Palm Oil Monitor Weekly Update – 18 January 2019

Darell takes swing at EU

Malaysia’s Trade Minister, Datuk Darell Leiking, has taken a swing at the EU’s broader approach to both palm oil and its trade partners in ASEAN.

At an industry meeting last week, Darell said that “If [EU policymakers] keep on attacking our palm oil industry that means their intention is not as pure as they claimed to be.”

The comments come after several new developments related to biofuel developments in the EU.  Although the EU has undertaken supposedly good faith negotiations with Malaysia and other trading partners in relation to the revised renewable energy directive, other actors within the EU seem to have deliberately sought to undermine any progress.

The most obvious example of this was the French Parliament’s decision to effectively remove palm oil from its renewable fuel credits program, which will push its price in the EU market up by around 35 per cent according to one source, rendering it uncompetitive.

At the same time, the European Commission has provided assurances to the US that its soybean certification scheme will meet European sustainability benchmarks going forward.

Darell’s comments come at a critical moment for regional and global trade, and are aimed at shoring up the broader palm ‘ecosystem’ – downstream processing, logistics, as well as upstream agriculture – in the face of global trade headwinds.

“We need to start protecting our basic products which are creating jobs, especially in the manufacturing sector,” he said.

Finally, the comments are yet another signal from the government of Dr Mahathir that its waking up to the fact that policies like no further expansion may win you applause from some, but in reality, it won’t stop Walker, the European Commission or the NGOs from attacking you nor will it stop RSPO from introducing more regulations.  Stopping these actors will require more stick than carrot.

The WHO takes on palm oil?

Arguably the biggest palm oil policy story in a relatively slow week was the publication of an article in the World Health Organization’s monthly bulletin, which argues that the palm oil industry is using similar communications tactics to tobacco and alcohol lobbies. The basis for the claim is as follows:

  • There is generally no conclusive evidence of negative impacts of palm oil from current and recent studies;
  • There are nine studies that show positive health impacts of palm oil, and four of these were published by the Malaysian Palm Oil Board (MPOB);
  • Therefore the MPOB is running public affairs strategies similar to the alcohol and tobacco industries.

Malaysia’s Primary Industries Minister Teresa Kok described the report as ‘ irresponsible and unprofessional’, stating that “this is a tactic to discredit palm oil’s image … and support the EU in its campaign to halt the entry of palm oil into their markets.”

This WHO article’s logic is nothing short of bizarre for two reasons.

First, health agencies like the WHO and US Food and Drug Administration have been actively calling for removal of trans fats in partially hydrogenated oils (PHOs) in food because of their contribution to heart disease. The FDA took the step last year of banning the use of PHOs and revoking their ‘generally recognised as safe’ (GRAS) designation. One of the key replacements has been palm oil. Similarly, the WHO has called for the global elimination of trans fats by 2023. In other words, the WHO has (albeit indirectly) has now become a major supporter of the use of palm oil.

Second, and this is related to the above, the increased switch to foods high in trans fats – particularly in the US – was precipitated by a public health campaign to move diets away from saturated fats and towards partially hydrogenated oils, containing trans fats. This campaign was supported by the American Soybean Association (ASA), which waged a public affairs campaign against what it called ‘tropical oils’, including palm oil throughout the 1980s and 1990s.

Third, industries and organizations generally defend their own interests and products or services. The global dairy industry — in the form of the US Dairy Council, Dairy UK, the European Milk Board — publishes reams of information and supports studies on the health benefits of dairy products —  and they are indeed beneficial. At the same time, cheese is generally recognised as a contributor to any number of health problems. This isn’t a tobacco-style conspiracy; this is industry-funded research and marketing.  There is no conclusive evidence that palm oil has negative health impacts. So why would the industry that supports palm oil go out of its way to find it? There’s a significant difference between attempting to promote health benefits and outright discrediting negative findings.

