On May 16 2023, the European Union (EU) passed the European Union Deforestation Regulation (EUDR) regarding deforestation and prohibiting environmentally unfriendly products. One of the commodities affected is Indonesia’s main product, palm oil; palm oil could not enter 27 European countries. In the EUDR, exporters such as Indonesia must submit due diligence and verification documents. In addition, Indonesia must guarantee that palm oil does not come from deforestation areas starting January 1, 2021.
Based on statistics, each year, palm oil exports to the EU amount to US$ 3 billion. The European market could absorb 12% of Indonesia’s total palm oil exports. Not big, but quite impactful. The inauguration of the EUDR caused Indonesia’s exports to decline, even though they had increased around 2017. According to the Central Statistics Agency (BPS), in 2022, the volume of Indonesian palm oil exports increased by 23% (2.05 million tons) compared to 2021, which reached 2.66 million tons.
For a reason, Indonesia and the EU have their arguments.
For the EU, Indonesian palm oil is interpreted as an unsustainable commodity and has sacrificed many aspects. The aspect in question is not friendly to tropical forests peat forests, and causes thousands or even dozens of animals to lose their habitat. The EU also speculates that Indonesia’s palm oil production process is characterised by discrimination against workers’ wages, violence against women and even the employment of young children.
The EU also accuses palm oil of causing carbon emissions. However, according to Institute for Development of Economics and Finance (INDEF) economist Faisal Basri, he argued that the most significant number of contributors to emissions is the Agriculture, Forestry and Other Land Use (AFOLU) as much as approximately 55%, followed by coal energy with 14%. Faisal Basri also highlighted that 3 million forest lands have been converted into commercial plantations rather than forest land. In a sense, this composition proves that there are still illegal palm oil plantations in Indonesia. Moreover, to reduce production costs, peat lands still use burning methods to make it more “efficient” for planting palm oil.
On the contrary, according to Indonesia, Indonesia’s palm oil ban is only due to economic problems. The Indonesian government has accused the EU of making discriminatory policies. The Indonesian side argues that Indonesian palm oil is more environmentally friendly than sunflower or canola oil. In detail, oil palm trees can grow for 25-30 years. However, sunflowers and canola should take six months to harvest and clearcut. The government regrets that EU policies have harmed Indonesia. Palm oil is a source of livelihood for 2.67 million heads of families — the most in Riau. Coordinating Minister for Economic Affairs Airlangga added that small farmers dominate 41% of oil palm plantations. The EU environmental trend has a significant impact on farmers, especially when palm oil prices are cheap. In Riau, for example, in the period 24-30 May 2023, the price of palm oil is IDR 2,290.31/kg – the same as the price of Indomie.
Strategy and Diplomacy
Even though the law was only signed this year, discourse regarding an export ban occurred in 2019 or before that year. The EU has categorised palm oil as a high-risk Indirect Land Use Change (ILUC) with Rewenable Energy Detective II (RED II) as the basic rule. This rule encourages the EU to update the burning discussion from 2020-2030. Therefore, biofuel (coconut oil) is not included in the EU target.
This discriminatory policy encourages Indonesia to defend itself. First, Indonesia sent a Request for Consultation to the World Trade Organisation(WTO) on December 9 2019. The basis of Indonesia’s lawsuit is not only EU policy but also blaming the EU for the bad image of Indonesian palm oil in the eyes of the world. Indonesia, through its delegation, has attempted to convey this to the bilateral forum at the Working Group on Trade and Investment Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) and the Technical Barriers to Trade Committee meeting.
Second, Indonesia is collaborating with Malaysia. The implications of the EU regulation are not only for Indonesia but Malaysia. Malaysia is also the largest exporter, along with Indonesia. Therefore, as reported by Republika on February 9 2023, Coordinating Minister for Economic Affairs Airlangga Hartarto and Malaysian Minister of Agriculture and Commodities Dato’ Sri Fadillah Yusof agreed to commit to defending palm oil. Indonesia and Malaysia have expressed their objections at the Council of Palm Oil Producing Countries (CPOPC) in Brussels, Belgium.
Third, domestically, Indonesia needs to take a firm stance in clearing illegal palm oil plantations and creating sustainable palm oil. In mid-2023, the government will impose sanctions on illegal palm oil entrepreneurs in two ways, namely administrative and criminal sanctions. Through the Coordinating Minister for Political, Legal and Security Affairs, Mahfud MD gave the example of Surya, a businessman from PT Duta Palma Group. Surya will be sentenced to five years in prison if he is unable to pay IDR 2.23 trillion within the deadline of November 2 2023.
Indonesia is committed to developing sustainable palm oil by issuing Sustainable Palm Oil Plantation Certification or Indonesian Sustainable Palm Oil (ISPO). However, this commitment is still constrained by limited human resources (HR) in the plantation business assessment step. According to the Palm Oil Plantation Fund Management Agency (BPDPKS), in 2021, sustainable palm oil certification was achieved for 20 certificates.