Palm Oil Monitor Weekly Update – 28th May 2019

RSPO Smallholder Standard: Consultation Closing

RSPO’s third round of consultations for its smallholder standard is about to close – on June 8. The consultation represents the end of another stage of what has been a particularly long road in the implementation of its smallholder strategy.

Since its inception, RSPO had a difficult relationship with smallholders. This is not unique; it reflects two tensions present in implementing any environmental standard. Smallholders generally operate with lower standards and have the slimmest margins; higher standards cost money and erode margins if there is no price premium. The other tension is between increasing breadth of uptake to include smallholders without sacrificing stringency or integrity.

In 2005, RSPO introduced the Taskforce on Smallholders (TFS), which later evolved into TFS 2 and the Working Group on Smallholder Finance in 2010. The latter had limited success in having smallholders adopt RSPO standards.

The most recent strategic iteration — the Smallholder Strategy – was introduced in 2015. This was a broader recognition that an ad hoc approach to smallholders simply wasn’t working.

So, why did it take nearly 10 years for RSPO to get it together on smallholders, and why the push for completion now?

In our view there are three reasons.

First is that demand growth for RSPO is flattening as demand for vegetable oils in Europe flattens. The standard was completed at what is best described as a complex time for RSPO. The introduction of the ‘no deforestation’ requirements in the standard means there is greater scrutiny on the standard and a bar to new entrants. Supply growth has to come from somewhere, and the only way for RSPO to increase its revenue base is to increase certified volumes.

Second, and this is related to the above, some mills in Indonesia in particular are looking to certify more of their supply chain – including smallholders. As has been pointed out many times before, Western procurement standards have a habit of excluding smallholders from supply chains. This was particularly the case for Unilever in Indonesia.

Third, Malaysia has introduced a mandatory MSPO standard for smallholders, for which the government is providing financial support for certification and audits. Similarly, ISPO, although not as well resourced, provides Indonesian smallholders an alternative with a lower level of compliance. Purchasers in European markets may view a smallholder with MSPO certification as meeting sustainability procurement requirements. It would be difficult to argue with from a broader sustainability perspective.

Pressure has grown for RSPO to take a more inclusive approach to smallholders from all sectors. But it has been these most recent commercial pushes – particularly the prospect of being crowded out by other standards – that appear to have given it the final shove.

The completion of the smallholder standard is well overdue, but very welcome. It will provide a certification pathway for farmers supplying major mills selling into Europe in particular.

This is, however, provided that the standard does not get shot down by overzealous NGOs within the RSPO membership. At last year’s Roundtable there were numerous objections to any loosening of standards for smallholders. But here’s the problem: if it’s not accessible, it won’t get used. This is something for those contributing to the consultation to keep in mind.

FAO: Oilseeds Outlook 2020

The United Nations Food and Agriculture Organization (UN FAO) has issued its oilseeds outlook for the next financial year, and there are some highlights for palm growers.

But the front-and-centre question for many growers is whether the US-China trade spat will provide any relief from low prices.

When the US and China engaged in their first round of tit-for-tat tariffs, there were some analysts that argued palm could gain – if soybean demand fell in China for crushing, palm oil could take up the slack.

This didn’t eventuate. The lack of demand for soybean in China brought down vegetable oil prices across the board as inventories were depleted.

There is some concern this will happen again. The current round of tariffs hasn’t done a lot for prices – though there have been some gains over the past week – but the FAO paints an interesting picture for oils, particularly palm.  Here’s their take:

Stimulated by low international prices, global oils/fats consumption is forecast to expand by about 4–4.5 percent year-on-year. Growth is expected to be driven by palm oil and, to a lesser extent, soybean oil, resulting in palm oil further increasing its share in total oils/fats uptake.

Meanwhile, rapeseed oil consumption could fall on the back of reduced availabilities. As a group, developing nations in Asia would continue to drive the expansion in global oils/fats uptake. While consumption growth could decelerate in China, mirroring slower economic growth, stable growth is envisaged in India. At the same time, a marked acceleration in uptake is expected in Indonesia, which could account for one-third of global consumption growth. Sizeable gains are also anticipated in Brazil and the United States of America, whereas consumption may contract in the EU.