The WHO has been under significant scrutiny for nearly a decade. This is in part because it has been accused of being unable to carry out the mission it was founded upon: preventing the spread of infectious diseases. It has also been accused of ‘mission creep’, i.e. trying to do too much. This includes attempting to tackle environmental problems or focus on non-communicable diseases, which are the generally the brief of domestic health agencies. Critics have said that it should pull back, shrink, and stick to its core mission.

The WHO’s defenders argue that it needs larger budgets and more staff.  The WHO, like any other organisation, is out there to defend its interests and justify its existence.

The important question now is if Malaysia will escalate the situation. The WHO has lost a great deal of credibility over the past few years. In 2017 the organization appointed Robert Mugabe as a goodwill ambassador. Neither Malaysia – nor Indonesia – would have much to lose by taking further steps calling for the organisation to be censured.

Iceland Palm Ban Controversy Continues

The UK’s Iceland Foods has responded to a fiery critique of its palm oil policies by Nigerian think-tank chief Thompson Ayodele.

Ayodele’s thoughts on Iceland appeared in Malaysian media; the key criticism of Iceland’s ban on palm oil products is its intent. Iceland Foods and CEO Richard Walker continue to state that its objective is stopping deforestation and that sustainable palm oil isn’t possible.

Ayodele quite rightly points out that there are bigger causes of deforestation, e.g. beef, soybean, and maize, and these aren’t being taken out of Iceland’s supply chain.

Yet Walker’s statement, “we are not against palm oil itself, but against deforestation”, is problematic. Why isn’t Iceland tackling demand for other deforestation-related commodities? A counter-argument might be that sourcing British or Australian beef, or US soybean, avoids contributing to beef-related deforestation in Brazil.

But that counter-argument can be applied to no-deforestation palm oil from Costa Rica or Peninsular Malaysia.

The Iceland talking points are remarkably similar to those that are regularly trotted out by Greenpeace, which run along the lines of “We’re not against palm oil – we just hate companies that have anything to do with it.”

However, Iceland’s big public affairs problem this week has been created by a potential UKP 21 million fine from the UK’s revenue and customs office (HMRC), which has called out its employer Christmas saving program. The HMRC alleges the savings program resulted in paying below the minimum wage.  Iceland chair Malcolm Walker stated that he recently spoke to UK PM Theresa May when he recently sat next to her at dinner.

This prompted two thoughts on Iceland’s CSR approach.

First, it seems Iceland’s policies are full of good intentions, but require more polish when it comes to execution. Iceland is a relatively small player and is growing its market share. If it wants to be taken seriously in the public policy debate, it needs to take more care developing and implementing its policies – and do some research. Unilever’s well-publicised error on cutting smallholder suppliers when it went to a traceable palm oil supply chain is a good case study.

Second, Iceland’s leadership team should probably get out more. The UK is going through its largest political change in a generation, and the company pressed the PM on a matter of employee wages. In the case of palm oil, it would seem Iceland has let a narrow, European notion of conservation get in the way of a global picture of sustainability.

Malaysia Should Emulate Gabon?

An opinion piece arguing that the Malaysian palm oil industry should emulate Gabon’s approach to palm cultivation appeared in the Malaysian media this week.  According to the author, this would mollify European concerns about Malaysian palm oil. The proposal hinges on the idea that Gabon’s national land use plan – as reported in National Geographic – is an appropriate model to copy. The Gabonese approach has been supported by a number of international agencies as well as Singapore’s Olam.

However, to anyone who has actually studied this sector would know a direct comparison is hardly appropriate because of vastly different social and economic contexts. Gabon’s population is around 2 million people; its population density is around 8 people per km2. Malaysia’s population of 31 million people has a population density of around 95 people per km2.  Malaysia supports a vast number of smallholder farmers that have private property rights; Gabon’s population are largely considered as landless peasants in a country where government ownership of land is high.

