The Sustainable Palm Oil Guide

• Sustainable palm oil involves all supply chain actors, from the brand to the farmer, proactively ensuring palm oil production does not lead to deforestation or human rights abuses.
• To prove EUDR compliance for palm oil, you will need data-backed evidence on the plots of land from which your palm oil originated tied to the source transactions at the plantation level.
• Most brands have traceability to the mill level. However, securing EU market access will require complete traceability to the plantation level to keep your palm oil supply chain compliant.

Palm oil is an essential and versatile ingredient found in nearly 50% of the packaged products in supermarkets - from pizza to toothpaste to lipstick. But there are two sides to palm oil. Sustainable palm oil production preserves the environment and supports the livelihood of smallholder farmers, with oil palms requiring 4-10 times less land than other vegetable oil crops for equivalent yields. On the other hand, unsustainable oil palm plantations harm forests and damage communities and wildlife. 

The European Union has taken the lead in promoting sustainable palm oil supply chains in the recently enforced deforestation-free regulation (EUDR). With palm oil, soy, and beef accounting for approximately 80% of tropical deforestation worldwide, the EU has taken strides to rid the market of products that harm the environment. If your company exports or sells relevant palm oil products in the EU, responsible sourcing at the plantation level is no longer an option. Continue reading to learn more about sustainable palm oil production to keep your supply chain compliant. 

The State of Palm Oil & Sustainable Palm Oil Today

The story of sustainable palm oil starts at the oil palm plantation where fresh fruit bunches are grown. Indonesia and Malaysia are the top palm oil-producing countries, accounting for 84% of global production. This versatile commodity is in high demand due to its efficient properties, such as high yields, resistance to oxidation, odorless and colorless nature, and semi-solid state at room temperature. However, as demand for palm oil increases, there is growing concern about ethical sourcing practices in the industry.

Conventional methods for cultivating palm oil have resulted in deforestation, destroying carbon-rich peatlands, biodiversity loss, and exploiting smallholder farmers. These adverse effects have prompted many to call for a boycott of palm oil. However, such an action would only exacerbate the situation. Other vegetable oils, like sunflower, rapeseed, and soy, have lower yields per hectare and would necessitate more land for cultivation. Rather than eliminating palm oil, the industry should transition towards more sustainable and strategic sourcing methods.

Sustainable palm oil prioritizes the well-being of people and our planet. It involves all supply chain actors, from the brand to the farmer, proactively ensuring palm oil production does not lead to deforestation or human rights abuses. Consumers also play a vital role in increasing the demand for sustainable palm oil by purchasing from companies committed to transparency. The key driver of sustainable palm oil is indisputable proof of responsible land management and promotion of farmer livelihoods through real-time, plantation-level data. 

How to Produce Palm Oil Sustainably 

Sustainable palm oil production is a multifaceted endeavor that requires a holistic approach to ensure environmental conservation, social responsibility, and economic viability. Here's a breakdown of critical strategies and frameworks that contribute to the production of sustainable palm oil:

• Traceability To Plantation: The typical palm oil supply chain comprises the plantation, cooperative/mill, refiner/manufacturer, trader, and retailer. Many brands have traceability to the mill, but most lack complete traceability to the plantation level. To monitor sustainable farming practices, promote human rights, and adhere to international regulations, your brand must capture real-time, plantation-level procurement and sustainability data. With this level of visibility, your brand can stay proactive in mitigating harmful social and environmental risks.
• Roundtable on Sustainable Palm Oil (RSPO): RSPO is a global non-profit organization facilitating sustainable palm oil production. Established in 2004, RSPO has developed an industry standard for certified sustainable palm oil (CSPO). By becoming a member of RSPO, adhering to their standards, and verifying that you source from RSPO-certified farmers, your company can be at the forefront of driving positive change in the palm oil industry. 
• No Deforestation, No Expansion on Peat, and No Exploitation International Reporting Framework (NDPE IRF): The NDPE IRF was developed under the Palm Oil Collaboration Group to establish a reporting tool for monitoring NDPE commitments. This tool equips brands and the industry as a whole to understand challenges, track progress, and drive improvement toward environmentally-friendly sourcing practices. Following the NDPE IRF will keep your supply chain accountable and require complete traceability at the plantation level to support your claims. 

