Palm oil is a key raw material for the food industry with additional uses in the chemicals and biofuels sectors. When grown unsustainably it has caused tropical deforestation. The EU’s upcoming Deforestation Regulation, which currently covers cattle, cocoa, coffee, palm oil, soya and timber, will require individual consignments of these commodities and products which contain them, to be traceable back to the plots of land where they originated to prove that they are not from recently deforested land. This will mean a big change for all members of the supply chain. Organisations have been seeking to delay the implementation for different reasons, many citing problems for smallholders. But, given some help, small farmers could actually benefit.
RSPO (Roundtable on Sustainable Palm Oil) estimates that oil palm farming provides an income for over 7.5 million smallholder farmers globally. It has called for more time to ensure that they can be equipped and trained to comply with EU requirements, so that they do not lose access to the European supply chain. Other NGOs have echoed their call. Greenpeace, however, has said that the soy and palm oil industries are hiding behind the needs of smallholders to delay parts of the regulation. The Union of Palm Oil Smallholders (SPKS) of Indonesia has issued a statement, saying that the Regulation could offer an opportunity for more of their members to access the EU market. SPKS has succeeded in developing traceability data including spatial information. The European Commission thinks that it has mitigated any risk to smallholders by setting a cut-off date of 2020 ‘as most products currently in trade would be sourced from land put into production prior to 2020’. This however, glosses over the work which will be necessary to provide the proof.
This new legal measure from the EU is ground-breaking, in that it is trying to reduce the adverse impacts of European imports on the world’s tropical forests and the indigenous peoples that inhabit them. It will cover all deforestation and forest degradation, be it ‘legal’ or ‘illegal’, which will make it easier to police. The cut-off data is 31st December 2020, so, for nearly all commodities the clock is set at zero. Most palm oil on the market now will be in compliance with the regulation. Companies have to set up a tracking system to ensure that as the years go by, they are not purchasing palm oil from land cleared since the cut off date.
Apps and software to track geospatial data are on the market. They offer the potential to disrupt commodity supply chains by connecting small and large farmers directly with producers of the end product. These parties could therefore negotiate prices between themselves more than they do now, giving farmers greater leverage. Refiners, traders and brokers in the middle then become increasingly like tolling operators, paid to carry out a certain task at a pre-determined rate. This model is already in existence in other industries.
The digital economy has revolutionised a number of sectors so why not agricultural goods? New platforms have allowed homeowners to let out rooms to tourists, car owners to rent out their vehicles/become taxi drivers and individuals to hire out their labour, so they could also allow farmers and smallholders to access new customers. There are already instances of IT being used in the palm oil sector. Blockchain has been piloted and just recently, Chester Zoo in the UK launched its PalmOil Scan app, which shoppers can use to scan product barcodes to see how manufacturers are sourcing their palm oil.
The provenance of products is becoming more important. Consumers and brand owners in many countries want to know where raw materials originate and who has processed them. As the world’s population grows, the demand for food and consumer products that contain palm oil and other high risk raw materials will also increase. There will be temptation to clear land to satisfy the market.
Those lobbying for a delay to the Deforestation Regulation may succeed, as the European Commission has a way of bringing in changes more slowly when it needs to. Industry associations, sustainability schemes and governments should use any extra time to make sure that new technology does indeed help small farmers by democratising the palm oil supply chain.
Published: 30 September 22