In other words, the production-utilisation gap for oils and fats appears to be narrowing right now. This is a good sign for farmers.

Beef is getting the palm treatment, but there’s a catch

European NGOs have launched a campaign against EU supermarket chains for using beef from Brazil’s JBS, the world’s largest beef producer. According to ‘Illegal Deforestation Monitor’:

Sainsbury’s, Asda, Lidl and Carrefour are among the international brands potentially fuelling illegal deforestation in Brazil’s cattle industry as they continue to stock corned beef from a firm implicated in numerous environmental and human rights abuses.

This will all sound very familiar to those in the palm oil industry. And to some, not a moment too soon. The industry has gone to great lengths to point out that the deforestation footprint of livestock is around 10 times that of palm oil.

But there’s a catch. Campaigners appear to be using the JBS story to push greater levels of regulation on imports of forest risk commodities across the board.

A long history of examples such as this one has led campaigners and parliamentarians across Europe to conclude that the only way to prevent EU consumers from unwittingly contributing to overseas deforestation – including illegal deforestation – is through government regulation. An EU law already exists which requires importers of timber to ensure their wood is legally sourced, and there are growing calls for similar legislation to be enacted for other ‘forest risk commodities’ like beef.

So, although this would be an opportune moment for the palm oil industry to pile on to an anti-beef campaign, the goal here is more regulation for beef, soy, palm – and anything else that gets imported to the European Union. And for those who are keeping track, this campaign has been supported by the UK’s aid agency.

Demarty: WTO reform necessary to prevent ‘law of jungle’

Jean-Luc Demarty, Director General of the European Commission’s Trade Directorate, has told reporters that a WTO reform should be a priority for the next European Parliament and Commission:

The major issue in trade policy for the next Commission just at the beginning of its mandate, and also for the new European Parliament, is not necessarily swiftly developing new agreements … but preserving the WTO system and reforming it … If we are not able to do it, the stakes will be enormous … The status quo is not sustainable … If there is no reform to the WTO system, in particular on the rulebook and subsidies, the WTO system will be no longer relevant … It would become the law of the jungle.

To anyone outside of Brussels, this might seem strange. The EU is often more than happy to push and flaunt WTO rules to their absolute limit. The RED is a perfect example. But for the EU, the WTO is a bureaucratic and legalistic system that provides adjudication when it pushes the limits: it is the bloc’s shield in trade matters.

If that shield falls apart – and it is currently being threatened by the China-US trade spat and potential bilateral resolution – then the EU may find itself subject to any number of unadjudicated retaliatory actions, which will be particularly damaging for an economy like Germany.

Adding to this, the nature of the EU agreements means that trade policy is handled out of Brussels; this generally means that trade actions must be negotiated among the EU members before action can be taken. This makes nimble and agile action – similar to US unilateralism – particularly difficult.

If the EU wants to get greater buy-in from the ASEAN region, it should probably consider being a more reliable trading partner.

EU recyclables are now Malaysia’s problem

POM does not often heap praise upon Greenpeace, but the NGO’s most recent advocacy efforts have highlighted the glaring hypocrisy in the EU’s management of environmental waste.

Since China introduced a ban on the importation of recyclable waste last year, there has been a flood of exports of post-consumer recyclables from the EU to Southeast Asian countries, such as Malaysia, Thailand and Vietnam. Some countries have introduced stricter import licensing measures, though their effectiveness is yet to be seen.

The resultant problem – unmanaged piles of European rubbish in semi-urban areas – is a health and environmental problem.

It also underlines that much of European sustainability policy can be considered virtue signalling with no positive outcome. Very few Westerners know – or care — that recyclables are simply exported. Or that banning palm oil has a negative impact on Indonesian and Malaysian farmers …

There are a couple of signals here.

First, Europeans don’t want to pay. European companies and consumers have little appetite for a premium on CSPO. They also don’t want to pay to manage their own recycling and waste problems.

