1. Cattle rearing,
2. Timber,
3. Palm oil,
4. Soya,
5. Cocoa and
6. Coffee production.
In response to this situation, the European Union published a draft regulation in 2021 aimed at minimising the consumption of "deforestation-risk" products in Europe.
Although the legal NGO ClientEarth called the proposal a "leap forward in global environmental governance", the governments of producing countries argue that it shifts the burden of ensuring that goods are deforestation-free from wealthy consumers to poorer farmers.
Indonesia and Malaysia have described it as part of a smear campaign against palm oil. Both countries produce 85% of the world's total supply of this raw material. In a joint statement published a few months before the proposal was submitted, the countries' leaders expressed their intention to "continue the fight against the discrimination of palm oil".
Both countries have initiated trade disputes at the World Trade Organisation (WTO), arguing that the EU is attempting to protect its own vegetable oil producers from international competition. They also referred to the EU's 2018 decision to phase out the use of palm oil in transport fuels in Europe by 2030.
As the use of palm oil for biofuel increases in Southeast Asia, tropical ecosystems are shrinking…
It is reported that they are seeking to hire a lobbying firm to run a campaign to change the perception of palm oil in Europe.
"Cleaning up supply chains in the EU will not necessarily help to reduce global deforestation," said Mardi Minangsari, president of the Indonesian NGO Kaoem Telapak, which focuses on deforestation research. Recent studies suggest that a ban on the import of forest-risk commodities may have a much smaller impact on stopping forest loss than expected.
However, reducing demand is important, said Minangsari, and it must be done in a way that improves policy in producing countries. She believes that the EU proposal fails to take into account the difference between producing countries and sectors with weaker legislation and those with stricter regulations, such as Indonesian timber and the EU FLEGT (Forest Law Enforcement, Governance and Trade) licence. Minangsari said that recognising these differences would incentivise countries to comply with the regulation. Otherwise, exports will be diverted to countries with less stringent regulations, she added.
Alternative markets
"There will be no shortage of demand for palm oil for Indonesia, and it is looking to expand its crude palm oil market, including in China," said Montty Girianna, deputy coordinating minister for energy and mineral resources. Girianna's optimism is based on an announcement by the Chinese Ministry of Commerce that it would lift tariffs on palm oil imports as early as 2019.
In fact, in April, Indonesia shocked the international market by announcing that it would ban all palm oil exports until further notice. This move is the government's attempt to address the ongoing food oil shortages in the domestic market and rising prices.
Long queues of people waiting for packets of cooking oil
According to Trade Atlas data, Indonesia exported 1.4 million tonnes of palm oil to China between 2019 and 2021, which is twice as much as in 2016-2018. China is the second largest importer of palm oil in the world.
"Indonesia's reaction to the EU proposal is worrying. We have seen that palm oil companies without NDPE commitments can sell their produce to China," said Minangsari.
NDPE is an acronym for No Deforestation, No Peat, No Exploitation, and it is a set of commitments that palm oil producers have made to clean up their production.
According to a report from January 2021 by sustainability analysts Chain Reaction Research, only seven of the ten largest Indonesian palm oil suppliers to China have an NDPE policy. The report found that processors who do not have an NDPE policy or are lagging behind in implementing such a policy provide at least 12% of Indonesia's palm oil supplies to China.
Chinese importers are feeling increasing pressure from consumers, brands and investors to source this risky raw material more sustainably, and are trying to do so.
In 2018, the China Sustainable Palm Oil Alliance (CSPOA) was established, involving large companies such as Mars Wrigley, L'Oréal, China National Cereals, Oils and Foodstuffs Corporation, Yihai Kerry and SGS China. The companies collectively committed to promoting the adoption of sustainable palm oil in the Chinese market. The initial target was to have 10% of imported palm oil certified as sustainably sourced by 2020, but this was not met.