Palm Oil Monitor Weekly Update – 21st March 2019

Analysing the Final Delegated Act: the Commission Doubles Down

The European Commission has published its final version of the Delegated Act for the Renewable Energy Directive, as was expected.

The text will now go to the Council of the EU and to the European Parliament. They have two months to consider the Act and how to proceed, but they can also request an extension.

Both the Parliament and Council can ask the Commission to redraft the legislation. They can also remove the Commission’s authority in this area, in extremis.

As noted previously, the approval period may bleed into the EU Parliament’s elections, which commence on May 23.

There are some small changes to the Act and they are clearly aimed at palm oil. But they are also changes that appear to have been forced by pressure from Green MEPs. On March 18, the Commission’s Director General for Energy Dominique Ristori presented the final Delegated Act to MEPs in the Industry, Research and Energy (ITRE) Committee members in the European Parliament. He confirmed that the changes had been made following discussions with MEPs.

Just so we’re clear, this version doesn’t pull back from keeping palm oil out of the European market; it doubles down. Here are the key changes:

  • Revision of the definition of smallholders from ‘2 to 5 hectares’ to less than 2 hectares. The only group objecting to this definition was European greens. They saw this as a ‘loophole’ for the nucleus estate model;
  • The definitions required for smallholder exemptions were narrowed to only include abandoned and degraded land, excluding ‘unused’ land;
  • The percentage share of palm oil’s expansion into high carbon stock (HCS) areas increased from 18% to 23%.

The increase from 18% to 23% has no justification within the EU text; there is no new data that explains the increase.

But the revisions to the smallholder definition are clearly alarming and display a clear disregard for the Sustainable Development Goals.

Ristori misquotes FAO smallholder definitions, ignores SDGs

Mr. Ristori justified the change in definition for smallholders by stating that it falls into line with the Food and Agriculture Organization definition of smallholders.

Let’s be clear: no such definition exists.

In fact, the FAO does quite the opposite – it encourages governments to develop their own workable definitions of smallholders based on the relevant economic and agricultural context. It also discourages relevant authorities from using an area-based definition.

This has all been laid out clearly in a working paper published by the FAO in 2017.

Even when it comes to collecting data for non-regulatory purposes, the FAO is non-prescriptive. Its flagship publication, the World Census for Agriculture, lays out its concepts and definitions and says that countries should determine their own thresholds for smallholders and agricultural holdings more broadly.

This is because the land area of a farm on its own does not indicate anything about the labour inputs, output, and profitability of the land holding. It is highly dependent upon context, including the crop type, land type and weather conditions.

A thorough analysis of 122 countries using smallholder definitions shows that:

  • 71 countries use an area-based definition;
  • Of these, 31 use a definition of less than 2ha and 40 use a definition over 2ha;

The FAO has also recommended against a regional definition for smallholders, let alone a global definition.

So where did Ristori get his definition? We suspect it is this study from the FAO in 2015, which uses 2 ha as a starting point. But this document points out that a 2 ha definition is woefully inadequate:

“The 2 hectares threshold does not provide any meaningful information for an analysis across countries.”

The FAO points out that the renewed focus on smallholder definitions is because of the Sustainable Development Goals.

SDG 2.3 seeks to double:

the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment.

There are two indicators, which measure smallholder productivity and income. The SDGs note that there is no methodology for measurement, and that the “The main reason for this  … is the lack of a universally-accepted international definition of “smallholder”.”

Officials from the region have been wondering whether the SDGs might be used as supporting material for a possible WTO case against the EU. This disregard of FAO methodologies and the SDGs looks like a clear entry point.

… And ignores the EU’s own definitions

What may further trip up the Commission and the European Union when it comes to international legal action – is that this new definition diverges completely from the EU’s own definition of small farmers.

The European Commission notes that a definition based on area is of very limited utility and the EU bases its definition of small farms on gross margin rather than area.