Second, Europeans think environmental problems don’t need managing in Southeast Asia if they create them. Deforestation for food production and exports is a big problem for Europeans, apparently. But burning piles of exported European recyclables near major urban areas in Kuala Lumpur, Hanoï and Bangkok? Not Europe’s problem.


Palm Oil Monitor Weekly Update – 21st May 2019

RED update

The Renewable Energy Directive’s Delegated Act has now moved past its approval date of May 13th. So what is actually happening? Here’s a summary of what we’re hearing on the ground.

Neither the EU Parliament nor the Member States have objected: so the Delegated Act will become a reality. It will take effect in 2021 … but a lot could happen before then.

This week on May 22, DG Energy is set to meet with Member State representatives to discuss the Delegated Act.

It’s highly likely that this meeting is being pushed by the Member States in order to wring some concessions out of Brussels – and therefore salvage the relationships with ASEAN. This is important for a number of reasons.

  • There are member states that stand to lose from the Delegated Act. A country like the Netherlands will see its traded volumes of palm oil drop significantly, harming transport and logistics. Countries that don’t produce rapeseed will have to contend with simply paying more for renewable fuels – with no real economic gains.
  • Some member states don’t want to see a trade war with ASEAN escalate. The EU’s foreign and trade policies are a little at sea at the moment. The US is threatening auto tariffs, and its relationship with China is fragmented. Declining relations with ASEAN will add to this mix. ‘
  • Member states are also fearful of direct action, as delays to liquor shipments in Indonesia have shown. According to our sources, Indonesian vice-president Jusuf Kalla told EU officials in his bilateral that Airbus purchases and dairy purchases could be next on the disruption list.

There are three other wildcards in the mix right now.

First is the European Parliamentary elections, which take place this week. Latest polling indicates that the EU’s Green Party (Greens EFA) is set to gain, as is the Alliance for Liberals and Democrats for Europe (ALDE). Greens EFA is a clearly anti-palm party, and ALDE, although somewhat centrist, has demonstrated antipathy towards palm oil. It supported the European Parliament’s proposed ban on palm oil last year.

Second is different efforts by ASEAN countries to garner EU support. Indonesia recently hosted a study tour of plantations in Riau, with officials from Belgium, Spain, Finland, Ireland, Sweden, Hungary, the Netherlands and the United Kingdom, plus a representative from the Food and Agriculture Organization. The objective was to underline the possibility of using ISPO as a guarantee against land use change.

Third is the EU’s relationship with the US. POM readers will remember that the US and EU brokered a deal on soybean purchases. The EU fast-tracked soybean certification into the RED mix, and gave soybean a green light for indirect land-use change (ILUC) risks under the Delegated Act. It is understood that this was done in order to hold off tariffs on EU auto exports. The deadline for those tariffs was last Friday, but President Trump has now extended that deadline by six months. It is possible that the EU will renege on the soybean deal if Trump eventually pulls the auto tariffs trigger.

Malaysia stops pulling punches, calls out EU’s ‘trade war’

Malaysia’s Minister of Primary Industries Ms Teresa Kok has called the EU’s Renewable Energy Directive (RED) “a form of trade war”, as she visited European capitals to press the case for palm oil in the region last week.

According to news reports the Minister said:

We see this as a form of trade war by the EU against Malaysia and Indonesia as palm oil-producing countries … We will definitely look at what are the trade items that we import from Europe and we will look at other countries (to source them).

The comments echo those made by Prime Minister Dr Mahathir Mohamad last month when speaking of the RED as a protectionist instrument for EU farmers:

To do that kind of thing to win a trade war is unfair … Trade wars are not something we like to promote but on the other hand it is grossly unfair for rich people to try and impoverish poor people.

The Minister’s statements represent something of an escalation for Malaysia in the ongoing RED debate. Up until this point, Indonesia has been the more politically aggressive of the two, imposing quotas on EU spirits and confirming preparatory stages of filing a WTO complaint.  But, as the dust settles from the Indonesian election, Malaysia is now doing some of the punching.

