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.

CPOPC Steps Up On ILUC

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.

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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.

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HCS 101 PART 2: SPOM

In our last piece we analysed High Carbon Stock as it is understood by two key stakeholders in the palm oil debate: the European Commission, and NGOs such as Greenpeace.

This week we examine the alternative approach to HCS that was backed by a large number of industry players, particularly from Malaysia.

After the High Carbon Stock Approach (HCSA) was first announced by Golden Agri Resources (GAR) and The Forest Trust (TFT), and Greenpeace, concerns were raised by other parts of the industry.

NGO groups taking up campaigns against any company that didn’t sign up to the HCSA rules added to that concern.

The concern was simple: the high carbon threshold – 35 tC/ha, and later, any vegetation above scrub, including young regenerating forest  — for many suppliers was simply too low, particularly for small-to-medium operators in Malaysia. These operators were abiding by national and local laws and operating on land that had been earmarked for agricultural development, while other forest areas had been set aside for protection. The question was this: why should these operators be penalised?

As a result in late 2013, the Sustainable Palm Oil Manifesto (SPOM) emerged.

The key difference between SPOM and HCSA was that the former sought greater clarity on a broader, macroeconomic policy context, not just whether a particular threshold was met.

This was of particular significance to Malaysia and Malaysian companies. The FELDA model, which first emerged in the 1960s, depended greatly on smallholder farmers via a nucleus estate model.

Delivering social and economic benefits to these farmers is very much a part of palm oil’s social license in Malaysia. It is quite distinct from the vast estates and land banks controlled by Indonesian conglomerates; the high dependencies between smallholders and large companies are simply not there.

When the SPOM High Carbon Stock Study (HCSS) emerged, there were clear and explicit references to the social and economic benefits that could be delivered by oil palm development.

The study was led by Sir Jonathan Porritt, a former director of Friends of the Earth and a celebrated environmentalist. The study included Columbia University’s Ruth DeFries, a leading ecologist, and Professor Hans Joosten, a leading peat specialist. It was independent, had no set agenda and asked complicated questions.  Just as important as the questions around carbon stock were those of risk and opportunity cost.

The typical HCSS scenarios were as follows:

  • If a high carbon stock threshold is too low, at what point does this act as a disincentive to investment – therefore preventing the establishment of an oil palm plantation, and robbing local communities of economic opportunities?
  • If investment is forfeited and land is left undeveloped, will that simply leave the land open to mismanagement and unplanned deforestation, similar to scenarios in Indonesia?
  • Will over-regulation of oil palm encourage the development of other crops or land uses, which are less regulated?
  • At what point does implementing a HCS threshold impinge upon the native and customary rights of local communities?
  • Is it possible for HCS to deter investment to the point where it has a negative impact on farmer incomes and/or food security?
  • This last question was closely examined in a Nigerian context by this consultant as part of a Nigerian case study. The key observations were that:
  • many investments in agriculture in developing countries have a high degree of risk. HCS can add to that risk, rather than mitigate it;
  • investment in agriculture in developing countries need spurs to investment, not hindrances.

 

At the end of the SPOM study, the key conclusion was this:

Neither the HCS Approach nor the HCS+ methodology completely prevents deforestation (as in ‘zero deforestation’), but they both aim to reduce it significantly. HCS+ ensures no deforestation of HCV and HCS (as defined in this study) forests. Experience over the last 20 years has taught us that no amount of high-level declarations will protect forests on the ground unless and until local people and communities can see that their own economic interests and historic entitlements are better served through forests being set aside and protected for the long-term rather than cut down for short-term gain. We maintain that some level of responsible development, coupled with a strong role for both companies and local communities in the protection and management of set aside forests is the best way to ensure the long-term protection of tropical forests in many countries.

The study also recommended that a threshold of 75 tC/ha be used. By this stage, the High Carbon Stock approach had dispensed with the 35 tC/ha number.

But the SPOM study did three things that the HCSA study did not. First, it recommended converging the approaches. Second, it examined development in a national context and didn’t imagine oil palm developments to be operating in a vacuum. Third, it gave clear priority to non-environmental benefits – and therefore to smallholders and communities.

This last element is worth examining further.

The genesis of HCSA was the combination of large plantation companies and large NGOs. Both want an easily implementable solution that will have a degree of credibility with palm oil buyers in Western markets.

A sustainability director at a Western confectionery manufacturer may understand that ‘it’s complicated’, but that answer doesn’t cut it in the middle of a consumer campaign or a social media attack. Unfortunately, ‘it’s complicated’ is the only right answer when it comes to sustainability.

After the two studies were released, a convergence process was eventually undertaken. This concluded at the end of November 2016. The first result was an agreement between the proponents of the two different approaches. But the second result has been the development of a HCSA-HCV assessment methodology, which is now likely to be incorporated into RSPO. This methodology has largely been defined by HCSA, not SPOM, and it will be voted on at the next Roundtable in November. It will apply to new plantings from 2018.

Lobbying to have this voted in to RSPO has well and truly begun. For those who can remember, it’s not unlike the introduction of New Planting Procedures (NPP) in 2010. This created a massive divide between buyers/processors and producers. Larger plantation companies supplying European markets sided with their introduction. It was the NPP that eventually saw GAPKI – Indonesia’s body for palm producers – leave the RSPO.

The standards that palm producers and buyers adhere to isn’t  per se a bad thing or a good thing; it’s a business decision. The bigger question is whether or how a new HCS might be incorporated into EU regulations, and how this will contribute to palm oil being deemed ‘high risk’. This question is what we will examine in our next blog.

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Palm Oil Monitor – Weekly Update 24th September 2018

COMMENTARY: Is the GAR spat putting the HCS Group at risk?

The Golden-Agri Resources-Greenpeace spat has escalated since we wrote about it briefly last week.

To recap, GAR appeared to be losing patience with anti-palm oil campaigners, particularly in Europe. This anti-palm sentiment was underlined by Greenpeace’s overtly anti-palm oil ‘Rang Tan’ video.

Since then, two things have happened.

First, Greenpeace stalwart Andy Tait publicly stated that NGOs have ‘run out of patience’ with GAR.

Second, the Forest People’s Project has come out swinging at GAR, specifically their Golden Veroleum (GVL) project in Liberia. The GVL project has been subject to a number of complaints by FPP, which says that GVL is ignoring the complaints of the Blogbo community.

These complaints were taken to RSPO; GVL subsequently withdrew from RSPO. However, GAR remains a member, and claims that it has ‘no management control’ over the GVL project. According to GAR, this means that its responsibilities for subsidiaries – required under RSPO rules – don’t apply.

