Palm Oil Monitor Weekly Update – 20th November 2019

EU Reacts to POM documents

The EU has been caught on the hop in recent days over the ‘Palm Gate’ documents uncovered by Palm Oil Monitor.

For those who missed it, Palm Oil Monitor gained access to a number of internal EU documents that indicated the EU’s lawyers and top trade officials thought the bloc’s actions on palm oil violated WTO rules.

This has produced a fierce response from exporting countries, particularly Indonesia. New Deputy Foreign Affairs Minister Mahendra Siregar has sent a strongly-worded letter to outgoing EU Trade Commissioner Cecilia Malmstrom.

According to media sources, Minister Siregar wrote that Indonesia is negotiating with the EU ‘in good faith’ on sustainability issues, but he follows by saying: It may well be that the EU is not able to be a genuine partner for Indonesia on environmental challenges, citing conflicts of interest with domestic oilseed producers, NGOs and its trade position with the US.

The relatively new, but far from shy, EU Ambassador to Indonesia, Vincent Piket, responded by saying that the EU “does not respond to leaked documents or information.”

EU Ambassador to Malaysia Maria Castillo Fernandez is yet to respond to the letter.

EU Builds More Barriers to Indonesian Biofuel Exports

Just as Indonesia is formalising its WTO case against the revised RED and Minister Mahendra fired off the aforementioned letter to the EU, the EU has decided to go one step further on crimping demand for Indonesian palm oil in Europe. Last week the EU Committee on Trade Defence Instruments made its provisional countervailing duties (CVD) on Indonesian biofuels definitive.

Why is this an escalation? Indonesia recently overturned the EU’s antidumping duties on biofuels. It’s difficult to prove subsidies actually exist; Indonesia will need to argue that there is no subsidy and/or the investigation was flawed. The problem now is forming an adjudication panel to hear the dispute in the WTO – and shortly these will not exist.

For a bloc that says publicly that it is not interested in banning palm oil, the EU is doing a very good job of proving otherwise with its actions.

Stay tuned as this will get even more interesting.

ANALYSIS: Why Is Greenpeace Attacking European companies?

In our last issue we pointed out that the most recent Greenpeace attack on palm oil companies and supposed links to fires in the ASEAN region was flawed at best, deceptive at worst.

The problem with the Greenpeace report was that it associated many plantation companies with fires simply by association. As we’ve pointed out – and as anyone in the sector knows – there is zero incentive to actually light a fire on an oil palm plantation.

But the ultimate target of Greenpeace appeared to be goods companies such as Unilever and Nestle. The NGO was arguing that it’s ultimately these companies that should be bearing the public burden for the fire and haze season.

The question is simple: why?

History has shown that even the most graphic and shocking campaigns against goods that use palm oil – such as KitKat – struggle to translate into lost sales.

This is because the vast majority of people who already consume goods such as KitKat bars are more interested in product price and quality, than in some NGO definition of ‘sustainability’.

What Greenpeace is attempting to do with their broadsides against Unilever and Nestle is build a case for greater regulation of imports of palm oil products and other commodities.

Last week we looked at a document put together by FERN and a group of NGOs (including Greenpeace) that advocated for greater scrutiny of company supply chains, calling for due diligence measures on all commodities deemed ‘forest risk commodities.’

This is all connected to the EU’s broader push on Action to Protect & Restore the World’s Forests.

The document demands that the EU:

Adopt new legislation that requires companies to conduct due diligence throughout their entire supply chain in order to identify, prevent, and mitigate environmental, social and human rights risks and impacts: supply chains linked to the EU market must be sustainable, free from deforestation, forest degradation and conversion or degradation of natural ecosystems and comply with international standards and obligations on human rights, including the rights of Indigenous Peoples and local communities.

There are some key words in here. Companies, i.e. importers of goods, must follow regulatory procedures that identify, prevent and mitigate any social and environmental impacts according to international standards.

This is not about following the laws of the producing country; this is about companies using soft international treaties as the benchmark nor just for breaches, but for risks.

This is a significant step up from the EU’s equivalent rules for the importation of timber and timber products. Those rules require importers to undertake a risk assessment of whether products were produced legally, as opposed to meeting ‘obligations on human rights’ and sustainability more broadly.

The result of that legislation has been a crimping of demand for imported timber paper products in the EU, with exports to the EU dropping significantly in some categories, particularly those with complex supply chains such as paper products.

Those rules, rather than blocking imports per se, do two things. First, they place a considerable regulatory burden on those importing goods from outside of the EU, and require levels of information and assurance from exporters that are not easily furnished.

Second, they necessarily place many developing countries into a ‘high risk’ category on a range of issues, particularly when it comes to human rights and environmental management.

European businesses and officials would see imports from Canada, the US or Australia being of significantly lower risk than those from Myanmar or even Turkey.

This is going to be a continuing issue for palm oil and other commodities going forward and it’s something that all exporters to the EU need to monitor closely.