Franky Widjaja: The EU will Get Their Karma

Franky Widjaja, the head of Golden Agri Resources (GAR), has also thrown his weight into the ring.

Last week Widjaja told Reuters journalists, “I believe in karma, and I think [the EU] will get their karma,” in relation to the RED.

Widjaja believes that some sort of compromise solution is forthcoming: “At the end of the day you need to sit down, after you fight and you are tired, and you compromise … Everything is like that in the world.”

GAR has had a particularly tough road in terms of altering its environmental management practices – and image — for its palm oil operations. Sinar Mas negotiated confidently with Greenpeace for both its palm and pulp/fiber operations.

Although Greenpeace might agree to a negotiated solution, EU legislators and regulators may not have the same goals in mind. As we’ve pointed out many times before, EU politicians and farmers really are seeking to limit palm’s access to the EU market. Unlike a feud with Greenpeace, a ‘trade war’ over vegetable oil may never end.

Mixed signals from Germany

To add to the current confusion over the RED, Germany’s Ambassador to Malaysia Nikolaus Graf Lambsdorff has made some odd comments to the New Straits Times in relation to palm oil. See as follows:

“Germany is not going to ban the palm oil trade from countries like Malaysia …However, other European countries have been talking about reducing and maybe stop using the natural resource.”

The German Government may not ban palm oil, but the European Union is doing a very good job of doing so, and Germany has been part of every EU conversation on this issue. Thus far we haven’t seen any evidence of German officials in Brussels taking the side of palm oil. So, Germany has been complicit in the banning of palm oil biofuels.

“We need the palm oil as it cheap and sustainable.”

Adding to the above: why is the German Ambassador prepared to call palm oil sustainable in a radio interview, but not advocate it as sustainable within European energy policy? Germany has not objected as palm oil has just been damned as “High Risk” in the Delegated Act.

“Malaysia should also reduce the dependency on palm oil and maybe should stop using it in the few years to come as many other European countries are following suit.”

Finally, this comment speaks to broader knowledge of economic development – or lack of. Palm oil is the country’s main agricultural crop. As a country develops, agriculture’s share of GDP for that country drops.  Malaysia’s current GDP share for agriculture is a little above 7 per cent, on par with neighbouring Thailand or economies of similar size and stage of development such as Colombia.

Saying Malaysia should “reduce the dependency” is a little like saying the country “should become richer”.  It is possible that he’s suggesting that Malaysia should diversify its agricultural mix; however, there are no other crops that provide such high returns to land, labour and capital.

Any Europeans undertaking business – or diplomacy – in Malaysia should probably get a handle on Prime Minister Mahathir’s thoughts on the West. He said the following almost 20 years ago in Jakarta:

“Europeans have an infinite capacity to convince themselves that, whatever it is that they are doing at the moment, it is right, proper and just … Oppressive pressures are now less direct  … But the effect is the same. The ex-colonies or the South must submit to the North, to rules and regulations and policies devised in the North for the North.”

The German Ambassador would be well-advised to take note of this, and reflect.

Selfridges boycotts palm oil, Greenpeace piles on

Just as Minister Kok was visiting London, ‘one percent’ UK retailer Selfridges has stated that it will stop using palm oil in its private label products.

Selfridges appears to have followed the same model – and possibly taken the same advice as UK low-end retail chain Iceland. Like Iceland, Selfridges has stated that it is of the opinion that purchasing ‘deforestation free’ and ‘sustainable’ palm oil is not actually possible.

A Greenpeace spokesperson said that “This war against nature has to stop. Selfridges has sent a shot across the bow of an industry that urgently needs to change if it wants to remain in business.”

Yet we’re not quite sure where Greenpeace and Selfridges are coming from in this regard. RSPO adopted Greenpeace’s preferred ‘zero deforestation’ model in November. RSPO’s fully segregated palm remains unpurchased on the market.

In our view, both retailers are playing a double game.