The EU defines a ‘small farm’ as being less than 8 ESU or ‘European Size Units’. ESUs are calculated by taking gross margin and dividing this number by EUR1200.

In the same way, the US Department of Agriculture uses a definition based on margin, rather than size, for small farms.

In Malaysia, a definition for smallholders is 40 ha. For palm oil specifically, the only definition is put forward by RSPO, which is 50ha.

For palm oil, a rule of thumb is one family member can work full time on 5 hectares, without the need to engage an additional worker or family members. With less than 5 ha, smallholders will find difficult to earn a decent and living wage and would look for another job. The EU has clearly not even bothered to check what ‘works’ in the sector.

But the question is this: why didn’t the EU use its own definition?

Because it would simply be too inclusive. There is a broad range of gross margins for palm oil. A CIRAD project noted that margin for Indonesian smallholders can range from IDR2000000/ha (EUR125) to 15000000/ha (EUR930).

A 5ha holding at the lower end would imply a gross margin of EUR625, roughly translating to 0.5 ESU. Using a low margin, a ‘small’ farm would be up to 80ha if calculated using ESUs.

… And casts ASEAN concerns aside

The changes to the Delegated Act have raised the ire of Malaysia and Indonesia. Both countries expended considerable resources demonstrating to the EU the problems with the Delegated Act. Both countries were ignored. Moreover, the classification of soybean as low risk has raised ire further, particularly given its higher deforestation footprint.

Ristori was asked to justify why soy was exempted and not palm oil. Without getting into details, Mr. Ristori just implied that their scientific evidence was “reliable”. Clearly, he’s towing the line for Juncker’s deal with President Trump. He also indicated that Malaysia was committed to protecting forests and sustainability. Then why ban palm oil?

Pundits are predicting a broader trade battle. The producing countries certainly seem prepared.

Malaysian Minister of Primary Industries Ms. Teresa Kok issued a statement saying, “This is totally unacceptable, and it is discriminatory and insulting to smallholders in the palm oil producing countries.”

Malaysian Minister of Foreign Affairs Saifuddin Abdullah stated “…if this Delegated Act is passed into law, that Malaysia would look to WTO for recourse. This discriminatory Delegated Act undermines the EU’s credibility as a proponent of the WTO-led rules-based system”.

Indonesia has now publicly stated that it will mount a WTO action. Trade Minister Lukita Enggartiasto said that “The decision [to take the issue to the WTO] was just made at a meeting yesterday. It is now being drafted. We will send the letter to the WTO and assign a lawyer.”

This doesn’t bode well for the EU’s trade ambitions in the region.

The EU has caved on soy in order to placate the Trump Administration’s proposed tariffs on cars. This will come at a cost for the EU’s trade plan in Indonesia, Malaysia and the rest of ASEAN.


Palm Oil Monitor Exclusive: Analysing the EU’s Scientific Report on Biofuels

Accompanying the Renewable Energy Directive (RED) draft Delegated Act released on 8th February 2019, the European Commission released its scientific report that attempted to determine which crops could be considered ‘high ILUC risk fuel’ feedstocks.

The report isolates palm oil as the only feedstock crop that can be considered as presenting a high risk of indirect land use change.

This is odd, given the EU’s previous pointing to soybean and maize as significant drivers of deforestation. Industry observers should therefore be sceptical, particularly as the EU has agreed to a political deal to buy more soybeans from the US – a deal made just before the scientific report was published.

In sum, this report is shoddy and unusual for a body that prides itself on producing accurate scientific data. Unfortunately, it reads like a press release-report from Transport and Environment (T&E) funded by a left-wing foundation or the Norwegian government. This is a sad decline in the intellectual rigour of the European Commission.

General observations

First, it appears to have been quite rushed. We are aware from our sources in Brussels that the scientific report didn’t look like it was anywhere near completion as late as Christmas last year.

This is supported by the fact that there are a number of spelling errors throughout the report. This might be a minor quibble, but if you’re preparing something for publication and you don’t have time to run it through a spell check, you’re clearly pressed for time.

