How the New EU Deforestation Regulation Affects Your Palm Oil Business

June 5, 2024

What’s changed?

Since June 2023, the EU has implemented the European Union Deforestation Regulation (EUDR) aimed at mitigating deforestation and forest degradation associated with certain commodities, including palm oil.

What this means for Malaysian palm oil businesses

Under the new Regulation, Malaysian palm oil businesses that export their commodities covered by the EUDR into the EU market must prove that their products are both deforestation-free and compliant with relevant local laws.

These businesses will have until 30 December 2024 to ensure that their products meet these new requirements, a failure of which will result in a loss of market access in the EU.

Key compliance requirements

Due diligence statement

Before placing goods into the EU market, the EUDR requires businesses to produce a due diligence statement. This statement needs to expressly confirm, that due diligence has been conducted and no or only a negligible risk of deforestation and incompliance with the legislation of the country of production of the commodities have been identified.

The due diligence statement requires three main steps to be completed:

Information collection	Firstly, businesses must collect comprehensive information, documents and data about their supply chains including the origin of their palm oil, the specific plots where the palm oil is produced, and any intermediary stages it passes through before reaching the market.
Risk assessment	Based on the information collected, businesses will need to carry out an assessment to identify potential risks of deforestation and forest degradation in the supply chain. Criteria to consider when conducting this assessment includes: - allocation of risk assigned to each country by the European Commission, - presence of forests, - presence of indigenous people, - presence of deforestation in the country, - complexity of the supply chain, and - reliability of the source of information provided. Based on the analysis, businesses can only export palm oil to the EU if satisfied that there is no or only a negligible risk of their products being non-compliant.
Risk mitigation	Businesses will then need to develop and implement strategies to mitigate the risks identified above. This may involve conducting independent surveys, collecting additional information, and adopting measures which support suppliers.

Information collection

Firstly, businesses must collect comprehensive information, documents and data about their supply chains including the origin of their palm oil, the specific plots where the palm oil is produced, and any intermediary stages it passes through before reaching the market.

Risk assessment

Based on the information collected, businesses will need to carry out an assessment to identify potential risks of deforestation and forest degradation in the supply chain.

Criteria to consider when conducting this assessment includes:
- allocation of risk assigned to each country by the European Commission,
- presence of forests,
- presence of indigenous people,
- presence of deforestation in the country,
- complexity of the supply chain, and
- reliability of the source of information provided.

Based on the analysis, businesses can only export palm oil to the EU if satisfied that there is no or only a negligible risk of their products being non-compliant.

Risk mitigation

Businesses will then need to develop and implement strategies to mitigate the risks identified above. This may involve conducting independent surveys, collecting additional information, and adopting measures which support suppliers.

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‍Reporting Obligations

Businesses must also report their due diligence systems yearly and keep documentation related to due diligence for at least five years.

Penalties for non-compliance

The EUDR places significant penalties on businesses that fail to comply with the Regulation including having their products confiscated and facing fines of at least 4% of a business’ annual turnover in the EU. More severely, violations of the EUDR can lead to businesses being denied access to the EU market.

How we can help

The required due diligence statement under the EUDR can be a complex and challenging task for palm oil businesses. It requires a comprehensive collection, management and analysis of data and information extending to individual raw material producers, which must be disseminated throughout the entire value chain.

With only six months to go before these requirements are mandatory by law, our team of experts can help your business be fully equipped to meet EUDR obligations and maintain continued success in the EU market.

If you have any questions or require any additional information, please contact Chan Xian Ai, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.

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How the New EU Deforestation Regulation Affects Your Palm Oil Business

The EU has implemented the European Union Deforestation Regulation (EUDR) aimed at mitigating deforestation and forest degradation.

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