This situation now has large implications for both RSPO and the High Carbon Stock Approach (HCSA) Steering Group as well as EU efforts to impose an HCS regulation.

This is speculative, but it’s likely that FPP and other NGOs will want to leverage this situation leading into the RSPO meeting in November. They have already highlighted that a GAR executive sits on the RSPO Board; they’ll try and get a greater commitment out of GAR going into the meeting, perhaps related to lobbying for the High Carbon Stock Approach to be incorporated into the RSPO Principles and Criteria.

But what does this mean for the HCSA Steering Group? GAR – and the rest of Sinar Mas – have been HCSA’s and Greenpeace’s greatest business supporters. If the relationship between GAR, Greenpeace and FPP falls apart, does that mean the entire exercise falls apart?

Greenpeace has its reputation riding on this, too. Greenpeace threw its support behind Asia Pulp and Paper (another Sinar Mas company), only to have to walk back its support. If the same happens with GAR, what options does Greenpeace have going forward?

In our view, the potential fragility of HCSA and other NGO-brokered deals underlines that the player with the strongest potential is government. When a government sets a land-use policy, a planning policy, a conservation policy or a management standard – and can mandate it and enforce it – there is no substitute.  This is standard practice in Western countries.

If customers are so keen to have assurances on “no deforestation in practice” or conservation, they shouldn’t be looking to the image of Greenpeace, but to the credentials of a government, and their ability to enforce laws and standards.

Decoding Greenpeace’s new palm attack

Greenpeace’s newest palm oil report is the usual Greenpeace-style blend of big headlines about deforestation and habitat loss, combined with a catalogue of land disputes. The 200-page report is a major swipe at most oil palm plantation operators, ranging from the major companies such as Wilmar to the smaller ones, such as Sungai Budi, which operates in Indonesia.

On the surface, this report links what it refers to as ‘dirty’ palm oil companies to major consumer brands. Its criteria for ‘dirty’ appears to be whether the company has had any complaints against it.

As to be expected in a Greenpeace report, some of the complaints have been resolved through other channels (e.g. RSPO); and it’s also possible that there’s very little substance to some of the claims.

At the surface level, Greenpeace is calling on major consumer brands to exclude these companies from their supply chains – and that’s how media coverage of the report has been framed.

However, there’s more to it than that.

First, what Greenpeace really wants is more support for its High Carbon Stock Approach (HCSA) policies. Its first demand of companies is that they “publish a … policy that requires compliance with the HCS Approach toolkit, the integrated HCV–HCSA assessment manual and credible human rights and labour standards.”

The timing is absolutely critical. Last week marked the final meeting of the RSPO Principles and Criteria Review Task Force. The Task Force has a ‘No Deforestation’ working group; it was tasked with assessing how RSPO’s ‘no deforestation’ policy will look, using HCSA as a reference point.

The Task Force will then take the revised Principles and Criteria to the General Assembly at the end of the year, coinciding with RSPO Roundtable 16.

Second, and related to the above, the report devotes many of its pages to attacking Wilmar. This is a critical move. Wilmar has been a public supporter of HCSA. However, the relationship between Greenpeace and Wilmar became acrimonious when it became apparent that Wilmar was not upholding ‘no deforestation’ policies. In this report, Greenpeace calls on Wilmar not to even trade palm oil that has come from plantations that haven’t committed to HCSA. Greenpeace has asked Golden-Agri Resources (GAR) – another key HCSA supporter – to make similar commitments previously. GAR has described this approach as unproductive.

Again, what Greenpeace wants is a newer and bigger commitment out of Wilmar. It’s also likely that they want a bigger commitment out of GAR, particularly after they said NGOs are ‘losing patience’ with GAR. Is there a new campaign in the offing against GAR in the next few months? Either way, the question remains: is there growing support for HCSA the way Greenpeace sees it? Or is that support crumbling?

Third, Greenpeace wants all data on all companies. This demand sums up the new Greenpeace dilemma. It calls out sustainability consultants, specifically The Forest Trust (TFT) and Proforest. Its major criticism is as follows:

[they are] not ensuring their clients deliver a deforestation-free palm oil industry by 2020. Nor are they prepared to work in a way that allows that goal to be achieved. Instead, TFT and other sustainability consultants are promoting a model that amounts in practice to incremental progress through secrecy and unverified (and unverifiable) reporting.

There is some irony here. TFT was the go-to consultant for Greenpeace when the High Carbon Stock debate commenced in 2010.

The other irony is that what Greenpeace ultimately wants is independent and verifiable auditing in supply chains. What delivers this better than anything else is a robust certification system with independent accreditation. This is precisely the model that ISO (International Organisation for Standardisation) and the International Accreditation Forum (IAF) follow. RSPO comes close, but doesn’t quite make it. Greenpeace, for its part, has always rejected the ISO/IAF approach.

But here’s the problem: Greenpeace dislikes RSPO and won’t participate as a member, but needs RSPO to advocate its position on HCSA. It has tried pushing a simplified version of ‘no deforestation’ policies through independent consultants, but isn’t satisfied with that either.

It is now saying the only solution is for Greenpeace itself to be the industry’s regulatory officer. Is this desperation or an ambit claim?

Either way, RT16 in November – and the campaigns leading up to it – will be very interesting.

ISCC weighs in on ILUC

Certification body ISCC has weighed in early on the Indirect Land Use Change (ILUC) debate that is about to erupt in Brussels as the European Commission determines what its ‘deforestation criteria’ will be for the revised RED (RED II).

Professor Gernot Klepper, chair of the ISCC, presented his general thoughts on ILUC at a recent conference in Malaysia.

Professor Klepper points out the considerable flaws in the ILUC concept as applied by the European Union, summed up in this quote:

Let us do a thought experiment: Suppose all biodiesel in Europe is produced with rapeseed oil from Europe. Also suppose as a consequence, that the food and feed demand cannot be fulfilled in Europe and is met by land conversion to palm or soy plantations outside of Europe which then serve the European food and feed sector. This expansion would surely be counted as ILUC as usually defined and emphasized by the Council. But who would be charged with ILUC? Rape or palm producers? It should be rape and not palm or soy according to the Council’s definition.

Professor Klepper is pointing towards which feedstock gets blamed for ILUC in a number of markets where a range of products can be substituted.

But in our view this critique does not quite go far enough. Klepper is right to point out that there are simply too many variables to determine which actor – or crop – is responsible for indirect land use change.  As has been pointed out elsewhere, the substitution effects in global energy and vegetable oil markets are such that increased demand for different oils for different purposes are very dependent on each other.

This is a point that the EU compromise recognises; however, rather than junking the concept, they come up with ways to include and exclude certain biofuels.

