Palm Oil Monitor Weekly Update – 22nd July 2019

Palm at the WTO shifts gears

Reuters has reported that Malaysia will put forward its World Trade Organization (WTO) case on the EU’s revised Renewable Energy Directive (RED II) and palm oil sooner rather than later. Reuters reports that Primary Industries Minister Teresa Kok said that: “the documents are with the attorney general chambers now… They are assisting us… [and] helping us identify experts who can argue the case in the WTO.”

It is also understood that Indonesian President Jokowi has asked the Indonesian trade ministry to pursue Indonesia’s WTO case as soon as possible.

Malaysia and Indonesia also discussed joint action at a Council of Palm Oil Producing Countries meeting.

Malaysia, Indonesia and a number of other palm oil exporting countries have previously raised the RED II at WTO Technical Barriers to Trade (TBT) Committee meetings.

The EU is yet to put in a notification to the TBT Committee — standard practice when introducing a technical regulation that may impact the import of certain goods.

There’s a reason for this: The EU considers that the RED II falls outside of the TBT. This point was made in a letter sent by the EU in early May.

Indonesia’s response – made at the WTO at the beginning of this month – was furious:

“We beg to differ with the EU on this important issue. The requirements stipulated in the delegated regulation are technical regulations to a product and or group of products which are clearly fall under the TBT agreement … The structure, design, and expected operation of this standard are expected to discriminate biodiesels generated from palm oil against other biodiesel products produced within EU members countries, such as rapeseed and sunflower.”

Indonesia also makes that point that EU actions are “alarming” and “threaten the credibility of TBT Committee.” The point Indonesia makes is that by arguing that this is not a technical regulation, the EU can regulate as it pleases, and simply wait for the WTO to resolve a case via the WTO’s Dispute Settlement Body – a process that can take years.

It’s not surprising that a group of countries including Malaysia, the US, Brazil, Canada and Australia issued a joint statement at the WTO last week, taking the EU to task for its abuse of non-tariff barriers on agricultural products. Although it relates specifically to the safe use of pesticides, the statement gives a good indication of how the EU thinks in relation to agricultural protectionism:

“Despite repeated requests in the TBT and SPS (Sanitary and phytosanitary measures) Committees over the past four years, the EU has not identified either the level of protection being sought or the specific pathways of exposure or risks that it seeks to mitigate, to justify the trade impact of these restrictions. The EU has not taken into consideration the comments of other WTO Members on draft regulations. “

What does this mean? Combined, it means that the EU is taking what is best described as a harsh approach when it comes to keeping palm oil – and other commodities – out of the EU market. Anyone thinking that the negative palm campaign will end with biodiesel needs to think again.


EU Ambassador to Malaysia Speaks to Smallholders; Disputes Their Campaign of EU Ban

On a related note, the EU’s Ambassador to Malaysia, H.E. Maria Castillo Fernandez, appears to be courting controversy by telling Malaysia’s smallholders that the EU’s ban on palm-based biofuels will not affect them. This seems to be a direct counter to the claims of smallholders the EU is banning palm oil biofuels.

According to Malaysian Insight, Fernandez told groups of smallholders in Perak that the ban would not affect them because: products for palm-based biofuels only make up 1.4 per cent of Malaysia’s total exports; palm oil exports make up 4.4 per cent of the country’s total exports; and most smallholders aren’t certified.

There are some flaws in Fernandez’s reasoning.

First, splitting between exports of biodiesel (e.g. exports of fatty acid methyl ester) and exports of crude palm oil (CPO) isn’t an accurate way of measuring the amount of palm used for biodiesel in the EU. CPO can be refined in HVO (hydrated vegetable oil) plants in Europe.

Second, basic economics.  Prices are affected by demand. If demand for a commodity goes down, prices are likely to go down. Reducing the demand for palm oil – as is the case with EU policies – will likely push prices down, whether it’s going to be used for biofuels or for food and other products.

