Palm Oil Monitor Weekly Update – 10 December 2018

Norway excludes palm from biodiesel

Norway has attempted to follow the lead of the European Union and exclude palm-based biodiesel in its biofuels programs. The Norwegian Parliament passed a proposal that called on the current government “to formulate a comprehensive proposal for policies and taxes in the biofuels policy in order to exclude biofuels with high deforestation risk”.

Although the parliamentary action directs the Norwegian Government to develop a regulatory measure, any concrete action still has some way to go.

Norwegian politicians would be well aware that the EU has tried – and failed — over many years to have palm oil excluded from its renewable programs.

Norway is a very small user of bioenergy; it is often forgotten that it is one of the world’s larger producers of fossil fuels. Around half of its exports are crude petroleum and natural gas; and around one third of its exports to Indonesia is crude oil.

Biofuel programs were supposed to be about switching away from fossil fuels; Norway appears to have forgotten this.

It also appears to have forgotten that it’s close to the end of a set of trade negotiations with Indonesia. The Indonesia-EFTA (European Free Trade Area – comprising Norway, Iceland, Switzerland and Liechtenstein) concluded its negotiations in principle.

But that might not mean much; Indonesia had also finalised its trade agreement with Australia, but pulled back completely when Australia decided to move its embassy in Israel to Jerusalem. Indonesia’s politicians saw an opportunity ahead of Indonesia’s elections in April and ran with it.

Norwegian policymakers would do well to learn that free trade agreements don’t get a great deal of political support in Indonesia – particularly at a time when the country is running a sizeable trade deficit.

Polman exits Unilever

Paul Polman has stepped down from Unilever after a decade-long stint as CEO. Polman was always a polarizing CEO. His emphasis on sustainability riled many shareholders, analysts and investors. It also baffled a number of sustainability analysts and commentators, who noted that his ‘sustainability plan’ for the company – which mostly concentrated upon the sourcing of raw materials and climate emissions – ignored a number of areas that eventually became a problem for the company, such as sexual harassment, excessive plastic packaging, and contamination lawsuits.

Sustainability also didn’t appear to include a top-down crackdown on illegal behaviour, with the company facing the wrath of many regulators over cartel and anti-trust activities. But for palm oil, the biggest controversy involving Unilever came in 2013. As the company attempted to implement a traceable supply chain, it had to cut 80 per cent of its smallholder suppliers – remembering that Unilever is the world’s largest palm purchaser. Unilever executives said it was a ‘cull … to ensure standards’ and that social concerns lost out to environmental ones – a slight to the UN’s Sustainable Development Goals (SDGs) that seek to balance social and environmental concerns.

Unilever responded by attempting to re-incorporate smallholder farmers two years later. But for a smallholder farmer, losing a contract for a couple of years is a big deal. The move cost Unilever a lot of support amongst palm oil producing governments.

Clearly, for Polman, Dutch green politics came before the development needs of non-European small farmers, especially in the Netherlands’ former colony, Indonesia.

COMMENT: What’s wrong (and right) about Iceland’s letter on palm oil

Iceland’s Richard Walker has strengthened his resolve on Iceland’s decision to ban palm oil from its in-house products.

Iceland maintains that as a small ‘outsider’, “the only way we could create meaningful change was to shout very loudly from outside the established palm oil industry” and that Iceland “decided simply to stop using palm oil until the industry cleaned up its act.”  In addition, Walker says that palm oil’s big problem is that palm is “grown almost exclusively in areas of tropical rainforest.”

What’s wrong with these statements?

First, Walker may be an outsider, but working with Greenpeace is no small undertaking. They are arguably one of the richest and most effective PR companies in the world. Playing the ‘naïve’ card looks disingenuous.

Second, Iceland had other options when making its decisions on palm oil. If orangutans were the concern, it may have been possible to purchase segregated supply from New Britain Palm Oil in Papua New Guinea. Or from palm grown in Africa or Colombia, where orangutan have never lived. Or from established plantations in Thailand.

If this decision was not about marketing, but about ‘doing the right thing’, the other option would have been to simply make the change. No press releases or TV chat show appearances, just a switch.

Third, the ‘tropical’ problem. Soybeans and beef are responsible for extraordinary levels of deforestation in the Amazonas region of Brazil, according to EU research (far higher levels than palm oil). Also, the palm is not “grown almost exclusively in areas of tropical rainforest”, it’s grown where the environmental (soil, climate, etc) and social conditions are satisfactory for the plant. A tropical rainforest can develop there, but also an anthropic savannah or another vegetation. Why, then, is Mr Walker, not banning beef or soy products in Iceland?

So what did Iceland get right?

First, Walker “accept[s] entirely that a wholesale boycott of palm oil is not the right long term solution”.

Second, people (generally those in Europe) really do care about environmental degradation. This is also true, and his customers have responded positively to Iceland’s other major campaign, on reducing plastic waste.

