The European Union Regulation on Deforestation-free Products (EUDR) poses significant challenges for Indonesia’s and Malaysia’s key commodities—palm oil, cocoa, and rubber—primarily impacting the industry’s smallholder backbone. Compliance demands substantial investment in technology, infrastructure, and capacity building. Yet, the EUDR also offers an opportunity to integrate smallholders into more formal value chains by leveraging advanced technologies like blockchain and satellite imaging, enhancing supply chain transparency and real-time verification.
Smallholders face particular hurdles, including resource constraints, complex supply chains, and difficulty meeting sustainability standards. These challenges will intensify as they engage with export-focused EUDR-compliant supply chains (effective December 2025). Specifically:
- Palm oil concern with deforestation and smallholder integration into national certification schemes (ISPO and MSPO), which require further global alignment.
- Rubber smallholders are challenged by aging trees, declining yields, financial limits, and climate change impacts.
- Cocoa smallholders contend with low productivity, pests, market volatility, and the EUDR’s technical demands.
Effective EUDR implementation requires comprehensive efforts: providing smallholders with targeted training, resources, and financial support. Successful smallholder inclusion also necessitates collaboration among government, NGOs, the private sector, and international stakeholders. By harmonizing national legality, strengthening enforcement, and promoting sustainable practices, Indonesia and Malaysia can emerge as leading responsible suppliers of traceable commodities. Key recommendations include empowering smallholders, bolstering traceability, advancing sustainable production, fostering collaboration, and advocating for policy harmonization and international cooperation.
