Palm oil importers unprepared for new EU deforestation free due diligence requirements
The publication was launched this week by the Palm Oil Transparency Coalition (POTC), which includes Tesco, Mondelez and Nestle as members.
It highlights the progress, challenges, and opportunities the palm oil sector faces surrounding the sustainable production of palm oil, the increasing scrutiny on companies in the palm oil supply chain including retailers and consumer goods companies, and the importance of monitoring importer progress in this context.
There is a particular focus on the EU Deforestation Regulation (EUDR).
POTC was established in 2016 to address the issue of limited transparency surrounding importer commitments on deforestation and exploitation, and a desire originally from retailers to assess the performance of traders present in their palm supply chains.
Its members include Ahold Delhaize, ALDI Nord, ALDI South Group, Casino Group, The Co-operative Group (UK), Eight Fifty Food Group, Kellogg, Marks & Spencer, METRO AG, Mondelez, Morrisons, Nestle, Sainsbury’s, Tesco, Waitrose and Partners, and Walgreens Boots Alliance.
The EUDR requires that palm oil and certain palm oil derivatives being placed on the EU market for the first time must be proven to have been produced legally and be deforestation-free. The regulation defines ‘deforestation-free’ as relevant commodities that were produced on land not subject to deforestation or conversion since December 31, 2020.
To prove that relevant forest risk commodities are deforestation-free, the regulation requires, in the case of palm oil, full traceability to plantation.
But the POTC report outlined how there is a misalignment between trader plans and due diligence expectations under the EUDR.
The review warns that untraceable volumes of palm oil could be shifted to outside the EU markets, as a result, preventing the legislation from achieving its goal of reducing deforestation more widely.
And it said that palm oil supply into the EU could be under threat as importers are unable to meet the minimum legal standard according to the legislation.
“Palm oil traders have reported that the delay in the release of the final form of legislation has stalled progress on preparing palm oil supply chains for these incoming requirements. As a result, the supply chain does not yet have the capacity to support full traceability to supply chain, and traders are concerned that the requirements will effectively stop the flow of large volumes of untraceable palm oil to Europe.”
Lack of supply chain preparation
The lack of supply chain preparation for traceability requirements is highlighted by the lack of alignment between trader targets and the regulation requirements, stressed the review.
The report noted that several traders have 100% traceability to plantation target dates set at 2030, which is several years behind the EU requirements.
Wilmar’s current ambition, for example, is to achieve 90% traceability to plantation by 2023, leaving a question around where the balance 10% will go, reads the publication.
“There are a range in approaches being considered to ensure that supply chains are ‘deforestation-free’, only some of which include collecting the geo-location coordinates for supplier plantations. Even where traceability to plantation does exist, geo-location information is not commonly provided in the public domain or to customers (direct or indirect).”
The report maintains that to achieve wider systematic change and to ensure that palm traders take action on the entirety of their supply chains, other markets need to act in tandem with the EU and enforce similar regulations.
Some of the other key findings from the report include:
- Smallholders are at risk of exclusion from supply chains as lack of transparency from middle actors makes it difficult for smallholder supply to meet importer traceability and deforestation targets, including due diligence expectations.
- There are no time-bound plans in place for meeting and verifying human rights commitments.
- There is misalignment amongst major palm oil handlers in their methodologies for calculating and achieving verified deforestation-free palm volumes.
- Free, Prior and Informed Consent (FPIC) policies predominantly cover only new plantations, thereby excluding expansion, and are not being effectively implemented.
- Science-based targets (SBTs) are being set by companies, but there is limited action taking place to reduce emissions despite the new FLAG guidance increasing expectations for companies with SBTs.
Palm oil and deforestation
Events in the past year have emphasised that the connection between palm oil and deforestation and exploitation has not been completely cut, highlighted the publication.
“Media reports have highlighted conflict that has occurred over land rights between a trader and the local indigenous communities in the Pará region of Brazil. Although deforestation linked to palm oil has been decreasing in Indonesia, there has been a focus on cross-commodity deforestation where companies in palm oil supply chains are being linked to deforestation in the production of timber and mining activities.”
Retailer and food group progress
To increase the effectiveness of the coalition, POTC members are expected to act within their own operations and supply chain each year, as well as reporting on this progress annually.
Suggested member actions include engaging suppliers on critical issues identified through the POTC engagement process, updating policies in response to recent events, or supporting smallholder or landscape initiatives within their supply chains.
POTC members, according to the review, have reappraised their palm oil targets and policies in the last year, with more members setting targets for 100% Segregated or Identity Preserved palm in their supply chain.
A majority of them have also shared the POTC results internally to engage with sourcing teams, and POTC results are also used to prompt supplier engagement to discuss issues identified through the process and sourcing options, found the report.
Participating companies have also begun to take action on palm oil in animal feed since last year, with several members requiring suppliers to report on palm in feed volumes or integrating requirements for deforestation-free or certified feed into supplier contracts. Others said that this is a priority for future policy reviews.