The real clincher for Gabon, however, is that because a vast proportion of its GDP comes from petroleum rents, it has become one of the richer countries in Sub-Saharan Africa; at the same time this has meant that the small population places relatively low pressures on its environment.

It is true that Gabon has made strides in sustainable palm production and environmental management. But when it is noted that the environmental pressures are low to begin with, it hardly seems like an achievement.

Finally, the Malaysian model has actually been replicated throughout Africa.  The Gabon system has not.  So here’s the bigger question: what is this author’s real agenda?

US-Canada trade deal: A surprise on palm

The US and Canada trade deal has yielded a small surprise for palm oil growers. The agreement gives sees the gradual elimination of tariffs on margarine over the next five years. But the surprise is that the tariff cut will also apply to margarine that uses non-originating palm oil, i.e. palm oil imported from other countries.

Bilateral and multilateral trade agreements generally have complicated ‘rules of origin’ chapters that place limits on how much content from outside of the free trade area can be used, and still have access to tariff cuts. Farmers and margarine producers could not export to each other tariff free, because they would generally use palm oil in their formulations. This particularly irked Canadian canola farmers and margarine producers; US exporters didn’t necessarily see the Canadian market as being important. This should, however, provide a small boost in demand in the US market.

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Palm Oil Monitor Weekly Update – 9 January 2019

A New Year Exclusive

One week into 2019, palm oil policy is heating up. Two major policy developments took place in the days leading up to Christmas. First, France instituted a new ban on palm oil; second, the EU set up a RED approval for US soybean, potentially squeezing out palm oil. We look at both developments below, with an exclusive look at the first response to France’s actions, which has come from the Malaysian Government.

France hits palm, Mahathir government belatedly recognises the threat

POM has gained exclusive access to a blistering letter from Malaysia’s Minister of Primary Industries Teresa Kok, sent to France’s Environment Minister and Environment Secretary, calling for them to reject the French Parliament’s latest attack on palm oil.

The letter to the French government, written at the end of 2018, has never been released publicly either by the French or Malaysian Governments.

What prompted the letter? On December 20, the French National Assembly passed its Finance Bill. The Bill included a provision to remove a renewables subsidy that is applied to vegetable oils. But it was only removed from palm oil.

The removal of the subsidy will increase the cost of palm oil for biofuels in France by around 30 to 40 per cent, according to the amendment’s author, French MP Bruno Millienne. The Bill has been signed into law on 28 December by President Macron. The price change is scheduled to happen from January 1, 2020 – nearly 12 months from now.

Minister Kok calls the Finance Bill amendment what it is: a ban. It would make it essentially impossible for palm oil biofuels to continue in France.

But the gravity of the situation is shown in Minister Kok’s letter as follows:

It is my duty to convey the urgency and importance of the issue to Malaysia. Any ban on palm oil biofuels would harm millions of Malaysians dependent on the sector, and would therefore necessarily cause disruption to France-Malaysia and EU-Malaysia relations. The ban could lead to regrettable economic and trade consequences for both Malaysian exporters of palm oil, and French exporters of other products.

This is no veiled threat. Malaysia has previous form in tying purchases of European Airbus planes to bans on palm oil. This isn’t any different.

There are also rumours coming out of Jakarta that the Indonesian government is considering a suspension of Airbus purchases, as well as tax audits of European cars and fashion brands, in response to the French ban.

Why have France’s lawmakers done this?

First, the circumstances are right. The recent ‘yellow vest’ movement in France has brought many parts of the country to a standstill; Macron’s approval rating has dived. The current government is clearly vulnerable.

Second, the amendment to the Finance Bill for palm oil was a recommendation made by France’s ‘Sustainability Commission’ from the middle of 2016.  These recommendations were taken up by France’s former Environment Minister Nicolas Hulot, who, like many French politicians, is unashamedly antipathetic towards palm oil. French energy company Total has been under political pressure to reduce the use of palm oil in its biodiesel production and was also subject to protests by farmers.

