POTC Report Identifies Weakness of EUDR to Save Forests From Palm Oil
Update August 30, 2024
EU influence on palm oil producing countries diminishing in real time
In this commentary which we published in March 2024, we warned that China and India could diminish what the European Union was hoping to do with the ambitions of Deforestation Regulations to reduce tropical deforestation.
The Indonesian Palm Oil Association (GAPKI) has deemed the European Union to be no longer a strategic market for Indonesian palm oil products, as exports to Europe have significantly declined, citing the export volume of CPO and its derivatives to Europe now accounts for only 12 percent of the total export volume.
GAPKI’s data shows that the contribution of CPO and its derivatives exports to the European Union was only 8.12 percent, or 275,000 tons, as of June 2024. This figure is a decrease of 12.97 percent compared to the 316,000 tons recorded in May 2024.
“The export volume contribution to the European Union used to be 20 percent, but now it’s only about 12 percent per year. So, we see the European market as no longer strategic,” Edi Suhardi, Head of Positive Campaigns for GAPKI, told the CNBC Indonesia: Trade Corner Special Dialogue on Thursday, August 29, 2024.
Edi believes that the decline in demand for CPO exports from the European Union will be exacerbated by the European Union’s Deforestation Regulation (EUDR).
EU influence on palm oil producing countries diminishing in real time
In this commentary which we published in March 2024, we warned that China and India could diminish what the European Union was hoping to do with the ambitions of Deforestation Regulations to reduce tropical deforestation.
The Indonesian Palm Oil Association (GAPKI) has deemed the European Union to be no longer a strategic market for Indonesian palm oil products, as exports to Europe have significantly declined, citing the export volume of CPO and its derivatives to Europe now accounts for only 12 percent of the total export volume.
GAPKI’s data shows that the contribution of CPO and its derivatives exports to the European Union was only 8.12 percent, or 275,000 tons, as of June 2024. This figure is a decrease of 12.97 percent compared to the 316,000 tons recorded in May 2024.
“The export volume contribution to the European Union used to be 20 percent, but now it’s only about 12 percent per year. So, we see the European market as no longer strategic,” Edi Suhardi, Head of Positive Campaigns for GAPKI, told the CNBC Indonesia: Trade Corner Special Dialogue on Thursday, August 29, 2024.
Edi believes that the decline in demand for CPO exports from the European Union will be exacerbated by the European Union’s Deforestation Regulation (EUDR).
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- A new assessment conducted by the Palm Oil Transparency Coalition (POTC) looks like an attempt to shift blame onto palm oil importers and traders
- The assessment warned that the EU’s deforestation regulations may clean up imports to Europe but fail to address global deforestation
- India and China which are key markets for palm oil with no environmental demands like those of the EU, threaten to diminish the overall impact of the EUDR
MEP Lara Wolters-Credit Politico
In its news release, the POTC stated that:
Industry responses to European due diligence regulation creates emerging split in global palm oil supply chain as importers intend to split supply chains to meet regulation needs in the short term, with palm materials that can’t be fully traced back to origin being sent to regions outside the EU
Industry responses to European due diligence regulation creates emerging split in global palm oil supply chain as importers intend to split supply chains to meet regulation needs in the short term, with palm materials that can’t be fully traced back to origin being sent to regions outside the EU
- This split could slow progress towards Deforestation- and Conversion-Free palm oil globally, if diverting hard-to-verify supplies to non-EU regions causes deprioritisation of efforts to make them traceable
The POTC claims to be seeking to secure a palm oil supply that complies with EUDR demands with the RSPO standards as a minimum.
This all sounds great for POTC members to meet EUDR demands but as the EU seeks to sooth the increasing anger from its trade partners against its green initiatives, developing situations shows that the power to save forests, is far from the EU’s hands.
When it comes to palm oil, there are two main problems with the EUDR’s ambition to save forests in producing countries.
