Palm Oil Monitor Weekly Update – 15th October 2018

Nestle: Who Needs Greenpeace?

Greenpeace’s action against Wilmar and other firms has highlighted the work being undertaken by Nestle and The Forest Trust in conjunction with Airbus.

The ‘Starling’ program that the three entities have put together relies on decades of historical satellite imaging and new monitoring data. Theoretically, in combination with better palm oil traceability data, the companies should be able to provide Nestle with something resembling real-time deforestation data that they can track to suppliers.

This is quite a remarkable development for a company like Nestle. Nestle has been particularly sensitive to reputational risks since the 1970s, when its marketing strategies for milk prompted a worldwide boycott movement and policy changes at the World Health Organization.

It’s now nearly a decade since Greenpeace launched a particularly graphic campaign against Nestle’s palm sourcing policies, which implied that eating a Nestle chocolate bar was equivalent to eating a dead orang-utan.

Nestle changed its sourcing policies, in line with Greenpeace demands. But Nestle also plays a long game. It’s now reasonably clear that they were seeking a long-term solution to their problem – no deforestation within their supply chain — that they could consider both technically robust and within their control.

Greenpeace, however, has only been critical of the Nestle announcement. This is a new, tech-based solution to a problem that Greenpeace highlighted.

Why the objections? Because it takes Greenpeace out of the loop.

The entire strategy for Greenpeace on palm oil relies on ‘gotcha’ moments. It comprises:

  • Undertaking a ‘secret’ investigation using exclusive data and analysis;
  • Publishing this data through its own platforms or other media channels;
  • Confronting upstream companies with the new data – usually through a media stunt of some kind;
  • Calling for a particular action.

When companies have better data, there is no ‘gotcha’ moment.  It also reduces Greenpeace’s ability to play loose with the truth. This is one of the reasons Greenpeace campaigners have a field day in developing countries, where data is poor, governance is weak and transparency is poor: it is a data vacuum.  Nestle looks to be changing that equation.

The EU Denies A Ban, Again

EU officials have been forced to deny – again – that the trading bloc is planning to ban imports of palm oil for the EU’s renewable fuel programs.

The denial was made by the EU’s head of ECOWAS and Nigerian Co-operation, Kurt Cornelis during a sensitisation workshop about the proposed ban of palm oil importation to the EU.

The workshop was organised by the Nigerian Investment Promotion Commission (NIPC).The NIPC has been informed by officials that the EU had intended to ban palm oil imports for its renewable programs.

This is an entirely reasonable assumption given the European Parliament’s moves to phase out palm oil in the past, and the public statements from many MEPs that this effort will continue.

Palm oil producers in Nigeria and across sub-Saharan Africa are well aware of this. Companies like SOCFIN and SIFCA have a good understanding of European policy – a good chunk of the investment in Africa is from Europe, and most exports go to EU markets.  Unlike their Southeast Asian counterparts, they don’t have the luxury of large established export markets in India and China.

For this reason, they also have an understanding of how EU policy can creep. After all, it was farmers from the Cote d’Ivoire that launched action against anti-palm oil labels in France.

What this indicates – as with the EU Ambassador to Indonesia’s comments last week – is that the EU very much needs to clarify its position, and as soon as possible.

Developing countries assumed they were facing a palm oil ban; they are then told this isn’t the case; but it’s quite evident from the final text of the RED that a palm-based biofuel freeze and phase-out might start occurring as soon as February.

In which case, EU officials saying, ‘there’s no ban on palm oil’ will sound even more ridiculous.

Malaysia has asked the EU repeatedly at the WTO for drafts of any legislation. Thus far they haven’t responded.

To Europeans this might be bureaucracy at work, but to anyone outside of Brussels, the contradictions and silence come across as arrogance at best, and outright duplicity at worst.

Kok Calls Out EU’s Shifting Goalposts 

New Malaysian Primary Industries Minister Teresa Kok has called out the anti-palm lobby in the European Union – and not just campaigners.

