Indonesia warns of ‘chaos’ under EU deforestation law

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Indonesian palm oil producers have warned of disruption to the global supply chain if the EU goes ahead with a ban on imports of deforestation-related commodities this year.

Indonesia is the largest producer of palm oil in the world. The EU’s deforestation regulation, due to come into effect on December 30, requires importers of cattle, cocoa, coffee, palm oil, rubber, soy and timber to ensure that products entering the EU have not caused deforestation or forest degradation. Compliance requires extensive data collection.

“It will be chaos if it is implemented,” Eddy Martono, president of the Indonesian Palm Oil Association, told the Financial Times. “The lack of meaningful consultation between EU policymakers and their trading partners has led to widespread uncertainty about how this regulation will be implemented.” The chairman of the industry trade group called on the EU to delay implementation of the law until 2026.

Martono’s complaints come as calls to delay implementation have escalated. Commodity producers in Southeast Asia, Latin America and the US argue that the new rules constitute a trade barrier, while some EU member states oppose the law because of the administrative burden it imposes on importers.

“Prices will go up and supply will go down, not just from Indonesia, even from Malaysia,” he said. Between them, Indonesia and Malaysia account for almost 90% of the total supply of palm oil, the world’s most consumed edible oil. Global cocoa and coffee prices have already risen in recent weeks amid supply concerns, in part related to the EUDR.

Industries that rely on palm oil, such as cosmetics, oleochemicals and pharmaceuticals, will suffer, Martono said. Palm oil is used in everything from pizza and lipstick to chocolate.

If the law takes effect at the end of the year, Indonesia’s shipments to the EU could drop by 30 percent, he said. Indonesian producers delivered 4 million tonnes of palm oil to the EU in 2023.

Malaysia, the world’s second-largest palm oil producer, also warned of a potential supply chain disruption. Compliance is difficult because of the complex nature of palm oil traceability, Belvinder Kaur, chief executive of the Malaysian Palm Oil Council, told the FT.

“For example, a single sales order for a single product could involve multiple shipments from refineries, mills and plantations, resulting in millions of data points for a single shipment,” she said. “This presents significant challenges for exporters, operators and competent authorities during the due diligence and audit process.

“The EU has not sufficiently addressed these complexities,” she added.

Smaller manufacturers face the biggest challenge in terms of compliance, Kaur said. “Smallholder farmers continue to face difficulties in meeting EUDR requirements, which will add significant administrative burdens and operational costs, risking their exclusion from the supply chain.”

Activists have long accused the palm oil industry of clearing rainforests and destroying wildlife habitats to plant palm trees. Indonesia and Malaysia have made strides toward more sustainable production over the years, though environmental groups say more needs to be done.

Indonesia and Malaysia have criticized the EU for failing to recognize the work that has already been done to improve sustainability, while Australia and Brazil have accused the EU of using incorrect data on deforestation.

Martono said the bloc was using “faulty forest maps” that misclassified some areas in central Jakarta as “undisturbed forest areas”. “Such errors risk unfairly blocking imports of sustainably produced goods,” he said.