Second, if this is the case, it’s a bit of a mystery as to how they’ve reached firm conclusions so quickly. Accurately linking deforestation by crop type is something that has eluded researchers for years, particularly in the satellite imaging field.  However, if the report is to be accepted as robust, we are also supposed to believe that the study managed to construct a robust methodology without producing any new data sets, in record time.

Third, this issue of the timeline is not incidental: it’s fundamental to how the Delegated Act was conceived. MEPs demanded such a fast timeline, to benefit their political positioning ahead of the EU elections in May. Such politicisation of a scientific and technical process is highly irresponsible. The EU Commission admits privately that this timeline was never sufficient for the job at hand – and even in public meetings before the EU Parliament, Commission officials have hinted strongly that the timeline was irresponsible.

Problem 1: Can ILUC risk even be assessed?

Indirect land use change (ILUC) as a concept has been criticised many times before. The doubts around it are encapsulated in one simple statement: “ILUC cannot be observed or measured. Modelling is required to estimate the potential impacts.”

The problems with ILUC have been gone over again and again. The last time the EU undertook a review exercise was in 2017. It stated then:

Results of recent ILUC studies are far from consistent in their approaches and outcomes. After 2012, no further convergence in results is presented in the literature.

It also noted that palm oil had a lower mean and median ILUC factors than sunflower, and a lower median than soybean.

That 2017 report also assessed if or how low-ILUC risk certification could take place, and critically examined certification pathways and whether low-risk ILUC was in fact possible given the complexities of the market, and substitutions between crops.

Isolating particular feedstocks was not one of the recommendations. In fact, some of the key recommendations of that report were as follows:

The analysis of the evidence on the different components of ILUC shows that for most ILUC components the scientific evidence is extremely poor …

Datasets on biofuel crop production must be collected, synthesized and standardized to common data formats. Analysis of historical information on agricultural production, trade, prices and yield, as well as land use changes may require further attendance in order to get a better understanding of the fundamental parameters that generate ILUC. Increased data availability and convergence of data formats and transparency, could also potentially help for validation of models and increase the use of empirical models. Satellite monitoring can support this development for different purposes, including ILUC research.

Finally, on methodologies for ILUC risk, it stated:

these need further refinement, particularly regarding: (1) the prove of additionality through calculation of trend line baseline yields, (2) availability of reliable data in all potential sourcing regions in the world, and (3) risk for unsustainable increases in irrigation water consumption needed to increase yields in arid regions. Also, the evaluation of unused land status and the duration of certification of 10 years, still has many open ends which need to be evaluated further.

This begs the question as to how the Commission moved from accepting that ILUC risk was close to impossible to stating in the scientific report that:

‘[ILUC] modelling has a number of limitations, but nevertheless, it is robust enough to show the risk of ILUC associated with conventional biofuels.’

Moreover, how does the Commission find it acceptable that isolating feedstocks where expansion on high carbon stock areas is high can somehow operate as a proxy for ILUC risk?

This is the critical jump in logic that the Commission is attempting to make. And it doesn’t even explain how this ‘trick’ is done.

Problem 2: Smashing together the data

The second problem in the scientific study is how the various datasets are meshed together.

As stated above, the EU is attempting to quantify how much deforestation can be attributed to the expansion of a particular crop. According to the EU’s logic, the greater this expansion for a single crop, the greater the risk of ILUC.

The scientific report has come up with some figures despite the fact that this calculation of a highly complex and essentially unmeasurable figure has been eluding researchers for decades.

There are three datasets that are drawn heavily upon. All of them are robust for their own purposes. The question is whether they should be used for different purposes, which is what the EU seems to have done.

