Matthias Diemer is a sustainability consultant at Switzerland-based consulting firm Diemer Sustainability Consulting and senior strategic advisor to Musim Mas. Matthias has held various positions in the past within the WWF network.
When asked, European consumers apparently prefer products that are not linked to deforestation. At least this is what WWF claims, after obtaining support by 1.2 million citizens in favor of the new EU Deforestation Regulation, that was passed in December 2022. It will require palm oil products (and other commodities such as soy, beef or cocoa) placed on the European market to be free of deforestation per 31 December 2020.
How relevant is this regulation actually for the palm oil sector?
Both major processors/traders and consumer goods companies already have no deforestation commitments in place – in many cases with cutoff dates going back to 31 December 2015, five years earlier than the EU now requires. While it has been possible for large integrated palm oil companies to comply with these targets, and in the case of Musim Mas have them independently verified through standards like the Roundtable on Sustainable Palm Oil (RSPO) or the Palm oil Innovation Group (POIG), the crux lies in the hundreds of smaller palm oil mills that supply their refineries, and the tens of thousands of independent smallholders which supply these mills. Most of them are not RSPO members or have not been even certified through national labels, such as ISPO or MSPO[1].
Traceability has been an important element of no-deforestation assurance
Initially traceability has been established to the mills supplying refineries, as exemplified by the mill lists available on the websites of major processors and consumer goods companies. This has been superseded by traceability to the place of production (TTP), which is much more complicated, involving tens of thousands of smallholders that deliver their crop to mills through cooperatives or agents and subagents.
While some service providers have systems in place to map elements of TTP, most of the TTP data has been confidential, as mills are unwilling to disclose their supply sheds to potential competitors.
Consumer brands have been asking for independent verification of TTP data, to ensure that TTP data is correct and that the locations where crop is grown were not deforested after the cutoff date. The latter is usually done by overlaying TTP data with satellite imagery before the cutoff date. The output of such analyses – “verified deforestation-free” (VDF) – is rapidly gaining buzzword status.
Emerging information about VDF
Recently several consultancies have announced VDF schemes, and some are carrying out pilot trials. What is emerging is the following:
- As there is no standard for VDF users must rely on assurance claims by consultancies. It is too early to tell if one approach will become mainstream, or if several schemes will co-exist in the future. As long as there is no benchmark, it is difficult to compare emerging schemes.
- So far, consultancies that offer such VDF services are not truly independent, as for example third party verification bodies. In many cases, they provide other services to palm oil processors or consumer goods manufacturers.
- VDF is not a one-off exercise. Any change in the supply base of a refinery will require additional verifications of new suppliers or smallholders.
- The VDF claim is only as good as the TTP data behind it. While it appears relatively straightforward to verify concessions, claiming VDF for thousands of smallholder sources is an arduous task to establish, and even more arduous one to maintain. Some companies might be tempted to take the safe way out, by excluding independent smallholders altogether.
- As with any type of certification/verification VDF will not be a safeguard against cheating. Currently no traceability system is able to track 100% of crop from smallholder plot to mill or refinery. That’s why additional tools, such as Musim Mas’ Risk management framework or plausibility checks are and will remain important.
Is VDF the solution to deforestation?
While VDF is hailed by some as the solution to deforestation, it will likely address only parts of the problem. This brings us back to the EU Deforestation regulation mentioned at the outset. Here as well, geolocation requirements tracing crop back to the smallholder plot might become prohibitive for some, leading to smallholder exclusion. Considering that independent smallholders comprise more than 40% of Indonesian palm oil production – expected to rise to 60% by 2030 – excluding them from any market, and in particular lucrative Western markets should be in nobody’s interest, both from a livelihood and equitability perspective.
[1] Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) are mandatory national labels, that provide assurance for legal compliance and some additional sustainability requirements.
