Palm Oil Monitor Weekly Update – 18 January 2019

Darell takes swing at EU

Malaysia’s Trade Minister, Datuk Darell Leiking, has taken a swing at the EU’s broader approach to both palm oil and its trade partners in ASEAN.

At an industry meeting last week, Darell said that “If [EU policymakers] keep on attacking our palm oil industry that means their intention is not as pure as they claimed to be.”

The comments come after several new developments related to biofuel developments in the EU.  Although the EU has undertaken supposedly good faith negotiations with Malaysia and other trading partners in relation to the revised renewable energy directive, other actors within the EU seem to have deliberately sought to undermine any progress.

The most obvious example of this was the French Parliament’s decision to effectively remove palm oil from its renewable fuel credits program, which will push its price in the EU market up by around 35 per cent according to one source, rendering it uncompetitive.

At the same time, the European Commission has provided assurances to the US that its soybean certification scheme will meet European sustainability benchmarks going forward.

Darell’s comments come at a critical moment for regional and global trade, and are aimed at shoring up the broader palm ‘ecosystem’ – downstream processing, logistics, as well as upstream agriculture – in the face of global trade headwinds.

“We need to start protecting our basic products which are creating jobs, especially in the manufacturing sector,” he said.

Finally, the comments are yet another signal from the government of Dr Mahathir that its waking up to the fact that policies like no further expansion may win you applause from some, but in reality, it won’t stop Walker, the European Commission or the NGOs from attacking you nor will it stop RSPO from introducing more regulations.  Stopping these actors will require more stick than carrot.

The WHO takes on palm oil?

Arguably the biggest palm oil policy story in a relatively slow week was the publication of an article in the World Health Organization’s monthly bulletin, which argues that the palm oil industry is using similar communications tactics to tobacco and alcohol lobbies. The basis for the claim is as follows:

  • There is generally no conclusive evidence of negative impacts of palm oil from current and recent studies;
  • There are nine studies that show positive health impacts of palm oil, and four of these were published by the Malaysian Palm Oil Board (MPOB);
  • Therefore the MPOB is running public affairs strategies similar to the alcohol and tobacco industries.

Malaysia’s Primary Industries Minister Teresa Kok described the report as ‘ irresponsible and unprofessional’, stating that “this is a tactic to discredit palm oil’s image … and support the EU in its campaign to halt the entry of palm oil into their markets.”

This WHO article’s logic is nothing short of bizarre for two reasons.

First, health agencies like the WHO and US Food and Drug Administration have been actively calling for removal of trans fats in partially hydrogenated oils (PHOs) in food because of their contribution to heart disease. The FDA took the step last year of banning the use of PHOs and revoking their ‘generally recognised as safe’ (GRAS) designation. One of the key replacements has been palm oil. Similarly, the WHO has called for the global elimination of trans fats by 2023. In other words, the WHO has (albeit indirectly) has now become a major supporter of the use of palm oil.

Second, and this is related to the above, the increased switch to foods high in trans fats – particularly in the US – was precipitated by a public health campaign to move diets away from saturated fats and towards partially hydrogenated oils, containing trans fats. This campaign was supported by the American Soybean Association (ASA), which waged a public affairs campaign against what it called ‘tropical oils’, including palm oil throughout the 1980s and 1990s.

Third, industries and organizations generally defend their own interests and products or services. The global dairy industry — in the form of the US Dairy Council, Dairy UK, the European Milk Board — publishes reams of information and supports studies on the health benefits of dairy products —  and they are indeed beneficial. At the same time, cheese is generally recognised as a contributor to any number of health problems. This isn’t a tobacco-style conspiracy; this is industry-funded research and marketing.  There is no conclusive evidence that palm oil has negative health impacts. So why would the industry that supports palm oil go out of its way to find it? There’s a significant difference between attempting to promote health benefits and outright discrediting negative findings.

The WHO has been under significant scrutiny for nearly a decade. This is in part because it has been accused of being unable to carry out the mission it was founded upon: preventing the spread of infectious diseases. It has also been accused of ‘mission creep’, i.e. trying to do too much. This includes attempting to tackle environmental problems or focus on non-communicable diseases, which are the generally the brief of domestic health agencies. Critics have said that it should pull back, shrink, and stick to its core mission.

The WHO’s defenders argue that it needs larger budgets and more staff.  The WHO, like any other organisation, is out there to defend its interests and justify its existence.

