Palm Oil Monitor Weekly Update – 21st March 2019

Analysing the Final Delegated Act: the Commission Doubles Down

The European Commission has published its final version of the Delegated Act for the Renewable Energy Directive, as was expected.

The text will now go to the Council of the EU and to the European Parliament. They have two months to consider the Act and how to proceed, but they can also request an extension.

Both the Parliament and Council can ask the Commission to redraft the legislation. They can also remove the Commission’s authority in this area, in extremis.

As noted previously, the approval period may bleed into the EU Parliament’s elections, which commence on May 23.

There are some small changes to the Act and they are clearly aimed at palm oil. But they are also changes that appear to have been forced by pressure from Green MEPs. On March 18, the Commission’s Director General for Energy Dominique Ristori presented the final Delegated Act to MEPs in the Industry, Research and Energy (ITRE) Committee members in the European Parliament. He confirmed that the changes had been made following discussions with MEPs.

Just so we’re clear, this version doesn’t pull back from keeping palm oil out of the European market; it doubles down. Here are the key changes:

  • Revision of the definition of smallholders from ‘2 to 5 hectares’ to less than 2 hectares. The only group objecting to this definition was European greens. They saw this as a ‘loophole’ for the nucleus estate model;
  • The definitions required for smallholder exemptions were narrowed to only include abandoned and degraded land, excluding ‘unused’ land;
  • The percentage share of palm oil’s expansion into high carbon stock (HCS) areas increased from 18% to 23%.

The increase from 18% to 23% has no justification within the EU text; there is no new data that explains the increase.

But the revisions to the smallholder definition are clearly alarming and display a clear disregard for the Sustainable Development Goals.

Ristori misquotes FAO smallholder definitions, ignores SDGs

Mr. Ristori justified the change in definition for smallholders by stating that it falls into line with the Food and Agriculture Organization definition of smallholders.

Let’s be clear: no such definition exists.

In fact, the FAO does quite the opposite – it encourages governments to develop their own workable definitions of smallholders based on the relevant economic and agricultural context. It also discourages relevant authorities from using an area-based definition.

This has all been laid out clearly in a working paper published by the FAO in 2017.

Even when it comes to collecting data for non-regulatory purposes, the FAO is non-prescriptive. Its flagship publication, the World Census for Agriculture, lays out its concepts and definitions and says that countries should determine their own thresholds for smallholders and agricultural holdings more broadly.

This is because the land area of a farm on its own does not indicate anything about the labour inputs, output, and profitability of the land holding. It is highly dependent upon context, including the crop type, land type and weather conditions.

A thorough analysis of 122 countries using smallholder definitions shows that:

  • 71 countries use an area-based definition;
  • Of these, 31 use a definition of less than 2ha and 40 use a definition over 2ha;

The FAO has also recommended against a regional definition for smallholders, let alone a global definition.

So where did Ristori get his definition? We suspect it is this study from the FAO in 2015, which uses 2 ha as a starting point. But this document points out that a 2 ha definition is woefully inadequate:

“The 2 hectares threshold does not provide any meaningful information for an analysis across countries.”

The FAO points out that the renewed focus on smallholder definitions is because of the Sustainable Development Goals.

SDG 2.3 seeks to double:

the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment.

There are two indicators, which measure smallholder productivity and income. The SDGs note that there is no methodology for measurement, and that the “The main reason for this  … is the lack of a universally-accepted international definition of “smallholder”.”

Officials from the region have been wondering whether the SDGs might be used as supporting material for a possible WTO case against the EU. This disregard of FAO methodologies and the SDGs looks like a clear entry point.

… And ignores the EU’s own definitions

What may further trip up the Commission and the European Union when it comes to international legal action – is that this new definition diverges completely from the EU’s own definition of small farmers.

The European Commission notes that a definition based on area is of very limited utility and the EU bases its definition of small farms on gross margin rather than area.

The EU defines a ‘small farm’ as being less than 8 ESU or ‘European Size Units’. ESUs are calculated by taking gross margin and dividing this number by EUR1200.

In the same way, the US Department of Agriculture uses a definition based on margin, rather than size, for small farms.

In Malaysia, a definition for smallholders is 40 ha. For palm oil specifically, the only definition is put forward by RSPO, which is 50ha.

For palm oil, a rule of thumb is one family member can work full time on 5 hectares, without the need to engage an additional worker or family members. With less than 5 ha, smallholders will find difficult to earn a decent and living wage and would look for another job. The EU has clearly not even bothered to check what ‘works’ in the sector.

But the question is this: why didn’t the EU use its own definition?

Because it would simply be too inclusive. There is a broad range of gross margins for palm oil. A CIRAD project noted that margin for Indonesian smallholders can range from IDR2000000/ha (EUR125) to 15000000/ha (EUR930).

A 5ha holding at the lower end would imply a gross margin of EUR625, roughly translating to 0.5 ESU. Using a low margin, a ‘small’ farm would be up to 80ha if calculated using ESUs.

… And casts ASEAN concerns aside

The changes to the Delegated Act have raised the ire of Malaysia and Indonesia. Both countries expended considerable resources demonstrating to the EU the problems with the Delegated Act. Both countries were ignored. Moreover, the classification of soybean as low risk has raised ire further, particularly given its higher deforestation footprint.

Ristori was asked to justify why soy was exempted and not palm oil. Without getting into details, Mr. Ristori just implied that their scientific evidence was “reliable”. Clearly, he’s towing the line for Juncker’s deal with President Trump. He also indicated that Malaysia was committed to protecting forests and sustainability. Then why ban palm oil?

Pundits are predicting a broader trade battle. The producing countries certainly seem prepared.

Malaysian Minister of Primary Industries Ms. Teresa Kok issued a statement saying, “This is totally unacceptable, and it is discriminatory and insulting to smallholders in the palm oil producing countries.”

Malaysian Minister of Foreign Affairs Saifuddin Abdullah stated “…if this Delegated Act is passed into law, that Malaysia would look to WTO for recourse. This discriminatory Delegated Act undermines the EU’s credibility as a proponent of the WTO-led rules-based system”.

Indonesia has now publicly stated that it will mount a WTO action. Trade Minister Lukita Enggartiasto said that “The decision [to take the issue to the WTO] was just made at a meeting yesterday. It is now being drafted. We will send the letter to the WTO and assign a lawyer.”

This doesn’t bode well for the EU’s trade ambitions in the region.

The EU has caved on soy in order to placate the Trump Administration’s proposed tariffs on cars. This will come at a cost for the EU’s trade plan in Indonesia, Malaysia and the rest of ASEAN.


Palm Oil Monitor Exclusive: Analysing the EU’s Scientific Report on Biofuels

Accompanying the Renewable Energy Directive (RED) draft Delegated Act released on 8th February 2019, the European Commission released its scientific report that attempted to determine which crops could be considered ‘high ILUC risk fuel’ feedstocks.

The report isolates palm oil as the only feedstock crop that can be considered as presenting a high risk of indirect land use change.

This is odd, given the EU’s previous pointing to soybean and maize as significant drivers of deforestation. Industry observers should therefore be sceptical, particularly as the EU has agreed to a political deal to buy more soybeans from the US – a deal made just before the scientific report was published.

In sum, this report is shoddy and unusual for a body that prides itself on producing accurate scientific data. Unfortunately, it reads like a press release-report from Transport and Environment (T&E) funded by a left-wing foundation or the Norwegian government. This is a sad decline in the intellectual rigour of the European Commission.

General observations

First, it appears to have been quite rushed. We are aware from our sources in Brussels that the scientific report didn’t look like it was anywhere near completion as late as Christmas last year.

This is supported by the fact that there are a number of spelling errors throughout the report. This might be a minor quibble, but if you’re preparing something for publication and you don’t have time to run it through a spell check, you’re clearly pressed for time.

Second, if this is the case, it’s a bit of a mystery as to how they’ve reached firm conclusions so quickly. Accurately linking deforestation by crop type is something that has eluded researchers for years, particularly in the satellite imaging field.  However, if the report is to be accepted as robust, we are also supposed to believe that the study managed to construct a robust methodology without producing any new data sets, in record time.