For one, the EU has been buying less palm oil due to factors like an official hostile stance against palm oil which feeds into voter sentiment and its green rules for trade. The reduced import of palm oil is weakening the “strategic role” of the EU in driving the sustainability of the palm oil industry.
This should dismay activists who once campaigned against palm oil by declaring that the fate of the orangutans is in the hands of Western consumers. If the reported market trend by Precedence Research continues, EU demands on palm oil production will become increasingly irrelevant.
Based on geography, in 2022, the palm oil market generated the highest market share of around 72% in the Asia-Pacific region. This is due to increased consumption by the region's expanding population and a growing preference for end-use industries such as food and beverage. The fast expansion in population, shifting demographic patterns, and a wide range of food use in China and India are to blame for the region's excessive palm oil consumption.
For two, it is not only the primary markets in China and India that threaten to derail the EUDR’s ambition to save forests from palm oil.
To secure a more consistent market, Indonesia is increasingly looking at less fussy markets in Africa, which faces a huge shortage of cooking oils. Malaysia, the world’s second largest producer of palm oil, is already reporting significant increases in exports to Africa.
A further reduction of the EUDR’s influence could come this year if Indonesia wraps up a trade agreement with Russia’s EAEU bloc. Data from OEC World shows that Russia imported $1.27 billion dollars worth of palm oil in 2022, with $743 million of it coming from Indonesia.
This shift away from the EU market shows that palm oil producing countries are capable of maintaining growth in the industry even if EU buyers and financiers, slap restrictive environmental demands on them.
The Royal Golden Eagle case
Take Royal Golden Eagle (RGE) of Indonesia as an example. This is an Indonesian powerhouse whose companies include:
A major player in the pulp and palm industries in Indonesia, its subsidiaries have been accused of deforestation in reports by the Indonesian NGO, Eyes on the forest.
Rainforest Action Network (RAN) accused the company in 2021 as being “One of the biggest culprits for fires in Indonesia is the Royal Golden Eagle (RGE) Group of companies. The RGE Group is a large conglomerate, headed up by billionaire Mr. Sukanto Tanoto, which controls millions of acres of land used for both pulp and palm oil production.”
With ties to POTC members Mondelez and Nestle.
RGE companies continued to make the news this year with Greenpeace’s latest report of “hidden deforestation” in the company’s supply chain.
Despite all the criticisms by RAN and Greenpeace, RGE companies continue to hold top spots with the ZSL’s SPOTT scorecard with Apical at second place while Asian Agri scored twenty-fifth out of ninety-seven companies assessed.
The kicker for RGE’s critics maybe the announcement of a US$1 billion Sustainability-Linked Loan (SLL) for its sustainable agribusiness group consisting of Asian Agri and Apical. The willingness of financiers in the Middle East to bankroll companies like RGE weakens the strategy of NGOs like Greenpeace to attack European financiers who they accuse of “bankrolling environmental destruction.”
Price Support for Palm Oil In the Face of EUDR
RGE’s case is not unique. Despite the threat of the EUDR further reducing imports into the EU, the palm oil trade has remained robust.
In the global trade of vegetable oils, a reduction of EU imports of palm oil should lead to lower prices for any other markets willing to scoop up excess supplies. A good example would be the current situation with crude oil where EU sanctions against Russia led to India benefitting from cheap Russian exports.
One would therefore assume that with the EU threat to import even less palm oil, that prices for palm oil would drop. That is, if the EU market had enough influence on palm oil producing countries.
Global demand for palm oil however, is bucking this trend as prices for palm oil have remained high beyond the shortage of sunflower oil caused by the Russian/ Ukraine war. Reuters reported palm oil buyers switching to cheaper rival oils as palm oil prices remained high. This flies in the face of palm oil critics which have traditionally campaigned against palm oil as a “cheap” vegetable oil in a derogatory sense.
In an email response to our query on what’s keeping the price of palm oil high, the CEO of the Malaysian Palm Oil Council, Belvinder Sron, stated that:
“Palm prices are at a premium as we do not have sufficient supply. Production is stagnant in Malaysia while Indonesia is consuming more for its domestic market especially B35.”