Why is this important? Because politically the EU still needs to accept rapeseed biofuels.

In its compromise, the EU:

  • implies that ILUC may be caused by all feedstocks, but this is only ‘high risk’ when the feedstocks themselves cause direct land-use change on high carbon stock areas;
  • states that there will be certification for ‘low indirect land use change risk’ fuels; and
  • states that improved agricultural practises may mitigate any indirect land-use change impacts from feedstocks, and therefore be considered low-risk provided there is evidence.

These three factors will give European regulators a degree of discretion as to which feedstocks make their way on to the European market.  The variables will be a potentially redefined definition of ‘high carbon stock’; criteria for certification of ‘low risk’ fuels; and what constitutes evidence for mitigation.

The distinction between high- and low-risk indirect land use change impacts came from European Parliamentarians rather than the Commission; the clauses on agricultural practises came from Member States; both should be considered political.

ILUC is a nebulous concept at best; the politics behind its use in RED make it even worse. Organisations like ISCC will do their best to work within whatever rules the EU sets down. But better still would be clear, coherent rules and principles backed by robust methodologies. These are yet to appear. The biggest question of all, of course, is why anyone is giving ILUC any serious consideration at all, and thus playing into Europe’s game?

EDF wades into a dangerous rice paddy

The US-based Environmental Defense Fund (EDF) has waded into dangerous territory on greenhouse gas emissions from rice production.

The EDF has stated that wet rice production techniques are responsible for around 1.9 Gt (1,900 Mt) of CO2 equivalent emissions annually.

They put this into NGO-speak by saying this is equivalent to the annual emissions of 600 coal power plants.

Although the EDF is advocating for changes to cultivation techniques, this simply hasn’t stopped the idea that rice is a major contributor to climate change from gaining major headlines in the global media.

It also highlights two things.

First, the rice ‘problem’ greatly outweighs GHG emissions from palm oil. The Centre for Global Development’s analysis of palm oil production put it at 300 Mt for 2009, with most of those emissions coming from land-use change.

Second, the framing of the issue and the media response demonstrates the level of indifference to global development by some Western NGOs and commentators. Rice is the developing world’s most important food staple. Nearly 4 billion people depend on it.

Many NGOs – rightly – are scared to touch the issue of food security and livelihoods versus emissions when it comes to rice. But exactly the same arguments can be made about palm oil and its importance to household incomes across Malaysia,  Indonesia, Central and South America and Africa.

IN BRIEF:

USDA revises palm forecast

The USDA has revised its palm forecast scenarios for China, stating that demand for palm will increase slightly, based on a lower crush for soybean – largely on the back of the trade spat between the US and China. However, the USDA forecasts also appear to point out that India is the real weak point in global palm markets right now. This isn’t that surprising; the Indian economy is currently under enormous pressure. A yawning trade deficit has caused the currency to slide, prompting the government to increase tariffs on any number of imported goods – including palm oil.

Unilever throws its weight behind Sabah

Unilever, the world’s largest palm oil purchaser, has thrown its weight behind a number of sustainability initiatives in Sabah. The company made the announcement at the Global Climate Action Summit (GCAS) in San Francisco last week.  According to the company, it will provide assistance for certification for an additional 60,000ha of palm in Sabah and restore two wildlife connectivity corridors. This work is being undertaken with WWF, among others. Sabah is seeking to have all of its palm oil production certified to RSPO standards by 2025.

Indonesia Looking Closely at EU’s New Plans for ILUC

Indonesia’s Director General of Trade Oke Nurwan has said the country is wary of the EU introducing indirect land use change into its ‘deforestation criteria’ for biofuels under the revised Renewable Energy Directive (RED II). According to Nurwan, Indonesia is particularly worried about any criteria being introduced that simply have interpretations that are too broad, and will discriminate against palm going forward.

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Comments on the IUCN Report: “Oil Palm and Biodiversity”

The new IUCN Report Oil Palm and Biodiversity has generated a considerable response in both the French and English media. This includes outlets such as The Guardian and Le Figaro.

Unfortunately, the coverage has simply repeated the reductive language of the executive summary, instead of examining the actual findings. Many of the findings in the report should be considered as positive for the palm oil sector, particularly the conclusions. However, there are two major problems that plague the report.

First, there are numerous scientific errors that punctuate the report, as outlined below.

Second, the IUCN is ‘pulling its punches’ – and it seems to be doing this to avoid offending activist NGOs. The IUCN seems almost embarrassed by the conclusions it has reached.

Why?

Because its conclusions go against the overly simplistic and irresponsible approach of many NGOs.

The following points should be noted.

On the areas of oil palm under cultivation, the IUCN states that phasing out and replacing oil palm with other oilseed crops will significantly increase the global area used for production of other vegetable oils, leading to potentially more significant social and environmental impacts. Meeting growing vegetable oil demand will have less impact on biodiversity if it comes from higher-yielding oil palm cultivation.

On deforestation, it states that:

  • The larger drivers of deforestation are cattle ranging, and local and subsistence agriculture and not oil palm cultivation;
  • In Africa and Asia, local and subsistence agriculture is a larger driver of deforestation than commercial, industrial-scale agriculture;
  • Pulp and paper plantations, fire-induced deforestation, small-scale agriculture and especially hunting are main threats to orangutans as well.

On biodiversity, it states that:

  • Oil palm may provide better habitat for local biodiversity compared to the other production systems it replaces;
  • Lands previously planted with oil palm have the capacity to recover and support additional biodiversity.

On carbon emissions, it notes that:

  • The potential to achieve carbon positive outcomes in the longer term is substantially greater than for other oil crops that replace forest as, despite its longer maturation phase, oil palm requires an order of magnitude less land to produce equivalent amounts of biofuel;

And the report also draws a number of other conclusions around what works in the field. For example, the imposition of blanket restrictions on palm oil imports provides no incentives for best practice.

Similarly, it points out clearly that through certification, the palm oil sector has done its part of the job regarding environmental protections and the other sectors should now do the same (other oil crops, mining etc.). Otherwise there is a risk of redistribution of the responsibility for deforestation. There are remaining knowledge gaps, related to socio-economic, cultural and financial impacts and also a need for further research in these areas.

But most of all, the IUCN report notes that palm oil is here to stay.

The planters and the field environmentalists have known this for years, without being listened to. NGOs prone to palm oil bashing, however, will be very disappointed to read that conclusion from such a prominent conservation body.

The IUCN also notes that at the time of writing, they were not able to evaluate the expansion of oil palm plantations onto unproductive anthropogenic savannahs, and the likely increase in biodiversity that could result.

