Oleochemical, palm importers confused on deforestation

European oleochemical and palm oil importers are struggling to understand the ramifications of the new EU deforestation regulation (EUDR), and sources told Argus there are details that need to be clarified.

The EUDR, approved by the European Parliament on 20 April, surprised and raised concerns that it could limit key feedstocks for oleochemicals production, and palm oil and derivatives imports to Europe. Around 64pc of these are from Malaysia and Indonesia, two of the worst positioned countries on traceability, according to sources.

"I'm in shock," a glycerine producer said after finding that glycerine with over 95pc purity was among the products affected by the regulation. "Considering the information in the new regulation, I really cannot understand what information we would need to submit."

The regulation requires mandatory due diligence from operators and traders selling and importing palm oil and derivatives, including glycerine with over 95pc purity, oleic, stearic and palmitic fatty acids and industrial fatty alcohols. Firms must ensure products sold in the EU have not caused deforestation or forest degradation, with penalties for non-compliance including a maximum fine of at least 4pc of annual EU turnover.

A palm oil importer said some of the products included in the regulation were surprising and clarification was needed.

"Palm oil needs to be compliant with the regulation of each country in Europe, and there are other things that need to be clarified, as traceability from smallholders, that are defined in Europe as four hectares, while Indonesia defines them as 10 hectares," the importer told Argus. Smallholders account for more than 40pc of palm oil production in Malaysia and Indonesia.

The European Oleochemicals and Allied Products Group (APAG) and the European Committee of Organic Surfactants and their intermediates (Cesio) said they support addressing climate change and the regulatory intervention at the EU level, but voiced concern.

"The provision to supply geolocation co-ordinates back to plot-of-land creates a barrier in including smallholders in the EU palm oil supply chain," they said in a joint statement. "Smallholders represent 40pc of the palm oil production in southeast Asia and are therefore a crucial player in the palm oil value chain."

They said excluding smallholders from the EU supply chain "would shift palm oil and other commodities to countries with weaker environmental regulations, resulting in shifting deforestation to other regions." A importer pointed to "a lack of formality in land ownership in Malaysia and Indonesia, and smallholders feed to a central processing plant, which leads to a lack of traceability."

Following approval by EU ministers, entry into force will see all countries assigned a "standard" risk level. The European Commission will then benchmark countries within 18 months. The law says 9pc of operators and traders will be subject to checks if importing products from "high-risk" countries.

The legislation takes into account deforestation since 31 December 2020.

"The issue is that traceability is going to be a trouble for smallholders because of informal land ownership," the importer said.

The industry associations said that together with other sectors they have supported development of guidelines to ensure proper traceability, and they are keen on working with the commission to develop the documents.

"One size does not fit all," they said. "Palm and palm kernel oils are liquid goods unlike wood, coffee and cocoa beans, making traceability requirements more complex.

"Traceability to palm oil mills, complemented by relevant due diligence, is currently the most effective tool in place to secure a sustainable supply-chain, inclusive of all players," they said.

Eurostat data show that in 2022-23, as of 20 March, the five biggest palm oil exporters into the EU were Indonesia with more than 42pc, Malaysia with around 22pc, Guatemala with almost 14pc, Honduras with almost 7pc and Papua New Guinea with around 6pc. The importer said Guatemala is the best positioned on traceability at this point, and Malaysia, Indonesia, Colombia and Honduras are the most affected.

By Carolina A. Palma