But here’s a challenge to Iceland. Deforestation from beef is ten times that of palm. Soy is more than double. Perhaps Iceland should arm its customers with the full facts about deforestation, rather than simply a narrowly-focused hit-job on one commodity. That would show real leadership.

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Palm Oil Monitor Weekly Update – 3rd December 2018

Some questions on Greenpeace and Wilmar

Palm giant Wilmar appears to be taking a harder line on Greenpeace than ever before. Wilmar’s stance comes after a group of Greenpeace activists boarded a ship off Spain, calling on food manufacturer Mondelez to drop Wilmar as a supplier.

Wilmar is understandably incensed given the commitments made at the recent RSPO meeting, which included commitments to no deforestation and to supply chain transparency.

One of the problems for Wilmar is that Greenpeace’s message is very unclear. It is calling on Mondelez to drop ‘dirty palm oil’ and Wilmar as a supplier. Why is the Wilmar palm oil ‘dirty’? Greenpeace wants Wilmar to “prove its palm oil comes from producers that are not destroying rainforests or exploiting people.”

Apkasindo, the organisation representing Indonesia’s smallholders, has sided with Wilmar. Rino Afrino, head of the group, stated that Greenpeace had ‘insulted’ Indonesia.

“Can Greenpeace prove that the palm oil sold by Wilmar damages the environment?” Rino said in comments to the Jakarta Post. “Their campaign destroys the image of Indonesian palm oil.”

The bone of contention appears to be Indonesian group Bumitama. But even then, it’s very difficult to determine precisely what Greenpeace thinks Bumitama has done wrong, other than ‘raising serious doubts’ about its conduct.

It also should be noted that Bumitama is a supplier to Golden Agri Resources. Last month Golden Agri Resources executives were arrested for alleged bribery.

A genuine question: Why does Greenpeace dislike Wilmar so much, but appears to tolerate Golden Agri? Send anonymous tips to [email protected] or PM us on Twitter at @palmoilmonitor.

Criticisms of RED emerge from WRI, SIIA

The World Resources Institute (WRI) and the Singapore Institute of International Affairs (SIIA) held a workshop in Jakarta last week on Greening Supply Chains for the palm oil sector.

Participants varied, from RSPO and WWF to the Indonesian Government and European think-tanks. The range of topics varied, but inevitably the conversation turned to the Renewable Energy Directive and its revision.

Among the workshops, some of the conclusions on Indirect Land Use Change (ILUC) and the RED were as follows.

First, the ILUC data that the EU is using to justify classifying palm oil as high risk is outdated.  The last significant piece of work undertaken by the EU on ILUC was completed in 2012. According to Wageningen University, no major work has been undertaken since then.  For the past five years or more, the general consensus has been that ILUC models are highly variable upon the underlying assumptions. In simpler terms, the modelling is unreliable.

Second, there needs to be a strong, credible and scientific justification for the EU’s actions on palm oil. If the EU fails to justify their actions in this manner, those actions are illegal under global trade rules.

The Technical Barriers to Trade agreement requires that any measures introduced not be more trade restrictive than necessary to fulfill a legitimate objective. The legitimacy of that objective depends on scientific and technical knowledge, among other things. For example, if the EU says that ILUC emissions are significant from palm oil or that food- and feed- based biofuels can’t contribute to the EU’s efforts of reducing greenhouse emissions, it needs to be able to prove that with strong scientific evidence.

Third, relying on outdated studies or methodologies is no excuse. Trying to justify actions because of studies undertaken in 2012 on ILUC will not satisfy anyone, particularly not trading partners.  Although the EU has been consulting with its trading partners in Malaysia, Indonesia, and other countries, it will be difficult to consider those negotiations as ‘good faith’ negotiations if the EU doesn’t put the work in to improve the scientific knowledge base. This is critical given that the EU is attempting to negotiate a trade agreement with Indonesia, and is aiming to sign a Partnership and Cooperation Agreement with Malaysia in January.

Indonesia and Malaysia have already signalled they will take legal action against the EU if the RED discriminates against palm oil.

Malaysia phasing in B10, Indonesia removes export tax

Bloomberg is reporting that Malaysia will introduce a biodiesel mandate as early as this week. Bloomberg has reportedly seen a copy of a letter from the Ministry of Primary Industries to sector stakeholders, outlining the phase in one of the mandates, which will require 10 per cent biodiesel blending in diesel fuels.

For now, this will work in favour of both biodiesel suppliers and fuel retailers; current biodiesel prices are below regular diesel. It will also restore some stability to palm prices, which have taken a hit over the past few months.

On a similar note, Indonesia has removed its export levy after export prices from Indonesia fell below USD 500. The levy contributes to the country’s replanting fund. However, the levy and the currently suspended export tax, both provide some incentives for downstream processing in Indonesia. GAPKI, the country’s grower representative body, had recently called for the levy to be lowered.

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