Ultimately, there is a lesson here. The environmental aspects of palm oil should not be left in the hands of campaigning NGOs: their business model and approach is too often based on reductive communications. Instead, this should be the domain of rigorous and objective scientific practitioners.

However, not all is laudable about the IUCN report. Palm Oil Monitor has carefully read the IUCN report and notes the following scientific errors and inconsistencies in the text.

  1. The data is not comprehensive. IUCN claims that the report “presents the first comprehensive map of all globally planted industrial-scale oil palm” (page vi). This is noticeably wrong. The well-known oil palm plantations in Sierra Leone, Guinea Conakry, Sao Tome and at least one plantation in DR Congo (Boteka) are missing.
  2. Some definitions are incorrect. According to the botanical definition an oil palm is not a tree (as claimed 11 times in the report), but it is a large woody herb. Furthermore, the adequate solar radiation is 16-17 MJ/m2 per day, and not 16-17 GJ/m2 per day.
  3. Harvesting processes are not understood. Plantations are not left to lie fallow before a new cycle of replanting begins. The plantation is replanted immediately after cutting. The field remains uncultivated, unused, unproductive, etc. for just a couple of months. The cutting is done during the dry season, and the planting in the following rainy season. It’s exaggerated to call this a “fallow” period.
  4. There are numerous errors in yield calculation. For example, the calculation of 40 kilos/palm x 143 palms/ha= 5,7 T/ha (industrial yield) not 3,8 T/ha (which is a global mean, including smallholders). The genetic yield potential is 35 T tonnes of fresh fruit bunches (FFB) per hectare per year and not merely 11-18.
  5. Facts on Nigeria are wrong. Nigeria is not a palm oil exporter any more – it is mainly an importer. Additionally, the Nigeria data in Figure 6 include the yield from the natural palm grove (not only the industrial plantations and the smallholders) which creates a bias in the comparison between the countries. The natural palm grove is more than 1 million ha in size and produced an average yield of about 0,3T oil/ha/year (Corley, 2016). In the same way, Figure 8 might give an incorrect representation of Nigeria (i.e. does the 94% figure include the natural palm grove?).

In short, the IUCN report has much to recommend: it clearly concludes that palm oil isn’t the threat it is considered to be in the EU. This is a valuable and important conclusion.

But the public message being sold around the report is quite the opposite. Many conservation groups have used the IUCN report to describe palm oil as the major threat to biodiversity when this isn’t the case. The report does not say that. It’s difficult for any professional to admit they were wrong but doing so often leads to the best result.

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Palm Oil Monitor – Weekly Update 13th September

The Haze Season Campaign Begins

The end of the dry season is approaching in Southeast Asia. For many countries it also represents the beginning of the haze season.

The haze season is often a rallying point for anti-palm oil groups; that will particularly be the case this year as the EU looks for ways to tighten up imports of palm oil by proposing new deforestation criteria based on high carbon stock and indirect land use change.

But to put this into perspective, it’s worth comparing the fire count in palm oil producing countries with those in a number of Western and other countries. From September 4-11, the following was recorded by Global Forest Watch:

  • Malaysia: 198 fire alerts
  • Indonesia: 11,904 fire alerts
  • United States: 18,667 fire alerts
  • Australia: 44,568 fire alerts
  • Brazil: 137,517 fire fires

It should also be noted that Malaysia’s record on fires has been strong. The peak daily fire count recorded in Malaysia over recent years was in 2014 when it hit 423. Portugal, however, made it to 1,127 fires at this time last year. The US made it to 5,268 in 2014. This is crucial to understanding the facile argument that there is an umbilical link between oil palm, to fires, to haze. It simply isn’t so.

The breakdown of fires in palm oil concessions in Indonesia is of note. Over the past week, there were 203 fires recorded in palm concessions. Only one of these was in a RSPO-certified area.

Around 12 per cent of all fires were in palm concessions; 18 per cent were in pulp plantation and logging areas; 8 per cent were in protected areas; 20 per cent were in moratorium areas.

The high percentage in moratorium areas shouldn’t be surprising. By preventing development of forest areas in Indonesia, local communities will simply assume that the land is vacant; a lack of enforcement capacity means there is no one to police the area. Local communities will therefore use fire to both claim the land and clear it; it’s not as though these local communities are walking around with a detailed moratorium map.

But the broader point should be apparent: the only annual fire events that become associated with a commodity are those around palm oil, and that myth will continue to be peddled.

Meijaard: “If I was an oil palm tree I’d be pretty p*ssed off”

A renowned conservation biologist has made a strong defence of palm oil in a recent podcast, highlighting the fact that it is always singled out by campaign groups, and also pointing out that oil palm plantations have a much greater biodiversity potential than other oil crops.

Erik Meijaard is chair of the IUCN Palm and Biodiversity Task Force. Meijaard takes things further in this podcast than in the report; he states that while there are around 25 million ha of oil palms in the world, there are also 14 million ha of coconut palms, which have also displaced forests and had an impact on biodiversity.

The key issue, Meijaard says, is that “The orang utan has always put palm oil in a ‘special’ place.”

But he points out that oil palm plantations have significant potential for biodiversity conservation that is generally overlooked. Soybean and rapeseed are annual crops that must be cultivated every year, whereas oil palm trees remain standing for at least 25 years, which allows maintenance of biodiversity because the environment is relatively stable.

Although there is no doubt that initial clearing of land will take a significant toll on biodiversity in that immediate area, he says “You would actually be surprised at how much biodiversity comes back … We can actually maintain a decent level of biodiversity.”

He highlights several examples in Brazil and Gabon, but also some work being undertaken in Borneo, where the ‘special’ place of the orang utan is particularly acute.

“25 per cent of orang utans are in conservation areas,” he says, pointing out that outside of these areas is a matrix of forest, palm, pulp plantations. “But 75 per cent have to survive in this matrix … that’s where the big challenge is.”

He says that on one plantation, there are “150 orang utans within set asides within the plantation.” The common problem with plantation set asides is that they’re not actively managed, which requires resources to prevent hunting, snaring and fires.

This is particularly acute in Indonesia, where compliance and enforcement are low. This brings up larger questions. A country like Malaysia, which has higher levels of economic development and stronger enforcement, has fewer such problems with illegal activities. But for countries with enforcement problems and greater levels of poverty, setting aside land for conservation introduces new problems. Many local communities will assume that it is vacant.

In other words, this isn’t just about palm oil. It’s about national approaches to conservation and understanding the complexity of the situation – the precise opposite of Greenpeace’s ‘Rang-tan’ approach.

Deforestation in Brazil Makes the Press

Deforestation in Brazil is back in the world spotlight following a report that deforestation in the Brazilian Amazon has increased by around 50 per cent over the past 12 months, hitting 77,800 ha. In NGO terms, that’s an area three times the size of Kuala Lumpur.