The first is by Curtis et al (2018). This study uses satellite monitoring data to determine whether forest loss is likely to be deforestation, and then whether that deforestation was for commodity production, urbanization, shifting agriculture, etc.  The study does not attempt to determine which commodity crops (or trees) were grown following the deforestation, and it also only determines one factor to a particular area. In other words, the study does not say if deforestation was caused by oil palm or fibre plantations or soybean or cattle.

The second is a dataset produced by IIASA and IFPRI in 2015. This dataset is an estimate of which crops are grown where and how much of each crop is grown within a particular area. It is based on 5-square kilometre blocks, and isn’t directly derived from satellite data. Rather, the data is crowdsourced via user input. There are, therefore, some major quirks in the data. According to the maps, there’s quite a lot of oil palm grown in downtown Petaling Jaya, as well as some Arabica coffee (which only grows above 1000m). There’s also some wheat being grown in the south-eastern suburbs of Melbourne.

The thinking behind the dataset was to use it as a tool for crop land use decisions. It wasn’t designed to produce granular data to attribute precise areas to particular crops – although this is improving.

As the study says, “globally consistent maps showing the expansion of all individual biofuel crops through time are not available.”

However, the EU consultants overlaid the two datasets and assessed which ‘commodity driven deforestation’ lined up with the IFPRI/IIASA datasets, therefore coming up with an amount of deforestation that can be attributed to a particular, single crop. There are two caveats here that the consultants note: first, they are attributing all tree cover loss in a ‘commodity driven deforestation’ area to agriculture, and second, that they can attribute this deforestation proportionally to a single crop based on IFPRI data.

The third dataset is FAO data on harvested areas for particular crops, which can be used to assess the total expansion of a particular crop over a particular time period. This data is based on country reports given to the FAO.

So, these three datasets: satellite, user and country-level reports are very simply smashed together, with no harmonisation of the data and no verification – and what seems like a lot of guesswork.

Here are some examples of problems.

Problem 1: crop area expansion. The study bases its cropland expansion area on USDA and FAO reports. It says that between 2008 and 2015, global oil palm plantation area increased by 7.8 million ha. USDA bases its harvested and production area analyses on seed sales and trade data.

Do these figures square with other data? According to statistics from MPOB, oil palm planted area in Malaysia increased by around 1.2 million ha in 2008-2015. Much of this was attributed to conversion of old rubber plantations. This is also the data used by the FAO.

According to Indonesia’s statistics agency, oil palm planted area increased by around 2.1 million ha over the same period, which was partly driven by a decline in smallholder palm areas.

This totals 3.3 million ha. Did the rest of the world really stack on another 4.4 million ha of oil palm plantations? This seems unlikely, if not impossible, given the dominance of Malaysia and Indonesia over the palm oil sector during that time period.

Much of the discrepancy is in the FAO and USDA data. The data used by the FAO on Indonesia’s planted area is an ‘unofficial figure’. Both say the Indonesian industry expanded by around 4 million ha in this time. But these estimates are only as good as the data they have on trade and seeds.

The point is that using estimated crop expansion data based on trade and seed data, then combining that with satellite deforestation data, and adding that to estimates of cropland, mean that you end up with data that simply isn’t accurate.

Problem 2: crop area expansion (redux). The only truly comprehensive study of oil palm plantation mapping based on remote sensing data was undertaken by Cheng et al (2018). It’s worth noting that this study wasn’t cited in the EU’s literature review.

This study doesn’t look at changes in area over time. But it does compare satellite estimates with other sources for 2016. It looks like this:

ASEAN 23.80 12.80 14.82
Africa 4.59 4.28 3.80
ROW 1.10 1.06 1.26


This isn’t a small gap – it’s around 10 million ha. Unfortunately, it doesn’t establish the original 2008 baseline.

And this begs the question: do we really know what the 2008 baseline is? Neither the 2008 palm oil area or the final 2015 figure used in the study are based on satellite mapping. But the supposed amount of deforestation for palm oil is.

Problem 3: disaggregation of palm oil from other tree crops and plantations. One of the problems that has plagued interpretation of satellite data in the tropics has been identifying and disaggregating oil palm expansion from fiber plantations and other crops.

