A Major Policy Shift Affecting Global Palm Oil Trade
The European Union Deforestation Regulation (EUDR) — formally Regulation (EU) 2023/1115 — represents one of the most significant trade policy changes affecting the palm oil industry in recent years. Passed in 2023 and phased in from 2025 onward, this regulation has far-reaching implications for palm oil exporters in Indonesia, Malaysia, and other producing nations.
What Does the EUDR Require?
Under the EUDR, companies placing certain commodities on the EU market must prove that those commodities were not produced on land that was deforested or forest-degraded after December 31, 2020. Palm oil is one of the seven key commodities covered by the regulation (alongside cattle, soy, wood, cocoa, coffee, and rubber).
Specifically, operators must:
- Conduct due diligence across their supply chains
- Collect geolocation data (GPS coordinates) for all plots of land where the commodity was produced
- Submit a due diligence statement to EU authorities before placing products on the market
- Demonstrate compliance with the laws of the country of production
Who Is Affected?
The regulation applies to both large operators and smaller traders ("SMEs") importing palm oil-derived products into the EU. This includes:
- Palm oil and palm kernel oil
- Products derived from palm oil (oleochemicals, food ingredients, cosmetics, biofuels containing palm components)
- Cattle, soy, cocoa, and other listed commodities — meaning palm oil competes in an environment where all major tropical commodities face the same scrutiny
Key Challenges for Palm Oil Producing Countries
Traceability Down to the Farm Level
The most operationally challenging aspect of EUDR compliance is the requirement for plot-level GPS data. Many smallholder farmers — who supply a large share of Indonesia's and Malaysia's palm oil — have not previously needed to provide this level of documentation. Establishing robust traceability systems from farm to port is a significant logistical undertaking.
Smallholder Inclusion
There are legitimate concerns that compliance costs and complexity could effectively exclude smallholders from EU supply chains, concentrating market access among larger, better-resourced plantation companies. Both the Indonesian and Malaysian governments, as well as industry associations, have raised this as a key negotiating point with Brussels.
Country Benchmarking System
The EU will classify countries as "low," "standard," or "high" risk for deforestation. Countries classified as "low risk" face lighter due diligence requirements — creating a strong incentive for producing nations to demonstrate strong national forest governance.
How Exporters Are Preparing
- Investing in digital traceability platforms and GIS mapping tools
- Working with certification bodies (RSPO, ISPO, MSPO) to align existing data with EUDR requirements
- Engaging smallholder cooperatives to collect GPS data and build supply chain documentation
- Monitoring EU's country benchmarking process to understand applicable due diligence levels
The Bigger Picture
The EUDR is not just a compliance checkbox — it signals a structural shift in how global commodity supply chains will be scrutinized. Exporters who invest early in traceability infrastructure and sustainable sourcing systems will be best positioned, regardless of which markets they ultimately serve. The regulation has also accelerated similar discussions in the UK, US, and other major importing regions.