EU’s Forest Rules Start to Reshape Palm Oil Trade, Report Shows

Europe’s incoming forest-protection rules are shaking up trade in palm oil, threatening to stall the fight against deforestation and risking high prices for European consumers, sustainability consultancy 3Keel Ltd. said.

The European Union is introducing rules to stop products that destroy forests from being sold in shops and supermarkets. The largest companies have until the end of the year to comply with the regulation, which covers commodities from palm oil to cocoa and coffee. 

But suppliers of palm oil have already started to divert the commodity that can’t be fully traced to regions outside the EU, according to 3Keel. If the diversion becomes a long-term trend, it will cause suppliers to de-prioritize their traceability efforts, the Oxford, England-based company said in a report Thursday. 

“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,” report co-author Sian Allen said. 

Critics say the new rules especially punish smaller farmers. Those types of farmers are most likely to be disadvantaged and left out of EU supply chains, given the challenges in tracing palm back to individual plantations, 3Keel said. That includes farmers that apply responsible growing practices.

The report, prepared by 3Keel for the Palm Oil Transparency Coalition, is based on a survey and follow-up conversations with 20 globally significant palm-oil importers and traders.

There have been calls for the EU to delay the deforestation regulation, which is due to kick in at the end of December. The bloc has deferred categorizing supplier countries by their risk status until a later date, but the rest of the rules - including the due diligence requirements — are on track, Virginijus Sinkevicius, the EU’s environment commissioner, said Wednesday.

--With assistance from John Ainger.