Palm Oil Monitor is hearing numerous rumours that the EU is stalling its second meeting with its ASEAN counterparts for the Joint Working Group (JWG) on vegetable oils.
The meeting was supposed to be held this week, but according to our sources, the meeting has been rescheduled now for the second time. The JWG is now unlikely to happen before the European summer break.
Why is Brussels stalling?
Sources tell us two things:
1. That the EU wants to expand the scope and mandate of the current group. Although the group’s terms were well-defined – and agreed by all parties – at the ASEAN-EU Ministerial in December 2020, and during the first EU-ASEAN JWG on 29 January 2021, Brussels is now seeking to expand this to include the EU’s broader approach on trade and other elements of the EU Green Deal focused on social and environmental goals.
2. As a result the EU can’t get ASEAN to agree to the agenda.
This isn’t surprising, and is a classic European attempt to move the goalposts. According to various trade negotiators in the region, the EU has previously dropped an expanded agenda into FTA negotiations that were well underway, radically shifting the direction of negotiations for a number of agreements.
Dropping them into a JWG, then, wouldn’t seem out of the ordinary for Brussels.
However, this shift by the EU walks back a commitment it made to Indonesia and Malaysia. Jakarta and KL worked together to force Brussels to take their positions on sustainable development and trade barriers seriously. In order to get its upgraded strategic partnership with ASEAN over the line, the EU agreed to change the terms of the JWG on palm oil. Now, it seems that the EU is walking back that commitment to ASEAN. Brussels is happy to take the upgraded relationship but not deliver on their end of the bargain on palm oil.
The EU is trying to expand its influence in ASEAN, but can Jakarta, KL and other ASEAN members trust the EU’s word going forward?
Our take: Brussels inability to manage domestic politics alongside its global interests is harming the very goals they seek; the EU-ASEAN FTA is dead in the water, and a finalised agreement with Indonesia is going to get pushed back even further.
Forest Trends: Where’s the Footnote?
Two weeks ago the US-based Forest Trends released a new report on illegal deforestation. The PR campaign for the report led with the claim that “81 percent of clearing for Indonesia – the world’s leading producer of palm oil – is estimated to be illegal”. This is followed up by the statement in the report body that this is sourced from a “review by Indonesia’s Supreme Audit Agency.”
But here’s the problem: no source is provided.
Going further into the annexes of the report, the claim is made again: “Indonesia’s Supreme Audit Agency (BPK) concluded that 81 percent of oil palm concessions violated one or more laws or mandatory management standards.”
The source this time? A Greenpeace report.
This Greenpeace report says that “A copy of the Supreme Audit Agency’s ‘Special investigation report into oil palm plantation licencing and certification’ (pub. 28 February 2019) is held by Greenpeace.” It also refers to a news report on Mongabay that refers to comments made by Coordinating Minister for Maritime Affairs Luhut Pandjaitan.
So, what is the report being referred to that is “held by Greenpeace”?
However, the report summary doesn’t state at any point that illegalities stretch to 81 per cent of forest clearance. What it does state is that licenses covering around 2.7 million ha of oil palm plantations are operating in forest areas that have not been issued properly. Whether this assessment is correct or not is a moot point; the total forest area that has been permitted for clearing in the audit period – approximately 20 years – is around 5.4 million ha. In this case, the 81 per cent should be closer to 50 per cent.
A bigger question is this: Has Forest Trends led its PR campaign with a headline figure based on a research that it hadn’t even seen? Did it just take the Greenpeace line and run with it at face value? Although Forest Trends may present itself as a credible research organisation, this appears sloppy at best.
One additional point is that part of the Indonesian Government response to various reported illegalities has been to strengthen its ISPO certification. It’s well noted in the BPK, which points out that ISPO certification at the time of writing – in 2018 – was particularly low. It needs to be noted that ISPO certification has now hit almost 5.5 million ha and the number of companies certified has doubled since the time of the audit. Forest Trends seems to begrudgingly note Indonesia’s improvements on deforestation; it should do the same for its improvements on legality and the development of ISPO. In its current form, it seems like a classic example of bias by omission.
USDA: EU Palm Imports to Increase in 2022
The USDA has released its Oilseeds Annual, which is essential reading for any followers of global vegetable oil and biodiesel markets. One headline worth noting: Palm oil imports into the EU are expected to rise by almost 5 per cent going into 2022. This is despite any number of trade barriers erected in order to keep palm oil out.
The key takeaways are fairly straightforward: prospects for palm oil are positive in 2022; despite a global economic slowdown because of COVID, demand for vegetable oil as a household staple will not slow down.
“Global vegetable oil production is expected to grow by 4 percent … The gains are driven primarily by palm, sunflowerseed, and soybean oils. Global food consumption is forecast to expand by more than 4 million tons (3 percent). All oils are up, especially sunflowerseed oil and olive oil, which are poised to grow by 4 percent. Global industrial consumption is forecast to grow by over 2 million tons (4 percent), driven by expanding U.S. biodiesel production (up 26 percent). Global vegetable oil trade is forecast to be a record in 2021/22 owing to strong recovery in sunflowerseed oil trade and continued palm oil growth. “
It’s worth noting that palm and sunflower will be driving the global market, with rapeseed in a very unusual position. Rapeseed and rapeseed oil production volumes are up, but the global trade presents a different story:
“Global demand remains strong though trade volume is expected to decline on reduced crush, production, and exports in Canada. High prices and reduced availability in Canada are expected to limit China imports of rapeseed oil.”
In other words, while there is high demand for other rapeseed products – animal feed and biodiesel – aggregate demand for rapeseed oil varieties (i.e. canola) is slowly being eroded.
Palm oil is a different story, however:
“Palm oil remains the largest vegetable oil consumed globally for food and industrial use. Higher production and lower prices support expanded global palm oil demand from China, the European Union, and many other countries. Despite global production outpacing consumption, ending stocks continue to fall as stock levels recover from 2020/21 consumption exceeding production levels.”
But the real story comes through in the figures themselves. Palm oil production is expected to increase by 2.7 million tonnes in 2022, rapeseed by just 190,000 tonnes. Similarly, where palm oil exports are likely to rise by around 2 million tonnes, rapeseed is projected to fall by 160,000 tonnes. In fact, all oils are expected to increase export growth with the exception of rapeseed and to a lesser extent peanut oil.
The EU does, however, face one big problem: its position in the global vegetable oil trade is further being outstripped by China and India as their markets increase in size. In 2018, the EU and China were on an equal footing in terms of vegetable oil imports; now the Chinese import market is more than 2 million tonnes larger – around 15 per cent. Similarly, last year marked the first year that China imported more palm oil than the EU. This is expected to continue into 2021. This is in part a result of Brexit; the UK’s imports are no longer counted against the bloc’s totals. However, as the UK seeks its own trade path, it is apparent that the EU’s global trade clout has been diminished significantly.