Palm Oil Monitor Weekly Update – 10th February 2020

I-EFTA May Be Torpedoed by Swiss Activists

The free trade agreement between Indonesia and the European Free Trade Area (comprising Switzerland, Norway, Liechtenstein and Iceland) appears to be in jeopardy after Swiss activists launched a campaign to have palm oil removed from the agreement.

The activist coalition comprises environmentalists and Swiss farmers, under the banner of ‘Stop Palm Oil’.

They will require 50,000 signatures to have the issue moved to a national referendum. They have until April 2020 to gather those signaturies, which should be a formality. They will seek to have palm oil removed from the agreement or have the agreement cancelled completely.

This will potentially throw the agreement into doubt across the board.

If palm oil is removed, Indonesia will consider not ratifying the agreement.

If the agreement is cancelled, it may prevent the agreement from entering into force. The agreement requires two EFTA parties – and Indonesia – to ratify. Indonesia’s trade relationship with Switzerland is the most important of the relationships; relationships with Norway, Liechtenstein and Iceland are considerably smaller.

The question would be whether Indonesia still sees any benefit from a relationship economically. There are further risks. Norway – which has made its opinions on palm oil clear – may also delay ratification.

Malaysia will also need to consider the possibility of its own dealings with EFTA falling over because of palm oil.

And finally, there is the larger risk of contagion to the Indonesia-EU trade agreement. Sure, negotiators may come to a deal, but once the agreement goes to the European Parliament, will radical European MEPs be pushing for a new Swiss solution?

Is ASEAN Being Excluded from EU Consultations on Forests?

This week in Brussels, the European Commission Directorate General of Environment held the International Conference on Forests and Biodiversity. The conference was largely stacked with European officials and think-tanks.

But the problem was with the conference’s second session on ‘Protecting and restoring the world’s forests’. This should have been the EU’s opportunity to bring in and hear the perspectives of its international partners.

The question is whether Indonesia, Malaysia and other major palm oil producing nations were snubbed from the event – as well as ASEAN more broadly. Another session on international cooperation featured two African representatives, and a member of a Vietnamese NGO, not entirely related to forests.

Given the technical strength of forest-based institutions in Vietnam in both the government and academic sector, this seems like more than a coincidence.

Rather, it appears that the EU deliberately went out of its way to exclude meaningful representation from not just the palm oil sector, but also ASEAN.

This lack of consultation squares with further reports coming from Jakarta that EU officials have been ‘blaming’ small oil palm farmers for deforestation as part of their consultation processes on the Renewable Energy Directive, even when they are farming on previously degraded land. This comes as Indonesia’s President Jokowi has called for greater cooperation between government agencies on preventing wildfires.

But this exclusion of the region’s largest economies and key stakeholder groups raises further questions about how serious the EU is on stakeholder consultation.

More Weakness in ILUC: Purdue

A new paper from researchers at Purdue – a member of the ‘Big 10’ prestigious US university group — argues that production of biofuels in the US from soybean and corn has a minimal indirect land use change (ILUC) effect on palm oil expansion, specifically in Indonesian and Malaysia.

The paper was produced in response to the many inaccuracies around ILUC modelling. The paper states that, despite the many flaws in early ILUC modelling and improvements which have largely debunked the extreme figures in early ILUC models,

“media, environmental groups, and some researchers express concerns regarding the US biofuel production and its global land use effects. In particular, more recently it has been argued that US biofuel policy is responsible for land use changes in Malaysia and Indonesia (M&I) [14, 15]. While some papers, media, and environmental groups have disseminated these concerns, no major effort has been made to address and highlight the effects of US biofuel policy on land use changes in Malaysia and Indonesia. The goal of this paper is to fill this knowledge gap.”

Although the paper is clearly designed to mitigate any responsibility of the US biofuels industry of land use change in other parts of the world, the paper raises new questions.

The paper uses new parameters for substitution elasticities when it comes to biofuels. In simpler terms, the researchers use a set of assumptions where fuel processors and purchasers will use different feedstocks when circumstances change. They are arguing that if corn or soy gets used for biofuels, US processors are more likely to use US-based or regional substitute oils.

