Palm Oil Monitor Weekly Update – 20 December 2018

Malaysia keeps up the pressure at the WTO

Malaysia has again taken the EU to task at the WTO for its approach on the Renewable Energy Directive (RED).

Malaysian officials circulated a note earlier this month following the last Technical Barriers to Trade (TBT) meeting. The note gets to the heart of the matter in three points.

First, they point out again that: the TBT requires members to provide proposed technical regulations in a timely manner; Indirect Land Use Change (ILUC) has no international standards; the EU is not being particularly transparent in developing its criteria.

Second, they state that “certification of indirect land use change will result in creating unnecessary obstacles to international trade [and] it is more trade restrictive than necessary …”

Third, they also point out that the ILUC certification “will impose additional cost which will be more burdensome for the Malaysian oil palm industry, particularly to the smallholders which accounts for 40% of the planted area.”

The note specifies articles within the TBT Agreement – which is a clear shot across the bow of the Europeans.

The meeting also prompted new notes along similar lines from Colombia and Indonesia.

Is Indonesia calling out Iceland at the WTO?

At the same meeting Indonesia also circulated a new note on palm labelling, which has generally been overlooked since the beginning of the year, with the exception of strong statements by Malaysian PM Dr Mahathir.

Indonesia points out that a large number of EU-based companies are using ‘palm oil free’ labelling in the EU, noting that “EU Regulation No.1169/2011 on Food Information, Chapter V Art. 36.2, which states that voluntary shall not mislead and be ambiguous for consumers and where necessary shall be provided with scientific evidence.”

Bearing in mind that labelling hasn’t been a particularly big issue this year, and that the Iceland ‘palm oil free’ campaign started at the beginning of November, is this a case of Indonesia calling out Iceland through the WTO?

Indonesian officials have had no problem calling out Iceland’s CEO Richard Walker. Indonesia’s Ambassador to Germany Arif Havas Oegroseno has been outright trolling Walker on Twitter.

EU-Indonesia proposals see some light

The European Commission released some text proposals from its recent negotiations with Indonesia. The two proposals were on good regulatory practices and transparency. As with most text proposals published by the European Commission, there’s not a lot of detail; the proposals generally follow a template and are negotiated following that.

The release of the text follows the meeting of the committee for the Indonesia-EU Partnership and Cooperation Agreement (PCA) in mid-December. Once again, Indonesia didn’t hold back on its concern about the use of ILUC in RED. Indonesia wasn’t prepared to let the issue slide, and clearly insisted that their point be made in a joint press statement:

“Indonesia also expressed its concerns about the Renewable Energy Directive (RED) II and its Delegated Act, especially on the use low of Indirect Land-Use Change (ILUC) risk criteria as a basis for the development of new certification for conventional biofuel. Both sides agreed to continue its cooperation on this important and sensitive issue.”

As we’ve noted in previous issues, the last negotiating round took place in November, but the update on the negotiations was quite blank. However, the Commission’s sensitivity on palm in trade negotiations is understandable. Any hint that the Commission will make market access for palm oil easier going forward will raise some red flags among Member States as well as NGOs.

Commission releases Interim EU-Malaysia SIA

The European Commission has also released the draft interim Sustainability Impact Assessment (SIA) of a proposed EU-Malaysia trade agreement. The interim report follows inception reports that were carried out in the middle of the year for Malaysia, Indonesia and the Philippines.

Just to be clear, the ‘sustainability impact assessment’ is very much a social and economic impact assessment, where environmental concerns are incorporated into the assessment.

The headline economic modelling result is a straightforward positive:

“The EU bilateral exports are estimated to increase in a range of €12.16 billion to €15.27 billion, whilst bilateral exports of Malaysia are projected to increase between €3.34 billion and €3.64 billion Furthermore, a future agreement is projected to lead to an overall total increase in total EU exports ranging from €6.92 billion to €8.65 billion.”

The report looks in-depth at the vegetable oils sector and notes:

“… the agreement would lead to a decline in domestic EU production of approximately €300 million (0.53%) … Growth in total imports ranging from €238 million to €252 million is estimated to occur, with bilateral imports from Malaysia estimated to increase by approximately €450 million.”

In other words, EU vegetable oil output would decrease as it is displaced by imports from Malaysia. Imports from Malaysia would also likely divert imports from other countries, hence the larger trade volumes.