According to GAPKI, the Indonesian Palm Oil Association:
“Consumption of palm oil for biodiesel in Indonesia surpassed that for food for the first time last year, Indonesian Palm Oil Association (GAPKI) data show, with 46 percent of a total 23.2 million tonnes going to biodiesel and 44 percent to food production.”
On top of the food vs fuel debate, the Indonesian policy to provide affordable cooking oils for its citizens is upending the market as Malaysian palm oil futures climb.
These recent developments clearly show that the EU has overestimated its influence on its trade partners when it comes to palm oil.
Emerging Hero for Tropical Forests
The EU should learn from the UK’s pending legislations on reducing deforestation in imports. The EU's Deforestation Regulations started off with a stark focus on forests with zero acknowledgement of the need for development in palm oil producing countries. It was only after the protests of Indonesia and Malaysia that the EU acknowledged that palm oil smallholders are important in defining sustainable trade.
But smallholders who are directly impacted by restrictive trade measures are only one segment of society in palm oil producing countries where the industry has contributed much to the welfare of their citizens.
The UK on the other hand, is increasingly taking on the role of an influencer for Indonesian forests as part of sustainable trade. The Forest, Agriculture and Commodity Trade (FACT) Dialogue, which the United Kingdom and Indonesia launched together as co-chairs in 2021 will have a stronger chance of saving forests in Indonesia than the EUDR.
Nowhere is this more evident than the UK government’s rejection of the Environmental Audit Committee’s recommendation to include legal deforestation in traded commodities which stated:
“the only way to achieve zero global deforestation in supply chains is to work in partnership with producer countries – and that working in partnership requires us to uphold and respect national laws.”
Published March 2024, CSPO Watch
This all sounds great for POTC members to meet EUDR demands but as the EU seeks to sooth the increasing anger from its trade partners against its green initiatives, developing situations shows that the power to save forests, is far from the EU’s hands.
When it comes to palm oil, there are two main problems with the EUDR’s ambition to save forests in producing countries.
For one, the EU has been buying less palm oil due to factors like an official hostile stance against palm oil which feeds into voter sentiment and its green rules for trade. The reduced import of palm oil is weakening the “strategic role” of the EU in driving the sustainability of the palm oil industry.
This should dismay activists who once campaigned against palm oil by declaring that the fate of the orangutans is in the hands of Western consumers. If the reported market trend by Precedence Research continues, EU demands on palm oil production will become increasingly irrelevant.
Based on geography, in 2022, the palm oil market generated the highest market share of around 72% in the Asia-Pacific region. This is due to increased consumption by the region's expanding population and a growing preference for end-use industries such as food and beverage. The fast expansion in population, shifting demographic patterns, and a wide range of food use in China and India are to blame for the region's excessive palm oil consumption.
For two, it is not only the primary markets in China and India that threaten to derail the EUDR’s ambition to save forests from palm oil.
To secure a more consistent market, Indonesia is increasingly looking at less fussy markets in Africa, which faces a huge shortage of cooking oils. Malaysia, the world’s second largest producer of palm oil, is already reporting significant increases in exports to Africa.
A further reduction of the EUDR’s influence could come this year if Indonesia wraps up a trade agreement with Russia’s EAEU bloc. Data from OEC World shows that Russia imported $1.27 billion dollars worth of palm oil in 2022, with $743 million of it coming from Indonesia.
This shift away from the EU market shows that palm oil producing countries are capable of maintaining growth in the industry even if EU buyers and financiers, slap restrictive environmental demands on them.
The Royal Golden Eagle case
Take Royal Golden Eagle (RGE) of Indonesia as an example. This is an Indonesian powerhouse whose companies include:
- Pulp and Paper – APRIL and Asia Symbol
- Palm Oil – Asian Agri and Apical
A major player in the pulp and palm industries in Indonesia, its subsidiaries have been accused of deforestation in reports by the Indonesian NGO, Eyes on the forest.