Selfridges – like Iceland Foods — gains a point of difference as it attempts to distinguish its private label from other brands. This was a tactic that was employed by French retailers in an attempt to distinguish their private label chocolate products from Italian behemoth Ferrero.

The Selfridges-Greenpeace announcement was timed particularly well for the NGO, just as Malaysia’s primary industry minister was meeting with officials and other retailers in the region. Greenpeace has never shied away from intimidation as a negotiating strategy. It does appear to be moving into a more extreme ‘boycott palm oil’ phase.

The NGO has in the past maintained that it does not support boycotts of palm oil, and that it instead supports sustainable solutions. Greenpeace got all the ‘sustainable’ solutions it campaigned for, but at the same time, radical groups such as ‘Extinction Rebellion’ are taking up Greenpeace’s media time and market share in the UK.

Is a boycott all that’s left for Greenpeace? What happened to its rhetoric on sustainable development?

IPBES: Surprisingly balanced

The International Science-Policy Platform on Biodiversity and EcoSystem Services (IPBES) released its first major report in more than a decade last week to somewhat moderate fanfare.

IPBES is aiming to create an “IPCC report for biodiversity” with the release that will push national governments to introduce a raft of new policies and regulations on biodiversity and ecosystem services, which is a worthy goal.

Given that the report is clearly aimed at conservation objectives, it is surprisingly balanced.

Palm oil is singled out for the Asia-Pacific region as a key deforestation agent, but no more or less so than soybean and cattle are for the Americas.

This is tempered with an understanding of the trade-offs between conservation and poverty reduction. For example:

Expansion and intensification of commercial agriculture is usually driven by poverty of local communities depending on forests and other natural ecosystems … Thus, without any alternative livelihoods and/or incentive to promote sustainable agriculture, protection of natural forests in one area may cause leakage of biodiversity in another …

And similarly, the report notes the ongoing trade-offs between environmental quality and poverty reduction, and that gazetting of protected areas may deprive local peoples of livelihoods.

There are, of course, errors. The most notable of these is as follows:

Although there are laws addressing forest fires in both Malaysia and Indonesia, these have not been a success, with 2015 seeing one of the most severe haze episodes in South East Asia to date with more than 100,000 man-made fires burning 2.6 million hectares of Indonesian land.

Given that Malaysia was the first country to ratify the ASEAN Transboundary Haze Agreement, that Malaysia has very low rates of fire use, and that there was a negligible number of fires in Malaysia in the 2015 event, this is factually wrong.

California: A New Battleground – Part 2

In our last issue POM looked at legislative developments relating to palm oil in California. The first piece of legislation was the ‘Deforestation Free Procurement Act’, which requires verification of deforestation free forest risk commodities for government procurement.

The second piece of legislation is the Child Nutrition: School, Childcare, And Preschool Meals. This bill seems even more benign. It was introduced to ensure that meals provided by school cafeterias and other education bodies are relatively healthy. As it was introduced, it included restrictions of trans-fat content in meals, and limited other aspects of the meals.

But, between its introduction in early February and its amendments in April, one vegetable oil got singled out. See the following. Schools effectively must:

Not sell or serve a food item that, as part of the manufacturing process, has been deep fried, part fried, or flash fried in an oil or fat prohibited by this paragraph. Oils and fats prohibited by this paragraph include, but are not limited to, palm, coconut, palm kernel, and lard, typically solid at room temperature and are known to negatively impact cardiovascular health. Oils permitted by this provision include, but are not limited to, canola, safflower, sunflower, corn, olive, soybean, peanut, or a blend of these oils, typically liquid at room temperature and are known for their positive cardiovascular benefit.

This is nothing less than extraordinary. There is an inordinate amount of confusion around the health of different fats and oils – so much so that POM is often reluctant to discuss it.

However, when it comes to frying and deep frying, one of the most important components to look at is the stability of the fats. When the fats are unstable, they are prone to oxidation and increase their toxicity. The more stable the fat, the healthier it is for frying. Saturated fats – such as those found in palm and coconut — are more stable, and therefore better when heated.

So, how did California’s lawmakers get this so wrong?