The bulk of the information on palm oil reads like a litany of claims against the industry, ranging from its contribution to haze and fires to labour exploitation to deforestation. Yet the evidence provided is contradictory and slim.

So, for example, the report states that deforestation in Sabah amounted to 1.31 million ha, citing Global Forest Watch (GFW) as a source. But the GFW data is tree cover loss rather than deforestation, i.e. permanent change to land use. The GFW data states quite clearly that 61 per cent of this tree cover loss took place within plantations – which includes oil palm plantations. As we pointed out last week, conflating these two terms is very dangerous, and GFW goes to great lengths to point out that there is a clear distinction between the two.

The report also mentions the contribution of haze and peatland fires to Malaysia’s GHG emissions, as part of slash-and-burn clearing. But no quantitative data is provided. Nor is it mentioned that fire in Malaysia is not a significant problem compared with other countries in the region. Why, then, is it mentioned at all?

There are also claims such as this: “Estimates indicate that approximately forty to fifty-nine per cent of palm oil plantations [sic] have replaced previously forested areas.” But no source is provided, and nor is a timeframe given.

Fortunately, this type of data doesn’t make it into the executive summary. However, this assessment needs some sharpening. This is an official EU-commissioned assessment. It shouldn’t just be a blanket collection of statements and claims.

Indonesia trolls Iceland Supermarket

Indonesia’s Ambassador to Germany Arif Havas Oegroseno has been trolling the Managing Director of Iceland supermarket, Richard Walker. Ambassador Arif is clearly as incensed by Iceland’s actions as most people in the palm oil industry. His newest tactic? Criticising Iceland’s sale of Gouda cheese produced in the Netherlands, and calling Gouda ‘the Dutch equivalent to palm oil.’

Arif has met with a couple of Dutch researchers at the United Nations Framework Convention on Climate Change (UNFCCC) meeting in Poland this week, who have explained the Netherlands’ long history of peat drainage. According to one of the researchers, Hans Joostens, peat drainage has been taking place there for more than 1,000 years.

But why Gouda cheese? Gouda is generally made in the southern part of the Netherlands, where peat drainage has been the most extensive. A presentation by Joostens is available here. He does, indeed, call Gouda the equivalent of palm oil and even calls on EU authorities to consider a ban.

Elsewhere in Poland …

UNFCCC conferences are generally a lightning rod for environmental campaigns, and this year’s meeting has been no exception.

The German Minister for Federal Development, Gerd Muller, said that “the European Union must make certifications for palm oil a standard in free trade agreements” — and also said the same for soybean, stating “Rain forest are burning for your shampoo.”

We’re inclined to agree that sustainability standards should be a part of any negotiation between the EU and any of its prospective partners, such as Malaysia, Indonesia and Brazil. (And given that the deforestation footprint of beef is five times that of palm, perhaps beef should be included also).

But the point is that the standards – and recognition of existing standards – should be part of the negotiation. It shouldn’t – and can’t – simply be a case of the EU saying European standards are the only ones that are acceptable.

Commissioner Cañete gets served by NGOs

Also in Poland, a group of European NGOs has written to the EU’s Commissioner for Climate Action and Energy Miguel Arias Cañete. They are calling on the EU to ban the use of food and feed crops in the Renewable Energy Directive (RED).

Although this is no surprise, the letter from the NGOs demonstrates clearly how problematic indirect land use change (ILUC) is as a concept.

The NGOs (Friends of the Earth, Mighty Earth, Transport & Environment, and others) are supportive of using ILUC and the ‘high risk’ designation because it might keep soy and palm out of the RED. But they’re also wary of ‘low risk’ ILUC, as they’re aware that the increased demand for biofuels from so-called ‘low risk’ crops such as rapeseed may simply end up increasing demand for imported oils in the non-transport sector.

The NGOs try to have it both ways. They call on the EU to introduce strict criteria for ‘low risk’ ILUC, pointing toward the idea of ‘additionality’. Additionality was used in the UN’s Clean Development Mechanism (CDM) program. The idea is that projects should only gain RED credits if they weren’t part of a business as usual scenario. In the CDM, this meant that gaining credits was incredibly difficult, because they were effectively not allowed to be profitable. Perhaps this is the NGOs’ way of aiming for the RED to be shut down completely.