Third, this issue of the timeline is not incidental: it’s fundamental to how the Delegated Act was conceived. MEPs demanded such a fast timeline, to benefit their political positioning ahead of the EU elections in May. Such politicisation of a scientific and technical process is highly irresponsible. The EU Commission admits privately that this timeline was never sufficient for the job at hand – and even in public meetings before the EU Parliament, Commission officials have hinted strongly that the timeline was irresponsible.

Problem 1: Can ILUC risk even be assessed?

Indirect land use change (ILUC) as a concept has been criticised many times before. The doubts around it are encapsulated in one simple statement: “ILUC cannot be observed or measured. Modelling is required to estimate the potential impacts.”

The problems with ILUC have been gone over again and again. The last time the EU undertook a review exercise was in 2017. It stated then:

Results of recent ILUC studies are far from consistent in their approaches and outcomes. After 2012, no further convergence in results is presented in the literature.

It also noted that palm oil had a lower mean and median ILUC factors than sunflower, and a lower median than soybean.

That 2017 report also assessed if or how low-ILUC risk certification could take place, and critically examined certification pathways and whether low-risk ILUC was in fact possible given the complexities of the market, and substitutions between crops.

Isolating particular feedstocks was not one of the recommendations. In fact, some of the key recommendations of that report were as follows:

The analysis of the evidence on the different components of ILUC shows that for most ILUC components the scientific evidence is extremely poor …

Datasets on biofuel crop production must be collected, synthesized and standardized to common data formats. Analysis of historical information on agricultural production, trade, prices and yield, as well as land use changes may require further attendance in order to get a better understanding of the fundamental parameters that generate ILUC. Increased data availability and convergence of data formats and transparency, could also potentially help for validation of models and increase the use of empirical models. Satellite monitoring can support this development for different purposes, including ILUC research.

Finally, on methodologies for ILUC risk, it stated:

these need further refinement, particularly regarding: (1) the prove of additionality through calculation of trend line baseline yields, (2) availability of reliable data in all potential sourcing regions in the world, and (3) risk for unsustainable increases in irrigation water consumption needed to increase yields in arid regions. Also, the evaluation of unused land status and the duration of certification of 10 years, still has many open ends which need to be evaluated further.

This begs the question as to how the Commission moved from accepting that ILUC risk was close to impossible to stating in the scientific report that:

‘[ILUC] modelling has a number of limitations, but nevertheless, it is robust enough to show the risk of ILUC associated with conventional biofuels.’

Moreover, how does the Commission find it acceptable that isolating feedstocks where expansion on high carbon stock areas is high can somehow operate as a proxy for ILUC risk?

This is the critical jump in logic that the Commission is attempting to make. And it doesn’t even explain how this ‘trick’ is done.

Problem 2: Smashing together the data

The second problem in the scientific study is how the various datasets are meshed together.

As stated above, the EU is attempting to quantify how much deforestation can be attributed to the expansion of a particular crop. According to the EU’s logic, the greater this expansion for a single crop, the greater the risk of ILUC.

The scientific report has come up with some figures despite the fact that this calculation of a highly complex and essentially unmeasurable figure has been eluding researchers for decades.

There are three datasets that are drawn heavily upon. All of them are robust for their own purposes. The question is whether they should be used for different purposes, which is what the EU seems to have done.

The first is by Curtis et al (2018). This study uses satellite monitoring data to determine whether forest loss is likely to be deforestation, and then whether that deforestation was for commodity production, urbanization, shifting agriculture, etc.  The study does not attempt to determine which commodity crops (or trees) were grown following the deforestation, and it also only determines one factor to a particular area. In other words, the study does not say if deforestation was caused by oil palm or fibre plantations or soybean or cattle.

The second is a dataset produced by IIASA and IFPRI in 2015. This dataset is an estimate of which crops are grown where and how much of each crop is grown within a particular area. It is based on 5-square kilometre blocks, and isn’t directly derived from satellite data. Rather, the data is crowdsourced via user input. There are, therefore, some major quirks in the data. According to the maps, there’s quite a lot of oil palm grown in downtown Petaling Jaya, as well as some Arabica coffee (which only grows above 1000m). There’s also some wheat being grown in the south-eastern suburbs of Melbourne.

The thinking behind the dataset was to use it as a tool for crop land use decisions. It wasn’t designed to produce granular data to attribute precise areas to particular crops – although this is improving.

As the study says, “globally consistent maps showing the expansion of all individual biofuel crops through time are not available.”

However, the EU consultants overlaid the two datasets and assessed which ‘commodity driven deforestation’ lined up with the IFPRI/IIASA datasets, therefore coming up with an amount of deforestation that can be attributed to a particular, single crop. There are two caveats here that the consultants note: first, they are attributing all tree cover loss in a ‘commodity driven deforestation’ area to agriculture, and second, that they can attribute this deforestation proportionally to a single crop based on IFPRI data.

The third dataset is FAO data on harvested areas for particular crops, which can be used to assess the total expansion of a particular crop over a particular time period. This data is based on country reports given to the FAO.

So, these three datasets: satellite, user and country-level reports are very simply smashed together, with no harmonisation of the data and no verification – and what seems like a lot of guesswork.

Here are some examples of problems.

Problem 1: crop area expansion. The study bases its cropland expansion area on USDA and FAO reports. It says that between 2008 and 2015, global oil palm plantation area increased by 7.8 million ha. USDA bases its harvested and production area analyses on seed sales and trade data.

Do these figures square with other data? According to statistics from MPOB, oil palm planted area in Malaysia increased by around 1.2 million ha in 2008-2015. Much of this was attributed to conversion of old rubber plantations. This is also the data used by the FAO.

According to Indonesia’s statistics agency, oil palm planted area increased by around 2.1 million ha over the same period, which was partly driven by a decline in smallholder palm areas.

This totals 3.3 million ha. Did the rest of the world really stack on another 4.4 million ha of oil palm plantations? This seems unlikely, if not impossible, given the dominance of Malaysia and Indonesia over the palm oil sector during that time period.

Much of the discrepancy is in the FAO and USDA data. The data used by the FAO on Indonesia’s planted area is an ‘unofficial figure’. Both say the Indonesian industry expanded by around 4 million ha in this time. But these estimates are only as good as the data they have on trade and seeds.

The point is that using estimated crop expansion data based on trade and seed data, then combining that with satellite deforestation data, and adding that to estimates of cropland, mean that you end up with data that simply isn’t accurate.

Problem 2: crop area expansion (redux). The only truly comprehensive study of oil palm plantation mapping based on remote sensing data was undertaken by Cheng et al (2018). It’s worth noting that this study wasn’t cited in the EU’s literature review.

This study doesn’t look at changes in area over time. But it does compare satellite estimates with other sources for 2016. It looks like this:

ASEAN 23.80 12.80 14.82
Africa 4.59 4.28 3.80
ROW 1.10 1.06 1.26


This isn’t a small gap – it’s around 10 million ha. Unfortunately, it doesn’t establish the original 2008 baseline.

And this begs the question: do we really know what the 2008 baseline is? Neither the 2008 palm oil area or the final 2015 figure used in the study are based on satellite mapping. But the supposed amount of deforestation for palm oil is.

Problem 3: disaggregation of palm oil from other tree crops and plantations. One of the problems that has plagued interpretation of satellite data in the tropics has been identifying and disaggregating oil palm expansion from fiber plantations and other crops.

As Curtis states, the problem is:

Forest plantations in Southeast Asia contained patterns of loss and regrowth similar to those seen with the expansion of new agricultural oil palm plantations categorized within the commodity-driven deforestation class. This was particularly true for small-scale palm plantations that are planted and grown at roughly the same spatial and temporal scale as short-rotation wood fiber plantations.

This is accounted for in the methodology used by Curtis et al, by lowering the confidence interval in the final result, which is a landscape-wide quantification of deforestation due to commodities. The question is whether the IFPRI/IIASA datasets do this – and it doesn’t appear to be any way that the crowdsourced data makes this distinction.