Added to that, the Cerrado, an area of savannah to the east of the Amazon has come under greater pressure, losing 1.8 million ha of natural cover in a 2-year period from 2013-2015 according to official estimates.

In both cases the pressure has come from both soybean and beef. Three things should be noted.

  • Soybeans are a much greater export commodity than beef for Brazil in dollar terms.
  • Almost three quarters of those exports go to China. This trade is worth USD14 billion.
  • There will be greater pressure on this trade given the souring trade relationship between China and the US.

In addition, the following needs to be considered:

  • The exports of soybean meal (used for feed) to the EU from Brazil is worth around USD3 billion.
  • This compares to exports of palm oil from Malaysia to the EU, which are worth around USD1.3 billion.

The upshot is this: If the EU wants to make its longer term plans for ‘imported deforestation’ more concrete, this needs to be taken into account.

Should oil palm producers be rejoicing? Will palm finally get the reprieve it deserves?

The problem, however, is political. Tightening soy meal imports will push up production costs for EU meat producers – and therefore consumers. EU meat producers can already claim that their product is ‘deforestation free’.

It’s therefore still more politically palatable for EU lawmakers and regulators to blame palm oil for global deforestation.

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Palm Oil Monitor – Weekly Update 5th September 2018

Is GAR attacking Greenpeace?

Golden Agri Resources appears to have lost its patience with the ‘no palm oil’ campaigns in the European Union. Its sustainability lead, Anita Neville, told Food Navigator:

“If you claim that you are not using palm oil because you are concerned about deforestation, and you are replacing it with animal fat or with soy, you basically just displace the issue of deforestation from Indonesia to probably Brazil (where large amount of land is used for soy farming) … In which case, you don’t care about deforestation and you don’t want to be part of that solution, you basically want to cash in on hysteria around palm oil.”

GAR’s ire seems to have been prompted by the growing understanding that no matter how well palm oil producers behave – whether by implementing ‘no deforestation’ policies, looking after local communities, generally improving their practices across the board and having a significantly lower deforestation footprint than other major food commodities – they are consistently painted as the ‘bad guy’ and used as fodder in NGO fundraising campaigns.

This also comes at a time when major palm producers are actively calling for ‘no deforestation’ policies to be introduced and made mandatory in the RSPO scheme.

So what might have set off GAR?

Greenpeace’s ‘Rang Tan’ campaign was released last week; for all intents and purposes, this is an anti-palm oil video.  There are no subtle messages about having companies adopt RSPO certification, or implementing ‘no deforestation’ policies. It is a clear message: drop palm oil.

It flies in the face of everything Greenpeace is doing as part of the High Carbon Stock Approach, and will possibly burn goodwill between Greenpeace and companies it has worked with over the past few years, e.g. GAR.

This is a clear and deliberate move. It isn’t a small change to a policy position. This is a high-profile campaign that has drafted a celebrity, Emma Thompson, for the execution. It follows the ‘emotional’ path that Greenpeace UK lead John Sauven foreshadowed two weeks ago. According to Marketing Week, Sauven said that statistics on biodiversity and the environment are “quite cold …  I don’t think people can really use that information. If you want people to take action, you need to find a way to motivate them to take action.”

If ‘Rang Tan’ is successful enough, more such ‘emotional’ campaigns will probably follow.

How will palm oil producers respond? So far they’ve been silent. In an emotional debate, facts and science don’t work. Producers inevitably will need to consider their own shock tactics.

In the past Greenpeace has hedged its bets on palm oil; it has said it is not anti-palm oil, and maintained that it supports sustainable production. It has done deals and alliances with producers like GAR. This appears to have been thrown out the window, and GAR’s response looks like the first indication of the palm oil sector finally waking up, albeit slowly, to that new reality.

Can ISPO be strengthened?

Indonesia’s GAPKI has called for the strengthening of the Indonesia Sustainable Palm Oil (ISPO) scheme. Specifically, GAPKI is calling for the scheme to cover the industry’s downstream products as well as CPO.

What GAPKI is effectively asking is that different elements of the supply chain be certified. This would require the development of a traceability or chain of custody standard for ISPO, in addition to the certification of production.  MSPO, in contrast, is currently completing its supply chain certification standard.

GAPKI’s call comes at the same time that ISPO is facing a complete overhaul.

As we mentioned several weeks ago, UKAID and Indonesian NGO Kehati are undertaking a ‘Revamping ISPO’ program.

At the same time, there is a draft Presidential Decree in Indonesia that seeks to ensure the scheme is in line with all other legal requirements.

But, the real strengthening that needs to take place is ensuring that the scheme can be considered a standard in the strict sense. This is potentially problematic; our understanding is that BSN (Badan Standardisasi Nasional – Indonesia’s standards body) doesn’t have the scope in its official remit to cover sustainability standards.

This is a problem because to have credibility – not just among NGOs but among international certification and standards bodies –  a national standard needs to have undergone the appropriate standard development process according to international norms. And, ideally, it should be published and endorsed by the national standards body.  A Presidential Decree will not change this. It will generate political goodwill from the top, but the strengthening really needs to take place from the bottom up.

MSPO has followed the required international norms in developing its standard.  This is something that is yet to be recognised by policymakers in the European Union, particularly the European Commission’s special study on palm oil.

UKAID’s involvement with the ISPO standard stands in contrast with the UK approach to MSPO. The UK is seeking a trade deal with Malaysia following Brexit; a step to expediting this process will be recognising and/or supporting MSPO, which it is yet to do.

European Union Publishes anti-African Palm Oil Research

Palm oil press was dominated last week by a new EU Joint Research Council (JRC) paper on the ‘threats’ caused by palm oil development in Africa, and specifically to primate species.  The paper also had CIRAD researchers on board.  Yet, the JRC paper had several shortcomings, including: there is growing global demand for palm oil;

  • The suitability of land for oil palm cultivation in Africa almost perfectly matches primate (e.g. chimpanzee) ranges;
  • Certification and land-use planning tools may not mitigate any threats or damage;
  • Therefore reducing demand for palm oil is a good idea.

As far as papers go, the data is all there, and it’s reasonably robust. However, the overall hypothesis is best described as a hammer looking for a nail.

The areas that the researchers consider to be of highest coincidence of both palm oil suitability and primate areas appear to be in the Democratic Republic of Congo, Republic of Congo, Cameroon and Gabon, as well as Guinea and Sierra Leone.

‘Suitability’ as described by the researchers comes from robust FAO and other data; it refers only to oil palm cultivation.

