Palm Oil Monitor Weekly Update – 25th February 2019

EXCLUSIVE: PM Mahathir’s letter on eve of Norway visit

Norway’s Minister of Trade and Industry, together with EU officials, will be in Kuala Lumpur this week for a series of meetings with their Malaysian counterparts to discuss their countries’ recent measures to ban palm oil from its renewables programs.

POM has obtained an exclusive copy of Prime Minister Mahathir’s blistering letter to his Norwegian counterpart Erma Solberg, regarding the country’s decision to ban palm oil from its renewable’s programs. This follows Malaysian Prime Minister Mohamed Mahathir’s letters to France and the EU.

To recap: In December, Norway’s parliament voted to request that the government develop a biofuel policy that will “exclude biofuels with high deforestation risk” in its biofuels programs.  The Parliament has requested that the policy be introduced from January 2020.

Adding fuel to the fire last week, Foreign Minister Saifuddin Abdullah released a statement echoing PM Mahathir’s letter. He stated:

The Government and people of Malaysia strongly oppose the proposed ban on palm oil biofuels. This ban is discriminatory and unfair, and would negatively affect 650.000 small rural farmers across Malaysia and adversely impact the earnings and wellbeing of nearly 2 million Malaysians who are dependent on the palm oil industry for their livelihood.

Is the Norwegian visit genuine or window-dressing? The only real outcome that will satisfy Malaysia or for that matter any palm oil producing country will be for Norway to include palm in its renewables programs.

PM Mahathir’s letter is highly critical of the ban, pointing out that any move in that direction may violate WTO rules, and will disproportionately impact 650,000 small farmers and 2 million people dependent on palm oil.

But the stinger for Norway is here:

The Norwegian vote to ban palm oil was based on the presumption that our oil palm cultivation is a proven driver of tropical deforestation. This assumption has no proven justification whatsoever. We therefore request your personal intervention in this matter which should be treated in a fair and non-discriminatory manner by Norway, with equal treatment and access for Malaysian Palm Oil, alongside with other sustainable biofuel feedstocks [our emphasis].

As POM has noted before, it’s one thing for governments to write to each other; it’s another for country leaders to write to each other.

PM Mahathir also brought up the prospect of strained trade relations between Malaysia, Norway and European Free Trade Association (comprising Norway, Switzerland, Liechtenstein and Iceland). The bilateral relationship between the two countries isn’t enormous; two-way trade is worth around USD800 million annually.

The irony, of course, is that Norway’s largest export to Malaysia is petroleum, and that Norway’s entire economy is built on fossil fuels.

A history lesson

Some industry participants have questioned the significance of the EU RED to global palm oil markets – and therefore PM Mahathir’s focus upon the RED and other renewable programs.

It’s worth remembering PM Mahathir’s history when it comes to natural resources and international negotiations.

During the early 1990s, there was a push on by both the US and EU to establish a binding international forest convention. This came to a head at the Rio Conference in 1992 (UNCED). Malaysia, with the support of Brazil, pushed back to make a case for an agreement that considered more equitable economic and social outcomes. This was a true victory for PM Mahathir on the world stage.

A year after the Rio Conference in 1993, PM Mahathir addressed the Commonwealth Forestry Conference at the KL Shangrila on Jalan Sultan Ismail. He noted that there was only one set of internationally agreed forest timber standards – those of the International Tropical Timber Organization.  He said:

What bothers us most is that non-tropical forests and timbers which compete with tropical timber in the same international timber market are not being subjected at all to any internationally agreed standards and commitment to sustainability… Yet we know that the practice of clear felling of miles and miles of temperate forests causes more environmental damage than the controlled selective logging practised in tropical forests.

This is a glaring case of double standards and a clear contradiction to the decisions of UNCED. It requires immediate redress…  [Tropical timber] Producer members have proposed the expansion of the scope of the agreement to cover all timbers, so that non-tropical timbers can be subjected to the same sustainability criteria and all problems of discrimination and double standards can be effectively eliminated. Not surprisingly, this proposal has been rejected by consumers of the North.

Does this sound familiar?