There are some reasonably obvious spots in Sumatra that have converted from natural forest to eucalyptus and pine plantations, but these appear to be included in the ‘commodity’ class rather than palm oil in both the Curtis and IFPRI datasets.

Problem 4: Regrowth and replanting. Finally, replanting and regrowth doesn’t appear to be fully accounted for. Areas around Jengka in Malaysia, which had plantations established decades ago and replanted at least once, if not twice, appear in GFW data as ‘commodity driven deforestation’. This doesn’t appear to have been resolved in the Curtis data – and therefore replanting will be considered as ‘deforestation-based expansion’. This could potentially skew both the aggregate numbers and the geographic bias of the report; more importantly it highlights again how simple errors creep in when different datasets are hurriedly layered on top of one another.


The problems with the EU study are can be summarised as follows:

  • There’s a considerable leap from the existing state of ILUC-risk knowledge to simply equating it with commodity-specific deforestation;
  • There’s no accurate, satellite-based figure of palm crop expansion between 2008 and 2015;
  • Data for commodity-based deforestation based on satellite data does not appear to adequately disaggregate palm oil from other commodities or account for replanting;
  • Lining up ‘commodity based deforestation’ data with existing cropland map datasets is novel, but requires verification.

The EU is attempting to do something that has never previously been achieved: align deforestation data with crop data. There’s a reason this hasn’t been done previously: it’s a very difficult thing to do.

If this was a research project, it would require months, possibly years of refining and improving existing data and analytical techniques.

These conclusions are supposed to be informing a regulation that will have far-reaching implications for global vegetable oil markets and for millions of farmers.

The EU needs to take it more seriously. In fairness, this is not necessarily the Commission’s fault: the rushed timeline was a political gambit by the EU Parliament. Unfortunately neither the Commission nor the Member States appear to have the backbone to explain to the MEPs that their timeline was impossible and would lead to a flawed and indefensible outcome. Which is what has happened.

We hear that the Commission’s recent Stakeholder Expert Group meeting highlighted the lack of a proper impact assessment. EU officials at that meeting hinted that there will be a thorough re-assessment before the RED is fully transposed in the 28 EU Member States (the RED foresees a review of the Delegated Act in 2021 in any case). There is a lot of room for improvement.

In 2010, the LSE published a paper that described the Renewable Energy Directive as an example of ‘policy based evidence gathering’. Nearly a decade later, not much has changed.


Palm Oil Monitor Weekly Update – 11th March 2019

A Big Week in Brussels

Last week was particularly busy for anyone dealing with the politics of palm oil in Brussels. Here’s an overview.

The RED Delegated Act consultation closed

The open consultation process for the RED Delegated Act closed. At last count, there were more than 60,000 submissions made in the process. Around 52,000 of these submissions were pre-formatted copy-and-paste letters submitted via the ‘Not in my Tank’ portal put together by Transport and Environment and other NGOs.

There were not a significant number of responses from outside of the EU that objected to the methodology used by the European Union.

Both Indonesia and Malaysia were engaged in consultations directly with the EU on the RED. According to news reports, Malaysia said that:

The draft delegated regulation has been found to be lacking in transparency, scientific credibility and many of the assumptions therein fail to reflect the actual sustainable practices in the industry … Furthermore, it is biased against palm oil biofuels compared with the other crop-based biofuels. We therefore concluded that overall, palm oil has been unfairly labeled as a high ILUC risk among the eight feedstocks cited in the draft regulation

A Delegation of Malaysian officials was in Brussels this week to meet with EU officials ahead of the final adoption of the Delegated Act.

EU Commission Expert Group Meeting

This past Wednesday, the European Commission organised a stakeholder listening session.  The European Commission announced the final Delegated Act will be submitted on March 14, 2019 to the European Parliament and Council of the EU who will then have up to 2 months to either accept or to object to it.

There has been a steady uptick in demands from the European Parliament and NGOs that MEPs should object to the Delegated Act. This could force the Commission to withdraw it, replace it, or junk the idea entirely.

Focus Switches to MEPs and Member States

The Commission’s expert meeting this past week really served as a final roll of the dice for DG Energy: once the Delegated Act is published it is then sent to the EU Parliament and to the Council. The buck will be passed, and the final decision on whether to proceed with the Delegated Act lies with MEPs and with the Member State representatives.

Our sources in Brussels say there remain serious discussions in the EU Parliament’s Environment Committee (ENVI), and that it’s possible the Committee could formally object to the Delegated Act. However, with elections in the offing and the chance to restrict palm oil imports, the smart money surely is on MEPs swallowing their pride and settling for the text as it is.

A more interesting question concerns the Council.  Why? Because the governments in Paris, London, Berlin, etc, will understand the consequences of allowing the Delegated Act to proceed. Indonesia, Malaysia, and others have made repeated statements about WTO action and potential trade retaliation. For a period of time, Member States have been able to hide behind the Commission when it comes to the Delegated Act’s provisions against palm oil. No longer. If the Council chooses to approve the Delegated Act then the Member States themselves will be responsible for the decision, and the potential consequences. It’s probably no coincidence that reports suggest Indonesia and Malaysia will be sending Ministerial representatives to European capitals in the coming weeks.

A final point worth noting is the trade narrative emerging in some sections of the European press & political world. MEPs have accused palm oil producing countries of issuing aggressive trade threats, and European media has dutifully reported this as fact. Brussels in fact needs to take a step back and realise that neither Indonesia nor Malaysia has implemented a Delegated Act that bans European products … in other words, the EU is the aggressor here in trade terms and the producers are simply responding.

A TBT Meeting at WTO

A Technical Barriers to Trade meeting took place at the WTO in Geneva. This was the first formal meeting of the TBT Committee since the EU published its draft RED Delegated Act, and the first since France decided to remove tax benefits for palm-based biofuels in its finance bill.

The last time the Committee met, Indonesia, Malaysia and other palm oil producing countries took the EU to task for not releasing details of the RED sooner, and for singling out palm oil at various points in its legislative processes.

EU-Indonesia FTA negotiations

On March 11, the EU and Indonesia also had planned to commence the 7th Round of FTA negotiations in Brussels. Rumours from Jakarta was that the agreement was effectively on hold because of the palm oil issue. But it should be noted that this is likely to be in the context of the agreement – not because of the TBT discussion.

Norway’s ‘Circle of Virtue’

Norwegian officials visited Malaysia this week, with direct visits to both Trade Minister Darrell Leiking and Minister of Primary Industries Minister Teresa Kok.

The meetings were notable because of a statement from Norway’s Trade Minister Torbjorn Isaksen, who said, “There has never been a proposition either from the Norwegian government or the Norwegian parliament to ban palm oil.”

To recap, Norway’s parliament called on the government to ban palm oil from accessing its renewables programs. Isaksen’s language is precisely the same as the EU’s when its parliament called for a renewables ban.

According to news reports, Norway is looking for a trade deal that will include sustainable palm oil. Will this mean that MSPO gets recognition under the deal? Could that be a template for other palm oil producing countries as well, to secure recognition for their own sustainability efforts?

The following day it was reported that Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, had divested from several companies due to deforestation concerns – three because of palm oil. Rainforest Foundation Norway (RFN) cheered the move against Sime Darby, Olam, Sipef and Halcyon Agri. Olam and Sime Darby have been the targets of RFN for some time; RFN has called for GPFG to divest from companies associated with palm oil.

RFN, for its part, receives considerable financial support from the Norwegian Government’s development agency, Norad. In 2015, it received more than USD10 million in funding.

Given all of the above, it’s unclear exactly how the Norwegian government can claim to be pro-palm oil. Or, more importantly, it’s unclear why anyone in a producing country would believe that claim.

Indofood Exits RSPO

Indofood, Indonesia’s largest food producer (and the world’s largest maker of instant noodles), and RSPO have parted ways. Indofood withdrew from the organisation in late January; their formal expulsion letter was sent from RSPO at the end of February.

The complaint against the Indofood division – London Sumatra Plantations — that sparked the withdrawal took place in mid-2016.  It was launched by the US-based Rainforest Action Network. Its target was Pepsi, and specifically its joint venture with Indofood.