Rainforest Action Network (RAN) accused the company in 2021 as being “One of the biggest culprits for fires in Indonesia is the Royal Golden Eagle (RGE) Group of companies. The RGE Group is a large conglomerate, headed up by billionaire Mr. Sukanto Tanoto, which controls millions of acres of land used for both pulp and palm oil production.”
With ties to POTC members Mondelez and Nestle.
RGE companies continued to make the news this year with Greenpeace’s latest report of “hidden deforestation” in the company’s supply chain.
Despite all the criticisms by RAN and Greenpeace, RGE companies continue to hold top spots with the ZSL’s SPOTT scorecard with Apical at second place while Asian Agri scored twenty-fifth out of ninety-seven companies assessed.
The kicker for RGE’s critics maybe the announcement of a US$1 billion Sustainability-Linked Loan (SLL) for its sustainable agribusiness group consisting of Asian Agri and Apical. The willingness of financiers in the Middle East to bankroll companies like RGE weakens the strategy of NGOs like Greenpeace to attack European financiers who they accuse of “bankrolling environmental destruction.”
Price Support for Palm Oil In the Face of EUDR
RGE’s case is not unique. Despite the threat of the EUDR further reducing imports into the EU, the palm oil trade has remained robust.
In the global trade of vegetable oils, a reduction of EU imports of palm oil should lead to lower prices for any other markets willing to scoop up excess supplies. A good example would be the current situation with crude oil where EU sanctions against Russia led to India benefitting from cheap Russian exports.
One would therefore assume that with the EU threat to import even less palm oil, that prices for palm oil would drop. That is, if the EU market had enough influence on palm oil producing countries.
Global demand for palm oil however, is bucking this trend as prices for palm oil have remained high beyond the shortage of sunflower oil caused by the Russian/ Ukraine war. Reuters reported palm oil buyers switching to cheaper rival oils as palm oil prices remained high. This flies in the face of palm oil critics which have traditionally campaigned against palm oil as a “cheap” vegetable oil in a derogatory sense.
In an email response to our query on what’s keeping the price of palm oil high, the CEO of the Malaysian Palm Oil Council, Belvinder Sron, stated that:
“Palm prices are at a premium as we do not have sufficient supply. Production is stagnant in Malaysia while Indonesia is consuming more for its domestic market especially B35.”
According to GAPKI, the Indonesian Palm Oil Association:
“Consumption of palm oil for biodiesel in Indonesia surpassed that for food for the first time last year, Indonesian Palm Oil Association (GAPKI) data show, with 46 percent of a total 23.2 million tonnes going to biodiesel and 44 percent to food production.”
On top of the food vs fuel debate, the Indonesian policy to provide affordable cooking oils for its citizens is upending the market as Malaysian palm oil futures climb.
These recent developments clearly show that the EU has overestimated its influence on its trade partners when it comes to palm oil.
Emerging Hero for Tropical Forests
The EU should learn from the UK’s pending legislations on reducing deforestation in imports. The EU's Deforestation Regulations started off with a stark focus on forests with zero acknowledgement of the need for development in palm oil producing countries. It was only after the protests of Indonesia and Malaysia that the EU acknowledged that palm oil smallholders are important in defining sustainable trade.
But smallholders who are directly impacted by restrictive trade measures are only one segment of society in palm oil producing countries where the industry has contributed much to the welfare of their citizens.
The UK on the other hand, is increasingly taking on the role of an influencer for Indonesian forests as part of sustainable trade. The Forest, Agriculture and Commodity Trade (FACT) Dialogue, which the United Kingdom and Indonesia launched together as co-chairs in 2021 will have a stronger chance of saving forests in Indonesia than the EUDR.
Nowhere is this more evident than the UK government’s rejection of the Environmental Audit Committee’s recommendation to include legal deforestation in traded commodities which stated:
“the only way to achieve zero global deforestation in supply chains is to work in partnership with producer countries – and that working in partnership requires us to uphold and respect national laws.”
Published March 2024, CSPO Watch
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