Indonesian businesses await clarity on EU deforestation regulation

According to the regulation, importers into the EU will have to prove that the palm oil, among others, have not contributed to deforestation.

Divya Karyza

Divya Karyza

The Jakarta Post


A cargo ship loads palm kernel meal at Dumai Port in Dumai City, Riau, in January 2020.(Antara/Aswaddy Hamid)

May 3, 2023

JAKARTA – Businesses are waiting for clarity on the impending European Union deforestation law.

The European Parliament and European Council reached a preliminary political agreement on the deforestation regulation in December 2022, paving the way for its entry into force in May or June this year and its application for operators and traders 18 months after that.

According to the regulation, importers into the EU will have to prove that the palm oil, timber, rubber, coffee, cacao, soy or cattle, as well as any derived products they trade, have not contributed to deforestation since the cut-off date of Dec. 31, 2020, with strict traceability requirements.

Eddy Martono, secretary-general of the Indonesian Palm Oil Association (GAPKI), said domestic palm oil companies had pledged not to open new palm oil plantations as they come to terms with Presidential Instruction (Inpres) No. 5/2019 on the cessation of permit issuance and improved management of primary natural forests and peatland.

Read also: EU deforestation regulation not effective: civil groups

But the problem lies with smallholder farmers and communities who have opened palm oil plantations after 2020, according to Eddy.

“If they were to export their palm oil products to EU member states, they might be unable to honor their cooperation agreements because of the rule,” he told The Jakarta Post on Thursday, adding that industries that could be affected by the rule were waiting for clarification regarding the definitions of deforestation and forest degradation in the regulation.

“The government is trying to ensure that the deforestation law will not affect the Indonesian palm oil industry,” Eddy said.

Out of the seven products, Indonesia exports palm oil, coffee, cacao and rubber products to several EU member states, but the percentage of coffee, cacao and rubber pales in comparison with the country’s palm oil exports.

Southeast Asia’s largest economy shipped 2.05 million tonnes of CPO to EU member states in 2022, according to data from Statistics Indonesia, which accounted for 8 percent of Indonesia’s global CPO exports of 25 million tonnes in the same year.

Spain, Italy and the Netherlands are Indonesia’s three largest CPO export destinations within the EU, importing 622,000 tonnes, 594,000 tonnes and 429,000 tonnes, respectively, the data reveal.

Read also: What next after the EU’s deforestation law is adopted?

The deforestation regulation is expected to affect Indonesia and Malaysia more than most countries, and businesses in both countries have expressed concerns about the EU’s benchmarking system and the still-pending mechanism that will be used to assess a country’s deforestation risk level.

Companies will have to present clear information about where their products have been grown.

Being classified as high-risk under the EU’s regulation will place a huge administrative burden on millions of smallholders and pose a substantial barrier to them entering the international market, according to sustainability analyst Edi Suhardi’s opinion piece published in the Post on Dec. 8 last year.

“The palm oil industry, especially [firms] operating in the upstream business, must have the Indonesia Sustainable Palm Oil [ISPO] certification. Some companies are now even part of the Roundtable on Sustainable Palm Oil [RSPO], which is an indicator that Indonesia’s palm oil industry is moving toward sustainability,” GAPKI’s Eddy said.

The RSPO was founded in 2004 and counts about 39 percent of the world’s palm oil producers as its members, in addition to many product manufacturers, retailers and NGOs engaged in the environmental and social sectors.

Meanwhile, the ISPO was set up by the Indonesian government in 2011 but has often been criticized for the lack of involvement of civil society groups in its constitution.

As of March 2021, 5.78 million hectares of oil palm plantations across Indonesia were ISPO certified, based on data compiled by the Indonesian Oil Palm Estate Fund (BPDP-KS). However, this number is relatively small compared with the total area of oil palm plantations in the country, which amounted to 15 million ha as of 2022, according to Statistics Indonesia data.

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