Minister Kok called out the clear hypocrisy between the EU’s stated political position on sustainable development and its regulatory trade barriers for developing country exports.

At a recent sustainability conference in Spain, she said “the EU should assist developing countries achieve the SDGs instead of imposing onerous rules and policies that undermine their efforts.”

Kok also implied that the mixed messages could lead to perverse outcomes: “EU’s anti-palm oil action is telling palm oil producing countries that investing in sustainability does not pay off and is futile. Malaysia has taken various efforts to invest in sustainability and comply with sustainable practices.”

This has to some extent been the case with sustainability certification. The case was made when certification schemes started that there would be a clear premium for certified product. This hasn’t materialised in the way it was imagined. Rather, the costs have been borne by producers; purchasers and consumers are generally not willing to pay.

But by continuing to single out palm oil – after palm exports complied with the EU’s sustainability criteria using RSPO-RED and ISCC – the EU is signalling that it will change the compliance rules as it sees fit.

In both cases, the rewards for complying with tighter requirements – and not necessarily better requirements – are not there. Minister Kok is asking a question that we know that many palm exporters ask constantly: can Europe really be trusted?

If You Thought Palm Was Tough…

CIFOR, one of the world’s leading forestry institutions, has put together a new report outlining the problems identifying soy-based deforestation.

The big problem, according to the report authors, is that 80 per cent of the world’s soybean crop is fed to animals, which is then sold to customers. It is for this reason that the ‘deforestation footprint’ in exported meat products is so high.

More than half of Brazil’s soybean meal exports go to Europe – this is basically used for animal feed.

But it’s the beef-soybean nexus that makes things even more complicated in a country like Brazil, particularly when it comes to soybean certification. Forest is often cleared for animal pasture; but then the land-use shifts to soybean. In this scenario, the soybean can be considered ‘deforestation free’ – because it wasn’t the soybean farmers that cleared the land.

The other problem for soybean is that certification covers no more than 4 per cent of global production: it is entirely niche. This means that, like FairTrade, its market penetration is limited and will be further hindered by the large proportion of soybean that goes to animal feed markets.  Adding to this is that soybean rarely has a ‘consumer’ face.

Beef already has some limited pressures on it in niche markets from those who demand grass-fed beef, hormone-free or no meat at all. Consider the complicated nature of asking consumers to demand that their meat is only fed deforestation-free soy.

It’s no wonder that activists picked on palm oil instead.

But it’s also absurd. Soy has deforestation footprint that is double palm oil’s. Beef’s deforestation footprint is ten times as big.

The situation is about to get more complicated, too. The ongoing trade dispute between China and the US has prompted China to put a 25 per cent tariff on US soybeans. Prices for exported soybeans are high – so there may be a new incentive for Brazilian farmers to clear and plant more land.


HCS 101 PART 3: Can HCS Be Changed?

The first two blogs in this series looked at how the ‘high carbon stock’ idea has been introduced into both European regulation (under the Renewable Energy Directive) and into private sector (the High Carbon Stock Approach and the Sustainable Palm Oil Manifesto).

This piece will look at how and whether the various approaches to HCS can be incorporated within the EU’s revised Renewable Energy Directive framework.

First, we’ll look at the rationale for the inclusion of the HCS definition itself. Second, we’ll look at different scenarios for changing that definition.

Why HCS?

To recap, the European Commission, Parliament and Council have agreed on an approach to the sourcing of biofuels and whether they can be counted towards the EU’s renewable energy targets. They have stated that in February 2019, the Commission will define criteria for acceptable biofuels. This will be based on whether biofuels can be considered ‘high risk’ or ‘low risk’ for indirect land use change in ‘high carbon stock’ areas.

As we’ve pointed out, the existing HCS definition is broadly in line with international definitions of forested areas, leaning towards the upper limit of carbon stock thresholds.

The big question is if, whether or how the Commission will alter its definition of HCS areas.