But ‘suitability’ in the commercial and political world is a completely different beast. Just because the DRC is a ‘suitable’ place for growing oil palm, it does not mean that the commercial criteria for making a major investment in oil palm will be positive. The political, policy and commercial risks of investing in anything in the DRC are extraordinarily high. It would take a brave CEO and an even braver board to invest there, whether it’s for palm oil or petrol.

Even after a palm industry is established, it does not mean that expansion will be profitable or risk free. Nigeria sits right in the middle of the study area. Its palm oil industry is the third-largest in the world – but its productivity is extremely low and its profitability is marginal. This is due to a number of factors, including processing and transport infrastructure, land tenure risks and so on. Need evidence? Nigeria imports palm oil. From Southeast Asia. Because it’s cheaper.

The problem with this paper is not that its information or conclusions on the overlaps between palm suitability and primate range is wrong; it appears to be quite robust.

The problem is that drawing a direct line from that crossover to chimpanzee threats, and then to a recommendation on reducing palm demand across the board is a huge stretch of credibility. And this doesn’t even consider that the same areas might be suitable for other crops, or for timber exploitation.

A message that can be inferred from the paper is that reducing palm consumption will save primates in Africa; this is implied in much of the media coverage of the article. And this is simply not true.

The bigger question is why JRC and CIRAD research is pursuing palm in Africa. CIRAD has had many programs in support of palm in Africa. But the political climate in France is taking an anti-palm turn. This is particularly the case in the emerging debate on HCS and ILUC. Can this type of research be used to state that palm oil is ‘high risk’ when it’s from anywhere – including Africa?

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Palm Oil Monitor – Weekly Update 24th August 2018

Investors lobby RSPO: Why didn’t they just join?

A group of investors sent a letter to RSPO last week, calling on the certification body to implement tighter standards on deforestation.

More specifically, they wrote to the Principles and Criteria Review Task Force, calling on it to recommend implementation of HCSA assessments for new plantings under RSPO. This is something that Palm Oil Monitor has covered previously. This measure will be voted on at this year’s Roundtable meeting, which will be taking place in Malaysia later this year.

However, there’s something amiss in the letter. The NGO coordinating the letter – CERES – isn’t a RSPO member. It also appears that not one of the investors that have signed off on the letter is a RSPO member.

This warrants some simple questions.

First, if the investors care that much about palm oil, why aren’t they RSPO members? This would give them the opportunity not only to have input into the P&C review process, but also the opportunity to vote at RT16 later in the year.

Second, the letter states:

“Our investment portfolios include companies that have significant exposure to deforestation risks and therefore, have made robust no-deforestation polices and strong commitments to sourcing sustainably certified palm oil. As such, both investors and companies rely on the RSPO to ensure reliable supplies of verified sustainable palm oil. We strongly support the RSPO’s mission and the central role of RSPO certification in the industry.”

These investors state they have ‘significant’ exposure to deforestation risk, which they have mitigated with their existing policies. If they are unhappy with this level of risk mitigation, aren’t they in a position to strengthen their own policies, and/or divest any holdings that have any deforestation risk? Why are they calling on another organisation – which relies on a potentially unpredictable voting procedure — to mitigate that risk for them?

CERES has received several grants to undertake advocacy on palm oil.  But this strikes us as being particularly unconstructive for sustainability objectives. CERES is shouting from outside the tent, when they could be participating meaningfully.

Greenpeace opts for emotion

Speaking of being unconstructive, Greenpeace UK head John Sauven made some alarming comments to Marketing Week recently:

Greenpeace hopes taking a “heart over head” approach to its latest campaign will engage consumers at an emotional level rather than just hitting them with “cold hard facts”…. Sauven says too often people get lots of statistics thrown at them regarding biodiversity and environmental concerns that can come across as “quite cold” … “I don’t think people can really use that information. If you want people to take action, you need to find a way to motivate them to take action,” he says.

The latest campaign is a broad online media campaign that puts orang-utans at the heart of the palm oil debate.

Like most participants in the palm oil debate, Palm Oil Monitor believes that a good part of the industry is working closely with NGOs and governments to provide robust solutions. But we also believe that making blanket and emotive statements on the relationship between palm oil and orang-utan conservation is particularly unconstructive.

This includes Greenpeace’s latest tweets, which simply show an orang-utan and a burning forest, with the caption, “They’re burning it for palm oil,” as well as a slick animated video with messaging along similar lines.

There are two reasons this is unconstructive.

First, because marginal falls in consumer demand for palm oil, European markets will not make any meaningful impact on orang-utan conservation outcomes.

Second, despite the fact that Greenpeace is calling on “big companies to drop dirty palm oil”, the messaging comes across as distinctly anti palm oil.

Greenpeace likes to maintain that they support palm oil – as long as it follows their preferred production methods, i.e. the High Carbon Stock Approach.

But, as Sauven says, emotion is what Greenpeace is pursuing. And emotional arguments don’t provide room for a nuanced discussion about production techniques.

Members of the High Carbon Stock Steering Group should be somewhat alarmed; this campaign isn’t doing them any favours.

Analysis: Are RSPO and RED intertwined on HCS?

In the past few weeks, there has been a clear ramping up of activity from campaign groups aimed specifically at palm oil.

Anyone looking at the policy landscape a few months ago may well have assumed that once the RED trilogue had been completed it would have died off.

The exact opposite has been true. Campaign activity has been accelerating, and there are two clear policy events on the horizon.

The first is the RSPO’s vote on incorporating the HCSA approach into RSPO Principles and Criteria at the Roundtable event in November.

The second is the European Commission putting forth its report on ILUC and HCS as required by the revised Renewable Energy Directive.

These events are not entirely independent of one another. HCSA is gaining traction with RSPO, and at the same time RSPO members will be used to lobby the European Commission to incorporate or include the HCSA methodology into any regulations.  RSPO would likely be supportive of any such moves as, like RSPO RED, it will assist its members access to the European biofuel market going forward.

Snapshot: The palm rollercoaster

For anyone observing palm trade and demand, the last few weeks have been nothing less than a roller coaster. To make it simpler for the casual market observer, we’ve lined up all the factors impacting the current price and outlook.

  • India’s currency. The rupee has taken a major hit over the past few weeks along with the Turkish lira, with the rupee reaching a historical low against the US dollar. This means that imports of all commodities – including palm oil – are coming under pressure, hence weakened demand out of India, which remains Malaysia’s largest market. According to one estimate, demand in July fell by 33 per cent.
  • US-China trade policy. China has hit US soybeans with a 25 per cent tariff. This would seem like an opportunity for palm given that the US is China’s largest source of soybeans. However, the policy uncertainty appears to be dragging everything down, not just soybean and palm. Most traders are hopeful that there will be a bounce in the next few weeks as Chinese buyers switch away from soybean.
  • European drought. Drought conditions across the EU have curtailed the region’s rapeseed crop and put considerable price pressure on the entire oils and meals complex in the EU. This is impacting prices for biofuel feedstocks – and making palm look particularly attractive at this stage.
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HCS 101: What Is HCS?