As Curtis states, the problem is:

Forest plantations in Southeast Asia contained patterns of loss and regrowth similar to those seen with the expansion of new agricultural oil palm plantations categorized within the commodity-driven deforestation class. This was particularly true for small-scale palm plantations that are planted and grown at roughly the same spatial and temporal scale as short-rotation wood fiber plantations.

This is accounted for in the methodology used by Curtis et al, by lowering the confidence interval in the final result, which is a landscape-wide quantification of deforestation due to commodities. The question is whether the IFPRI/IIASA datasets do this – and it doesn’t appear to be any way that the crowdsourced data makes this distinction.

There are some reasonably obvious spots in Sumatra that have converted from natural forest to eucalyptus and pine plantations, but these appear to be included in the ‘commodity’ class rather than palm oil in both the Curtis and IFPRI datasets.

Problem 4: Regrowth and replanting. Finally, replanting and regrowth doesn’t appear to be fully accounted for. Areas around Jengka in Malaysia, which had plantations established decades ago and replanted at least once, if not twice, appear in GFW data as ‘commodity driven deforestation’. This doesn’t appear to have been resolved in the Curtis data – and therefore replanting will be considered as ‘deforestation-based expansion’. This could potentially skew both the aggregate numbers and the geographic bias of the report; more importantly it highlights again how simple errors creep in when different datasets are hurriedly layered on top of one another.


The problems with the EU study are can be summarised as follows:

  • There’s a considerable leap from the existing state of ILUC-risk knowledge to simply equating it with commodity-specific deforestation;
  • There’s no accurate, satellite-based figure of palm crop expansion between 2008 and 2015;
  • Data for commodity-based deforestation based on satellite data does not appear to adequately disaggregate palm oil from other commodities or account for replanting;
  • Lining up ‘commodity based deforestation’ data with existing cropland map datasets is novel, but requires verification.

The EU is attempting to do something that has never previously been achieved: align deforestation data with crop data. There’s a reason this hasn’t been done previously: it’s a very difficult thing to do.

If this was a research project, it would require months, possibly years of refining and improving existing data and analytical techniques.

These conclusions are supposed to be informing a regulation that will have far-reaching implications for global vegetable oil markets and for millions of farmers.

The EU needs to take it more seriously. In fairness, this is not necessarily the Commission’s fault: the rushed timeline was a political gambit by the EU Parliament. Unfortunately neither the Commission nor the Member States appear to have the backbone to explain to the MEPs that their timeline was impossible and would lead to a flawed and indefensible outcome. Which is what has happened.

We hear that the Commission’s recent Stakeholder Expert Group meeting highlighted the lack of a proper impact assessment. EU officials at that meeting hinted that there will be a thorough re-assessment before the RED is fully transposed in the 28 EU Member States (the RED foresees a review of the Delegated Act in 2021 in any case). There is a lot of room for improvement.

In 2010, the LSE published a paper that described the Renewable Energy Directive as an example of ‘policy based evidence gathering’. Nearly a decade later, not much has changed.


Palm Oil Monitor Weekly Update – 11th March 2019

A Big Week in Brussels

Last week was particularly busy for anyone dealing with the politics of palm oil in Brussels. Here’s an overview.

The RED Delegated Act consultation closed

The open consultation process for the RED Delegated Act closed. At last count, there were more than 60,000 submissions made in the process. Around 52,000 of these submissions were pre-formatted copy-and-paste letters submitted via the ‘Not in my Tank’ portal put together by Transport and Environment and other NGOs.

There were not a significant number of responses from outside of the EU that objected to the methodology used by the European Union.