The rationale behind the use of HCS as an original ‘threshold’ appears to be because it is very difficult to accurately measure emissions from land-use change , and it’s also difficult to generalise. Consider that the variation in aboveground carbon stock is dependent upon forest type (e.g. tropical dry or wet), latitude, rainfall and temperature change, among other things.

Belowground carbon and soil disturbance for clearing makes things even more complicated. Soils – as a source of greenhouse gas emissions – are poorly understood. Different soil types emit different gases at different rates under different conditions – and it’s not intuitive. For example, CO2 emissions from soil used for growing wheat in temperate climates are significantly higher than emissions from soil for sugarcane in tropical climates.

Combined, the IPCC tallies that for forests, averages for above and below ground carbon are about 400 t C ha- in boreal forests, 150 t C ha-1 in temperate forests, and 250 t C ha-1 in tropical forests.

Therefore, the European Commission narrowing the definition of ‘high carbon stock’ to ‘continually forested areas and wetlands’ suited the EU’s political purpose. It should also be remembered that tropical forest areas were simply not on the EU’s radar when the regulations were written. This was very much about: i) supporting domestic agriculture; and ii) greening the image of diesel as a transport fuel.

But the question is whether the use of a ‘high carbon stock’ threshold is actually meaningful for greenhouse gases and biodiversity.

One of the key points that has been made by European analysts throughout the first iterations of the RED was that land use change emissions because of palm oil – caused by indirect land use change in forests and peatland  – were high, and therefore palm oil should be excluded from the RED. But some studies showed that even with this incorporation of HCS thresholds into ILUC calculations, the emissions from palm were lower or equivalent to rapeseed and other crops.

Why is this the case? Because in modelled scenarios when palm gets excluded from the RED based on either greenhouse gas ‘savings’ or because of peatland expansion, the demand for EU-based vegetable oils increases in the EU for other uses. This shortfall has to be replaced somehow, and palm oil’s versatility makes it the first choice.

The other point is on biodiversity. One European researcher states the following:

The impacts on biodiversity in terms of species diversity from occupation and transformation of land in Europe may be as significant as from occupation and transformation of land in rainforest regions e.g. Malaysia and Indonesia. Two factors contribute to this surprising characteristic: 1) The yields in the tropics are often higher than in the temperate regions leading to a smaller affected area in the tropics, and 2) since a smaller share of the original nature in Europe is left than in Malaysia and Indonesia, the ecosystems in Europe are also more sensitive to further occupation and transformation.

What this demonstrates is that the HCS threshold – as a means to achieving a particular environmental outcome – is somewhat arbitrary. This is because it applied to a market designed by the EU that was really only supposed to operate internally.

This question of the EU’s HCS thresholds leads into bigger questions about whether an alternative threshold or definition could deliver a better outcome.

Can HCS be changed?

Let’s consider some scenarios.

First, let’s consider the existing regime, using the most extreme definition : Greenpeace’s HCS definition.

It wouldn’t be politically palatable to bring the cutoff date forward to 2019. Pushing it further back, i.e. retrospective regulation, would also not be possible. However, changing the rules to tighten the definition of expansion into any forest type – including young regenerating forest – would satisfy European Greens, particularly if combined with the existing 2008 cutoff date.

Under this scenario, fuels from any expansion areas that went into any forest would need to be re-certified under RED certification. This would limit the number of suppliers going into Europe, but it would not stop them. Many Malaysian suppliers would still qualify, as would incumbents in Indonesia. The bigger question would be whether data is available for certification.

In our view, this would significantly change the market.

Second, let’s consider the new regime, where biofuel feedstocks are assessed for whether they are at risk of causing indirect land use change in HCS areas.

For the sake of clarity, let’s assume the EU finds a way to ‘prove’ that ILUC is significant for palm oil – and palm oil alone — and that it is possible to determine whether the expansion has been on all forest types, tightening the HCS definition.

As previous EU reports have demonstrated (and outlined above), the demand for rapeseed and other oils in the EU market would go up, increasing price and lowering supply. Demand for palm would rise as a consequence for non-fuel uses, and no indirect land-use change would be prevented. It may actually increase.