In other words, they are arguing there is a regional bias in markets. In Europe this would mean if there is less rapeseed available, demand will switch to sunflower. Or in Asia, if there is less palm available, there would be a switch to peanut or soybean.

It is possible that the same substitution effects don’t exist in these other markets. But what this study does is cast further doubt on simplistic assumptions about demand for palm-based biofuels in Europe causing further deforestation in Asia.

Malaysia goes on the offensive

Malaysia’s palm oil companies have taken a leaf out of Indonesia’s book and expressed their opposition to the activities of foreign NGOs interfering with palm oil operations.

According to news reports, Sime Darby executive Franki Dass said at an industry forum, “If [NGOs] are so unfriendly, why allow them to be in our countries Malaysia and Indonesia … We have the right to control this and do something drastic for once”.

Sime Darby later clarified those comments, stating that it was “referring to the misbehavior of certain unreasonable NGOs that are trying to discredit painstaking efforts by the industry to raise its sustainability standards via certification such as the Malaysian Sustainable Palm Oil.”

The comments come as Greenpeace has doubled down on its anti-palm oil campaigning, arguing without compromise that ‘‘Certified sustainable’ palm oil is a con’, despite the organization driving significant change in RSPO’s requirements.

Similarly, WWF recently went on the offensive. Despite stating that palm oil boycotts could cause more deforestation, the NGO has actively sought to name and shame companies that aren’t using RSPO or have deforestation-free policies. But here’s the kicker: even the companies that are using fully segregated supply chains aren’t considered good enough.

Is WWF really naïve enough to think that this type of campaigning simply adds to anti-palm campaigning rhetoric?

For a company like Sime Darby, which has made significant commitments to RSPO, sustainability and even the NGOs themselves, it’s no wonder their patience is running thin with “certain unreasonable” NGOs.

But perhaps patience is also running thin with Malaysian government action. It’s possible that Malaysia’s sector looks towards Jakarta and sees a government backing up its industry with two international trade actions and a full-throated defense of the industry from the President downwards – including a threat to stop buying from Airbus. Putrajaya, on the other hand, has been telling farmers they should switch to growing pineapples – and even consider raising cattle.  

From Farm to Fork to Felonies

Politico is reporting that the EU is likely to move push for tougher rules on sustainable food in trade agreements.

A leaked draft of a plan seen by the news outlet indicates that the bloc is seeking to use trade deals to enforce environmental rules and incorporate more sustainability regulations into food production – as part of its ‘Farm to Fork’ element of the ‘Green New Deal’.

The document states that the EU will seek to “ensure the inclusion of ambitious sustainable food related provisions in all relevant EU international agreements” as a way to a more level playing field.

It also states that the Commission should “ensure that every ongoing and future trade agreement has an ambitious chapter on trade and sustainable development.”

The draft comes as there are more reports of links between EU agriculture subsidies and organized crime.

Last month there were a number of raids on properties across Italy as part of prosecution action against Mafia families claiming agricultural subsidies. According to the Guardian:

Prosecutors claimed Sicilian mobsters had fraudulently received more than €10m in agricultural aid since 2010, including funds for thousands of hectares of “ghost” farmland in the east of the island – land that was either non-existent or owned by the Italian state or regional government.

Last year, research by an Italian think-tank cited in the FT stated that:

the Mafia has bought up cheap farmland, livestock, markets and restaurants, laundering its money through what is one of the country’s leading industries. The value of the so-called agromafia business has almost doubled from €12.5bn in 2011 to more than €22bn in 2018 (growing at an average of 10 per cent a year), according to the Observatory. It now accounts for 15 per cent of total estimated Mafia turnover.

The Guardian also reported last year on the use of slave labour in the EU’s tinned food supply chain. Perhaps the EU needs to get its own house in order on sustainability.

In The Media

FoodNavigator has given us extensive coverage in their latest feature on Malaysia’s palm oil sector. Read the full article here.