The complaint was protracted. Despite verification audits and meeting complainant expectations, RAN continued to appeal, place quite unreasonable demands on the company and effectively refuse to settle. One example: RAN refused to reveal the locations of the rule breaches for several months.

This placed a considerable financial and resource burden on the company. Our understanding from talking to people familiar with the matter was that it was simply not worth Indofood’s time to maintain its RSPO membership and compliance.

This should be an eye-opener for RSPO. For voluntary schemes such as RSPO, part of the sales pitch is that certification – not just better practices, but compliance and certification – gives value to companies. If that becomes a burden rather than a benefit, the business case is gone.

It’s worth noting that Indofood’s plantations division has been under some financial pressure, posting a loss last quarter. But does this also mean that some companies will see certification as an unaffordable extra when times are tough?

Add to this the elephant in the room for Europe: around 26 per cent of palm oil going into the EU remains uncertified, according to a new report by IDH. This is despite a commitment by a number of EU countries to make their supply chain 100 per cent sustainable by 2020.

IDH noted that there was little demand for certified products in Italy, Spain and Poland. IDH stated that “To meet the 100-per cent target by 2020 is going to be very difficult because now we move into these markets where there is no consumer pressure or awareness.”


Palm Oil Monitor Weekly Update – 7th March 2019

POM Insight: Delegated Act Scientific Report

The EU is attempting to do two things in the Delegated Act’s scientific report.

First, it’s trying to provide the basis for ‘low-ILUC risk’ classification of biofuels.  In its previous assessments of whether low-ILUC certification was possible in 2017, its consultants referred to them as being in their infancy.

So, without any strong scientific basis, it simply seeks to use deforestation by individual commodities as a proxy for ‘high ILUC risk’.

There’s no underlining how incorrect this is. The same 2017 report pointed out that ILUC factors for palm were lower than sunflower oil.

Second, it’s trying to do something that has never been achieved, despite decades of research into deforestation and satellite imaging: perfectly align deforestation data with crop or land-use data.

There’s a reason this hasn’t been done previously: it’s a very difficult thing to do.

Nonetheless, the European Commission attempts to do this by putting together three unrelated and unharmonised sets of data on cropland expansion, cropland area and commodity-driven deforestation.

The problems can be summarised as follows:

  • There’s no accurate, satellite-based figure of palm crop expansion between 2008 and 2015;
  • Data for commodity-based deforestation based on satellite data does not appear to adequately disaggregate palm oil from other commodities or account for replanting;
  • Lining up ‘commodity based deforestation’ data with existing cropland map datasets is novel, but requires verification.

In 2017, the EU’s consultants stated:

  • Datasets on biofuel crop production must be collected, synthesized and standardized to common data formats.
  • Analysis of historical information on agricultural production, trade, prices and yield, as well as land use changes may require further attendance in order to get a better understanding of the fundamental parameters that generate ILUC.
  • Increased data availability and convergence of data formats and transparency, could also potentially help for validation of models and increase the use of empirical models. Satellite monitoring can support this development for different purposes, including ILUC research.

None of these things were done for the current scientific study.

This report is supposed to be informing a regulation that will have far-reaching implications for global vegetable oil markets and for millions of farmers.

The EU needs to take it more seriously.

In 2010, the LSE published a paper that described the Renewable Energy Directive as an example of ‘policy based evidence gathering’. Nearly a decade later, not much has changed.

This is an example of why the global community is losing faith in the European Commission’s policy-making capacity.

What US Soya Deal May Mean for Palm

One of the questions being thrown around in Jakarta and Kuala Lumpur since the release of the EU’s RED Delegated Act is whether there will be a ‘low ILUC risk’ certification pathway for palm oil going forward.

More attention has been given to this since the approval of the US soybean sustainability standard, which gives US soybeans easier access to the EU biodiesel market.

Our sources indicate some palm oil officials doubt the genius of the US approach here, or how it will work if it only applies to the US and not Brazil and/or Argentine soya.

Here’s the takeaway: the approval happened quickly; it was clearly a political sop to the US, which was threatening tariffs on any number of EU exports, but particularly steel products and the German automobile industry.

Now there are two questions for palm oil producers. First, is a political deal on certification achievable for palm oil? Second, what would a certification deal look like?

A deal is without doubt achievable. As stated last week, Malaysian Prime Minister Dr Mahathir Mohamad is an experienced international player.  Part of this is his ability to marshal troops. This has been on display at the EU-ASEAN Summit, where the EU was rebuffed on its cooperation overtures, with Malaysian Foreign Affairs Minister Saifuddin Abdullah confirming Malaysia and other ASEAN countries won’t support upgrading EU-ASEAN to a ‘Strategic Partnership’.

But there’s also a greater political weight when Indonesia is in the room. It is the fourth-most populous country in the world, and the largest economy in ASEAN – and palm oil is its largest agricultural export. When Indonesia speaks, other countries tend to listen, particularly when supported by ASEAN’s other major economies Malaysia and Thailand.

In other words, the political leverage is there.

The deal for US soybeans as a biofuel going forward has two parts.

The first is the EU’s approval of the US soybean standard. This was clearly political. There are any number of problems with the US standard meeting the EU’s sustainability criteria. The biggest one is that it technically doesn’t certify whether land was forested before the EU’s 2008 cutoff date.  That this doesn’t matter in the eyes of EU regulators speaks volumes about what they’re prepared to accept.

But this ‘deal’ only lasts until the introduction of the revised RED.

The second part is the greenlighting of soybean as being ‘low ILUC risk’ in the new Delegated Act.  This relies on the idea that soybean expansion in Latin America has had a very small impact on forests. This is despite the fact that according to the EU’s data sources for the Delegated Act, commodity-based deforestation in Latin America is double that of Southeast Asia, and the increase in soybean harvested area between 2008 and 2015 is more than ten times that of palm oil.

So, is there a low-ILUC risk certification pathway for palm? The scientific report left that pathway open, where it states:

“To ensure robust and harmonised implementation, the Commission will set out further technical details regarding concrete verification and auditing approaches in an Implementing Act in line with Article 30(8) of the REDII. The Commission will adopt this implementing act by 30 June 2021 at the latest. Voluntary schemes can certify low-ILUC risk fuels, developing their own standards individually, as they do for the purpose of certifying compliance with the sustainability criteria and the Commission can recognise such schemes in line with the provisions set out in REDII”.

In other words, there are 18 months for a case to be made for low-ILUC risk palm certification. Technical data on its own will not convince the EU that the pathway should be open. Robust technical data supporting palm’s emissions savings has been in place for years – but that didn’t stop palm being locked out going forward.  The political case is essential.


Palm Oil Monitor Weekly Update – 25th February 2019

EXCLUSIVE: PM Mahathir’s letter on eve of Norway visit

Norway’s Minister of Trade and Industry, together with EU officials, will be in Kuala Lumpur this week for a series of meetings with their Malaysian counterparts to discuss their countries’ recent measures to ban palm oil from its renewables programs.

POM has obtained an exclusive copy of Prime Minister Mahathir’s blistering letter to his Norwegian counterpart Erma Solberg, regarding the country’s decision to ban palm oil from its renewable’s programs. This follows Malaysian Prime Minister Mohamed Mahathir’s letters to France and the EU.

To recap: In December, Norway’s parliament voted to request that the government develop a biofuel policy that will “exclude biofuels with high deforestation risk” in its biofuels programs.  The Parliament has requested that the policy be introduced from January 2020.

Adding fuel to the fire last week, Foreign Minister Saifuddin Abdullah released a statement echoing PM Mahathir’s letter. He stated:

The Government and people of Malaysia strongly oppose the proposed ban on palm oil biofuels. This ban is discriminatory and unfair, and would negatively affect 650.000 small rural farmers across Malaysia and adversely impact the earnings and wellbeing of nearly 2 million Malaysians who are dependent on the palm oil industry for their livelihood.

Is the Norwegian visit genuine or window-dressing? The only real outcome that will satisfy Malaysia or for that matter any palm oil producing country will be for Norway to include palm in its renewables programs.