EUDR Compliance: How To Keep Your Palm Oil Deforestation-Free

The race to comply with the recent European Union Deforestation-Free Regulation (EUDR) for palm oil has begun. Gathering reliable data for informed decision-making will take time, and the time to act is now to meet the December 2024 compliance deadline. The tips below will guide you in kickstarting your deforestation-free journey: 

1. Deforestation-Free Plots of Land Tied to Source Transactions 

To prove deforestation-free in an audit, you will need data-backed evidence on the plots of land from which your palm oil originated. You must ensure through, for example, satellite imagery or public cadasters that your palm oil does not contribute to deforestation (i.e., forests converted to agricultural land) after December 31, 2020. For plantations larger than four hectares, digital polygons (i.e., a series of GPS coordinates that make up the boundaries of a plot of land) must be shown where your fresh fruit bunches are grown. However, a single GPS coordinate is sufficient for plantations smaller than four hectares. Additionally, the plots of land must be linked to the transaction history at the source and the batch's chain of custody so you can verify that your final product is compliant.

2. Proving Provenance in High-Risk Countries 

By December 2024, the European Commission will objectively assess and categorize countries, or parts thereof, as low-, standard-, or high-risk. The frequency of shipment checks and due diligence will depend on the country's risk level: 1% for low-risk, 3% for standard-risk, and 9% for high-risk. The maximum fine for non-compliance for operators and traders of relevant palm oil products must be at least 4% of the total annual turnover in the EU. If you are sourcing palm oil from high-risk countries (e.g., Indonesia, Malaysia), verified proof of provenance will be essential to avoid costly fines. Evidence-based traceability of your product's chain of custody, with unaggregated, plantation-level data, will mitigate risks and safeguard your business.

3. Product Segregation or Identity Preservation, No Mass Balance 

Mass balance, when certified and uncertified commodities are mixed during production, is not EUDR compliant. Simply having a portion of a batch certified is not enough for EU market access. To meet EUDR requirements, you must ensure your entire batch is deforestation-free by using product segregation or identity preservation. Product segregation is when palm oil from multiple certified sources is kept segregated from ordinary palm oil throughout production, but the percentage of each certification type is preserved. Identity preservation is when palm oil from a single identifiable certified source is kept segregated.

4. Maintained Batch Chain of Custody

To verify that your final product is deforestation-free, you must maintain the chain of custody of each batch from the plot of land to distribution and every step in between. The entity that places the product on the EU market is responsible for proving compliance and showing the chain of custody. Tracking and tracing your product’s journey from the origin creates a digitized audit trail of events and transactions to report its environmental footprint accurately. By preserving primary source data tied to your final product, you can confidently demonstrate deforestation-free at the plantation level.

5. Data Integrity 

Simplifying EUDR compliance will require data integrity and interoperability with the numerous systems incorporated throughout your supply chain. Implement a reliable traceability platform that seamlessly integrates with any existing systems you use (e.g., ERP, MRP, PLM) to create a single source of truth. Your traceability system should leverage data suppliers, such as mills, refineries, and traders, already provide to avoid double data entry and build on any missing information. For example, your traceability software should smoothly integrate with systems used by associations and certifiers like RSPO and increase granularity by tying that information to the plots of land where your fresh fruit bunches originated. Doing so will reduce inconsistencies, streamline data analysis, and maintain certifications with the batch's chain of custody.

Sustainable Palm Oil Conclusion 

The urgency for sustainable palm oil is paramount, particularly as the European Union's deforestation-free regulation (EUDR) takes precedence. This pivotal moment underscores the imperative of making conscientious choices in palm oil supply chains. The shift to sustainable palm oil necessitates a deeper level of supply chain accountability, where plantation-level visibility and real-time data converge to ensure compliance and innovation go hand-in-hand. With sustainable palm oil, forests flourish, societies thrive, and businesses prosper, ultimately scripting a greener, more equitable world through deforestation-free practices.

By harmonizing technology and sustainability, BanQu signifies a new era for the palm oil industry — one in which you can do good for people and our planet without sacrificing business growth. BanQu is an advanced traceability platform built for companies across all industries, with multi-purpose solutions to achieve audit-proof EUDR compliance, prove sustainability claims, and drive strategic sourcing. Schedule a free risk assessment with our expert team today!