RED won’t shut down, but we understand that additionality is a live option. The latest we’ve heard is that the EU will designate most imported oils as high risk, but will provide pathways for market access for trading partners such as Brazil, Indonesia and Malaysia.

Wilmar negotiates with Aidenvironment

Wilmar has inked a deal with Dutch NGO Aidenvironment, which is likely to end the current campaign against both Mondelez and Wilmar.

In return for peace, Wilmar is going to hand over data on all of its direct suppliers, and its entire supply chain, to an Aidenvironment platform, and also enforce a stricter suspension policy for any infractions of the company’s no peat, no deforestation and no exploitation policies.

We note also that Wilmar is going to be using satellite technology for compliance – and we’re assuming it’s the same ‘Starling’ platform that was announced by Nestlé in September. That solution was met with scepticism by Greenpeace just a few months ago.

Why the change of heart?

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Purdue’s Sub-par Palm Research

A group of researchers from Purdue University published a paper last week that claimed RSPO or sustainability certification for palm oil is no better than non-certified palm oil.

The paper has received some international attention from newspapers such as the UK’s Independent, which went on to imply that all palm oil is bad.

The basis for this claim is that all RSPO concessions record high levels – around 38 per cent – of tree loss. This statement is also made:

In none of the concessions under investigation, both certified and uncertified, did we detect zero tree removal in 15 years.

There are two massive flaws in the paper that allow them to draw such a conclusion.

First is the data they used.

The researchers were using Global Forest Watch (GFW) data as their primary source of information for tree cover loss, which looks at a 15-year period, 2001 to 2016. The GFW dataset is brilliant, but GFW goes to great lengths to point out its limitations: one, it cannot distinguish between tree cover in a plantation (including oil palm) and natural forest; two, that it does not distinguish between tree cover loss in a plantation and tree cover loss in natural forest and; three, that even when a plantation regrows according to a planting cycle, the area is still counted as loss.

On this last point, GFW again goes to great lengths to point out that it’s not possible – using their methodology – to subtract forest gain from forest loss and come up with a ‘net deforestation’.

GFW also points out that ‘tree loss’ and deforestation, i.e. conversion of forest to other uses, are different things.

In other words, all tree loss comes up as tree loss, even if it’s being replanted.

Second is their apparent ignorance of the palm planting cycle.

Most readers would be well aware that palms hit peak productivity between 7 and 18 years of planting. The optimal replanting time is around 25 years, depending on a number of localised environmental factors, but the ability to finance replanting is also a consideration, as well as the price for FFBs.

So, over a 15-year study period, it’s quite reasonable to assume that a large proportion – let’s say 40 per cent – of palms would be cleared and replanted.

It should also be noted that the researchers don’t appear to factor in replanting in their paper; and nor do they acknowledge the limitations of the GFW dataset.

Here’s an example.

The Jengka Triangle plantations were established in the 1980s by FELDA near Temerloh. GFW maps show that there was significant tree loss through 2001 to 2015.

Why would there be tree loss in an area that was established as a palm plantation around 30 years prior?

It is because replanting was taking place. The same GFW data shows significant tree cover gain through the same period. This was because the seedlings grew to maturity in around 3 years or more.

There are several disappointing aspects to this paper.

The paper appears to have been written with a predetermined outcome in mind. The authors conflate ‘tree loss’ with deforestation. In our opinion, doing so is probably either disingenuous or incompetent.

If the researchers have, in fact, somehow managed to distinguish between plantations and natural forests inside or outside plantations, they should probably tell the GFW researchers. This is something they’re keen to do accurately.

Also disappointing is that it was published at all. ‘Science of the Total Environment’ may not be the world’s most highly rated journal, but where are the standards? Purdue is a prestigious university, associated with the respected Big Ten Conference, and known for its great academic credence. This underdeveloped research hasn’t done anything for Purdue’s good name.

In October this year, a group of academics managed to have four hoax papers published in various academic journals. One received a special award. Is this paper that far off?

Finally, the coverage the paper has received in international media indicates that some journalists will happily let shoddy research get headlines – and clicks. Is this fake news? Probably. The Independent has said RSPO is yet to respond with a comment. We’re looking forward to what they have to say.

The public debate about palm oil is full of disinformation. Purdue University and The Independent have just added to it.

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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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