A New Role for Europe in Sustainable Palm Oil?

Europe now only consumes 5% of global supply, but still has the purchasing power to demonstrate that small farmers can be part of markets with high sustainability standards.

It’s nearly eighteen years since the first certified sustainable palm oil reached European shores via a shipment from Malaysia to the Netherlands. Since then, European palm oil buyers have been at the forefront of efforts to ensure that palm oil does not lead to deforestation and the destruction of tropical wetlands. Purchasing pressure from international business buyers, combined with stronger enforcement of forest law by the Indonesian and Malaysian governments has reduced palm-related deforestation massively.  It has also created a sophisticated set of standards and tools, which have increased transparency in the sector, most prominently the RSPO standard which now certifies over 90% of European imports.

The systems we have created to verify sustainability passively exclude many smallholders

The same tools that have strengthened sustainability governance across the sector have also raised the bar to entry to markets like Europe. The Global Outlook for Palm Oil 2026 highlights this as a structural problem: Sustainability standards have unintentionally led to the passive exclusion of smallholders, who can rarely afford the time and the cost of meeting the complex verification requirements of sustainability standards.

It’s one reason why despite constituting over a third of the land area under palm in Malaysia and Indonesia, independent smallholders represented only around 8% of RSPO-certified production in 2024.

The mass balance system which allows for mixing of certified and non-certified oil palm does at least allow access to RSPO certified mills by non-certified farmers. However, the new EU Deforestation Regulation (EUDR), expected to come into force by the end of this year, does not allow the mixing of compliant and non-compliant oil. The mass balance system operated by most certification schemes will not be allowed for European imports, including RSPO certified palm oil. It will further raise the bar for smallholder access to European markets by requiring full physical traceability from each farm plot.

The coffee sector, which is largely dependent on smallholder production is demonstrating that smallholder compliance with EUDR is possible to organise at scale. But unlike coffee, the majority of palm oil is produced by plantations, which are generally a cheaper route to compliance because they are so much bigger and data collection is simpler. One commodity trader speaking at the recent Sustainable Palm Oil Dialogue (SPOD), said that they had offered smallholder-derived EUDR compliant palm oil supply to a European customer, but it was rejected because it was marginally more expensive than plantation palm oil.

This is perhaps an example of active exclusion, but it is a decision created by the complexity and cost of compliance. The underlying problem of passive exclusion is that standards and regulations are not designed with smallholder access in mind. It means that unless something changes, sustainable smallholder inclusive palm oil supply will not be competitive to sustainable plantation grown palm oil to most sustainability buyers as EUDR, decarbonisation commitments and reporting regulations accelerate shift towards physical traceability.

The antidote to passive exclusion is active participation

But initiatives that encourage the active participation of smallholder organisations can get over these higher sustainability bars, particularly if they look beyond compliance to the resilience of the supply system.  Evidence from Aceh in Indonesia and Sabah in Malaysia shows that it is possible to dramatically lower deforestation and to raise smallholder income and palm production when productivity, traceability, legality, and forest protection are addressed together.

Europe still has the purchasing power to raise the ceiling on sustainability

In the period since the first shipment of certified palm oil docked in Rotterdam, Europe has gone from being a dominant market for palm oil to consuming less than 5% of the global supply.

Nevertheless, the region remains an important market because food manufacturers, retailers and their consumers have shown themselves willing to pay for sustainability. Europe can no longer set the floor globally but it can help raise the ceiling for what constitutes sustainable supply to the market. As one retailer representative at SPOD remarked ‘smallholder exclusion is something that keeps us awake at night’. That’s a good sign, because it is something that European companies can address by committing to be smallholder-inclusive in their procurement of palm oil.

At the last count there were 29 landscape initiatives in the palm sourcing regions registered on the SourceUp platform - more than in any other commodity sector. It means that European companies who buy palm oil can enter longer-term relationships with farmers organisations in these places, many of whom will already be committed to low carbon, resilient and zero deforestation palm production. They can raise the ceiling on inclusive sustainability relatively easily by linking some of their palm oil procurement to these initiatives. European buyers can use their purchasing power to demonstrate that smallholders can be part of the next phase of higher sustainability standards. It will have the added benefit of broadening their supply base at a time of growing supply risks.