Palm Oil Monitor – Weekly Update 26th July 2018

EU-Indonesia Negotiations Update

The Indonesia-EU trade agreement negotiations re-started at the beginning of last week in Brussels. The new round comes after what seemed to be an impasse on palm oil and the renewable energy directive. And, as noted last week, European NGOs are already seeking to capitalise on the potential agreement and turn it into an environmental rather than trade agreement.

The prevailing NGO view presents a potentially overdone level of optimism about what the talks might achieve. The question now is what progress was made in Brussels.

Iman Pambogyo, Indonesia’s lead and veteran trade negotiator was reasonably blunt in his assessment of how palm progressed in the talks:

We know, there [is]  good progress in the fifth meeting. Some texts in the chapters are going to be confirmed. Meanwhile about the more sensitive issues or the new issues for Indonesia, we need clarification about what EU wants …

We keep vocalizing our concern about palm oil …  which is always discussed in Europe. We also emphasized the special concern to what happens in Indonesia, such as, in agriculture, fishery, and access to EU markets that is limited by the expensive tariff or the difficult standard that Indonesia is hard to realize.”

This statement doesn’t require reading between the lines: the EU’s standards for fish and agricultural commodities – including palm oil – are problematic.

The European Commission will, as usual, publish a negotiating round report in the next few months. Some matters – the low-hanging fruit – will likely have been resolved. But palm oil will be a problem.

Those who don’t understand trade agreements tend to overlook why parties come to the table in the first place. Indonesia already has reasonable access for palm oil into Europe. It is one of its largest exports to the EU’s northern member states. Why would it even be at the table if it wasn’t able to either improve access or safeguard existing access?


Brussels reaches out to KL

The EU’s other big task in the region is re-starting its bilateral talks with Malaysia. These talks were called off in 2012. More recently they were subject to a ‘stocktaking’ exercise.

However, last week, the EU’s Ambassador to Malaysia Maria Fernandez Castillo said:

As the EU already formed FTAs with Vietnam and Singapore, and discussion is ongoing for Indonesia and the Philippines, Malaysia is one important but missing link currently that we urgently want to connect.

Representing the EU, I cannot emphasise more the importance of regional economic and political integration as a key factor in generating economic growth, social inclusiveness, fostering democratic values and ensuring political stability.

This will be a boon for Malaysia if the agreement is completed, and would undoubtedly have widespread business support. The problem may be domestic rather than bilateral to begin with; the new government is reviewing a number of existing trade relationships.

The EU has completed its social and economic impact assessment inception report of a EU-Malaysia deal. There are four major points to note.

First, the EU is going to commission a special report on palm oil as part of its larger assessment: “impacts related to Malaysia’s palm oil sector will be examined, including an assessment of the potential linkages that may arise with the FLEGT Voluntary Partnership Agreement between the EU and Malaysia on illegal logging.” The impact of the agreement on the vegetable oils sector will also be subject to special in-depth analysis.

Second, the report has cited research by the World Resources Institute on Malaysia’s emissions from land-use change. It states:

Special attention, however, should be put on emissions attributed to Land-Use Change and Forestry (LUCF). Estimates by the World Resource Institute reveal negative GHG emissions for LUCF by 129 MtCO2 for 2014 alone. According to this report, unlike in neighbouring Indonesia, Malaysia LUCF’s policy functions as a CO2 sink. Furthermore, unsustainable management of solid waste disposal accounted for 46 per cent of methane emissions, while another 44 per cent of emissions were attributed to oil and natural gas, and 4 per cent to industrial wastewater on palm oil mills.

With that in mind, the case against Malaysia’s palm oil sector as a major greenhouse gas emitter holds very little water. And, certainly, at the national level, excluding Malaysian palm oil from renewables schemes on account of low or negative greenhouse savings is also unconvincing

Third, the above points will tie into concerns that the report raises with certification of palm oil. It cites that stakeholders will be seeking greater levels of assurance from the certification schemes used for palm oil. At the Malaysian Government end, this can only mean one thing: MSPO. This will almost certainly be the default position of the government on sustainability. The clear demand will therefore be recognition of MSPO by the EU, within any trade agreement.

Fourth, any attempts to ratchet up any standards for palm oil will be met with reluctance, particularly from Eastern states. The Voluntary Partnership Agreement (VPA) on timber products between the EU and Malaysia stalled at the end of 2014 for precisely this reason. Peninsular Malaysia and Sarawak had different approaches to the required legality standards for timber products going to the EU, and harmonising them was impossible. This impasse halted negotiations, and EU officials have more than once expressed their frustration. Could a similar thing happen for palm?


Palm financiers get attacked

Like a well-oiled machine, Western NGOs have commenced their attacks on financiers of palm oil plantations. The most recent action is from Friends of the Earth (both EU and US), which has gone after the operations of GVL, the Liberian subsidiary of Golden Agri Resources, which is part of the Widjaya family conglomerate. It’s even more surprising, knowing that GAR and GVL are both members of the High Carbon Stock Approach Steering Group; and GAR was part of the group (with TFT and Greenpeace) that has developed the HCS forest concept in 2010. What will be the reaction of Greenpeace and TFT to this report?

