News Release: Industry responses to European due diligence regulation creates emerging split in global palm oil supply chain, reports Palm Oil Transparency Coalition
14 March 2024
- Importers intend to split supply chains to meet regulation needs in the short term, with palm materials that can’t be fully traced back to origin being sent to regions outside the EU
- Smallholders are most likely to be disadvantaged and left out of EU supply chains due to lack of traceability, given the challenges in tracing palm volumes back to independent smallholder plantations
- This split could slow progress towards Deforestation- and Conversion-Free palm oil globally, if diverting hard-to-verify supplies to non-EU regions causes deprioritisation of efforts to make them traceable
- Prices of palm oil in the EU could rise if the costs of segregating supply chain are passed on to the customer
- Advancement of further legislation from non-EU regions, including Schedule 17 of the UK’s Environment Act, will help to alleviate these issues, but only if the requirements of such legislation are equivalent.
The Palm Oil Transparency Coalition’s (POTC) seventh annual Palm Oil Importer and Trader Assessment has revealed progress on commitments to Deforestation- and Conversation-free (DCF) palm oil supply chains. But the report highlights significant gaps in action towards achieving fully Deforestation- and Conversion- free palm oil globally.
The report is based on a survey and follow up conversations with 20 globally-significant palm oil importers and traders. This year’s process was the first to use a new cross-industry aligned question list covering policies, commitments, implementation plans, monitoring, reporting and verification.
The assessment has revealed that since the announcement of European Union Deforestation Regulation, a split is emerging in palm oil supply chains, with supplies that can’t be fully traced (mostly from smallholder sources) being sent to regions outside the EU. If this short-term ‘diversion solution’ becomes a long-term trend, it risks stalling progress towards ending deforestation. Smallholders linked to deforestation may continue this practice if excluded from supply chains with DCF requirements, therefore contributing to ongoing deforestation and conversion.
The emerging split also disadvantages smallholders who already apply responsible growing practices and don’t engage in deforestation. They are excluded from volumes entering the EU, as the way smallholder supplies are aggregated means there is often limited traceability to plantation level.
“The segregated supply chain could also cause knock-on price increases for goods supplied to the EU, if the cost of having to separate out compliant volumes is passed on to the customer,” cautions Sian Allen, one of the report’s authors. “It also means that while other market regulations, such as the UK’s, are slow to be introduced or do not incorporate all deforestation (legal and illegal) and indigenous peoples’ human rights, palm oil linked to deforestation, conversion and human rights violations could still be entering the global market.”
Other key findings from the report include:
- Indirect supply remains the key gap in achieving DCF commitments. Where target dates are in place for 100% traceability to plantation (TTP), several importers have failed to provide any detail on how they plan to achieve this in their indirect supply.
- Of 70 critical issues flagged by NGOs (which are weighted in the questionnaire because of their importance), importers were failing to meet the minimum standard on between 10 to 40 of them.
The report makes 11 recommendations for POTC members, importers and NGOs, including:
- Members: Provide support to initiatives that will drive at-scale inclusion of smallholders in certified palm supply chains in the face of smallholder exclusion due to EUDR requirements.
- Importers: All importers should develop targets for full traceability to plantation in third-party supply chains, while developing robust satellite monitoring beyond own-supply to ensure risk of deforestation and conversion is adequately addressed.
- NGOs: Continue to support and provide capacity-building on projects that focus on linking smallholder certification and traceability to importer sourcing practices whilst engaging the European Commission on the risk of a split market and implications.
Read the full public report here.
For more information about the Palm Oil Transparency Coalition, visit: www.palmoiltransparency.org
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About POTC
The Palm Oil Transparency Coalition (POTC) is formed of businesses working together in a pre-competitive coalition to remove deforestation and exploitation from the palm oil production sector.
We aim to achieve this by using a robust engagement and evaluation process for measuring the progress of the major First Importers of palm oil into international markets.
POTC Members: Ahold Delhaize, ALDI Nord, ALDI South Group, Casino Group, The Co-operative Group (UK), Eight Fifty Food Group, Kellogg (steering committee), Marks & Spencer, METRO AG, Mondelez, Morrisons, Nestlé, Sainsbury’s, Tesco (steering committee), Waitrose and Partners (steering committee), Walgreens Boots Alliance.
