Europe’s Green Deal Zeal: DOA with ASEAN Chiefs?

Is Brussels New Rules on Deforestation DOA with ASEAN?

  • ASEAN is getting nervous about Brussels’ trade and environment rules, from its deforestation regulation to its carbon border tariffs. Signs point to a roadblock on further trade and economic deals, as a result.

The rumour within the ASEAN Secretariat is that the member states have asked it to come up with a region-wide response to the EU’s new rules (i.e. trade barriers) on forests and climate.

Although Indonesia and Malaysia are obviously concerned about the impact on the Southeast Asia’s largest agricultural export – palm oil – it’s becoming obvious to rubber producers (e.g. Thailand and Vietnam) that they are also going to be in the firing line.

On top of this, steel, fertiliser and other industrial suppliers will feel the pinch. Around 14 per cent of ASEAN’s exports to the EU are likely to be immediately caught up by the carbon tariffs, which are set to start in 2023.

A new set of trade barriers will be difficult for a region that – like other parts of the world – is still recovering from COVID.

Perhaps Brussels underestimates ASEAN officials, but they’ll see this for what it is: a new set of protectionist measures levied against a more competitive region.

The other rumour is that Brussels is calling for a major EU-ASEAN meeting in December.  Although the meeting is likely to have a security focus, it’s clear trade and security go hand-in-hand right now. Tip to European officials: if you want security cooperation from ASEAN, expect the response to include demands for a fair and non-discriminatory trade policy.

But will this be too little, too late? The EU has attempted to throw its economic weight around the region for some time, with the ‘lure’ of European markets. But the significance of those markets is fading. Jakarta has leveraged the G20 to start new bilateral and regional talks with Canada, Mercosur, Korea and Japan. Brussels is being left behind.

Palm Oil Keeps European Food Prices Down. Why Don’t Greens and Politicians Get It?

  • Imports of refined palm oil into France increased by around 33 per cent year-on-year in the second quarter of 2022, in spite of Brussels’ trade barriers

The massive increases in volume – not just price – show just how important palm was for European food supplies in the first half of 2022 as the war in Ukraine took hold and supply disruptions continued. Similar jumps occurred in the Italian market in Q1.

No doubt there’s some relief among both politicians and European businesses that Green efforts to impose new trade barriers on palm oil haven’t yet kicked in. If they had, record inflation rates for the Eurozone would have ticked even higher.  

This all highlights the total folly of imposing barriers to palm imports. EU lawmakers have a stark choice at this point: Double down on a set of Green Deal policies that are clearly not working or use this as an opportunity to hold fire on trade barriers that are going to harm European businesses, consumers, and developing country economies.

The most obvious of these barriers– the EU deforestation regulation – is set to move its way through the Brussels agenda over the next few months, and will likely lead to price increases for vegetable oil, cocoa, and other commodities.

At the same time, Europe isn’t doing its own farmers any favours. The Netherlands government is asking Dutch dairy farmers to significantly cut greenhouse emissions, particularly through the use of nitrogen-based fertilisers. According to news reports this will result in culling of herds by around 30 per cent – and the Netherlands is the world’s second-largest dairy exporter after the United States. The move has resulted in widespread farmer protests across the Netherlands.

Is it time for Brussels to realise that it may have to make some trade-offs between food security and environmental concerns?

Rapeseed: An Unviable, Unloved Crop

  • The OECD has throws shade on the future of the EU’s rapeseed industry in the latest OECD-FAO Agricultural Outlook.

The new annual report from the OECD-FAO will be difficult reading for DG-AGRI officials because of one key line: high demand and high prices for cereals in the EU is going to prompt European farmers to switch away from oilseeds.

So, is there going to be a European oilseed complex left to protect? Although this year has seen an uptick in rapeseed production, the EU has been importing increasing quantities of rapeseed oil and meal. Combine this with the uptick in palm oil prices and this is a dismal picture.

Add to this that consumption growth for vegetable oils is going to remain flat over the next decade in the EU, and basically all market growth is going to take place in developing country markets, particularly India. It would appear that what we’re seeing is something that many of us have predicted for many years: a bifurcation of palm oil markets. The European market and Western market will continue to impose costs upon suppliers, but other markets – growth markets – will be more concerned with getting the best price possible.

Moreover, it’s going to become more difficult for the EU to attempt to dictate production conditions to producer countries that aren’t in its orbit.