PM Mahathir’s letter is highly critical of the ban, pointing out that any move in that direction may violate WTO rules, and will disproportionately impact 650,000 small farmers and 2 million people dependent on palm oil.

But the stinger for Norway is here:

The Norwegian vote to ban palm oil was based on the presumption that our oil palm cultivation is a proven driver of tropical deforestation. This assumption has no proven justification whatsoever. We therefore request your personal intervention in this matter which should be treated in a fair and non-discriminatory manner by Norway, with equal treatment and access for Malaysian Palm Oil, alongside with other sustainable biofuel feedstocks [our emphasis].

As POM has noted before, it’s one thing for governments to write to each other; it’s another for country leaders to write to each other.

PM Mahathir also brought up the prospect of strained trade relations between Malaysia, Norway and European Free Trade Association (comprising Norway, Switzerland, Liechtenstein and Iceland). The bilateral relationship between the two countries isn’t enormous; two-way trade is worth around USD800 million annually.

The irony, of course, is that Norway’s largest export to Malaysia is petroleum, and that Norway’s entire economy is built on fossil fuels.

A history lesson

Some industry participants have questioned the significance of the EU RED to global palm oil markets – and therefore PM Mahathir’s focus upon the RED and other renewable programs.

It’s worth remembering PM Mahathir’s history when it comes to natural resources and international negotiations.

During the early 1990s, there was a push on by both the US and EU to establish a binding international forest convention. This came to a head at the Rio Conference in 1992 (UNCED). Malaysia, with the support of Brazil, pushed back to make a case for an agreement that considered more equitable economic and social outcomes. This was a true victory for PM Mahathir on the world stage.

A year after the Rio Conference in 1993, PM Mahathir addressed the Commonwealth Forestry Conference at the KL Shangrila on Jalan Sultan Ismail. He noted that there was only one set of internationally agreed forest timber standards – those of the International Tropical Timber Organization.  He said:

What bothers us most is that non-tropical forests and timbers which compete with tropical timber in the same international timber market are not being subjected at all to any internationally agreed standards and commitment to sustainability… Yet we know that the practice of clear felling of miles and miles of temperate forests causes more environmental damage than the controlled selective logging practised in tropical forests.

This is a glaring case of double standards and a clear contradiction to the decisions of UNCED. It requires immediate redress…  [Tropical timber] Producer members have proposed the expansion of the scope of the agreement to cover all timbers, so that non-tropical timbers can be subjected to the same sustainability criteria and all problems of discrimination and double standards can be effectively eliminated. Not surprisingly, this proposal has been rejected by consumers of the North.

Does this sound familiar?

Substitute ‘tropical timber’ with ‘palm oil’ and the situation with RED is almost exactly the same: one set of standards for Western commodities, another set for everyone else. All dictated by Europeans.

PM Mahathir has been here before and he understands better than most where this can go. Malaysian timber came under enormous pressure through the 1990s, despite the agreements of UNCED, and the establishment of the Malaysian Timber Certification System.  Palm is not timber, but the global palm industry is more integrated and better organised than timber was in the 1990s.

Mahathir is aware more than most that the RED is just the beginning of the battle. Sure, it’s renewables now, but food and oleochemicals will be next.

Following up with France

PM Mahathir also wrote to France’s President Macron in January to protest the banning of palm oil from that country’s renewables scheme. It was reported last week that Macron is in the process of responding.

Minister of Primary Industries Theresa Kok is set to meet with France’s environment ambassador Yann Wehrling in April as part of a broader dialogue on palm and sustainability, following her meeting last week with France’s Ambassador to Malaysia Mr. Laplanche.

Although the meeting is likely to be cordial, the question for the French minister is whether they are able to rein in the anti-palm forces within the French Parliament.

One of the reasons the Parliament was able to attach the measure to the country’s finance bill was because of Macron’s unpopularity.

The ‘yellow vest’ protests have taken place every weekend for 12 weeks and are now well into their third month. Although recent polls have shown some improvement in Macron’s approval rating, he still has some way to go – and command some authority over France’s legislature.

There’s little doubt Kok will be able to change Wehrling’s mind on palm oil; Macron has already implied he is against the ban. But what Macron really needs is leverage at home.

RED Update: ITRE, ENVI and the scientific report

Last week the European Commission presented the draft RED Delegated Act to the Parliament’s Industry, Research and Energy (ITRE) and Environment (ENVI) Committees.

The response to the draft was generally negative; MEPs have said that they will reject the draft in its current form.

Sadly, this isn’t because the draft unfairly singles out palm oil or because it isn’t likely to be WTO compliant.

MEPs want to reject the draft for two reasons. First, they see the exemptions for smallholder oil palm farmers as a ‘loophole’ that needs to be closed; and second, because soybean is getting an easy ride. The few MEPs who were present echoed this sentiment led by Dutch MEP Bas Eickhout, who was quite virulent.

There was little new information about the Delegated Act in the presentation, and the response from MEPs was expected. But the Commission did invite MEPs to participate to a stakeholder “Expert Group” meeting on 5th March 2019 where the Commission will go over the ongoing Public Consultation on the Delegated Act and will possibly present compromise options.

This “Expert Group” meeting will very likely be dominated by Green NGOs such as Transport & Environment and Friends of the Earth Europe, together with some domestic oilseed interests, aiming to push the Commission to ban palm oil and change its stance on soy.

In terms of next steps, where does this take us? Once the Public Consultation process is over, the Commission will present a revised final version of the Delegated Act. The Parliament can reject it and/or ask for a two-month extension. This may mean that the final Delegated Act will be presented to a new Parliament after the EU Parliamentary elections.

The other key development was the release of the EU’s ‘scientific’ report on ILUC. We’ll provide a full analysis in the next few days.

The scientific study is going to be critical to the final look of the RED. It looks as though there are some clear gaps in the final product. The spelling errors throughout are numerous, which indicates that it was particularly rushed.

Iceland gets the cold shoulder

The Financial Times this week reported that UK supermarket chain Iceland received no boost in sales from its anti-palm oil campaign in the lead-up to Christmas. According to data posted by the company, underlying sales actually fell by 1 per cent.

The campaign provoked the ire of the Government of Indonesia in particular, with one Ambassador clearly trolling Iceland CEO Richard Walker on Twitter.

The associated video that Iceland produced with Greenpeace (and with help from Emma Thompson) apparently clocked up close to 70 million views on Youtube.

Alongside the initial controversy, Iceland faced a backlash from anti-palm oil campaigners, who were somewhat annoyed that the seller hadn’t removed palm oil from all its products, nor other products selling palm oil.

As much as we might disagree with anti-palm consumers, one should never underestimate their intelligence: they can spot a marketing gimmick.


Palm Oil Monitor Special Edition: Analysis of Europe’s Delegated Act

The EU’s draft Delegated Act for the Renewable Energy Directive (RED) was released last week after a flurry of activity in Brussels.

The draft was released at the end of a week in which EU Commission President Jean-Claude Juncker was drawn into the impasse between the EU’s Commissioners and directorates, following an intense discussion during the College of Commissioners’ meeting.

The draft was accompanied by an announcement of a four-week consultation period, allowing individuals, industry, NGOs and governments the opportunity to provide feedback.

So what does it say?

The Delegated Act implements everything that the RED compromise stated it would: a commencement in 2019, a freeze on biofuels until 2023, and then a reduction to zero on biofuels considered as having a ‘high risk’ of indirect land use change (ILUC).

But most importantly, it sets out the parameters of which fuels will be considered as having ‘high risk’ of ILUC.  This is based on the expansion of production area of crops since 2008, and whether the bulk of this has been in ‘high carbon stock’ areas.

According to the Delegated Act’s Annex, for palm oil, it says 45 per cent of this expansion has been in forested areas, and around 18 per cent of this area has been in wetlands. For soybean, it puts forested area expansion at 8 per cent.  It also sets a draft threshold of 10 per cent for the expansion of any crops into HCS areas.

Finally, it establishes minimum criteria for certification and also exemptions under the rules.

The way the Delegated Act is currently drafted poses a number of questions.

