EU Adopts EUDR, Putting Indonesian Palm Oil Under Deforestation Rules

Jakarta — The Council of the European Union on 16 May 2023 adopted new rules intended to curb global deforestation by requiring due diligence for selected commodities placed on, or exported from, the EU market. Palm oil is covered alongside cattle, wood, coffee, cocoa, rubber, soy and a range of derived products.

The Council decision marked the final adoption stage after the European Parliament approved the regulation in April 2023. Under the rule described by the Council, companies may place or export covered commodities only when they can show that the products are deforestation-free, produced in line with the laws of the country of production, and covered by a due diligence statement.

Main EUDR requirements

The EU deforestation regulation uses a cut-off date of 31 December 2020. Commodities produced on land that was deforested or subject to forest degradation after that date would not qualify for the EU market. To support the proof, operators must collect supply-chain information, including the geolocation of the plots where the commodities were produced.

The Council said the due diligence process must establish three points: the product is deforestation-free, the product complies with relevant law in the producer country, and a due diligence statement is available. The European Parliament framed the legislation as a way to ensure that EU consumption does not contribute to global deforestation and forest degradation through the purchase of selected commodities.

After the Council's final adoption, the next procedural steps were signature and publication in the Official Journal of the EU. The regulation would enter into force 20 days after that publication. As stated by the Council on 16 May 2023, operators and traders would then have 18 months to apply the new obligations, while micro and small enterprises would receive a longer adjustment period.

Producer-country concerns

Indonesia and Malaysia had already objected before the final adoption. Euronews reported in February 2023 that the two countries considered the EU deforestation law discriminatory toward palm oil and warned that it could add administrative burdens for producers. Their concerns centred on compliance costs, verification of raw-material origin and the impact on smallholders.

The Council of Palm Oil Producing Countries (CPOPC) also recorded concerns from oil palm producing countries through a joint statement. The concerns emphasised the need for a fair and non-discriminatory approach that takes into account smallholder conditions and existing sustainability systems in producer countries.

What it means for Indonesia

Analysis: for Indonesia, the EUDR turns palm oil traceability into a trade issue, not only an environmental issue. Because palm oil is one of the commodities covered by the rule, exporters of CPO, palm-based derivatives and companies supplying the EU market need to prepare evidence of plot geolocation, legal production and deforestation-free status from the plantation level.

Analysis: the compliance pressure may also move down the domestic supply chain. If EU buyers require more detailed land data, fresh fruit bunch collectors and palm oil mills will need to separate traceable supplies from supplies that are not yet documented. Without financing and technical support, smallholders risk facing a heavier administrative burden than large companies.

Analysis: for Indonesia's biodiesel sector, the effect is not a direct change to the domestic mandate, but it matters for the broader palm oil balance. If access for palm products to the EU market becomes more selective, market participants will pay closer attention to the link between sustainability compliance, CPO prices and domestic palm oil absorption. Indonesia's policy response therefore needs to connect trade diplomacy, plantation legality certification and smallholder protection.

What to watch

As of 16 May 2023, the regulation had been adopted by the Council, while the next technical stage was official publication and the transition period. Indonesian businesses needed to monitor implementation details, covered derivative products and the EU's risk classification mechanism for countries or regions. The core point, however, was already clear: after the transition, EU market access would require traceability and proof that covered commodities are deforestation-free.