The revised Renewable Energy Directive (RED) that emerged from the European Union recently has provided some direction on where the European biofuels market will head after 2020: but it also left open the door for further, immediate, policy measures in 2018/19.

Unfortunately, these policy plans pose more questions than answers at this stage.

The core uncertainty is what will define a ‘high risk biofuel’. The RED requires that the EU Commission define a ‘high risk’ biofuel by February 2019.

Sources in Brussels tell POM that rather than using ‘sustainability criteria’ – as per the existing RED – the EU will shift to ‘deforestation criteria’.

This is likely to incorporate two elements: indirect land use change (ILUC) and a new definition for high carbon stock (HCS). This blog concentrates on the latter.

But what is HCS?

In the RED, HCS sets the definition and cutoff for cleared land, and whether biofuels grown on that land can be included in RED targets. The cutoff date in the current RED is January 2008. The EU verifies this through certification. For palm oil, the largest certification schemes are ISCC and RSPO-RED.

The EU definition in this case is “wetland; continuously forested areas; areas with 10-30% canopy cover; and peatland.”

These are reasonably obvious, except for ‘continuously forested areas’, which is defined as: “land spanning more than one hectare with trees higher than five metres and a canopy cover of more than 30%, or trees able to reach those thresholds in situ.”

This definition is a hybrid definition of forest used by the UNFCCC and FAO – although it is more specific. The international definition minimum areas start at 0.05 ha, and its canopy cover limits give a range of 10 – 30 per cent, and a range of heights from 2 to 5m.

Why is the EU definition higher? Because all forests have carbon stock; the ‘high’ part should refer to the upper end.

This definition isn’t ideal in terms of its ability to measure carbon, which is what the RED is attempting to save. There are simply too many uncertainties in measuring carbon stocks in different forest types (boreal, temperate, tropical) for this to be applied in a fair way. Soil disturbance and stored carbon in wood products also need to be counted if any carbon accounting is to be completed accurately.

The EU’s HCS definition is a shortcut. It is prescriptive without being too restrictive; it is supported by international consensus and therefore could not be easily subjected to a WTO challenge; and conceptually it is difficult to argue with.

But the element that is novel in RED II is ‘high risk’. RED II will seek to determine which biofuels are ‘high risk’, i.e. which biofuels have a ‘high risk’ of causing losses to HCS areas, directly or indirectly.

There are other definitions of HCS out there, which also need to be examined. These lean more restrictive.

This commenced in 2010. Greenpeace had attacked Nestle on its palm oil use, particularly palm oil sourced from Golden-Agri Resources (GAR). GAR engaged with Greenpeace and The Forest Trust (TFT) to determine a definition for HCS that would effectively prevent GAR from engaging in any more forest clearing.

The number they came up with was 35 tonnes of carbon per hectare (tC/ha).

At that time, Indonesia’s planning agency, BAPPENAS, considered ‘high carbon’ to be anything over 100 tC/ha. Logged over forests and acacia plantations contain as much as 200 tC/ha; rubber plantations go up to 96 tC/ha – even higher if the soil carbon pool is counted. Palm plantations contain as much as 65 tC/ha.

Greenpeace, GAR and TFT then undertook a context-specific study of carbon content of forests in Kalimantan, Indonesia. The study concluded, in short, that any type of forest – including canopy cover as low as 10 per cent – could be considered high carbon stock. The High Carbon Stock Approach (HCSA) was finalised, with a threshold determined to be between scrub and young regenerating forest.

But in this approach, the focus was not only carbon stock, but also other social and environmental aspects such as forest connectivity. Despite being called ‘HCS Approach’ carbon is not the only criterion.

There were some problems– and these were well noted. First, the study couldn’t account for other forest types or regions within Indonesia, let alone other countries. Second, if smallholders were going to be denied access to HCS lands, they would need to be compensated appropriately.

HCSA developed further in 2015 when its toolkit – i.e. its implementation methodology – was further refined.

The implementation really seeks to conserve large forest areas within areas that have been earmarked for oil palm development and that are under the management of a single firm.

The net result is that HCSA is a way of implementing its approach at the individual company level, rather than at an economy-wide level. It means that HCSA is in a position to ignore smallholders and broader economic impacts, and place its policy focus on carving off conservation areas.

Whether intentional or not, this approach is quite elegant. It takes government planning out of the equation; and it also doesn’t require the use of public funds. And because it is targeted at firm policy, rather than government policy, firms can be targeted individually.

It is also why the HCSA – combined with HCV approaches – will potentially be incorporated into the RSPO Principles and Criteria. This will be voted on at the RSPO General Assembly later this year.

It should be noted that this version of HCS isn’t primarily about determining carbon stocks. It’s about forest conservation. This is why it’s referred to as ‘zero deforestation in practice’.

MEPs lined up behind this approach in the lead up to the RED trilogue negotiations earlier this year, and they will likely push the Commission to have this methodology and its definitions adopted as part of any HCS definition.

There are three things to consider here.

First, the EU is seeking to adopt an economy-wide approach aimed at ‘high risk’ biofuels.  But what will be the ‘high risk’ criteria? The EU can’t discriminate between economies; this runs afoul of global trading rules.  HCSA proponents will be keen to argue that HCSA means the risk of a particular biofuel causing deforestation can be reduced to zero.  HCSA is a detailed and technologically intensive methodology that is primarily aimed at businesses and voluntary markets.

Will this force the EU to again discriminate between biofuels certified to a particular standard? If so, this will undo EU moves to have palm oil considered ‘high risk’ across the board.

Second, HCSA is applicable only for new developments, and only after the 2015 methodology. Non-compliance with this approach for pre-2015 developments is not possible. How will the European Commission reconcile compliance with HCSA and the EU’s existing 2008 cut-off date?

Third, and related to the previous point, HCSA is very much forward-looking. It’s about preventing future deforestation. This is opposed to being able to definitively and empirically state whether a biofuel has been sourced from areas that were deforested after 2008.

One should think that the Commission will be more interested in an empirical rather than predictive approach: remember, the goal is to determine what is or is not a ‘high risk’ biofuel at the present moment. HCSA, no matter the virtue of its outcomes, cannot empirically deliver that determination.

In our next blog, we’ll look at the competing view on HCS from the Sustainable Palm Oil Manifesto (SPOM).

