Indonesia’s palm oil sector worries over costs, security after EU deforestation law delay
09/10/2024 (South China Morning Post) - The European Union’s decision to delay the implementation of a deforestation law has drawn mixed reactions in Indonesia, the world’s largest palm oil producer. Some farmers expressed concerns that compliance costs would increase due to the postponement, while others see it as an opportunity to raise important issues, such as on national security.
Originally set to take effect on December 30, the EU Deforestation Regulation (EUDR) requires that commodities such as palm oil, timber, soybeans, coffee and cattle sold in EU markets must not come from land deforested or degraded after December 31, 2020.
Last Wednesday, the European Commission proposed delaying enforcement of the regulation to December 30, 2025, to “give concerned parties additional time to prepare”, pending approval from the European Parliament and Council.
Airlangga Hartarto, Indonesia’s coordinating minister for economic affairs, said the postponement was likely due to pressure from Indonesia, the US, Germany and the World Trade Organization.
“For Indonesia, what is important is the implementation of the policy, not just it being postponed,” he told reporters on Thursday.
The minister highlighted concerns about the EU’s demand for detailed geolocation data on agricultural land. He warned that foreign access to such data could pose security risks.
Indonesia assesses sustainability using its own Indonesia Sustainable Palm Oil (ISPO) standard, which the EUDR does not recognise.
During a meeting of the Asean Economic Community Council in Laos on Monday, Airlangga urged member states to unite against what he described as discriminatory global sustainability policies such as the EUDR that “have a negative impact on the economy and the lives of many people”.
Djatmiko Bris Witjaksono, director general of international trade negotiations at Indonesia’s trade ministry, noted last month that the EUDR had stalled negotiations for a free-trade agreement with the EU, a goal Jakarta has pursued for nearly a decade.
Conversely, some industry representatives have lamented the postponement, arguing that it is unnecessary. Sabarudin, chairman of the Indonesian Palm Oil Smallholders Union (SPKS), said in a statement on Thursday that many Indonesian companies were already prepared to meet the EUDR’s standards.
“Several companies have prepared the coordinates of their geospatial planted area,” he said. “This means that the companies are ready to comply with the EUDR.”
Marcel Andri, head of SPKS’s advocacy department, said that local farmers had incurred costs of up to 200,000 rupiah (US$12.72) per hectare to comply with the EUDR, adding that many of the 70,000 farmers in the union’s database would be able to meet both Indonesian and EU sustainability standards.
“The proposed postponement of the EUDR will have a significant impact on the costs incurred by farmers,” Marcel told reporters on Monday.
“We have worked hard since 2015 to improve governance, including preparing coordinate points to resolve legality issues. This delay does not help us.”
With the enforcement of the EUDR, Indonesian farmers had hoped they would become more integrated into the global supply chain, reap more profits and increase their output, Marcel said.
Calling for more funding and clearer rules for small palm-oil players, Sabarudin said Indonesian industry was committed to deforestation-free practices and entering the EU supply chain.
Palm oil is used in a wide range of products – ranging from cosmetics, soap and shampoo to margarine – but its cultivation has led to extensive deforestation in Indonesia. Since 1950, more than 74 million hectares (182.9 million acres) of rainforest have been lost to make way for palm oil, paper, and rubber plantations, according to the Global Forest Watch monitoring project.
Large-scale deforestation had slowed following a three-year moratorium on new palm oil permits instituted by President Joko Widodo in 2018. However, recent data indicates a resurgence, with 30,000 hectares of forest converted to palm oil plantations last year, according to TheTreeMap – a stark contrast to the 22-year low of 16,530 hectares recorded by the technology consultancy in 2021.
Declining exports
Eddy Martono, chairman of the Indonesian Palm Oil Entrepreneurs Association, welcomed the proposed postponement, telling This Week in Asia that the association will continue to advocate for regulatory changes that align with Indonesian law.
“We will continue to provide input on which rules are burdensome and not in accordance with Indonesian law, so that the EU can accept our objections,” he said.
However, he cautioned that this delay would not reverse the ongoing decline in palm oil exports, which fell to 2.24 million tonnes in July from 3.38 million tonnes in June, according to the association – due to reduced demand from key markets like China and India.
“The decline in exports to China, India and Pakistan is because of oversupply of other vegetable oils such as sunflower,” Eddy said. “Their prices are cheaper than palm oil. China currently still has abundant stock [of palm oil].”
Last year, Indonesia produced 56 million tonnes of palm oil, with exports totalling 26.33 million tonnes and generating US$28.45 billion in revenue, according to government data. The palm oil sector provides jobs for around 16.2 million people in the Southeast Asian nation.