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.