieved from Environmental Investigation Agency website: https://kaoemtelapak.org/?p=20184
Banner image: Palm oil estate worker in Tenom district, Sabah, Malaysia. Image by CEphoto, Uwe Aranas via Wikimedia Commons (CC BY-SA 4.0).
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