EU farmers remain in an anti-palm oil frame of mind. In mid-December, the Commission launched an anti-subsidy investigation into palm biodiesel exports from Indonesia, at the behest of the European Biodiesel Board. This is just months after the WTO ruled that the EU’s antidumping tariffs on Indonesian biodiesel were illegal.

Third, France’s politicians are sending a clear message to the European Commission (EC). The EC is currently finalising its revisions to the Renewable Energy Directive, which will almost certainly single out imported biodiesel feedstocks (palm oil most prominent among them) as ‘unsustainable’, effectively banning them from the EU’s renewable subsidy scheme. By removing its own taxation subsidy for palm oil, France is telling the EC that it should follow suit.

What will happen next is up to the European Commission, France, and palm oil exporting countries.

The National Assembly’s new legislation will more than likely violate World Trade Organization (WTO) rules, as well as the single market rules of the European Union. The European Commission will – if pressed — provide an opinion to lawmakers in France that states that the palm oil element in the Finance Bill is not consistent with EU law, and the EU’s WTO commitments.

However, this might take some time. What could happen in the meantime?

Palm oil exporting countries do have options.

The WTO is the most obvious venue to raise objections to France’s new rules. Both Minister Kok and Indonesian officials have already flagged this, although any resolution will take some time.

The signing of an agreement between the EU and Malaysia – a Partnership and Cooperation Agreement (PCA) – had been slated for January. This could be called off. Indonesia could also consider suspending its FTA negotiations with the EU. Again, this has been threatened before, when previous Malaysian and Indonesian Ministers took strong stances against EU attempts to ban palm oil.

At the very least, this letter is the first signal that the new Mahathir Government is finally taking the threat seriously. The previous positions held (when in opposition) such as supporting the No Deforestation campaign, have limited utility and value in the real-world if you don’t stop the EU from taking legislative and regulatory actions that will ban your exports – particularly when the motivation is blatantly political. Let’s see what happens.

A RED approval for US soybean; Nothing stopping palm oil from demanding the same treatment

The EU has already drafted regulations for US-certified soybeans to be considered as ‘sustainable’ under the revised Renewable Energy Directive (RED). The draft was published on December 21, with a consultation period open until mid-January.

This is clearly an attempt to appease President Trump, as part of the broader EU effort to prevent tariffs being applied to German car exports to America.

The draft proposes that the certification scheme – the US Soybean Sustainability Assurance Protocol (SSAP) – meet the RED’s sustainability criteria.

The SSAP is unusual when compared with other certification schemes such as ISCC and RSPO. The key difference is that it uses a mass balance system for the entire US soybean industry and uses FDA audits as a basis for determining the quantity of soybean that can be considered ‘sustainable’.

It’s a world away from the increasingly strict traceability requirements of systems that exist currently in the space of palm oil such as RSPO and even ISPO or MSPO, which has introduced a chain of custody component.

But the EU’s decision raises more questions than it answers.

First, how is it possible for anyone to know whether the scheme meets any new criteria? The draft – known as an ‘implementing decision’ – has been drafted without the relevant Delegated Act for the revised RED being completed. This clearly smacks of political expediency rather than anything to do with the sustainability of biofuels.

Second, what are the implications here for international trade rules? The governments of both Malaysia and Indonesia have already mentioned the possibility of action in the WTO, specifically citing technical barriers to trade. The drafting of the approval will add to the concerns of Malaysia, Indonesia and other palm oil producing countries.

Third, where are EU and US green groups on this topic? Green groups have been vocal throughout the revision process on the exclusion on food or feed crops, and demanded that the bar be set high for any exclusions. Soybean has a deforestation footprint that is double that of oil palm. According to the NGO logic, using more US soybean in EU biofuels programs will increase demand for soybean globally, and cause deforestation in countries such as Brazil. That, naturally, should mean Greenpeace and others are up in arms about this new deal. So far, strangely, they have been silent.