Another problem might be that rapeseed, too, has impinged upon young regenerating forest that wasn’t classified as forest.

The only way for the EU to prevent any land-use change would be to apply the same conditions to rapeseed. This is, of course, politically unacceptable.

However, the combination of land-use change risk vagaries and a tighter definition for HCS will likely give the EU the answer it wants.

In the WTO, this probably won’t be acceptable under different WTO agreements.

If the EU is seeking to prevent greenhouse gas emissions and/or deforestation via a technical regulation, the method it chooses should “not be more trade restrictive than necessary to fulfil a legitimate objective.”

Similarly, the WTO allows for countries to introduce trade measures related to the conservation of natural resources. But a policy must be ‘primarily aimed at’ the conservation of exhaustible natural resources and any implementation must be ‘reasonably related’ to that objective. The Directive is about renewable energy and greenhouse gases. It’s a world away from indirect land use change in developing countries.

In other words, if the EU wants to stop deforestation, there are easier ways to do it than by tightening the HCS definition.


Palm Oil Monitor Weekly Update – 8th October 2018

Has the EU Predetermined ‘High Risk’ Biofuels?

The EU’s Ambassador to Indonesia, Vincent Guérend, has raised eyebrows in the region by stating that the EU will phase out palm-oil based biofuels by 2030, according to comments reported in the Jakarta Post.

The problem with his comments is simple: the compromise text for the revised Renewable Energy Directive stated no such thing.

Just to remind, the agreed text of the European Commission, Parliament and Council stated two things.

First, that the European Commission would complete a report on ILUC (Indirect Land Use Change) and cropland expansion by February 2019, and that it would also construct a set of criteria for determining which biofuels can be certified as ‘low ILUC risk’ biofuels.

Second, it said that it would freeze ‘high risk’ biofuels at 2019 levels, and that by 2023, it would review these criteria with a view to phasing out ‘high risk’ fuels by 2030.

The compromise text should indicate that these decisions are yet to be made. The criteria, scientific report, are supposed to be based on the best available scientific information.

The reasonable question is whether the result has been predetermined; Ambassador Guérend’s words would indicate that this is the case.

Consider Guérend’s statement: “Provided the country succeeds in ensuring sustainable palm oil supply chains, we would be willing to reconsider the commodity’s eligibility in the EU market after 2030.”

It should be noted that Guérend hasn’t specified that high-risk or uncertified palm will be phased out; he has simply said that palm will be phased out.

This would mean that even under a RSPO-RED type certification – HCS prohibitions in place or not – palm would be banned from the RED.

This is undoubtedly the option that many EU policymakers are seeking, particularly in the Parliament and among member states. We would have hoped that the Commission would be the voice of reason, but Guérend appears to be indicating otherwise.

Unsurprisingly, Malaysia, Indonesia and other palm exporters – including Colombia and Thailand – have already raised the RED at WTO Technical Barriers to Trade meetings, and called for information on draft regulations; the EU has rebuffed these requests.

What will happen after February if the EU presses ahead? Palm oil exporters will undoubtedly seek to have the matter resolved via the WTO. This may put a dampener on progress in the EU-Indonesia trade negotiations. A dispute between Australia and Indonesia on antidumping actions on paper slowed progress in their bilateral negotiations, which are yet to be finalised.


Both Malaysia and Indonesia are hitting the road to lobby against the EU’s future biofuels rules. Last week, the Council of Palm Oil Producing Countries (CPOPC) issued a joint statement that was highly critical of the use indirect land use change in policy instruments. The clearest statement was as follows:

Governments in the developing world should be fearful of being drawn in to acknowledging, accepting or offering legitimacy to the ILUC scheme within the RED II.

The statement calls out the use of ILUC as a potential violation of WTO rules.