Substitute ‘tropical timber’ with ‘palm oil’ and the situation with RED is almost exactly the same: one set of standards for Western commodities, another set for everyone else. All dictated by Europeans.

PM Mahathir has been here before and he understands better than most where this can go. Malaysian timber came under enormous pressure through the 1990s, despite the agreements of UNCED, and the establishment of the Malaysian Timber Certification System.  Palm is not timber, but the global palm industry is more integrated and better organised than timber was in the 1990s.

Mahathir is aware more than most that the RED is just the beginning of the battle. Sure, it’s renewables now, but food and oleochemicals will be next.

Following up with France

PM Mahathir also wrote to France’s President Macron in January to protest the banning of palm oil from that country’s renewables scheme. It was reported last week that Macron is in the process of responding.

Minister of Primary Industries Theresa Kok is set to meet with France’s environment ambassador Yann Wehrling in April as part of a broader dialogue on palm and sustainability, following her meeting last week with France’s Ambassador to Malaysia Mr. Laplanche.

Although the meeting is likely to be cordial, the question for the French minister is whether they are able to rein in the anti-palm forces within the French Parliament.

One of the reasons the Parliament was able to attach the measure to the country’s finance bill was because of Macron’s unpopularity.

The ‘yellow vest’ protests have taken place every weekend for 12 weeks and are now well into their third month. Although recent polls have shown some improvement in Macron’s approval rating, he still has some way to go – and command some authority over France’s legislature.

There’s little doubt Kok will be able to change Wehrling’s mind on palm oil; Macron has already implied he is against the ban. But what Macron really needs is leverage at home.

RED Update: ITRE, ENVI and the scientific report

Last week the European Commission presented the draft RED Delegated Act to the Parliament’s Industry, Research and Energy (ITRE) and Environment (ENVI) Committees.

The response to the draft was generally negative; MEPs have said that they will reject the draft in its current form.

Sadly, this isn’t because the draft unfairly singles out palm oil or because it isn’t likely to be WTO compliant.

MEPs want to reject the draft for two reasons. First, they see the exemptions for smallholder oil palm farmers as a ‘loophole’ that needs to be closed; and second, because soybean is getting an easy ride. The few MEPs who were present echoed this sentiment led by Dutch MEP Bas Eickhout, who was quite virulent.

There was little new information about the Delegated Act in the presentation, and the response from MEPs was expected. But the Commission did invite MEPs to participate to a stakeholder “Expert Group” meeting on 5th March 2019 where the Commission will go over the ongoing Public Consultation on the Delegated Act and will possibly present compromise options.

This “Expert Group” meeting will very likely be dominated by Green NGOs such as Transport & Environment and Friends of the Earth Europe, together with some domestic oilseed interests, aiming to push the Commission to ban palm oil and change its stance on soy.

In terms of next steps, where does this take us? Once the Public Consultation process is over, the Commission will present a revised final version of the Delegated Act. The Parliament can reject it and/or ask for a two-month extension. This may mean that the final Delegated Act will be presented to a new Parliament after the EU Parliamentary elections.

The other key development was the release of the EU’s ‘scientific’ report on ILUC. We’ll provide a full analysis in the next few days.

The scientific study is going to be critical to the final look of the RED. It looks as though there are some clear gaps in the final product. The spelling errors throughout are numerous, which indicates that it was particularly rushed.

Iceland gets the cold shoulder

The Financial Times this week reported that UK supermarket chain Iceland received no boost in sales from its anti-palm oil campaign in the lead-up to Christmas. According to data posted by the company, underlying sales actually fell by 1 per cent.

The campaign provoked the ire of the Government of Indonesia in particular, with one Ambassador clearly trolling Iceland CEO Richard Walker on Twitter.

The associated video that Iceland produced with Greenpeace (and with help from Emma Thompson) apparently clocked up close to 70 million views on Youtube.

Alongside the initial controversy, Iceland faced a backlash from anti-palm oil campaigners, who were somewhat annoyed that the seller hadn’t removed palm oil from all its products, nor other products selling palm oil.

As much as we might disagree with anti-palm consumers, one should never underestimate their intelligence: they can spot a marketing gimmick.