Palm Oil Monitor – Weekly Update 14th May

Certification: Still the best solution

An NGO based in the Netherlands – ‘Changing Markets Foundation’ – has released a report claiming that certification schemes have ‘lost all credibility’.

This isn’t a new angle; environmentalists have been making this kind of claim about RSPO for years. The timing is conspicuous, however, with the EU trilogue on renewables currently underway in Brussels.

Why conspicuous? Because the only vegetable oil that the report singles out is palm oil.

There are other certifications for vegetable oils – e.g. the Roundtable for Sustainable Soy, and ISCC certification, which covers all vegetable oils – but Changing Markets only wants to focus on palm oil.

The key recommendation of the report is for new strategies to be developed to curb demand for palm oil – particularly in the biofuels sector.

This is instead of recommending strategies to increase the rigour of sustainability standards themselves, or possibly use alternative strategies such as using business-to-business initiatives.

This seems to fly in the face of the original impetus for sustainability schemes: generating a broad economic, social and environmental consensus on what the content of a sustainability certification should actually be.

This was a strategy that was wholly endorsed by WWF as part of its ‘market transformation’ strategy. The idea behind this was to get the world’s largest purchasers of commodities to adopt sustainable procurement standards and have producers implement them.

This has, to some extent, been immensely successful. It has also prompted the development of other, state-backed standards, providing choice and competition. The idea of throwing this progress away seems counterproductive, and would remove the current incentives for improving the environmental impact of palm oil production. Certification may not be perfect, but it’s the best thing we have right now.

 

RCEP and ASEAN: Any progress?

The latest round of negotiations for the Regional Comprehensive Economic Partnership (RCEP) wound up in Singapore last week. The round was tacked on to the back of the ASEAN Summit, held in Singapore. The RCEP is an agreement between ASEAN countries, India, China, Japan, Korea, Australia and New Zealand.

The negotiation process has been painfully slow. ASEAN continues to consolidate its position, negotiating as a single bloc. One of the key obstacles has to this point been the Indian government, which is calling for liberalised rules on human movement, but refuses to lower its tariffs. Better access to India’s vegetable oil market – and any other markets — is a key priority for both Malaysia and Indonesia. Without better access there, the agreement may well fall over.

However, the Chair’s statement at the ASEAN meeting also included a specific reference to Indonesia and Malaysia addressing palm oil sustainability. On the outside this may not look like a big deal, but Malaysia and Indonesia have clearly managed to get other ASEAN members onside in the palm oil debate – including Singapore, which profits significantly from the palm oil trade. This elevates this from a national issue to a region-wide issue – and is of particular relevance in EU-ASEAN relations.

 

LMC’s choice: new plantings or higher prices

Consultancy LMC has made some bullish medium-term projections on palm oil prices heading out past 2020. At a conference last week in Ghana, they projected that prices will be over the current norm by around USD100 to 150.

(You can find a similar presentation from February this year here.)

Their reasoning is simple: there has been a slowdown in new oil palm plantings, which won’t be felt for several years.

This slowdown will, in turn, have an impact on palm oil stocks. Future increases in demand will be met by the remaining new plantings, but after that there is little room to move.

So, as palm oil stocks diminish, the premium for palm over the Brent crude price goes up.

The final result is simple: “This will persist for several years until new supplies are created.”

But are substantial new plantings possible? Aid agencies talk about productivity gains and higher yields from smallholders, but this requires significant work. Improving yields among smallholders in a country like Indonesia is a momentous task.

New plantings in Africa and Latin America may be possible also, and this appears to show some promise. However, the success of large-scale agriculture in sub-Saharan Africa is patchy at best.

The problem will be willingness to invest. There’s a level of risk in African projects that few are willing to take on. It’s not just a matter of the palms themselves; it’s the processing, infrastructure and training that goes with it, as well as strict conditions around RSPO certification.

IN BRIEF

Agricultural giant Wilmar says it’s particularly concerned about the impact of ongoing US-China trade tensions on its oilseed business, more specifically volatility in global soybean markets. China has threatened tariffs on US soybeans in response to Washington’s threatened steel tariffs. The Financial Times reports that “Chinese buyers have already halted purchases of the coming US soyabean crop due to concern they could be hit with a $100 per tonne tax shipments.” As reported previously, this may provide an upside for palm oil shipments to China.

UK officials are jumpy at the prospect of the European Parliament’s proposed palm oil biofuel ban.  The UK press has been rife with stories claiming that officials are seeking to distance themselves from any ban, in case manufacturing contracts for aircraft purchases are scotched. According to The Times, “Malaysia plans to buy up to 18 Typhoon fighter jets to replace grounded Russian MiG-29s. BAE Systems hopes to secure the contract, worth more than £1.5 billion. BAE employs 5,000 people directly in the UK on the Typhoon programme and there are 9,600 other jobs in the UK supply chain.”

Share