Indonesia’s palm oil has a low risk of deforestation and should not be subject to further due diligence by the EU market. — The Jakarta Post
PALM oil exports were a challenging, high-profile issue for Indonesian diplomats in 2023, particularly concerning European Union (EU)-Indonesia trade deal negotiations and the EU Deforestation Regulation (EUDR) that have caused unhappiness at the highest levels.
However, the coming year offers an opportunity for Indonesia to turn its impressive track record in decoupling oil palm production from forest clearance into a market-leading global offer on sustainable palm oil, as well as make this part of its growing profile as a global leader.
European and global attitudes to Indonesian palm oil are still shaped by images of burning forests and the resulting smog issue of the last decade, and have not caught up with the government’s impressive performance in dramatically reducing deforestation and largely break its link to oil palm production.
Our estimate, based on Environment and Forestry Ministry data, is that 99% of Indonesian palm oil was deforestation-free by the EUDR’s cutoff date.
The 2022 data indicates that 104,000 ha of forests were lost, but less than half of this was likely palm-related.
Policy frameworks, such as the forest and palm oil concession moratorium and forest and other land use net sink, limit large-scale deforestation driven by oil palm concessions.
This means Indonesia’s palm oil has a low risk of deforestation and should not be subject to further due diligence by the EU market.
The European market must consider the performance of producer countries and refrain from applying high-risk categorisations for countries with forest landscapes.
In the highly competitive palm oil market, excluding forest landscapes could redirect sourcing from those areas to conventional markets, rendering the EUDR’s ultimate goal of protecting forests a failure.
The key to realising this goal is to build on the strengths of Indonesia’s current palm oil industry and its existing farmer registration system, rather than becoming too focused on specific national or international standards.
If we get the fundamentals right, Indonesia will be able to meet the varying requirements of different global, European and Asian markets.
The forthcoming EUDR, set to take effect in December, has been the main topic of conversation in industry conferences for the last year, and the impression created in the media is that Indonesia stands to lose from its introduction. We disagree.
There are significant data challenges in proving the deforestation-free status of Indonesian palm oil, but there are solutions that could mean benefits for Indonesian oil palm producers.
In particular, smaller farmers stand to gain economic security and investments once their land titles are regularised.
One of the significant challenges in the 11 months leading up to the EUDR’s full implementation is the availability of farmer identification data that is integrated into a traceability system that is simple, cost-efficient and prudent.
Both farmer identification data and land legality have been topics of public discourse for decades, and urgent progress is needed.
Limited foundational information has been identified as a primary delay factor in achieving Indonesia Sustainable Palm Oil (Ispo) certification.
With the limited volume of Ispo certificates, especially for smallholders, promoting Ispo as a benchmark for EUDR compliance in the short term might potentially exclude smallholders from the global market.
Competitor palm oil producing countries, such as Malaysia, may have a better position in supplying the EU market with the application of a national mandatory system like the Malaysia Sustainable Palm Oil certificate, which reaches almost 90% of Malaysia’s production.
Interestingly, the required information under Article 9 of the EUDR is lower than that for the Ispo.
Indonesia may propose a plantation and supplier identity system called Registration Letter for Smallholders, a Plantation Business Licence for palm oil concessions and trade permits for fresh fruit bunch (FFB) suppliers as a basis for EUDR verification.
Both the Registration Letter for Smallholders and Plantation Business Licence provide sufficient information for EUDR and this includes polygon coordinates and legality.
This proposal is more feasible for expanding within the next 11 months, substantially integrating with the national priorities in agrarian reform.
The government must set a subnational regulatory framework that mandates the submission of daily transaction records in FFB trade from supplier to mills, with the Registration Letter for Smallholders attached.
This has the potential to create a closed-loop system that will benefit all supply chain actors, including the government, as the audited data flow can be used as a basis for crude palm oil taxation, as mandated in Finance Minister Regulation No. 64/2022.
Increasing verified sourcing at scale will encourage foreign direct investment in value-added industries based on sustainable commodities.
This will make it more feasible and create multiple positive impacts on environmental preservation, social inclusion and as meaningful contributions to Indonesia’s economic growth.
Although this approach might be perceived as too ambitious by policymakers, it is also a solution worth considering and adopting by the new administration if we have ambitions to not only solve this issue, but view this as Indonesia’s offer to the world.
This is not just about Indonesia’s economic interests, either.
It is an opportunity to keep growing our international profile and leadership, in a world where sustainability is no longer a nice-to-have but an essential component of a modern economy and the profile of any wise leader. — The Jakarta Post/ANN
Nassat Darajat Idris is CEO of the Sustainable Trade Initiative. The views expressed here are the writer’s own.
