Palm Oil Monitor Weekly Update – 3rd September 2019

Trade War Update

As stated last week, a number of commentators are now referring to the palm oil spat between the EU and ASEAN countries as a ‘trade war’. POM will be happy to use that term for the time being – and until told otherwise. Here’s a roundup of the latest developments.

Malaysia

Malaysia’s Prime Minister Mahathir Mohamad has taken the EU to task directly on the Renewable Energy Directive’s Delegated Act, stating in a speech that:

We have been accused of putting the need for development before the needs of our forests. The issue of deforestation for oil palm plantations has always been championed by our detractors.

The claims linking palm oil to deforestation is baseless, unfair and unjustified. These claims bring negative impact to Malaysia which depends highly on the palm oil industry to raise the socio-economic well-being of our people, in order to help us achieve the Sustainable Development Goals (SDGs).

It has also significant detrimental effects on oil palm growers which include 650,000 smallholders as well as another 1.5 million people employed throughout the palm oil supply chain.

Indonesia

Indonesian Trade Minister Enggartiasto Lukita has publicly stated that he has spoken with Lion Air – Indonesia’s largest private airline – about dropping purchases of Airbus planes in favour of Boeing.  According to a number of news sources, Lukita said that:

We will order from Boeing instead of Airbus. I have told [Lion CEO] Rusdi Kirana about it, and he agrees. As a nation, we must not let ourselves be treated like this … We must give a strong signal that Indonesia can also enact import barriers against EU products. They started this protectionism step first.

Lukita also signalled that the Trade Ministry has already been in consultation with local food and manufacturing industries about sourcing products from countries other than the EU.

We have already talked to food and beverage entrepreneurs to switch their imports from the EU. We are concerned about unnecessary matters from the EU, we only ask to divert its imports from the region. Businessmen agree.

Most of the rhetoric has been around blocking the import of European dairy products in favour of other sources.

Oceania to the rescue?

Dairy exporters from other regions think this is possible.  We spoke with a representative of a major dairy exporters in the Southen Hemisphere, who said that any switch away from the EU would be “absolutely a potential opportunity.”

It’s worth remembering that Indonesia and Malaysia already have trade agreements in place with Australia and New Zealand, and are towards the end of negotiating an additional regional agreement in the form of RCEP.

Labels under scrutiny

Other arms of Indonesia’s government are also mobilising, with the country’s Drug and Food Control Agency (BPOM) asking retailers to remove goods carrying “palm oil-free” labels from sale. BPOM has advised that the labels do not meet regulatory requirements, issuing a statement saying it will not approve for distribution products with “palm oil-free” labels, that palm oil is “safe”.

BPOM officials have clarified that this is a health issue, stating: “These products are sold at higher-end retailers so maybe there’s [the implication that it’s] healthy food,” she said. “So we need to fight that and educate the public that just because [a product contains] palm oil, it doesn’t mean it’s an unhealthy food. That product might contain trans fats from other vegetable oils. So we have to tell the public not to link palm oil with [adverse] health aspect.”

The Mercosur Question

Meanwhile, the EU has published much of the text of its agreement with MercosurThe Trade and Sustainable Development chapter is standard Brussels, and very similar to the equivalent chapters in the EU-Vietnam and EU-Japan agreements. There’s a lot of talk of cooperation, respecting multilateral environmental agreements, and keeping the chapter’s dispute resolution mechanisms non-binding. This has made us wonder what the EU has put on the table in the EU-Indonesia agreement to get Indonesia so riled up. If the EU is calling on Indonesia for stronger sustainability measures on palm, but not asking Brazil for the same on beef and soy, that could be read as a big insult – particularly with the fire situation in the Amazon (see below).

 

RSPO taking hits in Africa … Already?

NGOs hit out at RSPO at the organisation’s third Africa Sustainable Palm Oil Conference in Ghana last week.

Friends of the Earth in particular led in criticism of RSPO on the continent, stating that cases of environmental degradation and human rights abuses are still present among RSPO member companies – despite new NDPE (no deforestation, peat and exploitation) commitments.

Friends of the Earth Africa stated:

We stand with communities in these countries and beyond that resist the expansion of industrial plantations on their lands, and demand sincerity from RSPO in their bid and claim to halt the deforestation footprint of certified oil palm plantation companies.

At the same time, FOEA has also criticised funders of oil palm developments across Africa, including the World Bank.

We’re not entirely sure what FOEA is criticising given the new and higher levels of certification that have come into being since RT16 on zero deforestation. Given the extra requirements for RSPO certification that go beyond standard operating practices in Africa – e.g. the use of paraquat – if anything, we’d argue for a loosening of national interpretations in some circumstances.

The Accra action by Friends of the Earth does, however, prompt some questions around the next RSPO RT in Bangkok in October.

The tougher position on zero deforestation has effectively ‘won’ in RSPO – what will NGO members have to protest?

 

FIRE MONITOR: Why is Bolsanaro so angry?

Fire and haze were in the headlines across the world this week, and for the first time in recent memory they haven’t been associated with oil palm or Indonesia – it has all been about Brazil.

Brazil’s President  Jair Bolsanaro has been under pressure from Western nations to tackle the country’s current fire problem, which has been amplified by celebrities such as Leonardo DiCaprio.

Bolsanaro was offered EUR20 million in aid to battle the fires from France, which the President promptly rejected, calling the action ‘colonialist’.

But as always, it’s important to get a handle on the magnitude of the problem.

Official INPE data from Brazil estimates the peak number of fires this year at around 82,000, covering a total area of around 1.62 million ha.  It has also been reported that Bolivia has a fire area of around 730,000ha.

Just a reminder, this area is roughly on par with the area estimated to be affected by wildfires in Russia, which were at 2.3 million ha last time we checked, with total fire numbers in excess of 90,000.

But it is the European response that has caused offence to Bolsanaro, who has already mobilised more than 40,000 troops to assist in dealing with the problem.

The offending remark appeared to be Macron’s statement: “The Amazon forest is a subject for the whole planet … We can help you reforest, but we cannot allow you to destroy everything.”

This appeared to impinge upon Brazil’s sovereignty, along with threats to cancel the EU-Mercosur trade agreement.

It contrasts heavily with the offers of aid that were offered to Indonesia in the 2015 haze crisis. At that time, Australia, Russia, China, Malaysia and Singapore all offered support in the form of firefighters, equipment and firefighting aircraft. In other words, they offered an immediate action plan to put out the fires, rather than a future management plan that would tell Brazil how to manage the environment.

Moreover, the EU threats to cancel the Mercosur trade agreement were particularly odd. As ASEAN has learned, protecting the environment costs money. Wealth is generated through trade. The EU slipped back into its default mode on aid and the environment: don’t send us your exports and grow your wealth – we’ll send you an aid cheque instead.

The current Amazon fires – like those in Russia – are an absolute tragedy. President Bolsanaro may bristle at his opponents, but his words have probably struck a chord in Malaysia and Indonesia. EU promises to ride in as an environmental saviour may be well intentioned, but they often come with strings attached. The palm oil sector knows this better than just about anyone.

That said, the Bolsanaro-Macron exchange will potentially prompt an even bigger cry of ‘double standards’ from Indonesia. Much of the pressure on palm oil was built around the haze event of 2015, which inevitably added to harsher trade restrictions on palm oil in the EU. In this instance, Bolsanaro has openly pushed back on France, yet soybean crops – and their associated fire emissions – from Brazil and elsewhere are getting a free pass.

A question to EU NGOs and politicians: Why are you looking at the cameras, but looking the other way when it comes to renewables policy?

Share