Both Indonesia and Malaysia were engaged in consultations directly with the EU on the RED. According to news reports, Malaysia said that:

The draft delegated regulation has been found to be lacking in transparency, scientific credibility and many of the assumptions therein fail to reflect the actual sustainable practices in the industry … Furthermore, it is biased against palm oil biofuels compared with the other crop-based biofuels. We therefore concluded that overall, palm oil has been unfairly labeled as a high ILUC risk among the eight feedstocks cited in the draft regulation

A Delegation of Malaysian officials was in Brussels this week to meet with EU officials ahead of the final adoption of the Delegated Act.

EU Commission Expert Group Meeting

This past Wednesday, the European Commission organised a stakeholder listening session.  The European Commission announced the final Delegated Act will be submitted on March 14, 2019 to the European Parliament and Council of the EU who will then have up to 2 months to either accept or to object to it.

There has been a steady uptick in demands from the European Parliament and NGOs that MEPs should object to the Delegated Act. This could force the Commission to withdraw it, replace it, or junk the idea entirely.

Focus Switches to MEPs and Member States

The Commission’s expert meeting this past week really served as a final roll of the dice for DG Energy: once the Delegated Act is published it is then sent to the EU Parliament and to the Council. The buck will be passed, and the final decision on whether to proceed with the Delegated Act lies with MEPs and with the Member State representatives.

Our sources in Brussels say there remain serious discussions in the EU Parliament’s Environment Committee (ENVI), and that it’s possible the Committee could formally object to the Delegated Act. However, with elections in the offing and the chance to restrict palm oil imports, the smart money surely is on MEPs swallowing their pride and settling for the text as it is.

A more interesting question concerns the Council.  Why? Because the governments in Paris, London, Berlin, etc, will understand the consequences of allowing the Delegated Act to proceed. Indonesia, Malaysia, and others have made repeated statements about WTO action and potential trade retaliation. For a period of time, Member States have been able to hide behind the Commission when it comes to the Delegated Act’s provisions against palm oil. No longer. If the Council chooses to approve the Delegated Act then the Member States themselves will be responsible for the decision, and the potential consequences. It’s probably no coincidence that reports suggest Indonesia and Malaysia will be sending Ministerial representatives to European capitals in the coming weeks.

A final point worth noting is the trade narrative emerging in some sections of the European press & political world. MEPs have accused palm oil producing countries of issuing aggressive trade threats, and European media has dutifully reported this as fact. Brussels in fact needs to take a step back and realise that neither Indonesia nor Malaysia has implemented a Delegated Act that bans European products … in other words, the EU is the aggressor here in trade terms and the producers are simply responding.

A TBT Meeting at WTO

A Technical Barriers to Trade meeting took place at the WTO in Geneva. This was the first formal meeting of the TBT Committee since the EU published its draft RED Delegated Act, and the first since France decided to remove tax benefits for palm-based biofuels in its finance bill.

The last time the Committee met, Indonesia, Malaysia and other palm oil producing countries took the EU to task for not releasing details of the RED sooner, and for singling out palm oil at various points in its legislative processes.

EU-Indonesia FTA negotiations

On March 11, the EU and Indonesia also had planned to commence the 7th Round of FTA negotiations in Brussels. Rumours from Jakarta was that the agreement was effectively on hold because of the palm oil issue. But it should be noted that this is likely to be in the context of the agreement – not because of the TBT discussion.

Norway’s ‘Circle of Virtue’

Norwegian officials visited Malaysia this week, with direct visits to both Trade Minister Darrell Leiking and Minister of Primary Industries Minister Teresa Kok.

The meetings were notable because of a statement from Norway’s Trade Minister Torbjorn Isaksen, who said, “There has never been a proposition either from the Norwegian government or the Norwegian parliament to ban palm oil.”

To recap, Norway’s parliament called on the government to ban palm oil from accessing its renewables programs. Isaksen’s language is precisely the same as the EU’s when its parliament called for a renewables ban.

According to news reports, Norway is looking for a trade deal that will include sustainable palm oil. Will this mean that MSPO gets recognition under the deal? Could that be a template for other palm oil producing countries as well, to secure recognition for their own sustainability efforts?

