Palm Oil Monitor Weekly Update – 20 December 2018

Malaysia keeps up the pressure at the WTO

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

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

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

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

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

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

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

Is Indonesia calling out Iceland at the WTO?

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

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

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

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

EU-Indonesia proposals see some light

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

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

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

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

Commission releases Interim EU-Malaysia SIA

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

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

The headline economic modelling result is a straightforward positive:

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

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

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

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

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

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

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

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

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

Indonesia trolls Iceland Supermarket

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

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

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

Elsewhere in Poland …

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

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

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

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

Commissioner Cañete gets served by NGOs

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

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

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

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

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

Wilmar negotiates with Aidenvironment

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

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

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

Why the change of heart?