This article first appeared in The Edge Malaysia Weekly on September 23, 2024 - September 29, 2024

AMID growing calls for the European Commission (EC) to delay the European Union Deforestation Regulation (EUDR), the major plantation companies in Malaysia say they are prepared for Dec 30, 2024 — the day the regulation comes into effect. These companies say they have been proactive in conducting deforestation assessments and establishing traceability systems to ensure that their palm oil supply chains are deforestation-free and compliant with EUDR requirements.

“UP is ready to comply with EUDR for its palm oil exports,” United Plantations Bhd (KL:UTDPLT)  vice-chairman and CEO Datuk Carl Bek-Nielsen tells The Edge.

“The basic thing is to demonstrate that the company produces palm oil on land where no deforestation has taken place after 2020. This is not a problem for us to provide evidence for. Secondly, whether we have the landownership, which is also not a problem,” he adds.

UP says in its 2023 annual report that its direct supplier mills for certified sustainable palm oil (CSPO) have been 100% traceable to plantation level since 2010, while its indirect supplier mills for certified palm kernel oil (CPKO) via kernel crushing plants have been 100% traceable to mill level since 2021.

As at Dec 31, 2023, its traceability to plantation (TTP) score stood at 90.84% for conventional CPKO. It has targeted to achieve a minimum of 98% TTP by the end of 2024.

SD Guthrie Bhd (KL:SDG), the world’s largest palm oil producer by acreage said in a statement last week that it has taken several steps to meet the stringent standards of the EUDR, including the creation of detailed polygon maps covering its entire supply chain along with deforestation-free assessment reports in line with the regulation.

It partnered a third-party verifier to use satellite imagery to assess a forest baseline spanning six billion hectares (ha). Within this assessment, 600,000ha of the company’s plantations were analysed for deforestation risks.

SDG has already delivered its first shipment of 40,250 metric tons of EUDR-compliant palm oil to Europe and the UK over the past two weeks, well ahead of the December deadline. According to the statement, SDG manages a supply chain that includes 102,337ha of oil palm plantations and smallholdings.

FGV Holdings Bhd (KL:FGV), in a statetement in August announced its first EUDR-compliant CPKO production. Further, it said it sources fresh fruit bunches from its estates, Federal Land Development Authority (FELDA) settlers and independent smallholders meeting EUDR requirements.

Despite industry players’ preparations, the EC has yet to provide critical clarifications on the implementation guidelines for the EUDR. With the deadline only three months away, the guidance document meant to help companies comply with the regulation has not been published. Furthermore, the country benchmarking system, crucial for assessing product risk under the regulation, remains unavailable.

As to whether the EUDR will be delayed, Henriette Faergemann, first counsellor for environment, climate action and digital cooperation for the European Union (EU)Delegation to Indonesia said in her video presentation at the third Sustainable Vegetable Oils Conference (SVOC) in Rotterdam, Netherlands, last week, that the EC is still preparing the EUDR guidelines and made no mention of any delay.

“There will be dialogues with countries at risk of being classified as high risk (for the benchmarking system),” she said. “This process is still underway, and until it’s complete, all countries will be treated as standard risk.”

The potential impact of the EUDR on smallholders is another pressing concern. The guidelines primarily references “operators” or “traders” exporting palm oil, with no direct mention of smallholders. This omission has sparked worries that smallholders could be blocked from the market.

“There is not a single article written in the EUDR that provides a legal basis to protect smallholders. The EUDR places convoluted and burdensome obligations that serve as barriers to smallholders,” said Arif Havas Oegroseno, the Indonesian ambassador to Germany at the SVOC organised by the Council of Palm Oil Producing Countries (CPOPC), the Indonesian Oil Palm Plantations Fund Management Agency and the Netherlands Oils and Fats Industry.

“The paperwork involved 16 sets of information, risk assessment with 14 sets of criteria, five sets of elements for mitigation procedures that will be at least a thousand pages. For smallholder farmer cooperatives to fulfil all of these documents, in addition to knowledge of UN Security Council and EU meetings that require massive resources, especially financial resources, is simply impossible,” he pointed out.

Marieke Leegwater, the international programme coordinator for palm oil at Solidaridad, highlights that European operators often shift the burden of sustainability compliance onto smallholders. As a result, many are effectively excluded from value chains due to the higher cost of compliance.

Solidaridad has proposed several solutions, including establishing an “inclusivity quota” to ensure smallholders maintain a fair and equitable role in the palm oil value chain. This would require companies to source a minimum quantity of palm oil from smallholders.

“... And support (for) farmers (should extend) beyond buying their produce, for example by rewarding them for carbon farming (practices could be explored). It could be considered to set up a fund to pilot and support the various initiatives aimed at making palm oil value chains and the implementation of EUDR more inclusive for oil palm smallholders,” she tells The Edge.

Smallholders may need a transitional period to prepare for the new regulation, and improving yields is another challenge due to limited access to good agricultural practices and government support, according to CPOPC secretary general Dr Rizal Affandi Lukman.

“CPOPC with support from Indonesia and Malaysia, advocates extended timelines to help smallholders comply with evolving standards,” he tells The Edge.

Recently, Italy-based think tank Competere proposed a two-year transitional period for the EUDR’s gradual implementation, allowing time for authorities and stakeholders to adapt without jeopardising production and economic stability.

Malaysian Palm Oil Council CEO Belvinder Kaur Sron, on the other hand, has urged the EU to postpone implementation and provide exemptions for smallholders, emphasising the need for the publication of credible criteria that would allow commodities like Malaysian palm oil, which meet specific standards, to be classified as “low risk”.

European countries are also seeking extensions. German Chancellor Olaf Scholz has asked the EU to suspend the EUDR to address concerns about the burden on the print sector while Italian Minister Francesco Lollobrigida has called for a one-year extension to ensure effective implementation without negatively impacting economic sectors.

The EUDR covers commodities such as palm oil, cocoa, coffee, soya, timber and rubber. It aims to prevent companies from placing commodities or products linked to deforestation and forest degradation into the EU market.

It was formally adopted on June 29, 2023, and producers have up to Dec 30 this year to comply. 

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