Third, the idea that ‘most smallholders aren’t certified’ is a bit of a red herring. Many FELDA operations – comprising many smallholders – are certified to ISCC standards specifically to participate in the existing RED scheme.

The price for fresh fruit bunches (FFBs) is impacted by myriad global factors in a complex market. Prices have been at historical lows. Farmers – of any commodity – will blame whatever is nearby. There were reports that Sumatran farmers were blaming President Jokowi’s moratorium for low prices, for example. However, saying that EU policies won’t impact smallholders simply isn’t true. It will affect the industry, and smallholders are part of that industry.

As President Jokowi recently said of the RED, “For me, if there is discrimination like that, I will fight because of the 16 million farmers and workers in this business.”


WWF: Orang-utan populations stable in Sabah

New research funded by WWF indicates that orang-utan populations in Sabah are stable – underlining that a balanced and sustainable approach to palm oil production is possible.

The WWF research showed that in Dermakot and Ulu Segama in Sabah orang-utan numbers increased from 5,376 to 5,933 individuals between 2002 and 2017.

WWF’s lead researcher, Donna Simon, said that “Sabah is on track to conserve this critically endangered species.”

However, the report also stated that there were population declines of 15 and 30 per cent in two separate oil palm plantation areas. This isn’t entirely surprising; plantations aren’t the orangutan’s natural habitat.

However, this is in line with Sabah’s overall conservation strategy of establishing forest corridors and connectivity between forest areas within a mixed landscape of forest and plantation.

According to Sabah Wildlife Department’s Augustine Tuuga, “This connectivity, through wildlife corridors that link patches of forest, is key to orangutan survival at oil palm plantation landscapes, especially in the lowlands of Sabah.”

The Sabah approach is a clear indication that sustainable palm oil that allies with genuine protection of orang utan is truly possible – policymakers, purchasers and consumers should take note.

The only bad news in the report was the misleading headline from Reuters.


CIRAD: Don’t Ban Palm Oil

A leading scientist from the French Agricultural Research Centre for International Development (CIRAD) has argued that banning palm oil will lead to more deforestation.

Jean-Marc Roda, forester and senior scientist with CIRAD, highlights that future demand for vegetable oils – partly driven by a switch away from animal fats and growing populations – is ultimately leading to more land being required for cultivation. Roda argues that palm oil is the solution, not the problem:

We know that consumers around the world will eventually demand around 250 to 350 million tonnes per year more vegetable oil than today. Soybean development in Brazil and palm plantation development everywhere else will continue because the main demand is not in the countries having interests in opposing their development.

Without palm oil, the future demand for vegetable oils would require cultivation land areas almost as large as the Australian continent.

Roda also highlights the falling levels of deforestation in both Malaysia and Indonesia, to the point where links between oil palm expansion and deforestation are no longer readily apparent:

Some palm plantations were established in lands that were previously forested, but the real share of deforestation caused by palm oil plantations peaked in the 1990s and has decreased consistently since. It is now almost non-existent in Malaysia (below 1%). In Indonesia, the peak was between 2000 and 2008, and has now decreased to 5%.

It’s also worth remembering that the European Commission stated expansion for palm oil was only responsible for around 11 to 16 per cent of deforestation in Indonesia between 1990 and 2010.

This goes some way to explaining why a large number of actors in both Malaysia and Indonesia have given behind-the-scenes support to the Amsterdam Declaration. In their view, much of the palm oil going to Europe is already sustainable and – depending which country or jurisdiction they’re in – doesn’t contribute to deforestation.


And finally … a housekeeping note from Palm Oil Monitor: There is likely to be some accusations in the coming days that Palm Oil Monitor is part of some kind of industry lobbying initiative. This is completely untrue: the platform is ours, and we publish stories that interest us, including information passed to us by our contacts in government, companies, NGOs, around the world. Since we started the site, we have benefited from support from various sources (including industry), which helps us to keep the newsletter going; we’re grateful for that, but we don’t lobby or cheerlead for anyone. We took a break over June and July following the EU elections, but we’re resuming normal service this week.