Nowhere in the world are forests shrinking faster than in Southeast Asia. Rapid population growth and economic development are placing increasing pressure on land. Between 1990 and 2020, an area larger than Germany was deforested, over half of it in Indonesia.
Palm oil is the main commodity associated with Southeast Asian deforestation. Since 2000, the world’s two biggest producers - Indonesia and Malaysia - have added an average of 3700 square kilometres a year of new plantations, while global consumption has more than doubled. Growing demand for palm oil is driven by its utility as an economical and versatile ingredient in products including foodstuffs, cosmetics and biodiesel.
“Growing demand for palm oil is driven by its utility as an economical and versatile ingredient in products including foodstuffs, cosmetics and biodiesel”
Oil palms yield up to nine times as much oil as, say, soybean or rapeseed for a similar area. Palm oil generated 8.8 percent of Indonesia’s exports and 3.4 percent of Malaysia’s in 2019. The sector provides direct employment for nearly one million people in Malaysia and four million in Indonesia, often in remote rural areas where alternatives are scarce.
Fortunately, there are tentative signs of improvement. With international encouragement, Southeast Asian governments are increasingly aware of the importance of balanced development. There are significant efforts at national level in Indonesia and Malaysia to protect forests and to make palm oil production more sustainable. The pace of deforestation in most countries has reduced slightly since its mid-2010s peak.
Several European countries as well as numerous multinational companies have committed to only buying sustainably produced palm oil. The most widely used certification scheme is the international Roundtable on Sustainable Palm Oil (RSPO). To be RSPO-certified, palm oil must not come from land cleared by fire or from destroying primary forest. In addition, since November 2018, new plantations may not be established on peat soil.
Unfortunately, just 19 percent of global palm oil production is certified as sustainable. In Europe, 74 percent of palm oil is RSPO-certified; however, the two biggest export markets for Southeast Asian palm oil are China and India, where sustainability seems less of a priority for consumers. The EU should lead efforts to establish a globally recognised certification scheme.
The EU has also revised its biofuels policy, through its Renewable Energy Directive, to ensure that European demand for palm oil does not exacerbate the problem. As a result, although biofuels from crops with a high risk of deforestation - such as palm oil - will not be banned, they will no longer count towards the 10 percent target of transport fuels in Member States, from 2030 on, that must come from renewable sources.
Indonesia and Malaysia have responded sharply to what they see as unfair EU restrictions. In December 2019, Indonesia filed a dispute with the WTO, arguing that the amended Renewable Energy Directive is discriminatory, and Malaysia plans to retaliate. Palm oil-related tensions are standing in the way of an EU-Malaysia trade deal.
At present, there is no EU-level requirement for sustainability, but this could soon change; as part of its ‘Green Deal’, the EU is planning an impact assessment of regulatory and non-regulatory options to promote deforestation-free imports of commodities such as palm oil. In this context, I consider the decision to establish a joint working group - taken at the EU-ASEAN Ministerial meeting in December - as a very positive step. It provides the opportunity to find a long-term solution that is acceptable to both sides and to decouple this particular issue from the much broader EU-ASEAN agenda.