The amendments were provided by the Committee on Education staffers. But before jumping to conclusions about whether anyone ‘got to the Committee’, consider the following. California is probably the ‘greenest’ state in the US and there are any number of anti-palm NGOs in the state. The Rainforest Action Network (RAN) is one of America’s louder anti-palm NGOs – it is based in California and it has a brief to tackle palm oil consumption in the US. But also consider that the US was the home of the anti-tropical oils health campaign of the 1990s.

In other words, disinformation about palm oil is now so widespread in some parts of the world, that it’s just assumed it is bad for health and the environment and no justification is needed.

One of the dangers here is anti-palm campaigners can use this as an example. Think of this: “palm oil is so unhealthy that California lawmakers banned it from children’s school meals.”

The other danger is that this is government procurement at the State level. There are no international agreements that exporting countries can rely on. After California, expect New York, Oregon and Washington to follow.

What does this mean? The industry needs to be vigilant across the board. Allowing such a new provision to be enacted, unopposed or unchecked, could have knock-on effects.


Palm Oil Monitor Weekly Update – 7th May 2019

Kalla takes on Europe

Indonesian Vice-President has used the Belt and Road Forum (BRF) in Beijing to launch a broadside at the European Union – specifically over palm oil.

In a leaders’ forum hosted by Chinese President Xi Jinping, Kalla stated that the EU’s policies are hampering Indonesia’s ability to achieve the UN Sustainable Development Goals, and that the EU had ‘ignored’ Indonesia’s position.

“Regrettably, the EU ignored the data and continues its discriminatory campaign which has been hampering Indonesia’s effort to achieve the SDGs. For that reason, we have to fight against the discrimination,” Kalla said.

He also said that “This discriminatory measure is conducted under the pretext of sustainability … At the same time, these sustainability issues have been taken seriously by [palm oil] producing countries with data.”

Kalla also called on leaders present at the meeting to fight trade discrimination, particularly against palm and other traded commodities.

The Vice President’s choice of forum to launch such a broadside is significant. The BRF is a high-profile forum featuring 40 world leaders and all ASEAN economies.  It was also attended by European Commission Vice President Maros Sefcovic.

China has stumped up nearly $5 billion for a high-speed rail link between Jakarta and Bandung; construction commenced recently. Malaysia has renegotiated its East Coast Rail Link deal with Beijing, and both have signed an MoU on palm purchases.

The EU, for its part, issued a statement by Sefcovic that the EU’s infrastructure plan would be “more sustainable” than China’s, and concentrate on “‘sustainable financing, avoiding debt traps, environmental impact”.  And it is still looking to maintain a palm ban via the recently-released RED Delegated Act.

It is no wonder ASEAN has changed its outlook to ‘look east’ –as Malaysian Prime Minister Mahathir first said back in the 1990s.

Norway’s new contradictions at WTO

Norway has defended ‘special and differentiated’ treatment for developing countries at the World Trade Organization and stated that development is ‘at the heart’ of the WTO system.

The Norwegian statements come at a time when it is pursuing the exact opposite.

The Norwegian Parliament recently voted in favour of a ban of palm oil in biofuels. The country’s sovereign wealth fund has also divested from a large number of plantation firms.

The contradiction is curious. Norway has relied, and continues to rely, heavily upon oil revenue, but seeks to limit agricultural commodity expansion because of climate emissions.

It calls upon for ‘special treatment’ for developing countries within the multilateral trading system, but doesn’t think that any special treatment should be given to on-the-ground agricultural development in poor countries. Its solution in the case of Indonesia is to pay the country not to expand its cropland – a kind of green welfare.

Nestle’s Deforestation Free Supply Chain

Nestle announced this week that it has confirmed that 77 per cent of its palm supply chain is ‘deforestation free’. Nestle has confirmed the figure using Starling, an imaging system developed with Airbus satellite technology.

The system works by analysing images throughout Nestle’s supply chain; algorithms are used to detect when forest loss occurs. Nestle then contacts suppliers to determine the nature of the forest cover loss.