The following day it was reported that Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, had divested from several companies due to deforestation concerns – three because of palm oil. Rainforest Foundation Norway (RFN) cheered the move against Sime Darby, Olam, Sipef and Halcyon Agri. Olam and Sime Darby have been the targets of RFN for some time; RFN has called for GPFG to divest from companies associated with palm oil.

RFN, for its part, receives considerable financial support from the Norwegian Government’s development agency, Norad. In 2015, it received more than USD10 million in funding.

Given all of the above, it’s unclear exactly how the Norwegian government can claim to be pro-palm oil. Or, more importantly, it’s unclear why anyone in a producing country would believe that claim.

Indofood Exits RSPO

Indofood, Indonesia’s largest food producer (and the world’s largest maker of instant noodles), and RSPO have parted ways. Indofood withdrew from the organisation in late January; their formal expulsion letter was sent from RSPO at the end of February.

The complaint against the Indofood division – London Sumatra Plantations — that sparked the withdrawal took place in mid-2016.  It was launched by the US-based Rainforest Action Network. Its target was Pepsi, and specifically its joint venture with Indofood.

The complaint was protracted. Despite verification audits and meeting complainant expectations, RAN continued to appeal, place quite unreasonable demands on the company and effectively refuse to settle. One example: RAN refused to reveal the locations of the rule breaches for several months.

This placed a considerable financial and resource burden on the company. Our understanding from talking to people familiar with the matter was that it was simply not worth Indofood’s time to maintain its RSPO membership and compliance.

This should be an eye-opener for RSPO. For voluntary schemes such as RSPO, part of the sales pitch is that certification – not just better practices, but compliance and certification – gives value to companies. If that becomes a burden rather than a benefit, the business case is gone.

It’s worth noting that Indofood’s plantations division has been under some financial pressure, posting a loss last quarter. But does this also mean that some companies will see certification as an unaffordable extra when times are tough?

Add to this the elephant in the room for Europe: around 26 per cent of palm oil going into the EU remains uncertified, according to a new report by IDH. This is despite a commitment by a number of EU countries to make their supply chain 100 per cent sustainable by 2020.

IDH noted that there was little demand for certified products in Italy, Spain and Poland. IDH stated that “To meet the 100-per cent target by 2020 is going to be very difficult because now we move into these markets where there is no consumer pressure or awareness.”


Palm Oil Monitor Weekly Update – 7th March 2019

POM Insight: Delegated Act Scientific Report

The EU is attempting to do two things in the Delegated Act’s scientific report.

First, it’s trying to provide the basis for ‘low-ILUC risk’ classification of biofuels.  In its previous assessments of whether low-ILUC certification was possible in 2017, its consultants referred to them as being in their infancy.

So, without any strong scientific basis, it simply seeks to use deforestation by individual commodities as a proxy for ‘high ILUC risk’.

There’s no underlining how incorrect this is. The same 2017 report pointed out that ILUC factors for palm were lower than sunflower oil.

Second, it’s trying to do something that has never been achieved, despite decades of research into deforestation and satellite imaging: perfectly align deforestation data with crop or land-use data.

There’s a reason this hasn’t been done previously: it’s a very difficult thing to do.

Nonetheless, the European Commission attempts to do this by putting together three unrelated and unharmonised sets of data on cropland expansion, cropland area and commodity-driven deforestation.

The problems can be summarised as follows:

  • There’s no accurate, satellite-based figure of palm crop expansion between 2008 and 2015;
  • Data for commodity-based deforestation based on satellite data does not appear to adequately disaggregate palm oil from other commodities or account for replanting;
  • Lining up ‘commodity based deforestation’ data with existing cropland map datasets is novel, but requires verification.

