Businesses look to import palm oil sustainably as EU legislation bites

Palm oil, most of which is imported to Europe from Indonesia and Malaysia, has been a focus of EU policymaking for two decades because of concerns that EU biofuels policy was driving unsustainable production practices.

But though this vegetable oil has come to be associated with fuel as a result of the biofuel debate, half of the palm oil imported into the EU is for use in food applications.

Palm oil is found in packaged bread, croissants, chocolate bars, potato crisps, margarine, frozen meals, non-dairy creamers and breakfast cereals. It’s popular because it’s cheap, stable at room temperature, neutral in flavour and versatile in processing.

But a number of recent EU regulatory changes will impact the way that palm oil is produced, imported and used. These were made in response to concerns that EU biofuel incentives were driving deforestation in producing countries through Indirect Land Use Change (ILUC).

In 2018, the EU’s updated Renewable Energy Directive (REDII) ended a transport emissions reduction target, driving palm oil imports for energy and sharply restricted how much palm oil (and other first-generation biofuels) could be used to meet the target.

That policy pivot, combined with later EU anti-deforestation rules, has in turn driven large structural shifts in producing countries. These have included new plantation moratoria and massive replanting programmes. This has changed trade flows, pushed European industry to adapt and contributed to tighter global vegetable-oil markets that still affect EU supply and prices today.

The impending requirements of the EU Deforestation Regulation (EUDR) have driven companies to pre-emptively start ensuring that their palm oil production chain is sustainable.

The new requirements were supposed to take effect in December 2024 but were delayed by a year. The Commission has indicated that it wants to delay for an additional year until December 2026 because of IT problems with the EU’s new monitoring system.

The EUDR requirements will mean companies have to verify themselves that their production supply chains are not driving deforestation.

Sustainability certification schemes, which already vouching for 90% of EU palm oil imports, say that they will contribute to companies’ ability to maintain their imports of a vital food ingredient even with the new restrictions in place.

“We’ve worked a lot with the national competent authorities to see how they implement the regulation, to make sure they understand what they’re seeing when they see a shipment that has an RSPO certification attached,” said JD D’Cruz, CEO of the Roundtable on Sustainable Palm Oil Production (RSPO), during a recent visit to Brussels.

The RSPO certification label was set up in 2004 by the NGO WWF, at the request of European companies who wanted to proactively address the sustainability concerns in their palm oil supply chain.

“The idea was that if the growers could grow in a way that is sustainable, the downstream producers would pay for that – buyers pay a premium for RSPO,” he explained. “Twenty years ago, initially, deforestation was the main focus. Now we focus more on workers’ rights, such as clearer guidelines around recruitment conditions. There’s less focus on deforestation than before, not because there’s no deforestation any more, but because we’ve proved that it’s possible to produce without deforestation.”

He noted that the Dutch competent authority has recently accepted the RSPO as a control system that can show compliance after a thorough review of the system, though it can only be used as a tool for assessment and not as a ‘green lane’ to skip checks.

“What EUDR requires is a customs official at a port looking at a large volume of imports and deciding on which one to audit. Those authorities are going to want mechanisms, tools and risk assessment processes to be able to narrow down their scrutiny onto what’s most effective. We see our role as facilitating the process on both sides, giving importers a safer and trustworthy way to verify their shipments, but also to give customs officials a tool.”

“We’re not opposed to the EUDR; we think having clear policies around deforestation is critical to move the industry forward,” he added. “We’re not saying RSPO should be a substitute for regulation, but we want to make sure that the regulators understand that the industry has already done a lot to tackle deforestation for 20 years. The vast majority of palm imports into Europe have already been certified for years.”

Still, many companies are worried about the impact of the new EUDR requirements on the import of palm oil for various uses in Europe, especially since it’s coming at the same time as there is global market tightening.

Over the past few marketing years, EU palm-oil imports fell substantially — recent reporting shows a roughly 20% year-on-year decline in imports for the July-June 2024/25 marketing year – about 692,000 tonnes lower than the year before. Declines were especially notable in Spain, Italy and other countries that had been large biodiesel processors.

At the same time, some exporters and buyers re-routed volumes to other markets such as India, China, Pakistan and domestic biodiesel programmes in producer countries. Industry data and forecasts now show biodiesel feedstock mixes shifting towards rapeseed, used cooking oil, and “other” categories, with palm oil’s share for fuels shrinking dramatically in EU market projections, according to a recent report by the NGO Transport & Environment.

On the supply side, two structural issues have tightened global palm-oil availability in recent years: Indonesia and Malaysia have implemented moratoria on issuing new plantation permits (and tightened peat and forest conversion rules) to meet environmental targets. Those changes have slowed the expansion of planted area even as global demand recovers or shifts.

A large share of the oil palm area in Indonesia and Malaysia is now in the age cohort that needs replanting. Replanting is capital-intensive and causes a temporary drop in output on replanted plots for several years.

There is some hope that the new EU-Indonesia free trade agreement struck in September 2025 will help safeguard sustainable trade in palm oil.

The Comprehensive Economic Partnership Agreement (CEPA) will, if approved by national governments, scrap import duties on 98.5% of tariff lines and simplify procedures for goods sent to Indonesia, which the Commission estimates would save EU exporters €600 million annually in levies on cars, machinery, chemicals, and pharmaceuticals.

It also contains protections for 221 EU food products such as Roquefort cheese and Lübecker Marzipan.

D’Cruz said both exporting companies in Indonesia and importing companies in Europe have high hopes that the CEPA can improve transparency and visibility in the palm oil supply chain to a point where compliance with EUDR and other upcoming EU legislation, such as the Green Claims Directive and the Forced Labour Regulation, becomes easier.

“FTAs provide a much clearer and robust set of trading rules,” he said. “A lot of trade in the world is going to be defined by these kinds of bilateral arrangements rather than global arrangements.”

“Our focus is on how these agreements can also catalyse sustainability on the ground,” said D’Cruz, adding, “The FTA does not supersede the private sector requirements set by the European retailers and manufacturers. 90% of all imported palm oil is RSPO certified now, I don’t see companies dropping their commitments because it made it into the EU as part of a free trade agreement.”

Tags: Malaysia, palm oil, deforestation, imports, biofuel, Sustainability, Indonesia, EU, Production