Arguably the most interesting consideration here is the resources required to implement a deforestation free supply chain – that is only three-quarters complete.

When the ‘zero deforestation’ idea was sold to followers of NGOs, there was a clear sales pitch: zero deforestation is easy. This is simply not the case. Greenpeace’s first attacks on Nestle occurred more than a decade ago. Nestle is a particularly risk averse company when it comes to reputation; the company suffered during its baby formula scandal in the 1970s and 1980s, and this has shaped its approach to reputation management.

Costing information on Starling is not publicly available; Airbus states that quotes are available on a per hectare basis. It may be a cost-effective solution for larger operations. But this solution may also make broader voluntary certification commitments redundant, particularly if all the public is interested in is ‘deforestation free’.

ANALYSIS: Is California the next front in the Palm Oil Battle?

The United States has generally not been a big part of palm oil’s trade battles. There are, of course, some exceptions to this – the ‘tropical oils’ health scare that was spread by the US soybean industry in the 1990s is probably the leading example.

There are several reasons.

First, the US imports a relatively small amount of palm oil – around 3 per cent of the global export market. Palm oil makes up around 7 per cent of consumption in the US vegetable oil market.  US farmers are also particularly efficient and competitive.

Second, the policy battleground in the US has been health, rather than environment. The biggest battle has been around trans fats, mainly impacting soybean oil. The absence of trans fats in palm oil has made palm the clear replacement for soybean oil.

The US Food and Drug Administration (FDA) introduced a full trans fats ban last year, after a lengthy phase-in period.  But the phase-in period gave US processors time to develop low-trans-fat oils and products from soy, canola and corn oils.

Third, the US renewable fuel standard has penalised palm oil, but the impact has been smaller because the market for biodiesel in the US is significantly smaller than the EU, and the major renewable fuels used in the US are for gasoline-powered vehicles, which provide a subsidy for corn ethanol producers.

One of the other exceptions in the US has been an anti-palm oil campaign on labour. The motivations here were twofold. There was a push in the US to stop or limit participation in the Trans-Pacific Partnership Agreement; the campaign sought to exaggerate poor labour practices in partner countries. At the same time, new regulation in California on human rights and labour in supply chains required companies to disclose supply chain information and risks.

California is at it again.

Legislators are pushing two pieces of legislation. The first is the California Deforestation Free Procurement Act, which we’ll analyse this week. We’ll look at the second bill, the Child Nutrition: School, Childcare, And Preschool Meals (AB 842), next week. The Deforestation Free Procurement Act (AB 572) will require government contractors and subcontractors to ensure that if they are providing products that might contain a ‘forest risk commodity’ that they must undertake certain actions. They will need to:

  • Certify that the products sourced did not come from areas that were deforested from 2019 or later;
  • Have a no deforestation, no peat and no exploitation policy in place;
  • Make any certification and policy data publicly available.

At first glance, this might seem benign. There are two things to consider.

First is the size of the US procurement market. The US government procurement is around 9 per cent of GDP, i.e. around $1.6 trillion. In terms of magnitude, this is around the size of economies such as South Korea and Russia.

California’s state government spending was around USD225 billion in 2017. This is similar to the GDP of countries like Portugal, Greece or Vietnam.

The sheer size of California should make anyone who thinks Europe is a big market think twice.

Second is that California tends to lead the way in terms of regulation in the United States, especially on the environment. Regulation in California tends to be adopted elsewhere in the US, simply because California is such a large market.

The adoption of a new procurement rule in California could therefore have implications across the US in the longer term.

So, consider the response of producers of palm oil, other commodities and the industry more broadly if a country like Portugal, Vietnam, Korea or Russia decided to unilaterally impose similar reporting requirements.

Just as important is that this is a model that many NGOs will seek to pressure other governments to introduce for their procurement processes or as a legal and regulatory requirement.

This is precisely what the EU’s Deforestation Action Plan was originally aimed at doing: preventing ‘imported deforestation’.

There are other dimensions to this legislation, particularly on school food – and we’ll take a look at those next week.