First is the clear barring of palm oil from the RED, which has been a political goal for many in Brussels for a long period of time.

The source material, from which the deforestation figures are based, simply isn’t provided. It is understood that this scientific report is a literature review.

All reports over recent years (including from the EU itself) have indicated that soybean-linked deforestation is higher than that of palm oil – but this isn’t recognised anywhere in the Delegated Act.

The Draft also states that “this proposal could not be supported by an impact assessment.”

So, the EU has neither conducted a new study, and nor has it completed an impact assessment. Despite this, it underlines the importance of using the ‘latest scientific evidence’.

It’s probably worth remembering at this point that the RED was originally intended to give EU oilseed farmers financial support; it didn’t foresee the potential of more efficient exporters making a significant dent in the EU biodiesel market. An instructive example of what often happens with regulation is not properly thought-through. This Delegated Act may provide another example, in time.

Second, the Delegated Act allows for an exemption for smallholders.

The exemption takes place under ‘additionality’ requirements. It also requires reasonably strong certification, down to the sourcing area, but allows for mass balance certification, i.e. it does not require a separate supply chain.

European environmental groups already see this as a loophole for palm oil exports to make it into the RED. This is because around 40 per cent of the world’s palm production area is held by smallholders, and around 35 per cent of global production comes from smallholders.

But it also needs to be remembered that only a fraction of those are certified under voluntary schemes such as the RSPO. More will come online as national schemes such as MSPO are subject to mandatory implementation, with the Malaysian Government providing financial assistance to smallholders to adopt the requirements.

Similarly, certification is still a considerable imposition, and it’s not entirely clear whether some certifications will be accepted.

Third, all the criticisms of ILUC remain. The EU’s first report on ILUC stated:

“Estimating the greenhouse gas impact due to indirect land-use change requires projecting impacts into the future, which is inherently uncertain, since future developments will not necessarily follow trends of the past. Moreover, the estimated land-use change can never be validated, as indirect land-use change is a phenomenon that is impossible to directly observe or measure.”

This simply has not changed. ILUC cannot be observed; it can only be modelled.

Fourth, and finally, is how WTO-consistent any ILUC measures are going to be. As one legal scholar has put it:

“…it is an extremely indirect approach, as it does not have anything to do with the biofuels that are actually being imported into the EU. It is debatable whether these biofuels can be seen as responsible for ILUC, when their producers may have no ability to influence the ILUC for which their biofuels are purportedly responsible.”

Both Indonesia and Malaysia have stated publicly that they will challenge the regulation at the WTO, and have also put the EU-ASEAN relationship on ice because of the regulation. In addition, the measure appears to be contributing to an impasse in the EU-Indonesia FTA negotiations, which are mostly completed with the exception of the Trade and Sustainable Development chapter.

Fifth, the favourable treatment of soybean in the draft adds to the theory that the EU is creating a trade environment that is more hospitable to the United States – in order to stave off US tariffs on steel and autos – than to Asian trading partners.

The Commission is acutely aware that the response of trading partners is critical to what they do next.

The EU has effectively bought off the US by declaring soybean biofuels sustainable – something that European NGOs are already protesting.

The question is whether the EU can avoid a full-blown trade battle with its ASEAN partners.

The word coming from both Jakarta and Kuala Lumpur is that they both understand how critical the next four weeks are in terms of getting the attention of President Jean-Claude Juncker and European Commissioner for Trade Cecilia Malmström.

The most recent rumour from Brussels is that there was to be an off-the-record meeting between the Commission and the MEPs responsible for the trilogue compromise last Thursday – which was cancelled. However, the Commission will present the Delegated Act to the Parliament’s ITRE (Industry, Transport and Energy) Committee on Tuesday. Unless, of course, that meeting is cancelled at the last minute as well… we shall see.

Opposition to the Delegated Act is coming from both sides. Centre right parties in the Parliament are generally opposed to the unscientific nature of ILUC on principle; they also care about the threat to EU exports. Green and leftist parties see too many loopholes – soybean is one, and smallholder palm is another.

The EU is currently stuck in a trap of its own making. How it gets out will become evident in March, when the feedback period ends and the Commission really has to make a final decision.


ICYMI Euractiv: Europe’s Palm Oil Strategy Is Fading

Last week, Euractiv published an opinion piece by agronomist and environmental expert, and Palm Oil Monitor co-author Pierre Bois d’Enghien. Following France’s decision to ban palm oil biofuels earlier this year, and the ongoing debate in the EU about whether or not to label palm oil as “High Risk” or “Risky”, Governments from Indonesia, Malaysia and Colombia have made it known that they would take up the issue at WTO level and warned about possible trade retaliation facing France and the EU, would they decide to ban palm oil biofuels.

“Malaysian Prime Minister Dr. Mahathir Mohamad indicated that any attempt to try to exclude palm oil biofuels in France would lead to “negative consequences for the future of Malaysia’s trading relationship with France”. Many jobs and exports (Airbus, Rafale) are on hold”.

“Moreover, it is highly possible that this issue may be the object of a complaint at WTO level, if it is confirmed that the French exclusion is not in line with EU rules and International laws”.

The EU Renewable Energy Directive (RED) Deforestation Criteria debate is waging on, following last week’s College of Commissioners’ meeting and the release of the RED Delegated Act. The situation appears to be in a deadlock as pressure, from palm oil producing countries, is mounting on the EU.

Read the full piece in Euractiv, and also available in French here.


Palm Oil Monitor Weekly Update – 11th February 2019

RED: A week on the edge

The situation on the Renewable Energy Directive (RED) in Brussels last week reached something of a fever pitch.

As noted in last week’s edition, there is significant tension within Brussels as to how to deal with the Delegated Act – the implementing regulation for the RED.

The tension is between the narrow desire of the European Commission to fulfil the mandate given to it by the Parliament, Council and Commission in the form of the ‘RED Compromise’ of last year, and the broader understanding among the EU’s wiser heads that discriminating against trusted trading partners will have bigger consequences for the EU’s trade and foreign policy agenda.

Here’s how it unfolded:

January 21 – A briefing for the MEPs on the RED Delegated Act is cancelled.  This briefing was supposed to unveil the Delegated Act to MEPs. As we noted last week, one of the reasons it wasn’t completed was because Commissioner Canete and Director-General Dominique Ristori (DG ENER) were at odds over the Act’s objectives and conflicts with trade policy and WTO compliance.

February 1 – Commissioner Canete hosts a ‘crisis cabinet meeting’ over the Delegated Act. One week later and the crisis isn’t resolved. Commissioner Canete held a cabinet meeting of his top advisors in an attempt to resolve the impasse. 

February 4 – Juncker chairs an internal Commission meeting.  The lack of resolution prompts the involvement of Commission President Jean-Claude Juncker, but with no result. 

February 6 – College of Commissioners meeting. The College comprises all 28 Commissioners, one from each country and each with a different portfolio. Again, on the RED there is no resolution and no result. According to news reports, some Commissioners considered the regulation ‘too light’.

However, the College has a next step: An Inter-Services Consultation.

This is a four-week process in which all Commissioners provide their input on the Delegated Act. It starts immediately.

The Commission published a draft version of the Delegated Act before the weekend for consultation. We’ll have our analysis in the coming days.

What does this mean?

At the very least, it means the process will drag further. It also means that European lobbies – agricultural, environmental, transport – will be doing their best to get their input into the process, whether via their portfolios or national representatives. COPA-COGECA, the EU’s largest agricultural lobby group, is already on the front foot, calling for tougher rules on imported feedstocks, specifically soy and palm.

For exporters of palm oil – or even Argentinean soy-based biodiesel – this is a critical window for making representations to Commissioners, particularly Trade Commissioner Cecilia Malmstrom, and Commissioner for Foreign Affairs Federica Mogherini. The consultation process concludes at the beginning of March.

Malmstrom has previously been sympathetic to keeping trade open. Green NGOs are publicly calling her out, stating that she doesn’t want this to be an issue in trade negotiations – they’re probably right.