The important question now is if Malaysia will escalate the situation. The WHO has lost a great deal of credibility over the past few years. In 2017 the organization appointed Robert Mugabe as a goodwill ambassador. Neither Malaysia – nor Indonesia – would have much to lose by taking further steps calling for the organisation to be censured.

Iceland Palm Ban Controversy Continues

The UK’s Iceland Foods has responded to a fiery critique of its palm oil policies by Nigerian think-tank chief Thompson Ayodele.

Ayodele’s thoughts on Iceland appeared in Malaysian media; the key criticism of Iceland’s ban on palm oil products is its intent. Iceland Foods and CEO Richard Walker continue to state that its objective is stopping deforestation and that sustainable palm oil isn’t possible.

Ayodele quite rightly points out that there are bigger causes of deforestation, e.g. beef, soybean, and maize, and these aren’t being taken out of Iceland’s supply chain.

Yet Walker’s statement, “we are not against palm oil itself, but against deforestation”, is problematic. Why isn’t Iceland tackling demand for other deforestation-related commodities? A counter-argument might be that sourcing British or Australian beef, or US soybean, avoids contributing to beef-related deforestation in Brazil.

But that counter-argument can be applied to no-deforestation palm oil from Costa Rica or Peninsular Malaysia.

The Iceland talking points are remarkably similar to those that are regularly trotted out by Greenpeace, which run along the lines of “We’re not against palm oil – we just hate companies that have anything to do with it.”

However, Iceland’s big public affairs problem this week has been created by a potential UKP 21 million fine from the UK’s revenue and customs office (HMRC), which has called out its employer Christmas saving program. The HMRC alleges the savings program resulted in paying below the minimum wage.  Iceland chair Malcolm Walker stated that he recently spoke to UK PM Theresa May when he recently sat next to her at dinner.

This prompted two thoughts on Iceland’s CSR approach.

First, it seems Iceland’s policies are full of good intentions, but require more polish when it comes to execution. Iceland is a relatively small player and is growing its market share. If it wants to be taken seriously in the public policy debate, it needs to take more care developing and implementing its policies – and do some research. Unilever’s well-publicised error on cutting smallholder suppliers when it went to a traceable palm oil supply chain is a good case study.

Second, Iceland’s leadership team should probably get out more. The UK is going through its largest political change in a generation, and the company pressed the PM on a matter of employee wages. In the case of palm oil, it would seem Iceland has let a narrow, European notion of conservation get in the way of a global picture of sustainability.

Malaysia Should Emulate Gabon?

An opinion piece arguing that the Malaysian palm oil industry should emulate Gabon’s approach to palm cultivation appeared in the Malaysian media this week.  According to the author, this would mollify European concerns about Malaysian palm oil. The proposal hinges on the idea that Gabon’s national land use plan – as reported in National Geographic – is an appropriate model to copy. The Gabonese approach has been supported by a number of international agencies as well as Singapore’s Olam.

However, to anyone who has actually studied this sector would know a direct comparison is hardly appropriate because of vastly different social and economic contexts. Gabon’s population is around 2 million people; its population density is around 8 people per km2. Malaysia’s population of 31 million people has a population density of around 95 people per km2.  Malaysia supports a vast number of smallholder farmers that have private property rights; Gabon’s population are largely considered as landless peasants in a country where government ownership of land is high.

The real clincher for Gabon, however, is that because a vast proportion of its GDP comes from petroleum rents, it has become one of the richer countries in Sub-Saharan Africa; at the same time this has meant that the small population places relatively low pressures on its environment.

It is true that Gabon has made strides in sustainable palm production and environmental management. But when it is noted that the environmental pressures are low to begin with, it hardly seems like an achievement.

Finally, the Malaysian model has actually been replicated throughout Africa.  The Gabon system has not.  So here’s the bigger question: what is this author’s real agenda?

US-Canada trade deal: A surprise on palm

The US and Canada trade deal has yielded a small surprise for palm oil growers. The agreement gives sees the gradual elimination of tariffs on margarine over the next five years. But the surprise is that the tariff cut will also apply to margarine that uses non-originating palm oil, i.e. palm oil imported from other countries.

Bilateral and multilateral trade agreements generally have complicated ‘rules of origin’ chapters that place limits on how much content from outside of the free trade area can be used, and still have access to tariff cuts. Farmers and margarine producers could not export to each other tariff free, because they would generally use palm oil in their formulations. This particularly irked Canadian canola farmers and margarine producers; US exporters didn’t necessarily see the Canadian market as being important. This should, however, provide a small boost in demand in the US market.