Malaysia’s Minister of Primary Industries Teresa Kok also visited both Switzerland and the European Union in order to see eye to eye on palm oil. The visit to Switzerland followed the Swiss senate narrowly blocking a motion to have palm oil left off the table in bilateral trade agreement negotiations between Switzerland and both Malaysia and Indonesia.

The two governments agreed to form a joint committee to cooperate on trade, sustainability and technology.  As with most countries, for the Swiss, it’s the farm sector making the biggest noises on palm oil. The problems for Switzerland’s farmers haven’t been competition for imports into Switzerland, but the general non-competitiveness of European rapeseed oil in EU markets.

Minister Kok’s visit also took in the European Palm Oil Conference in Madrid.

Indonesian Trade Minister Lukita had virtually the same itinerary, visiting both Zurich and Madrid. The visit to the former was for the finalisation of the Indonesia-EFTA (European Free Trade Area – comprising Switzerland, Iceland, Norway and Liechtenstein) free trade agreement.  Sources have indicated that this agreement is very close to completion.

The visit to Spain was also for the European Palm Oil Conference, where Minister Lukita spoke at the same session as Minister Kok.  Indonesia has attempted to strengthen its existing regulatory regimes and certification schemes, though the robustness of both remains questionable.

Deforestation Data Gets Sharper

A new study by some of the world’s leading experts on deforestation has received little attention. Why? The story it tells isn’t quite what environmentalists want to hear.

Authors from the University of Arkansas’ Sustainability Consortium, along with Matt Hansen of the University of Maryland (home of Global Forest Watch) and esteemed scholars such as Nancy Harris, have remodelled Global Forest Watch (GFW) data.

Part of the problem with the GFW was that it could examine tree cover loss at a reasonably fine level – down to 30m2 – but couldn’t actually determine whether that tree cover loss was because of clearing for agriculture, pulp plantations, small-scale shifting agriculture, or part of regular forest harvesting operations, or even urbanization and oil palm replanting.

To remedy this, Hansen and co re-examined 15 years of data (2001 to 2015) and undertook ground-truthing to determine what is actually driving deforestation.

In short, this seems to have significantly improved the accuracy of the regional-level data.

So, original map-based estimates for forest loss in Southeast Asia indicate that large-scale farms and plantations in the region account for 78 per cent of forest cover loss and can be considered land-use change in a stricter sense, with shifting agriculture accounting for 9 per cent of forest loss.  However, the revised results put the figures at 61 per cent for large-scale farms and plantations and 20 per cent for shifting agriculture.

There are also some other points worth noting. Tree cover loss in Southeast Asia is on par with that in Africa, but most African tree cover loss comes from shifting agriculture. The figures put large-scale farming deforestation in South America at more than double that of Southeast Asia. The distinction between shifting agriculture and large-scale agriculture isn’t arbitrary; the two are qualitatively different and this is noted by the authors, but there is crossover between the two, particularly when smallholders contribute to global commodity supply chains.

The study doesn’t disaggregate the data by country yet, and nor does it disaggregate by commodity, but imagine that to be the next step. Given that the bulk of deforestation in South American is driven by livestock and soy, and that according to an EU study just 11 per cent of deforestation in Indonesia comes from palm, we expect palm to be relatively low on the list of commodities.


Palm Oil Monitor – Weekly Update 1st October 2018

Indonesia Tries Another Moratorium

The Indonesian government has said that it has put in place a presidential instruction that halts new palm oil developments for three years.

Various environmental groups have welcomed the announcement, but it should be viewed with a degree of scepticism.

First, it’s a presidential instruction or ‘inpres’. This means it is a declaration from the office of the President, rather than a piece of legislation created by the President (‘Perpres’). This is of utmost significance. ‘Inpres’ declarations are best described as lower-level laws in Indonesia’s legal hierarchy.

Often these lower-level laws lack implementing regulation from the relevant ministry, and/or the relevant sub-national government. These means that although it is a legal instrument, the lack of regulation means it can’t be implemented.

Second, even with implementing regulation, that doesn’t mean the laws themselves are enforceable, meaning compliance might be low.