Again, this prompts questions about the EU’s overall trade strategy. The EU – particularly Germany – needs to find new export markets, and ASEAN has great potential. But are the bloc’s bureaucrats prepared to sacrifice that strategy in order to keep a small number of European farmers happy? Malaysia and Indonesia vetoed an EU strategic cooperation announcement last month because of palm oil; they will be prepared to do much more.

For those with an eye on the calendar, the next WTO Technical Barriers to Trade meeting is on March 6, the next round of Indonesia-EU negotiations is scheduled for March 11 (in Brussels) and the next Mercosur-EU round hasn’t been scheduled.


Where is the sustainability lobby?

A notable absence from the RED debate has been the ‘sustainability lobby’ in both Europe and elsewhere. This has been noticeable since the debate stepped up around 12 months ago, but the ‘sustainability alliances’ in Europe have generally remained silent on RED through its history.

This changed last week, with the EPOA tweeting: “Calling for a ban on palm oil won’t stop deforestation and won’t help to improve livelihoods of farmers. We in Europe, as 2nd largest global importer of palm oil, need to be ensuring 100% of the palm oil in the products is sustainable.”

Although the sentiments are absolutely correct, it’s increasingly likely they misread what is happening in Brussels.

Here’s why.

EPOA is an advocacy group for uptake of certified sustainable palm oil. Certification is, at its heart, a business-to-business arrangement. Producers and purchasers (and their stakeholders) are all working towards the same goal: the purchase of palm oil that they consider to be sustainable.  Achieving that goal depends upon mutually determining what sustainability is, and requires an agreement between those parties. Both sides have leverage.

RED and the political processes around it are fundamentally different. RED is a political arrangement. The arrangement is one of politicians (Brussels) giving financial support to their constituents (farmers). RED’s original political goal was support for European farmers. RED II follows that same goal but now that support depends upon removing support for imported feedstocks.  In this setting, ‘sustainability’ becomes arbitrary. The leverage is between politicians and their constituents.

The problem for the Alliances in the RED debate is twofold.

First, they have little leverage. Private certification is good for commercial arrangements. But when it comes to RED II, politicians and their constituents are seeking to regulate biofuels in a way that makes private certification irrelevant: ‘indirect land use change means palm oil bad, even when it’s certified.’ There is no compromise position here. This is one reason some European Parliamentarians have concentrated on the failings of certification.

Second, this idea is contagious and will spread beyond biofuels. The argument will be as follows: If no palm oil is good enough for biofuels, no palm oil should be good enough for our food.

The EPOA and other like-minded groups have been reluctant to defend palm oil as a whole. This is understandable; it’s not their job.  Their job is to support palm certification and uptake of certified palm oil. But if those certifications do not assist with RED compliance – or newer regulations – their broader relevance in the European market is under threat.

RED has produced a new environment where regulation of palm oil may not distinguish between certified and uncertified palm oil. Let’s see what happens.


Palm becomes an election issue across ASEAN

Forthcoming elections in Indonesia and Thailand are likely to make palm oil and agriculture a major policy issue across ASEAN’s two largest economies.

The Indonesian elections are set for April. A setback for President Jokowi thus far has been the slow progress in the country’s palm replanting scheme. The scheme aimed to replant around 20 per cent of the country’s smallholder area, but only 15,000 ha has been planted so far.

Jokowi’s current main challenger at the election is Prabowo Subianto. Prabowo is running on a populist platform, with tax cuts and reform as its main policy push. However, Prabowo is also seeking to cut the country’s reliance on palm for biofuels, and instead increase areas for ethanol production. This is a sop to the country’s agriculture sector. The sugar industry in Indonesia has been opened up over the past 12 months, which has resulted in soaring imports and plummeting local prices.

Thailand’s elections are set for late March. General Prayuth, leader of the military junta, plans to introduce handouts for the country’s oil palm farmers. According to one report, Prayuth is establishing a $32 million fund to stabilize palm oil prices and hand out cash to 14.5 million Thai farmers.

This will be welcome news for Thailand’s palm farmers, who have lower productivity and higher production costs than their counterparts across ASEAN. The government also sets a floor price for FFBs and a maximum price for refined oil, which protect the industry – at a cost to the economy.

Neither case will likely have a significant impact on global prices. However, they do indicate that agriculture and palm oil remain a political driver across the region.

The big question for many observers is whether the EU trade spat will eventually become an election issue in the Indonesian campaign – and to a lesser extent, Thailand’s.


RSPO’s recognition problem

A new article in Environmental Research Letters points out a glaring problem with RSPO: few people know what it is. The article surveyed around 1,700 UK consumers and their awareness of ecolabelling. Around 77 per cent of consumers knew what palm oil was; around 41 per cent considered it to be ‘environmentally unfriendly.’ But just 5 per cent knew what RSPO was. This compares with 90 per cent recognition for FairTrade and 54 per cent recognition for the Forest Stewardship Council (FSC).

While it is reasonable to attribute some low recognition to palm oil being an invisible and specialised agreement, the broad lack of recognition should be of concern. If 41 per cent of consumers consider palm oil as ‘bad’, but only 5 per cent know that sustainable palm oil production is possible, this is a clear signal that the negative campaign has been winning what has been an ugly and protracted war.

Although RSPO can be commended in some respects, it has some questions to answer, too. The first of these is simple: why did it tolerate the absolute denigration of palm oil from its own members for so long?


CIFOR: “Much is uncertain” on palm and deforestation

CIFOR has given deforestation researchers a solid lesson when it comes to drawing conclusions on deforestation drivers. A new paper from the organisation’s veteran researchers closely examined deforestation – i.e. natural forest loss – patterns between 2001 and 2017 across Malaysian and Indonesian Borneo.

There were two key takeaways.

First, conversion from forest cover areas to plantations has been falling in Malaysian Borneo since 2008, and in Indonesia since 2012. Second, forest conversion to plantations is not the sole driver of deforestation.

But the key thing to note is that when attempting to explain the changes in dynamics, the researchers don’t try to pinpoint it on a single cause.

Much remains uncertain. The overall impact of past initiatives to regulate expansion of plantations into forests are unknown. For example, although comparative studies indicate that RSPO obligations have had little impact in certified concessions—these concessions tend to be older with little forest and we don’t know how these company obligations have influenced the development of new concessions. Similarly, though No Deforestation commitments have had little obvious effect so far—the proportion of plantation expansion that involves direct conversion of forest has not noticeably declined—they may influence longer term investment choices.

More importantly, the researchers really point to the government policy environment – rather than the role of the private sector – as a key driver.

Regulations and commitments are necessary but insufficient to halt forest loss. Companies alone cannot prevent all significant losses such as that due to fires and smallholder expansion that arise inside, let alone outside, their concessions. Good policies and strong enforcement remain crucial.

One of the connections researchers tried to pick up on was any correlation between palm prices and deforestation rates. There was a link, but it wasn’t necessarily conclusive. This isn’t at all surprising. It has been documented that the Asian Financial Crisis of the late 90s resulted in higher rates of deforestation and illegal logging. Farmers and families – in difficult financial situations – deforested and grew crops in order to improve their situation.

This report has not been picked up on international media. Its assertions are well founded, but they point to many factors, not just one. Compare this with the furore around the comparison of the palm industry to the tobacco industry, which was based on close to nothing.

What does this mean? Probably that anti-palm oil stories, no matter how extreme, are clickbait. Good research, on the other hand, goes unnoticed.


Palm Oil Monitor Weekly Update – 4th February 2019

What is Happening to the EU-ASEAN Relationship? 

The discontent between palm oil producers and the EU – which has been bubbling now for several years – has now broken into the open, with ASEAN allies lining up alongside Malaysia and Indonesia. Several events and news reports from recent days support the theory that recent EU moves against palm oil are being seen in Jakarta and Kuala Lumpur as a bridge too far.

Sources in Brussels confirm that some within the EU hierarchy now recognise the scale of the problem – and that significant action will be needed to prevent a major breach in the trading and political relationship. It is now suffering an internal deadlock.

Is the EU prepared to back down on its Deforestation Criteria, for example? Will Malaysia and Indonesia demand the same deal for palm oil as Trump secured for U.S. soya under RED? All of this remains unknown, but must surely be considered as an option if Brussels is looking to de-escalate the situation.