In 2017, the EU’s consultants stated:

  • Datasets on biofuel crop production must be collected, synthesized and standardized to common data formats.
  • Analysis of historical information on agricultural production, trade, prices and yield, as well as land use changes may require further attendance in order to get a better understanding of the fundamental parameters that generate ILUC.
  • Increased data availability and convergence of data formats and transparency, could also potentially help for validation of models and increase the use of empirical models. Satellite monitoring can support this development for different purposes, including ILUC research.

None of these things were done for the current scientific study.

This report is supposed to be informing a regulation that will have far-reaching implications for global vegetable oil markets and for millions of farmers.

The EU needs to take it more seriously.

In 2010, the LSE published a paper that described the Renewable Energy Directive as an example of ‘policy based evidence gathering’. Nearly a decade later, not much has changed.

This is an example of why the global community is losing faith in the European Commission’s policy-making capacity.

What US Soya Deal May Mean for Palm

One of the questions being thrown around in Jakarta and Kuala Lumpur since the release of the EU’s RED Delegated Act is whether there will be a ‘low ILUC risk’ certification pathway for palm oil going forward.

More attention has been given to this since the approval of the US soybean sustainability standard, which gives US soybeans easier access to the EU biodiesel market.

Our sources indicate some palm oil officials doubt the genius of the US approach here, or how it will work if it only applies to the US and not Brazil and/or Argentine soya.

Here’s the takeaway: the approval happened quickly; it was clearly a political sop to the US, which was threatening tariffs on any number of EU exports, but particularly steel products and the German automobile industry.

Now there are two questions for palm oil producers. First, is a political deal on certification achievable for palm oil? Second, what would a certification deal look like?

A deal is without doubt achievable. As stated last week, Malaysian Prime Minister Dr Mahathir Mohamad is an experienced international player.  Part of this is his ability to marshal troops. This has been on display at the EU-ASEAN Summit, where the EU was rebuffed on its cooperation overtures, with Malaysian Foreign Affairs Minister Saifuddin Abdullah confirming Malaysia and other ASEAN countries won’t support upgrading EU-ASEAN to a ‘Strategic Partnership’.

But there’s also a greater political weight when Indonesia is in the room. It is the fourth-most populous country in the world, and the largest economy in ASEAN – and palm oil is its largest agricultural export. When Indonesia speaks, other countries tend to listen, particularly when supported by ASEAN’s other major economies Malaysia and Thailand.

In other words, the political leverage is there.

The deal for US soybeans as a biofuel going forward has two parts.

The first is the EU’s approval of the US soybean standard. This was clearly political. There are any number of problems with the US standard meeting the EU’s sustainability criteria. The biggest one is that it technically doesn’t certify whether land was forested before the EU’s 2008 cutoff date.  That this doesn’t matter in the eyes of EU regulators speaks volumes about what they’re prepared to accept.

But this ‘deal’ only lasts until the introduction of the revised RED.

The second part is the greenlighting of soybean as being ‘low ILUC risk’ in the new Delegated Act.  This relies on the idea that soybean expansion in Latin America has had a very small impact on forests. This is despite the fact that according to the EU’s data sources for the Delegated Act, commodity-based deforestation in Latin America is double that of Southeast Asia, and the increase in soybean harvested area between 2008 and 2015 is more than ten times that of palm oil.

So, is there a low-ILUC risk certification pathway for palm? The scientific report left that pathway open, where it states:

“To ensure robust and harmonised implementation, the Commission will set out further technical details regarding concrete verification and auditing approaches in an Implementing Act in line with Article 30(8) of the REDII. The Commission will adopt this implementing act by 30 June 2021 at the latest. Voluntary schemes can certify low-ILUC risk fuels, developing their own standards individually, as they do for the purpose of certifying compliance with the sustainability criteria and the Commission can recognise such schemes in line with the provisions set out in REDII”.

In other words, there are 18 months for a case to be made for low-ILUC risk palm certification. Technical data on its own will not convince the EU that the pathway should be open. Robust technical data supporting palm’s emissions savings has been in place for years – but that didn’t stop palm being locked out going forward.  The political case is essential.