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Palm Oil Monitor – Weekly Update 16th August 2018

New biodiesel mandates in Indonesia and Malaysia

The biggest news in palm-based biodiesel – surprisingly – has nothing to do with the European Union. Instead, both sides of the Straits are talking about new rules mandating the use of palm oil methyl esther (PME) in diesel fuels in both Malaysia and Indonesia.

Malaysian biodiesel producers are calling on the government to move ahead with the implementation of the B10 mandate, which was announced in July. The mandate requires a 10 per cent blend of PME in diesel fuels, up from the current 7 per cent.  The mandate was first put forward as part of Malaysia’s 11th Plan in 2015, with a target of 15 per cent biodiesel by 2020.

Much of the opposition to implementation has come from car and truck manufacturers or sellers who are concerned about performance and warranties.

Similarly, there has previously been concern that the higher price of CPO would push B10 prices to a point that would damage the transportation sector and perhaps require government subsidies — there is a subsidy for diesel fuels in Malaysia. However, the current spread between crude oil and CPO – with CPO sitting lower — should give fuel users some comfort.

At the same time, Indonesia has announced the implementation of its own B20 mandate for diesel users.  The mandates were announced in 2008, and have gradually increased since then, with implementation of B20 originally planned for 2016. The 20 per cent level this year is likely to be raised to 30 per cent in the next few years (that was originally set to be introduced in 2020).

For Indonesia, the higher mandates solve several problems.

First, it reduces the need for diesel imports. According to one estimate, around 43 per cent of Indonesia’s transport energy comes from diesel, and around 40 per cent of that is imported. The Indonesian government sees the biodiesel mandate as alleviating some of these problems.

Second, the mandate creates a significant market for the country’s palm producers, and that market is growing at around 5 per cent annually.

Third, Indonesia has set a renewable energy target of 23 per cent by 2025; the mandate contributes to that.

The Indonesian mandate may push up global prices for palm oil at the margins; the Malaysian mandate – if implemented – will potentially do the same.

The irony, of course, is that both these policy changes are coming at a time when the EU is seeking ways to crimp palm biodiesel demand in Europe. The silence of EU groups on Indonesia’s biodiesel subsidies speaks volumes about the nature of the campaign; it’s not about saving rainforests, it’s about propping up European farmers.

A renewed export push into China and India

Malaysia’s new Minister for Primary Industries Teresa Kok has announced that there will be a push on exports, particularly in China.

The Minister will join Prime Minister Mahathir Mohamad later this month where the issue will be pushed bilaterally.

Malaysia is seeking greater uptake in food production in China, as well as seeking to attract investment in food production in Malaysia, specifically geared towards the Chinese market.

Over the past few years China has increased its investments in food production overseas. This has been particularly noticeable in countries such as Australia, which have a ‘clean, green, safe’ image among Chinese consumers. This was particularly the case after food contamination scandals in 2008.

Unlike Western markets, there is no ‘perception’ of palm oil among China’s consumers. Although the dairy fats market is relatively new and growing, it is quite distinct from the vegetable fats market, which is generally determined by price. That said, Chinese authorities have stated they are keeping an eye on the impact of trans-fats consumption (palm oil, being free of trans fats, may even benefit from any restrictions).

At the same time, RSPO has announced a push into the Chinese market, with an announcement of a China sustainable palm oil alliance. A joint announcement was made with WWF and the CFNA, a business group for food manufacturers.  Ecolabels do not have a significant market penetration in China; food safety rather than environmental concerns take priority. This may change, but it will take some time.

Almost on the same day, India and Indonesia announced a memorandum of understanding between the Indonesian Sustainable Palm Oil (ISPO) system and the Indian Palm Oil Sustainability Network (IPOS). The announcement was made by the Solvent Extractors Association (SEA) of India, the Indonesian Palm Oil Board (DMSI) and global sustainability support organisation Solidaridad Network Asia Limited (SNAL). Although this is a nice idea, India reducing their applied tariffs on palm oil imports would be nicer.

Nestle and RSPO: The plot thickens

Swiss news outlet Swissinfo has revealed there was significantly more to Nestle’s suspension – and reinstatement – than met the eye.

To recap: Nestle had their membership suspended when they failed to pay their membership fee and did not commit to a certified sustainable timeline. The problem was resolved and Nestle was reinstated once Nestle resubmitted a new plan.

However, Swissinfo writes:

Nestlé argued that the RSPO system is insufficient and “is not conducive to achieving the levels of industry transparency and transformation the sector so urgently needs”. The Swiss firm has more faith in bringing more transparency in its own supply chain instead of relying on palm oil with RSPO’s stamp of approval … Nestlé thinks it can do a better job sourcing sustainable palm oil on its own and doesn’t want to commit to achieving 100% RSPO certified sustainable palm oil as required by RSPO.

 A Nestlé spokesperson told swissinfo.ch that when the company stated that their goal is not to achieve 100% certification of palm oil, it was asked by RSPO to remove the 2017 action plan and re-submit that they have no action plan instead. This in turn is what got Nestlé suspended. In other words, RSPO was willing to suspend Nestlé rather than accept an official challenge to its unwavering approach on certification …

 “There is broad acceptance that globally agreed standards must be implemented to stimulate the growth and demand for sustainable palm oil, in order to achieve market transformation and make sustainable palm oil the norm,” an RSPO spokesperson told swissinfo.ch.  

This is likely to have been in train for some time. Several large companies have hinted at a business-to-business approach to sustainability that doesn’t require third-party certification or audits.

Although we can see the value in that it will keep compliance costs down, it does fly in the face of everything that certification is supposed to provide to the market: independent assurance and transparency. Nestle has been scarred several times by major negative campaigns, particularly the baby formula scandal. Their aversion to risk is understandable.

But it also looks like the first time that RSPO has rebuked a major purchaser in a very public way.

It has been the case for several years that producers have been seeking to have consumer goods companies censured for ‘palm oil free’ and ‘no palm oil’ labels.  After a long push, RSPO’s rules were changed to prevent these labels, but only if the labels carried a direct or indirect message of environmental superiority. This is in some ways absurd; ‘no palm oil’ is now almost by default an environmental message.

At the same time, Nestle’s environment section on its website states quite clearly:

 Nestlé uses palm oil as an ingredient in a number of our products. At the same time, we are meeting demand for choice in our product range where feasible, with palm-oil free recipes.

It also needs to be remembered that Nestle was one among many European companies that insisted its suppliers have RSPO certification. And now it tells them that it no longer wants it. Nestle’s new direction on sustainable sourcing, plus its fair-weather approach to palm oil may simply be too much for RSPO – particularly when around half of the world’s certified palm oil still remains unpurchased.

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