The campaign action comes directly after the European Parliament’s DEVE Committee voted in favour of a report to put more pressure on European companies investing in operations that may have some level of deforestation risk.

One of the key recommendations is that: “Both lenders and investors should take public action to support the integration of ESG criteria in investment decisions and support improved regulation of financial services in line with the Paris Agreement and the Sustainable Development Goals.”

To be completely fair, this type of action isn’t anything new. One of the claims is that financiers may be breaching the “OECD Guidelines on Responsible Business Conduct.” This is a tried and true campaign method that NGOs have been using since the early 2000s.

So what’s the real impetus for FOTE’s attack? Probably a very large grant from US foundations. The organisation has received around USD700,000 over the past three years to “to engage financiers of key palm oil companies to encourage better business practices that

reduce deforestation and protect community rights” – among other things.

That money may well have been better spent developing sustainability certification for palm oil smallholders in Africa. It is baffling that such giant funding agreements continue to be signed for what are in effect PR campaigns, when so much is needed on-the-ground to actually improve the lives of farmers – and indeed the environmental management in many poor countries.


France launches its ‘imported deforestation’ strategy

France has launched its national strategy to combat imported deforestation. The strategy has emerged almost a year after France’s environment minister Nicolas Hulot announced it. The timing is conspicuous. Originally the strategy was to be launched in March; and it has only been published once the RED matter has been resolved in Brussels. The strategy comprises five components.

  • Developing, valuing and sharing knowledge around the theme of deforestation;
  • Actions to combat imported deforestation to be developed in the framework of international cooperation;
  • Measures that will make public policies a lever to promote a French demand for sustainable products;
  • Promoting and coordinating the commitment of the actors;
  • Monitoring procedures to ensure that objectives are achieved.

The SNDI’s definition of ‘imported deforestation’ is as follows:

The importation of raw materials or processed products whose production has contributed, directly or indirectly, to deforestation, forest degradation or conversion natural ecosystems outside the national territory.

The SNDI doesn’t provide a ‘cutoff’ date that will determine when deforestation is or was possible. When the SNDI does so it will reveal more about their motivations, and will no doubt be subject to intense debate. The policy has been developed to satisfy NGOs arguing against deforestation in the tropics. At no time is a global view considered. One hectare of deforestation for oil palm would free 10 ha of soy or rapeseed in Europe, Brazil or the US, for reforestation.

For example, Mozambique has a percentage of forest cover (68%) and the world’s 14th-largest forest area.  But its human development indicators are low, and agriculture is a major source of employment, livelihoods and deforestation. Will Mozambique’s future agricultural exports be blocked by France’s policy?

Probably the most surprising element of the SNDI document is that it really doesn’t single out a palm oil as a major source of imported deforestation. France’s government has paid close attention to well-established EU research that points out beef, soy and maize are much larger sources of deforestation than palm oil.

However, the strategy itself does appear as though it will be a long-term, publicly funded lobbying campaign against imported products, including palm oil. This is particularly the case given the very broad definition given to ‘imported deforestation’. This broad definition is likely to mean one thing: protectionism. The looser the definition of deforestation, the more imported commodities it can capture, particularly when France finished its own massive process of deforestation more than 200 years ago.

This document has longer term significance. The EU appears to be gearing up to push its ‘Action Plan on Deforestation’ – which has similar objectives, i.e. reducing the ‘deforestation footprint’ of the EU – towards the end of the year. The SNDI document will undoubtedly inform what the EU does next.


And finally, The Ecologist …

UK-based portal The Ecologist has published the kind of broadside against palm oil that we haven’t seen since 2008. The authors behind the piece even lay down the Greenpeace-sourced ‘football fields’ meme: “A football pitch sized patch of rainforest is lost every 25 seconds and 24 million hectares were destroyed in Indonesia alone between 1990 and 2015.”

There are several problems with this statistic.

First, the ’25 seconds’ part of the meme fails to mention that this refers only to Indonesia.  Other palm oil producers – such as Malaysia – have stable forest cover. This is well known.

Second, it implies that all of this deforestation is due to palm oil, and this simply isn’t the case.

The statistic is sourced from Indonesian government sources, but it’s only 11 per cent of the story. Here’s what the European Commission published on this earlier in the year:

Estimates for the proportion of deforestation caused by the expansion of oil palm cultivation in Indonesia range from 11% (between 2000 and 2010) to a maximum of 16% (between 1990 and 2005).

And here’s what else they wrote:

…55% of overall tree cover loss within Indonesia between 2000-2015 occurred within legal concessions, of which approximately 1.5 million hectares (one third of the total) was contributed by palm oil. The remaining 45% of tree cover loss took place outside legal concessions.

Implying that palm oil is the main source of deforestation in Southeast Asia – or anywhere else in the world – is simply inexcusable. It is not remotely constructive in the sustainability debate.