Palm Oil Monitor – Weekly Update 8th May 2018

Quantifying the EU’s palm oil ban

An analyst from Singapore has attempted to quantify the cost of the EU’s proposed biofuel ban in a post for the East Asia Forum. Yu Leng Khor of Segi Enam writes:

“The EU energy demand for palm oil from Malaysia and Indonesia is worth about US$1.5 billion per year. Malaysia’s market share is 30 per cent and a notional loss would total about US$256 for each of Malaysia’s 650,000 smallholders. Under current income estimates, this would represent 5 per cent of a FELDA settler’s annual income from oil palm”.

This is a good back-of-the-envelope calculation.  It squares with a very rough calculation that we put together on the back of EU modelling commissioned in 2010, but could be an underestimate.

Back in 2010 (along with the launch of the iPad) the EU reckoned that EU renewable energy directive policies would increase palm oil production – not just exports — by around 10 per cent by 2020 for both Malaysia and Indonesia – as a whole.  So, if we take that out, i.e. reverse the counterfactual, we’re looking at a 10 per cent drop in output across the board for both countries.

Note that this estimate doesn’t include increased output and any revenue from palm kernel oil, palm kernel meal and expeller.

So, it would be reasonably safe to say from these assumptions (provided they were broadly correct in the first place) that there would be a minimum drop in revenue for producers of around 10 per cent, plus drops from PKO, etc. Whether this corresponds directly with a drop in income is up to the farmer.  Either way, it’s a significant drop in revenue that will impact the private sector and government accounts.

 

Indonesia lobbies away

Indonesian palm oil envoys have been particularly busy in the European Union. Last week they’ve drafted the support of the Vatican, which has taken on the ASEAN position and is now advocating for small farmers, as part of its poverty alleviation mission. Palm oil is, famously, one of the best-known tools in the world for poverty alleviation amongst rural communities, having helped to reduce Malaysia’s poverty rate spectacularly, down to its current rate of below 5%.

According to Indonesian officials, Cardinal Peter Turkson, Director of the Pontifical Council for Justice and Peace had voiced “concern over the fate of oil palm farmers and millions of people whose lives depend on the palm oil industry.

“He specifically stated what would happen if these workers … had no income anymore,” he said, pointing out that there were 16.5 million people who depend on the industry.

“Cardinal Turkson is proposing to hold a seminar that addresses this issue at the Vatican’s Pontifical University next month.”

In addition, Indonesia’s palm oil envoy, Luhut Binsar Panjaitan, met with EU trade commissioner Cecilia Malmstrom in Brussels. In an interview with Politico, the envoy pointed to the unforeseen impacts of a palm oil ban: “If you ban it, this immediately impacts smallholders. We’re talking about poverty. Poverty creates radicalism. Radicalism creates terrorism.”

According to our sources, a high-level forum between Vatican, Indonesian, Malaysian and EU officials will take place on Tuesday, 15 May.  Watch for more details on this front; it’s never a good thing for Western politicians to offend the Vatican.
IN BRIEF 

Indonesia’s coordinating minister for economic affairs Darmin Nasution says palm science will make palm oil sustainable. Nasution told the International Conference on Palm Oil and Environment that “the need for edible oil and energy will continue as populations grow. Meanwhile, land that can be utilised will decrease, so the question is how to meet those needs in the limited land area.  Increasing productivity will be the key.”

Greenpeace has gone after a palm oil supplier, the Yemeni-owned HSA Group, which is a supplier to Mars, Nestle and Unilever. Greenpeace claims HSA subsidiaries cleared peatland in Papua, in contravention of those companies’ sourcing policies. Unilever has suspended purchases from the group. The timing, again, is conspicuous given the current debate on palm in the EU.

WWF is sending mixed messages on the palm ban. At a conference run by the International Institute for Sustainability Analysis and Strategy, WWF happily endorsed a much tighter regime for palm oil in the RED, going further than the current acceptance of RSPO-RED, and calling for reduced levels of palm oil in the RED – but didn’t call for increasing levels of certified production. But there was one gross overstatement: they claim that banning imports can be justified on loose environmental grounds under WTO law. This is simply not true, as Borderlex reported last week.

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