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Many cake and biscuit manufacturers rely on palm oil as a key ingredient

‘Unprepared’ cake and biscuit manufacturers across Europe will face palm oil shortages and price hikes resulting from new anti-deforestation laws.

Companies heavily reliant on palm oil as an ingredient will struggle with availability and added costs in the coming months as the majority of the sector remains unprepared for new EU deforestation-free due diligence requirements being enforced this year, experts have warned.

The new EU legislation will require traders of commodities like palm oil and soy to be able to prove that their suppliers are not sourcing raw materials through the illegal conversion of forest areas.

But a new report by the Palm Oil Transparency Coalition (POTC), which includes retailers and suppliers such as Tesco, Mondelez and Nestlé, showed that “trader ambition is out of step with due diligence expectations on traceability”, with many “having no full traceability-to-plantation target”.

The knock-on effects on European manufacturers buying palm oil from producers in countries like Indonesia and Malaysia, which are widely known for illegal deforestation practices, will be more availability woes and added costs, said senior consultant at sustainability consultancy group 3Keel, Sian Allen.

“If you’re a cake manufacturer with headquarters in the EU and you’re purchasing palm oil it is likely you need to comply with the regulation and produce full due diligence statements as well, but many SMEs importing palm oil cannot trace back their imports to plantation level,” Allen said, adding this was likely to cause further trade disruptions.

palm oil deforesation

The palm oil industry is heavily linked to illegal deforestation and biodiversity loss in countries like Indonesia and Malaysia

UK businesses trading with the EU will also have to abide by the new regulations.

“Then, for retailers, it’s more of a supply chain risk because they don’t tend to sell palm oil as a raw ingredient but the risks lie on availability and higher production costs.”

Allen added the real challenge was “traceability”. “The traders will be expected to provide geolocation coordinates of all the farms, all of the plots of land which are connected to their suppliers.

“The problem in collecting that data is that, firstly, there’s lots of different traders dealing with lots of different suppliers who will be citing confidentiality concerns in terms of providing information on the plantations as smallholders in particular.

“But also many will simply not be able to produce the required paperwork or absorb those costs to be able to comply with all these due diligence requirements in time for the full roll out of the regulations, which will likely be by 2024.”

Read more: Soy traders face stricter EU laws on environment

Supply of palm oil into the EU and UK will be “under threat as importers are unable to meet the minimum legal standard according to the legislation,” Allen warned.

The Palm Oil Transparency Coalition also said this would put smallholders at risk of exclusion from supply chains as lack of transparency from middle actors made it more difficult for smallholder supply to meet importer traceability and deforestation targets.

This will also result in untraceable volumes being shifted to outside the UK and EU markets – to big importing countries like India and China, which have poor due diligence requirements in comparison – therefore “preventing the legislation from achieving its goal of reducing deforestation more widely”, the POTC report pointed out.

The Grocer has previously reported on how new EU anti-deforestation laws, which have been approved by the European Commission earlier this year after months of consideration, are set to affect several EU and UK businesses as well as smallholder farmers producing risk-prone commodities like cocoa, coffee and palm oil.

The boss of toilet paper company Cheeky Panda, Chris Forbes, has also warned of “seismic impacts” at retail level such as tissue shortages and recycled paper price hikes as many suppliers will not be able to comply with all due diligence requirements.