Palm Oil Monitor Weekly Update – 27th May 2020

A Major New Review of Palm Oil from Germany

A major new review by a group of tropical biologists and agricultural specialists has given considerable support to the social, economic and environmental outcomes from oil palm cultivation.

The review mostly from authors at Goettingen University appears in the Annual Review of Resource Economics. It provides a general overview of the impacts of palm oil, particularly in Indonesia.

It notes a number of key points.

First is that deforestation from palm oil has largely been overblown. It underlines that only about 3 per cent of forest loss in Nigeria between 2005 and 2015 can be attributed to palm oil. In Latin America, around 80 per cent of oil palm expansion has taken place on abandoned farmland. And globally, around half of oil palm expansion has taken place on land previously used for other crops such as rubber.

Second, smallholder deforestation for palm oil is not particularly well understood. They state:

“It is clear that smallholders are also involved in deforestation to a significant extent … data from different world regions to show that smaller mean farm size is associated with a higher forest loss per hectare of agricultural land, meaning that smallholders tend to have a disproportionately large effect on their natural environment. This can be partly explained by lower crop yields of smallholder farms and a lack of formal land titles.”

Third, they point out that it is worth comparing palm oil impacts to the impacts of alternative land uses and other crops. One comparison is rubber:

“Like oil palm, rubber is nowadays mainly produced in monoculture plantations with comparable effects on biodiversity … Studies in Indonesia and Thailand found similarly low levels of bird diversity in oil palm and rubber monocultures … The biodiversity value increases strongly when rubber stands are intermixed with native trees in agroforestry systems. However, owing to their low yield and high labor costs, traditional rubber agroforestry systems were almost completely transformed to monocultures in most parts of Southeast Asia.”

Another is soybean:

Soybean is another major crop that has contributed to heavy transformations of tropical landscapes since the 1960s. In the two years preceding Brazil’s soy moratorium in 2006, nearly 30% of soybean expansion occurred through deforesting the Amazon … In the world’s most biodiverse savannah ecosystem, the Brazilian Cerrado, the moratorium does not apply, and soybean expansion remains sizeable … Despite soybean’s economic and environmental importance, apparently no studies on how this crop affects biodiversity exist.

The main criticism of the scholars when it comes to palm oil is broader landscape management when it comes to oil palm. This is a fair point in some ways, but it says more about land use policies at a national and sub national level than it does about the crop itself.

In many – or most – developing countries, overlapping jurisdictions, graft, conflicting objectives in terms of sustainability, and poor cadastral systems mean that land use planning is for the most part completely uncoordinated. Whether it is palm oil or any other crop, this lack of coordination would likely be taking place regardless.

But the authors also point out that the overall benefits of palm oil are generally lost in the environmental debate. They state:

In public discussions, the increasing use of palm oil is often criticized because of the negative environmental effects associated with oil palm production, especially tropical deforestation and the resulting problems for biodiversity, ecosystem functioning, and climate stability. Narratives about negative social effects for local communities are also widespread. What is less known in the wider public is that local communities in producing countries have also benefited significantly from the oil palm boom. Much of the oil palm land is managed by smallholder farmers. Especially in Southeast Asia, oil palm has contributed considerably to rural income growth and reduced poverty among farmers and workers.

This review is likely to raise some eyebrows. It has gained the support of noted conservation expert Erik Meeijard, who tweeted: “This recent review study finds that banning palm oil is not a good idea, unless you don’t care about economic losses and broader social and environmental impacts. Better landscape management is needed though.”

We’ll be interested to see the broader response from anti-palm conservationists – or see if they simply ignore it, which has often been their tactic in the past when new scientific evidence doesn’t tally with their ideological campaign goals.  

ENI and the Biofuels Ban: Is Italy Lost?

Italian oil major ENI announced at its annual general meeting that it is scaling back the use of palm oil-based biofuels in its European operations, and will do so by 2023 in line with European regulations on biofuels going forward.

European officials have consistently stated the new ILUC rules under the RED Delegated Act weren’t a ‘trade ban’ and unfortunately certain officials in producing countries accepted these statements at face value. The reality is that this was a total deception. This was always likely to happen, as EU policymaking drives decision-making in the commercial sectors across Europe.

The fact that ENI is one of the largest companies in Italy is also interesting. Substantial funding by Malaysia has been poured into Italy to promote and defend palm oil. Questions will now surely be asked as to whether this strategy was successful: one of the largest users of palm oil, ENI, is in the biofuel space and this announcement means Italy is the first EU country to see palm oil biofuels blocked since the Delegated Act was passed.

How should producing countries respond to this announcement? It’s understood that the Indonesia-EU trade agreement negotiations are continuing on an informal basis. This question should be a key part of the negotiations going forward – and it should also be raised in the looming WTO case against the EU.

It’s worth noting that ENI did make reservations on the use of palm oil mill effluent (POME) and regenerated spent bleaching earth (RSBE) in any of their operations going forward. How did this happen? When the RED regulations were being written there was a concerted push by both Green groups and farmers to have these two products – both waste products – excluded from the RED. Fortunately, these efforts failed and the waste products remains eligible in Europe.

UK tariffs come down – NTMs go up?

The UK has published its WTO tariff schedule following Brexit. The good news is that there are generally tariff reductions for palm oil in its different forms across the board. CPO was already entering the UK tariff free, and this remains the case. Other solid and liquid palm oil fractions have generally had their tariffs reduced by around 1 per cent. PKO tariffs have dropped from 5.2 per cent to a maximum of 2 per cent, notwithstanding an ‘automatic’ tariff suspension – meaning the rate is already at zero.

The UK has made this announcement while trumpeting its own free trade credentials, and stating that the new tariff regime means cheaper inputs and goods for consumers. However, what is the point of reducing tariffs if expensive non-tariff measures – such as DEFRA’s proposed due diligence on palm oil — are being introduced?

The UK’s Department for International Trade (DIT), and the wider Conservative government, faces a real challenge on this issue. The claim to be free-trading, and the ambition for ‘Global Britain’ depends on good relations with fast-growing new markets, such as Indonesia and others. If NTMs on palm oil and other developing-world exports increase, then DIT can expect a rocky ride and Global Britain will be viewed in ASEAN as nothing more than another empty slogan.