How has the EU found itself here? After failing for a long period of time to recognise the seriousness of ASEAN concerns around palm oil regulation, the EU will be in no doubt after the events of recent days. Here are the events that have led us to where we are now:


EU-ASEAN Ministerial Ends in Acrimony

The international impact of the RED became apparent last week when the EU suffered a rebuff on palm oil this week at the EU-ASEAN Ministerial. As late as December last year it was being reported that Malaysia and the EU would sign a Partnership and Cooperation Agreement (PCA) in January. The EU-ASEAN Ministerial was also supposed to be the occasion for the signing of a EU-ASEAN Strategic Partnership Agreement.

But this didn’t happen. And it was because of palm oil, at the behest of Malaysia and Indonesia.

Instead, what came out of the meeting was a joint working group on palm oil.

The EU got rolled.

According to EU High Representative Federica Mogherini,

“our [ASEAN] partners today have heard a very firm and strong commitment from the European Union side to work with them on the sensitive issue of palm oil. We will establish an European Union-ASEAN Working Group to look at all the related issues in depth. We all have a common interest in addressing the possible negative environmental and social impacts of the production of palm oil, by ensuring that it takes place in a sustainable manner.”

Compare this to the statement from Indonesia’s deputy Foreign Minister Fachir:

“Palm oil is a strategic commodity for Indonesia, especially for small farmers. About 20 million people in Southeast Asia depend on their lives for palm oil industry and more than 5 million small farmers in Indonesia, Thailand, as well as the Philippines rely on oil palm … Refusing palm oil is the same as rejecting the SDGs, which is a global agreement.”

Further, last week Indonesia’s Foreign Ministry released details of a letter it had sent to ASEAN nations asking them to reject the EU-ASEAN Strategic Partnership. Mahendra Siregar – head of CPOPC (the Council of Palm Oil Producing Countries) – noted to the press that Indonesia would challenge any EU action at the WTO; although Indonesia’s own trade officials have been foreshadowing this for months.

The response from the EU Ambassador in Jakarta was simple: “The EU considers the RED II to be in line with the EU’s international commitments, including its WTO obligations.”

False; the EU is struggling internally with the measure (see below).

How is it that the EU could misread the ASEAN position so badly?

The EU has been working completely unilaterally on palm oil with no regard for the concerns of exporting nations, and ASEAN countries have had enough – to the point where they’ll put other concerns on hold.

Does the EU get it? Note that Mogherini doesn’t say the EU will address the trade barriers it is erecting; she is simply saying that they will continue to address supply-side issues, i.e. whether products are ‘sustainable’ or not.

It seems that the EU’s best response is more talk-fests.


Internal EU Deadlock Over Palm Oil Delegated Act

The most recent rumours coming from Brussels on the revised Renewable Energy Directive (RED II) are that the Directorate-General for Energy (DG ENER) and the Commission’s political leaders (the Commissioners) are at odds over how the RED should be handled.

DG ENER believes it should follow the desire of the European Parliament – expressed clumsily in the three-way compromise in the RED last year – and insert an effective ban on palm oil imports for biodiesel – via the RED Delegated Act’s ‘deforestation criteria’. The Commissioners, however, are particularly worried about the international trade implications, particularly action in the WTO – which any number of palm oil exporting nations, including Indonesia, Malaysia and Colombia have been foreshadowing.

The Commission has also been talking of ‘phasing out’ biofuels such as palm and soy, rather than a ‘no ban’ situation. Yet a phase out is unlikely to satisfy palm exporters: unequal treatment is unequal treatment, particularly under international trade rules. It’s therefore unlikely to allay any concerns from Commissioners.

Last week this came to a head. The Commission had to postpone its meeting with the European Parliament until it could sort out the differences between DG ENER and the Commissioners themselves. The Commissioners know they must somehow appease the Parliament, but also avert significant trade problems.

The EU also has bigger trade worries. The Delegated Act could put the EU’s entire trade agenda at risk. The EU has been attempting to complete a trade agreement with Indonesia and also get a cooperation agreement signed with Malaysia. In addition, the EU is also seeking an agreement with Mercosur, the trade bloc comprising Brazil, Argentina, Paraguay and Uruguay. Brazil is one of the world’s largest soybean exporters, and Argentina’s biodiesel has been a consistent target of trade actions by the EU.


Malaysia Escalates France Case

The EU-ASEAN difficulties are not related only to the EU institutions in Brussels – and EU leaders will now be aware that actions in their own capitals do not take place in a vacuum.

Malaysian Prime Minister Dr. Mahathir Mohamad has taken the step of writing to his French counterpart, President Emmanuel Macron, to protest the country’s recent move to ‘declassify’ palm oil in its renewable energy scheme, as noted in a Palm Oil Monitor exclusive last week.

It is worth noting that the French approach to banning palm oil biofuels is not hugely dissimilar to the approach taken by the EU Delegated Act – which was probably a factor in stirring the ire of Mahathir.

The Ministry of Foreign Affairs released a statement saying that the letter had been handed directly to France’s Ambassador to Malaysia.

The statement also said:

“Malaysia calls on our European Union partner countries to treat us and our people as it would want themselves to be treated. Our nations and people have been close friends and partners in diplomacy, trade and security for many decades. Our strong ties are underpinned by our common values of justice, fairness and trust. In this context, such a discriminatory measure would undermine these values and only by working together will make fair solutions for all stakeholders involved, including the earth’s ecosystem.”

The letter and statement follow an aggressive letter earlier in the year from Minister of Primary Industries Teresa Kok.  But the letter from the PM is a big deal; world leaders don’t write to each other unless it’s serious, and they certainly don’t publicise it unless they want to make a strong point.  Moreover, the PM taking this step means all other ministries – Foreign Ministry, Primary Industries, Trade, Land and Climate Change – will now follow suit and take on board the new robust approach towards Europe’s palm oil stance.


Palm Oil Monitor Special Edition Exclusive: PM Mahathir’s letter to Macron

Two weeks ago, Malaysian Prime Minister Mahathir took the step of writing directly to French President Emmanuel Macron to protest the National Assembly’s Finance Bill – and the President signing it into law.

The new law ‘declassifies’ palm oil under the country’s renewable energy scheme, meaning it will no longer receive a renewable energy subsidy. This will make the palm-based biodiesel around 30 to 40 per cent more expensive than other biodiesels.

POM has obtained a copy of PM Mahathir’s letter.

There some vital aspects to the letter.

First is that PM Mahathir has taken the step of writing to a fellow world leader. In diplomatic circles, this is a significant escalation.

Matters are normally handled by the bureaucracy. If matters can’t be resolved, they might go to an elected official such as a Minister. When they go via country’s leaders, this is a massive step.

Second, PM Mahathir is a heavyweight in global terms. He has more than two decades of leadership experience under his belt. By way of comparison, when Mahathir took office, Macron was just four years old.  This isn’t a new leader in a small developing country asking France to drop it; this is a highly respected elder statesman with global support flexing his muscle.

Third, Malaysia took the step of publicising the letter via its foreign minister, escalating the matter further. This means that this isn’t simply a matter of sending the letter and hoping for the best; this is now a public battle that the PM will want to win.

Fourth, the content of the letter lays out the Malaysia’s position, and sends volleys across France’s bow.

These are straightforward, and have already been expressed in no uncertain terms by Primary Industries Minister Theresa Kok:

  • The action will breach WTO rules; and
  • Other commodities – such as soy and beef – have a bigger deforestation footprint.

But there are two new points made by Mahathir. He makes an explicit threat to suspend any free trade negotiations, and undertake retaliatory action on France’s sizeable exports to Malaysia.

The kicker, though, right from the outset is that he calls out the French action for what it is: an unfair, politically motivated attack on palm oil:

“We can agree that the motivation and the effect is to make biofuels uneconomical, excluded from the national renewable energy and mandate, and therefore aims to discontinue palm oil’s future use in France.”

PM Mahathir’s letter is not an endpoint; it’s the beginning.  Malaysia and the palm oil producer countries have optionality here; old Europe does not.