Palm Oil Monitor Weekly Update – 14th August 2019

Palm is not a Focus for IPCC Experts – only for NGOs, media

The newest IPCC special report on climate change and land is fascinating reading for anyone interested in food production and its impact on the environment. It argues quite convincingly that a meat-based diet has a more harmful impact on land systems and the climate overall.

This largely stems from the production systems around livestock, including feed production, deforestation and livestock emissions themselves.

But anyone expecting some ammunition against palm oil will be sorely disappointed. Palm oil – unlike livestock – didn’t garner a mention in the Summary for Policymakers, and it was referred to only twice in the main report — indirectly. Once was in reference to isoprene emissions, which it said were ‘negligible’, and in another case where Indonesian shifting cultivation was described as a major problem, and that other pressures from land acquisitions for “oil palm, logging and mining” could risk future sustainability.

Despite this, NGOs have used the report as a platform to attack palm oil. Oxfam issued this statement in response to the report:

Meanwhile, our food system is only making matters worse. More than 70 percent of ice-free land is now under human use, largely driven by industrial agriculture and the growing demand for commodities like meat and palm oil. Agriculture, forestry, and land use contribute 22 percent of global greenhouse emissions, half of which come from deforestation and emissions associated with fertilizer use, livestock, and rice paddy … The production of palm oil, an ingredient commonly found in chips and cookies, has been responsible for pushing communities off their land in countries from Peru to Indonesia.

The New York Times has, of course, run with the Oxfam line on palm oil. Their story read as follows:

The report said that activities such as draining wetlands — as has happened in Indonesia and Malaysia to create palm oil plantations, for example — is particularly damaging. When drained, peatlands, which store between 530 and 694 billion tons of carbon dioxide globally, release that carbon dioxide back into the atmosphere. Carbon dioxide is a major greenhouse gas, trapping the sun’s heat and warming the planet. Every 2.5 acres of peatlands release the carbon dioxide equivalent of burning 6,000 gallons of gasoline.

Science magazine, which is generally well respected, thought that this sentence should be thrown in the middle of a piece on the report when looking at the impact of biofuel plantations:

The bioenergy plantations could also take a toll on biodiversity—as is happening in Southeast Asia, where plantations producing palm oil for biodiesel as well as food are displacing diverse tropical forest.

Just so we’re clear, peatland emissions aren’t just the domain of Southeast Asia, nor are they just a draining problem. The most comprehensive study on peat emissions shows that the EU is the second-largest source of peatland emissions after Indonesia. In this study, Finland’s peatland emissions are higher than Malaysia’s.

Peatland emissions occur when it is used for agriculture – regardless of whether it is drained or not.

According to one study, around 30 per cent of the EU’s agriculture emissions come from peatland degradation – even though it peatland makes up just 7 per cent of EU agricultural land.

As usual, palm is the whipping boy for environmental problems where it’s not the major contributor.

And, as usual, too many civil society organisations are quick to point the finger at Southeast Asia, rather than acknowledge that the bigger problems lie in Europe.

 

China, Palm and Soybean: Where next?

A small story appeared in news feeds last week, noting that China is considering lifting its tariff rate quotas on three vegetable oils – palm, soybean and rapeseed.

Tariff rate quotas work as follows. The importing country sets a quota for a particular good, with a set tariff. Once that quota is reached, the same goods are imported at a higher out-of-quota rate.

For palm oil, the tariff is 9 per cent in-quota, and 60 per cent outside of that quota. Other vegetable oils are similar. Companies in China need to apply to the Ministry of Commerce (MOFCOM) to be eligible for the quota.

So, what changed?

China has said it will completely halt buying US agricultural imports. This means that the massive quantities of soybean that are imported for oils and meals will drop. That also means there will be a big drop in domestically produced soybean oil, which is China’s most popular vegetable oil.

The country’s pig farmers will need to seek other sources of feed, but the country will also need to make up the shortfall in vegetable oil. Hence the potential easing up of market access restrictions.

Is this a good sign for palm oil?

Soybean is China’s most consumed oil, hitting around 16.0MMt annually, with just around 1.0MMt imported. After that comes rapeseed (around 8.1MMt consumed, 1.5MMt imported), then palm oil as the biggest consumed import (6.67MMt, all imported).

Up until the US-China trade war, China took around half to one-third of its soybeans from the US. It’s therefore conceivable that it will need another 5000-7000Mt of imported vegetable oils to make up any shortfall.

This isn’t insignificant, probably around 8 per cent of the total global export market for palm oil.

When the US-China battle over soybeans commenced two years ago, there were a few predictions that palm oil exporters could capitalise. We haven’t seen that eventuate – mainly on account of US soybean exporters lowering their prices and getting their products into China.

But halting US soybean imports completely is another thing.

The determining factor might be how Brazilian exporters respond to the new conditions – and if they ramp up their production accordingly.

 

France Confirms Finance Bill, Total Outrage Follows 

France continues to move ahead with the implementation of the Finance Bill 2019 – representing another step towards palm oil losing its renewable fuel tax concessions in France. Earlier this month, the French Government passed a Decree adapting the French Customs Code to align with the wording of the Finance Bill 2019.

The removal of the tax concessions – a de facto ban — was attached as an amendment to the Finance Bill in December last year. The Bill was then signed into law at the beginning of 2019 by President Macron. This resulted in a letter of protest from Prime Minister Mahathir to President Macron.

According to Bruno Millienne, the MP who introduced the Bill, palm-based biodiesel will be 40 per cent more expensive than non-palm biodiesel fuels after the removal of the subsidy.

Unsurprisingly, Total, which commenced production at its La Mede biorefinery just weeks ago, is objecting to the change. Total commenced converting the plant from a conventional oil refinery to a biodiesel refinery, using palm oil as the main feedstock. Total has made a submission to the French Council of State arguing that it is being discriminated against by the tax change. A Total spokesperson stated:

“We filed with the Council of State an appeal against the decree of application of the provision of the Finance Act for 2019 which excludes the only products based on palm oil, even sustainable, of the list of biofuels … We believe that this provision of the French law introduces discrimination incompatible with the French Constitution and EU law.”

Total CEO Patrick Pouyanné said that he “doesn’t intend to run the plant at a loss,” implying that the 250 jobs there may have to go.

He has come under fire from French NGOs, attacking him for contributing to deforestation. Mr Pouyanné responded to them confirming that his plant uses “palm oil produced sustainably in Malaysia and Indonesia, not linked to deforestation”.

Macron is under enormous pressure from a well-organised French farm sector (whose members apparently have time to protest quite regularly). Farmers have been protesting for weeks against the EU-Canada trade deal, dumping manure outside MPs’ offices.

In this environment, Macron has signalled that France is interested in taking on the Trade Commissioner portfolio. That could have significant consequences for palm oil trade. What will the reaction be among French rapeseed and sunflower farmers if the EU-Indonesia deal gets over the line?

First, the French Government needs to make a decision: is it prepared to lose French jobs in La Mède, reduce investment, and perhaps harm exports, all simply to appease farmers in this palm oil dispute?

 

IN BRIEF: Russia increases its palm tariff

The Russian Parliament (Duma) has voted to increase the tariff on imports of palm oil to 20 per cent. This is in response to an influx of imports harming local sunflower oil growers and the dairy sector.

There have been objections to palm oil in many Eastern European states on food ingredient grounds, as it is often used in dairy-based products such as ice cream. The final rule still needs approval from President Vladimir Putin, who is expected to provide exemptions to Indonesia – and possibly Malaysia – on the back of military hardware purchases.

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