Norway Confirms Indonesia on Right Track; Malaysia’s 3-MCPD Strategy Unraveling

Norway’s Deforestation Payments

Norway has announced its latest payment to Indonesia of around USD56 million as part of the country’s commitment to reducing the country’s greenhouse emissions linked to forest loss.

The payment comes around a decade after the two countries reached a historic deal that Norway would hand Indonesia up to USD 1 billion for reducing deforestation.

The USD56 million is linked to deforestation reductions that took place in 2017, following a similar, much smaller payment for emissions reductions in 2016. The payment is roughly equivalent to USD10 for every smallholder famer in Indonesia, or around 20 cents for every Indonesian citizen.

Norway’s new payment to Indonesia comes on the heels of a bizarre attack by the Rainforest Foundation Norway (RFN) against Indonesian biofuels. The timing of the report now appears intended to block the new payment; in addition to halting the signing of the Indonesia-EFTA free trade agreement, (EFTA represents Norway, Switzerland, Iceland and Liechtenstein)

According to our sources in Jakarta, GAPKI (the Indonesian Palm Oil Association) sent an official protest to the Norwegian Ambassador to Indonesia following the RFN attack. We understand that GAPKI highlighted RFN’s funding from Norway’s development agency, NORAD, and questioned whether this was an official action of the Norwegian Government.

Norway’s response, seen by POM, states unequivocally, “During our partnership, Indonesia has implemented a number of policy reforms to improve its forest and land use practices. Indonesia has now delivered results in reducing deforestation… Our partnership appears to be on the right track.”

Black Campaign Funds Continue

Despite this official acknowledgement of Indonesian progress, the Norwegian Government continues to fund a black campaign against the Indonesia’s palm oil sector.

The charge is led by Norway’s development agency, NORAD. Many of the NGOs that receive funding are based in the US and the EU. In the EU they include the European Federation for Transport and Environment (T&E), which has arguably been the biggest anti-palm oil biofuel group in the EU, as well as Aidenvironment. In the US, Norway’s funding extends to groups including Waxman Strategies and Mighty Earth.

Waxman Strategies and Mighty Earth appeared to be behind a high-profile piece in the New York Times that lobbied for continuing to exclude palm-based biofuels from the US Renewable Fuel Standard.

Waxman Strategies and Mighty Earth are also funded by Norway to operate the ‘Rapid Response’ system to influence opinions of U.S. consumers. In 2019 Waxman spontaneously decided to register as a Foreign Agent of the Norwegian Government. Since then, he has been noticeably quiet. Sources tell us that Waxman appears to have come close to skirting U.S. law by failing to register his foreign lobbying payments by the Norwegian government.

Path Forward

The situation is now presenting the Norwegian and Indonesian governments with something of a dilemma. On one hand, Indonesia is progressing. On the other hand, Norway wants them to move faster. Is the black campaign a good cop, bad cop strategy? If so, how will the Indonesian government want to proceed? Would the tax dollars given to RFN and others by NORAD be better spent scaling up ISPO?

Are Developing Countries About to Get Forked by the EU?

The EU released two new documents at the end of May, the ‘Farm to Fork’ strategy and the ‘Biodiversity’ strategy.

As major commodity exporters are just coming to terms with potential new non-tariff barriers from the bloc’s ‘Deforestation Communication’ the two new documents are about to twist the knife.

The Farm to Fork document mostly concerns what is taking place in the EU itself. There are ambitious targets for increasing the amount of food that is grown under organic systems, for example. But the document sets out a broader set of targets when it comes to imported products. The strategy states:

The EU will seek to ensure that there is an ambitious sustainability chapter in all EU bilateral trade agreements. It will ensure full implementation and enforcement of the trade and sustainable development provisions in all trade agreements, including through the EU Chief Trade Enforcement Officer.

EU trade policy should contribute to enhance cooperation with and to obtain ambitious commitments from third countries in key areas such as animal welfare, the use of pesticides and the fight against antimicrobial resistance.

The EU will strive to promote international standards in the relevant international bodies and encourage the production of agri-food products complying with high safety and sustainability standards, and will support small-scale farmers in meeting these standards and in accessing markets.

The language on small farmers, in our view, is nothing more than lip service. The EU has already heard the voices of smallholder oil palm farmers when it comes to accessing EU biofuel markets, and it has blatantly and callously ignored them.

Most of the remaining language on sustainability is not new. But the additional proposal that exporters need to be aware of is this:

The Commission will also examine ways to harmonise voluntary green claims and to create a sustainable labelling framework that covers, in synergy with other relevant initiatives, the nutritional, climate, environmental and social aspects of food products.

A new sustainability labelling regime within the EU will create problems for any major exporter of commodities, particularly when it covers both social and environmental aspects of food products and food exporting nations. Why? Primarily because it will open up a major opportunity for protectionist lobbying by EU food producers. Such a regulation is a perfect opportunity for less-competitive European industries – e.g. rapeseed farmers – to hobble their competitors who export to Europe. In the past, Green and protectionist MEPs have been more than willing to impose such regulations on importers while ignoring similar (or worse) infractions by European producers. Will this be ‘déjà vu’ all over again?

Is Malaysia’s 3-MCPD Strategy Unraveling?

Last month we revealed that Malaysia had walked back their position on new rules for 3-MCPD in Europe; Malaysia told Indonesia it would not join other CPOPC members in calling out new EU rules on 3-MCPD as discriminatory. This generated significant concern in other producing countries that some officials in Malaysia had decided to cave into EU demands on 3-MCPD rather than standing up for the interests of the palm oil sector.

However, it now appears that a number of Malaysian stakeholders are equally unhappy with the approach coming from certain officials.

Reuters has reported the Palm Oil Refiners Association of Malaysia (PORAM) has raised important objections about the approach. It complained that the EU – which accounts for 11% of Malaysia’s export markets – is the only country to introduce the new 3-MCPD limit. Other countries – such as Australia and the US – have chosen not to introduce any limits. 

The letter states, “With higher costs and minimal offtake, this will have an adverse impact on the entire export of refined palm oil products out of Malaysia.” In other words, the decision to sign up to the EU standard would be extremely costly across the board, but would gain marginal benefit in only one market.

This letter confirms our earlier analysis: the decision to abandon the CPOPC position on 3-MPCD did not have consensus within Kuala Lumpur. The Malaysian palm oil sector has, for many years, operated on the basis of consensus among the various interests (plantation owners, refiners, small farmers, regulators, officials, etc.). The decision to abandon CPOPC strikes at the heart of that long-term governing philosophy.

Finally, as we also pointed out, the Malaysian position on 3-MCPD is also a setback for consensus between CPOPC members: 

“The CPOPC position has been well crafted over more than a year. CPOPC was designed as a multilateral umbrella for the world’s palm oil producers to cooperate on. It was essentially established to deal with the many trade barriers being imposed by importing countries on palm oil. That means that at its heart is the issue of trade. If Malaysia continues to unilaterally walk away from other major producers such as Indonesia and Colombia, other CPOPC members will rightly question its commitment to the group.”

It appears that some of Malaysia’s stakeholders understand this better than others. 

It’s still possible for CPOPC to maintain a producer-wide consensus when dealing with the EU going forward. This matter is far from settled at the WTO or any bilateral and multilateral forums. Stakeholders that consider ‘negotiation’ with the EU to be a way of mitigating potential losses need to remember that there are a large number of industry, NGO and political players that want palm oil out of the European market – and ‘negotiating’ won’t make a difference.