Palm Oil Monitor Weekly Update – 16th March 2020 A New Approach from KL?

As noted last week, Malaysia’s political landscape has undergone an upheaval, with the announcement of a new cabinet.

The Ministry of Primary Industries has been renamed the Ministry of Plantation Industries and Commodities.

The new minister, Datuk Mohd Khairuddin Aman Razali, has stated he will seek to resolve the current trade spat with India, as well as seek new markets for palm oil and “meet the challenges in the plantation and commodity sectors such as product discrimination and anti-palm oil campaign at the international level.”

Minister Razail is from Terengganu, in the northeast of the Peninsula, and is part of the conservative PAS party. It is more than likely he will be seeking to provide support to smallholders; he has already indicated that he will be providing additional support for the rubber sector.

In addition, new Trade Minister Azmin Ali will provide an additional level of expertise and seniority in the trade portfolio.  Minister Azmin Ali was previously Economic Affairs Minister in the previous cabinet.  He has stated previously in an interview with Astro that the EU “has gone ‘overboard’ with the propagation of anti-palm oil rhetoric”, and that “Malaysia should actively counter Europe’s anti-palm oil rhetoric instead of just being on the defensive.”

In POM’s view, this combination could be a positive for Malaysia and the region.

Minister Azmin Ali would have learnt a great deal about inconsistent EU approaches to sustainability from former PM Mahathir, who spent close to 30 years taking the EU to task over international forestry policies.

Similarly, a Minister that has strong engagement with smallholders will be able to out-flank the EU in the broader palm oil debate. When has the EU ever been on the back foot when it comes to its palm oil policies? Perhaps the clearest example of this was when Malaysia’s smallholder groups delivered an angry petition to the EU embassy in KL, driven by a protest march and accompanied by significant lobbying and advertising efforts in Europe.

At that time, the National Association of Small Holders (NASH), the Federal Land Development Authority (FELDA), the Dayak Oil Palm Planters Association (DOPPA), and the Sarawak Land Consolidation and Rehabilitation Authority (SALCRA) were leading the way.

That should have sparked an understanding in KL that smallholders were the key to gaining the upper hand. Clearly, it did not. Leadershjp from government and industry associations – which is essential if smallholders’ impact on the debate is to be maximised – has since tailed away. When last year the EU Commission placed the bar at 2ha to be considered a small farmer plantation under the Renewable Energy Directive (RED Delegated Act (DA) – a figure so ridiculously unscientific it almost beggars belief – there was a deafening silence from those officials in KL who have control over palm oil campaigns and policy.

One of Minister Azmin Ali’s first challenges will be to overturn such bureaucratic inertia and questionable judgment. If he does not, then Malaysia’s decline in influence in the global palm oil debate will likely continue, and the EU will take control – to the significant detriment of Minister Azmin Ali’s voter bloc in the rural constituencies.

Research: Palm Oil is Irreplaceable

A new paper from the University of Bath follows up from last week’s announcement of funding for palm oil ‘replacements’.

The research finds that palm oil is close to irreplaceable, at the current moment.

The researchers looked at the profile of palm oil in industrial uses, and whether it could be substituted with other oils. The conclusions were that in most cases, replacements with other oils means that either they became significantly more expensive, or that any environmental impacts did not justify the switch: “There is neither an economic nor an environmental case for the substitution of palm with vegetable oils or exotic oils on a large scale.”

Frankly, this research is simply confirming what any buyer or technical expert has already known: palm oil is a miracle crop. PR people and sustainability consultants often lead the charge to restrict or remove palm oil: technical experts who actually understand the food and biofuel sectors fight against such knee-jerk measures.

The only other alternatives to palm oil explored by the University of Bath researchers were the development of synthetic palm oils, which they state: “despite expected technical advances over the short term, it is likely that SCOs will remain at least 2–5-times more expensive than CPO.”

Of course, mitigation of past environmental impacts of palm oil is already taking place through certification, productivity gains, and increases in prosperity and living standards among oil palm planting communities. As has been demonstrated in multiple other countries, and industry sectors, in the past – as prosperity increases and societies advance economically, environmental awareness also increases and environmentally protective measures are both more widely accepted and better-enforced.  

COVID and Palm

The entire world is feeling the impact of COVID-19. Palm oil prices – like all major commodities – have tumbled on plunging demand.

Demand in China appears to have bottomed out for now. Some indices, such as coal consumption and the wholesale food price index are starting to head back towards their norms. The levers that China has on its economy mean that it will be able to stimulate economic activity in ways other major economies cannot.

Europe, however, is just stepping into the maelstrom. Available real-time indicators – such as traffic congestion in Milan and Rome – show that demand has plunged. The very likely scenario is that economic activity in the EU’s third-largest economy will grind to a halt. France and Germany are on a similar trajectory. Clearly this will put the brakes on demand for transport fuels – and therefore biodiesel.

The question is how EU biofuel policy will respond to imports and imported feedstocks. Low planting levels in the last planting season mean that the EU is already importing significant quantities of rapeseed (from Canada and Ukraine) as well as soybean.

If prices stay low, the question is how farmers will respond into the planting season, and what sort of pressure is put on policymakers in Brussels. In a crisis like this, anything might be possible.

Brussels Goes to Africa

A large EU delegation returned from Addis Ababa at the end of February after one of the largest meetings between EU and African officials in history for the EU-African Union Summit. What does this have to do with palm oil? Not a lot directly, but it gives an indication of two things.

First, the EU can turn on an overbearing charm offensive. There were 21 senior EU officials at the major meeting, including Ursula van der Leyen. Africa, on the other hand, had just 8 leaders present.

The EU is attempting something of a ‘pivot’ towards Africa, which is being driven mainly by Germany and France, who are seeking new markets for exports.  This is particularly critical given the advent of the African Continental Free Trade Area. On the African side, there’s a push for funding for major infrastructure projects.

This confab resulted in the finalisation of the EU’s Africa Strategy document. This is full of platitudes about investments in both agriculture and renewable energy, e.g.: “With its huge renewable energy and biodiversity potential, Africa is extremely well placed to develop and implement sustainable solutions as its economy grows.”

So, a starting point for the EU could be to practice what it preaches when it comes to Africa. The continent was a one point the world’s largest producer of palm oil, a native species. Allowing palm oil into the RED would be a starting point.

Second, is this is a snub to Southeast Asia – or is it a concession that the EU strategy has failed in Southeast Asia? The Africa strategy has been cobbled together relatively recently, from 2018 onwards. The impetus, according to one official, is that the EU didn’t have anyone left. Politico reports that the official said, “I think in some ways the European Commission, when it looked at the world, had nowhere else to go …Africa is basically all Europe has left as a partner.”

How does this bode for EU relationships with ASEAN? ASEAN has an opportunity here to remind the EU that if it simply cooperated with ASEAN a little better, including on the palm oil issue, it might get some more traction and be able to develop a proper partnership with South-East Asia as well.  


Share