Certification route to EUDR compliance

Malaysian Palm Oil Association CEO Joseph Tek Choon Yee.

PETALING JAYA: Big and mid-sized planters, which are armed with multiple certified sustainable palm oil certifications, could likely secure a better export entry for their palm oil products under the new European Union Deforestation-Free Regulation (EUDR) slated to be enforced by January 2025, say industry players.

From a business-to-business context, Malaysian Palm Oil Association (MPOA) chief executive Joseph Tek Choon Yee said several of its members have already fulfilled the requirements of their EU clientele and some have even surpassed the requirement by holding multiple certifications.

MPOA represents over 100 members, including plantation heavyweights such as IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Sime Darby Plantation Bhd and FGV Holdings Bhd.

Tek told StarBiz that “MPOA members proudly hold a 100% Malaysian Sustainable Palm Oil (MSPO) certification, while some members have double certified with the internationally recognised Roundtable on Sustainable Palm Oil (RSPO) certification, reflecting their commitment to robust and sustainable business ethics”.

Furthermore, the mandatory MSPO certification ensures transparency throughout the supply chain and fulfills all sustainable requisites expected from each business entity among the planters, Tek noted.

Under the EUDR, an operator or trader who exports commodities such as palm oil, soybean, beef, wood, cocoa, coffee and rubber into the EU market, must be able to prove that the products do not originate from recently deforested land or have contributed to forest degradation.

Tek said “MPOA members’ readiness to confront the EUDR challenges underscores a commitment to producing and assuring certified sustainable palm oil while actively pursuing higher sustainability standards”.

However, he noted the compliance timeline of January 2025 for the EUDR presents a notably short span for EU preparations to enforce the regulation.

“While the EUDR outlines what is to be regulated, critical aspects regarding implementation, assessment methodologies and the selection of assessors remain unclear.

“This lack of clarity will likely lead to a poorly executed regulation and raise questions about its effective implementation,” Tek said, adding that the EUDR’s intense focus on deforestation introduces uncertainty by providing a dubious definition of “forest”.

Furthermore, this oversight overlooks local scenarios, particularly regarding land parcels designated as “agricultural land”.

Such classification may detrimentally impact the livelihoods of indigenous smallholders whose land could be converted for agricultural purposes, he noted.

Malaysian Palm Oil Council (MPOC) chairman Datuk Carl Bek-Nielsen also concurred that several larger and medium-sized Malaysian planters will be ready to meet the EUDR requirements.

These companies include Sime Darby Plantation, KLK, United Plantations Bhd (UP) and others, he added.

He said, “However, the problem with the EUDR relates specifically to the important smallholder segment, who are millions of individuals in South-East Asia who will beyond doubt be excluded from the supply chains entering Europe.

“Indeed let us stop beating around the bush – the EUDR is similar to a vehicle that has a major blind spot and is heading at full speed towards a huge brick wall made up of small holders.

“This accident is inevitable with the current framework and it is, therefore, high time for the European legislators to wake up and hit the brakes, failing which the small holder segment around the world will be excluded from the supply chains,” said Bek-Nielsen, who is also UP chief executive director.

Meanwhile, RHB Research in its latest thematic EUDR report yesterday said, “We believe the bigger and more established players will do better in achieving and complying with the EUDR before the deadline and, therefore, be able to take advantage of the potential gap filled by the smaller palm oil suppliers to the EU.”

It highlighted regional planters with such advantages, including Bursa-listed KLK, IOI and Sime Darby Plantation as well as Singapore Exchange-listed Wilmar International Ltd, Golden Agri-Resources Ltd (GGR) and Bumitama Agri Ltd (BAL).

The Jakarta Stock Exchange-listed planters, despite having decent traceability ratings, have fallen behind in certification rankings, noted RHB Research.

The brokerage firm, which maintained a “neutral” call on the sector, has a “buy” recommendation for the EUDR readiness including KLK, IOI, GGR, BAL and Wilmar.

RHB Research also pointed out that “while there are a myriad of problems and issues with complying with the EUDR guidelines based on current regulations, we believe there are also a myriad of solutions”.

Both Malaysia and Indonesia working together with the EU to find solutions is a step in the right direction, especially if the two top palm oil producers manage to get classified as “low risk” countries, the brokerage firm said.

At the end of the day, if the EU fails to help producing countries such as Indonesia and Malaysia by complying with the EUDR, it will push producers to export more of their commodities to countries with weaker environmental regulations, thereby shifting the problem to other regions.

RHB Research said, “As part of our analysis on this new regulation, we have compiled environmental, social and governance (ESG)-related data points for each of the companies under our coverage to further understand and assess their positions in terms of compliance to the EUDR.”

The ESG aspects, which are relevant to this readiness analysis are sustainability certifications and traceability. Certifications are a step in the right direction, said the brokerage firm.

“While current certifications may not be sufficient to prove that companies are compliant with the EUDR, we believe certifications such as RSPO, MSPO and Indonesian Sustainable Palm Oil (ISPO) would serve as a tool or guide to adhere to this newly implemented regulation.”

RHB Research also noted most Malaysian big-cap companies have a higher percentage of operations being RSPO-certified as compared with the regional players, with the exception of Wilmar.

“However, we believe the reason for the lower RSPO certification rate is not associated with deforestation issues but rather the administrative hurdles given their exposure in Indonesia, where the ownership of land matters is more complicated than in Malaysia in respect of legal land titles, especially among the smallholders.”

Furthermore, all companies under RHB Research’s coverage that have operations in Malaysia are 100% MSPO certified, thanks to the mandatory compliance set by the government.

In summary, the brokerage firm said, “While certifications do not serve as an ‘express pass’ for the companies to prove compliance with the EUDR requirements, they do need to have aligned interests and purposes with what the EUDR is intended for.

“Therefore, we see certifications as a means of progressing towards EUDR compliance. Traceability readiness – traceability to mills and traceability to plantation,” it added.

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