Palm Oil Monitor – Weekly Update 7th August 2018

Zero Deforestation Comes to the Soy Market

The past few weeks have seen a number of new developments on ‘zero deforestation’ initiatives, but this time they are aimed squarely at the soybean industry – not palm.

First, UK retailer Tesco has announced its ‘transition plan’ to use an offsetting or credit system to have their soybean purchases produce zero net deforestation.

This plan by Tesco also includes – at a later date – a mass balance system for certified soybean, again from forest areas that haven’t been cleared for soybean.

As such there doesn’t appear to be a cutoff date for the certification, and it would appear that the purchases – which are primarily from animal feed – will only apply to Tesco’s own farms. This also presents some controversy; six months ago Tesco was embroiled in a scandal for using fictionalised farm names for its meat products.

It’s not clear at this stage if or whether Tesco will be calling on its meat suppliers to adopt the same sourcing policy. However, at this stage, we smell a token effort.

The second announcement comes from commodity trader Louis Dreyfus Company (LDC), which has announced a similar policy on deforestation for soybean, which appears to mostly be an aspirational target to eliminate deforestation from their supply chains.

Will LDC policy make a difference? From their marketing material, they’re clearly going along with a Western NGO push for zero deforestation supply chains. But the following should be kept in mind from the USDA’s forecasts for soybean this month:

[Global] Harvested area is forecast at a record 37.5 million hectares (mha), up 1.0 mha or 3 percent from last month and up 7 percent from last year. Soybean area is forecast to continue expanding as it has for the past 10 years, with 2018/19 forecast to have the highest annual increase in 5 years. It is anticipated that Brazilian producers will plant more soybeans to capitalize on the trade advantage over the United States in response to China’s imposition of retaliatory duties.

It’s also worth remembering that this area – 37.5 million ha – is more than double the global palm oil area (16.4 million ha), with one quarter of the oil yield.

Soybean has been in the gun before when it comes to deforestation, but now the ‘zero deforestation’ juggernaut is in play. They are not going to know what’s hit them.


Vegetable oil consumption will grow – but only in developing countries

The OECD and FAO’s annual long-term projections on global agricultural production and consumption have been released.

The annual outlook is projecting a 15-16 per cent global increase in consumption of vegetable oils over the next decade, rising to a little more than 230 million tonnes annually.

But, as to be expected, the bulk of this growth is in developing countries; consumption in developed countries is likely to very much remain flat.

The demand is, as usual, likely to be driven by rising incomes in developing countries and greater overall food consumption.

The OECD-FAO report also notes that vegetable oil consumption for biodiesel is likely to remain flat.

So what does this mean for producers and exporters? As is currently the case, lower-value, higher volume markets will continue to grow.

As difficult as regulatory requirements are in Western markets, they are still significant; moreover, substitution of oils – as often is the case in markets in China and India – simply doesn’t happen. The palm-soy spread simply isn’t as important.


Virgin takes the cake for symbolism

Similar to the above announcements, Virgin Atlantic airlines has announced it will remove palm, beef and soybean from inflight meals in order to decrease its carbon footprint, because of deforestation. Research has shown, and Palm Oil Monitor has reiterated, that palm oil is not a major driver of deforestation. In fact, compared to sunflower and rapeseed, palm oil ranks as far more efficient and far better for the environment.