Any number of decrees may be issued from Jakarta that will require implementing regulation from provincial authorities. But as has sometimes been the case, the provinces can have an adversarial relationship with Jakarta.

Added to this is that resources for compliance and enforcement aren’t always there. Indonesia is a big country, but has limited resources. Provincial heads may simply not have the fiscal means to support large-scale reviews of oil palm plantation permits.

Third, we’ve been here before. In 2009, in the lead-up to the Copenhagen climate conference, President Yudhoyono issued what was effectively a moratorium on forest clearing. This was partnered with a USD 1 billion grant from the government of Norway as an incentive payment. But the fact of the matter was that the moratorium simply did not slow forest loss. In the six years after the announcement forest loss increased.

So why has the announcement been made now?

The EU’s planned restrictions on palm oil biofuels for the Renewable Energy Directive are without doubt causing producer nations a high degree of concern. Much of the language that the EU is using concerns risk of land use change (direct or indirect) in high carbon stock forests. A moratorium – if enforceable – would lower that perceived risk.

 Wilmar vs Greenpeace Heats Up

Wilmar and Greenpeace appear to have stepped up their war of words – and actions. Wilmar, for its part, has gone on a media blitz, pointing out that many of Greenpeace’s accusations are incorrect or outdated. However, factual accuracy has never been Greenpeace’s strong suit, and facts, no matter how compelling, are not going to force Greenpeace to back down.

Greenpeace has stepped up its public action, ‘occupying’ a Wilmar refinery in Sulawesi.  This is straight out of the Greenpeace playbook – from several years ago.

The question is this: who is Greenpeace attempting to convince with this additional action?

As we noted last week, Greenpeace is seeking greater support for its High Carbon Stock Approach methodology.

Wilmar was already implementing ‘no deforestation, no peat, no exploitation’ within its own plantations; it was already asking suppliers to comply with the same policies, and there are limits to how quickly companies can change supply chain practices. Their key demand was having access to having all supply chain information.

The point of leverage Greenpeace has is with purchasers in Western companies and in Western markets. Do purchasers think this new action is acceptable? One comment in the Straits Times last week stood out:

There is growing frustration among activists that big plantation companies, including pulp and paper suppliers, are, in effect, having their cake and eating it too by announcing big sustainability goals in order to hold on to brands such as Nestle and Unilever, only to hide misdeeds among their opaque supplier networks.

It may be the case that purchasers are for the most part satisfied with most efforts so far and understand that minor tweaks to RSPO no deforestation policies will only provide incremental environmental and economic gains. Having purchasers care more about the technical difference between a broad ‘no deforestation’ approach and the complexities of HCSA may be a tough sell. Consider also that companies like Nestle have announced that they will use satellites to monitor suppliers for deforestation. In these cases, who needs Greenpeace?

Swiss Farmers Swing and Miss

The Swiss Senate rejected a proposal to leave palm oil off the negotiating table in its future agreements with Indonesia and Malaysia as part of EFTA bloc (European Free Trade Agreement), comprising Switzerland, Norway, Iceland and Liechtenstein.

Senators rightly pointed out that forcing palm oil off the table would lead to a collapse in negotiations. That said, the palm oil trade between Malaysia and Switzerland is small, hitting around 35,000 tonnes annually. The bulk of this goes to the food industry.

The biggest opponents to palm oil in Switzerland are, unsurprisingly, rapeseed producers. There are around 8,000 producers growing on 15,000 ha.

This is not a significant number of farmers compared with the millions of oil palm growers across Southeast Asia. However, as the Belgian dispute over farming in the Canada Europe FTA showed, a small number of farmers can have a big impact in inward-looking European markets.

The Senate did, however, instruct negotiators to seek provisions on sustainable production of palm oil and the development of international standards for sustainable production. This second point is promising. The introduction of an ISO-endorsed standard for palm oil could be very welcome, particularly when international disputes over sustainability emerge. The starting point would likely be the MSPO.