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15 Nov 2023 --- The palm oil industry is largely unprepared for the EU’s incoming Deforestation Regulation (EUDR), according to a new assessment by the Zoological Society of London (ZSL). The conservation charity warns the industry has a traceability gap, which puts businesses at risk of legal penalties and market exclusions, despite wide-scale anti-deforestation pledges.
Published yesterday, the latest nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://www.spott.org/palm-oil/', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">SPOTT assessment confirms over two-thirds of the top 100 global palm oil companies have committed to zero deforestation ahead of the EUDR’s December 2024 rollout.
But, less than 12% have publicly disclosed the geolocations of their third-party supplier plantations, including independent smallholders, which ZSL argues is crucial data for verifying anti-deforestation pledges and partly the result of a lack of pressure from buyers and regulators and data protection policies.
Meanwhile, only 53.8% of companies have publicly disclosed georeferenced maps of their own estates and a mere 15.9% for scheme smallholders — the small-scale farmers managed by those companies.
“While the EUDR doesn’t dictate public map disclosure, it mandates comprehensive mapping of supplier plantations. The limited disclosures on SPOTT indicate a notable shortfall, impeding the verification of sustainable production practices,” says Imogen Fanning, sustainable business project analyst at ZSL.
“Oil palm plantations are grown in tropical forest regions, teeming with diverse wildlife. Without the precise geolocation of these plantations, it’s exceedingly challenging to verify companies’ adherence to their commitments to protecting forests and wildlife. Such omissions could also risk sidelining smallholders, compromising broader sustainable land management efforts.”
Costly transparency gap
The EUDR requires companies to ensure products sold in the EU have not led to deforestation or forest degradation since 2021. Some companies are nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://www.foodingredientsfirst.com/news/cargill-harnesses-ai-enhanced-satellite-monitoring-for-anti-deforestation-supply-chains.html', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">investing in geospatial technology to obtain the extensive GPS information required to comply with the law.
Companies that comply will be permitted to access EU markets, with consumers more confident the products they buy have been produced legally and without recent deforestation. But, companies that place non-compliant products on the EU market could nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115&qid=1687867231461', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">face penalties.
“There are various potential penalties, including fines proportionate to the environmental damage and value of the items, which will gradually increase with repeated infringements. Other penalties include the confiscation of the products or revenues gained, temporary exclusion from public procurement processes and public funding,” Eleanor Spencer, ZSL’s sustainable business specialist for Asia, tells Food Ingredients First.
“For upstream companies, the repercussions of non-compliance are more likely to be felt through market exclusion.”
Meanwhile, multinationals like Mondelēz International are adapting their operations to comply with the incoming EUDR.
“The implementation date applicable to Mondelēz International is December 30, 2024, and we are working diligently with a cross-functional team to prepare for compliance with the law in Europe, including the UK,” a company spokesperson tells us.
Sustainability potential for palm oil
ZSL acknowledges that palm oil can have a more environmentally sustainable future. Oil palm delivers 40% of the world’s vegetable oil but is cultivated on just 6% of global land currently used for vegetable oils. Hailed by many as a “super-crop,” it is 4–10 times more land-efficient than rivals and vital in many products from food to fuel, the charity notes.
However, its rapid expansion in biodiverse tropical forests has had negative consequences: deforestation, habitat loss and declining biodiversity, as well as the exploitation of local communities.
“Palm oil’s future hinges on the industry’s commitment to refining its production and supply chains. Companies championing traceability and actively backing smallholders not only uphold ethical and environmental values but also unlock avenues to a more expansive, discerning market,” says Fanning.
NDPE (No Deforestation, No Peat, No Exploitation) commitments are often considered the cornerstone of sustainable palm oil production.
Smallholder farmer concerns
For smallholder farmers — which reportedly contribute up to 30% of the global palm oil supply — the EUDR could pose risks to their livelihoods. While larger companies possess the financial resources and technical capacity to meet the law’s data-mapping requirements, smaller producers may struggle and find themselves cut from the supply chain if not supported.
“The EUDR is great news for deforestation efforts, but has tremendous nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://www.foodingredientsfirst.com/news/eus-global-deforestation-law-finds-industry-favor-but-smallholder-farmers-fear-trade-exclusion.html', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">negative implications for the globe’s 2 billion smallholder farmers,” Vasco van Roosmalen, CEO and co-founder of ReSeed, tells Food Ingredients First.
“The regulation requires mapping farms starting with their GPS coordinates — at great effort and cost for both the farmers and companies involved — raising concern that traders will stop sourcing from smallholder farmers because of the burden.”
While some leading ingredient suppliers have nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://www.foodingredientsfirst.com/news/anti-deforestation-action-coffee-cocoa-and-soy-giants-embrace-geospatial-tech-and-small-farm-initiatives.html', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">invested in small farm initiatives, van Roosmalen maintains the new rules could be devastating for smallholder farmers — who are among the most vulnerable populations in the world — as well as local and national food security.
“What’s needed to overcome this is third-party-verified, auditable and transparent data that is cost-effective and works for smallholder farmers and companies. By mapping and monitoring the health of smallholders’ farms in real time, farmers can meet the new requirements and finance increased resiliency and yields.”
Companies like ReSeed offer the technology to illustrate satellite imagery and crop insights in close to real time, paid for through their inclusion in carbon markets.
Meanwhile, ZSL warns that producers that cannot meet EU requirements may nclick="updateothersitehits('Articlepage','External','OtherSitelink','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules','337732','https://www.foodingredientsfirst.com/news/reforestation-for-all-nations-eus-new-law-could-lack-scope-to-incentivize-regenerative-agriculture.html', 'article','Palm oil penalties? Transparency failings could hurt supply chain as EU prepares deforestation rules');return no_reload();">target other markets with less stringent regulations on deforestation, peatland conversion, human rights and the rights of indigenous peoples and local communities.
The charity calls on palm oil companies to urgently map their supplier plantations and actively assist smallholder suppliers in this endeavor ahead of the EUDR’s implementation.
“As the EU is the third-largest importer of palm oil, the EUDR will have a significant impact on the global supply chain. Regardless of their export destinations, by supporting smallholders through plantation mapping, companies can pioneer the transition to verifiably sustainable vegetable oil, guaranteeing no smallholder is left in the shadows,” says Spencer.
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