Fourth, what does this mean for other certification schemes? If the US and the EU can broker a deal for US-grown soybean certification, the EU must surely be open to putting together something similar for palm oil producing countries in the form of RSPO, or Malaysia’s MSPO system.

It’s reasonable to speculate that the soybean draft has been put into play by the EU in order to placate the US.  The US and the EU avoided a trade spat in July by agreeing to eliminate non-tariff barriers on a range of goods. A self-imposed November deadline passed with no result. USTR Robert Lighthizer and Trade Commissioner Cecilia Malmström meet on January 9. Malmström will clearly be putting the soybean deal on the table.

Malmström clearly thinks that having US soybean squeeze out palm oil in EU biodiesel markets is acceptable – and any harm to Malaysia and Indonesia can be considered acceptable ‘collateral damage’.

The EU talks a lot about the significance of its relationships in the ASEAN region. But it’s just talk: the EU is apparently willing to sacrifice ASEAN to save its US relationships. The move on soybean again demonstrates clearly that for all the stakeholder consultations, technical research and regulation, it is politics that is driving the EU’s attitudes on palm oil.

The question for palm oil producing countries to ponder is whether they are prepared to stand by quietly and allow the EU to impose Deforestation Criteria that will harm palm oil exports – or will they collectively put a formal position to President Juncker backed up by a public campaign demanding equal treatment that the EU is giving to President Trump and the American soybean industry under existing RED criteria?

EU launches deforestation roadmap consultation

The European Commission has opened a consultation on its ‘deforestation roadmap’. The roadmap is not legislative or regulatory at this stage – the idea is to put together a ‘coherent policy framework’ for the EU’s contribution to tropical deforestation and if or how the EU can intervene. The consultation is the next step in the EU’s attempts to block imports of any products it considers to be contributing directly (or indirectly) to deforestation. It follows the publication in March 2018 of possible regulatory or policy options for the EU to pursue the same objective.

The roadmap is being pushed by the Directorate General for the Environment (DG-ENVI). The agency’s track record on both trade and economic development is best described as woeful. Unsurprisingly, the roadmap mentions very little in the way of social and economic development, and, as usual, mentions many of the legislative and parliamentary proposals on palm oil. The highlight is that it mentions the significant contributions of other commodities that the EU imports to tropical deforestation, including beef and soy.

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Is Brussels Preparing to Delay Palm Oil Delegated Act?

As the EU institutions return from their extended Christmas and New Year holiday, our Brussels sources inform us that the controversy around palm oil in 2018 looks to continue well into 2019.

The EU’s progress on its Delegated Act on biofuels (including palm oil) continues, although not without difficulty, especially on the timeline. The Delegated Act was requested as part of the EU’s compromise deal on the Renewable Energy Directive (RED), which dates back to July: specifically, the Commission was tasked to determine which biofuels should be designated as “high risk” and therefore phased out of use in the EU market.

Our sources inform us that DG Energy has made the decision to classify palm oil as ‘high risk’ by default. New EU ‘Deforestation Criteria’ would then be applied to determine whether or not the ‘high risk’ designation is retained, or whether a new ‘low risk’ designation is applied instead. If this were the case, the freeze/phase-out applied to high-risk biofuels would not apply for low-risk biofuels.

The core question here is how are the Deforestation Criteria determined and applied? The Commission is, according to our information, considering a jurisdictional or quasi-jurisdictional approach whereby countries or other legal jurisdictions would be certified as ‘low risk’ if they met the criteria. This raises the possibility that the same feedstock would be treated differently dependent on its origin – leading to potential WTO questions.

Finally, the accompanying scientific report, requested by the EU Parliament alongside Delegated Act, is proving to be a major headache. There is a simple solution, which would be for DG Energy to simply disregard the unachievable and artificial timeline imposed by the MEPs. Extending the timeline beyond February would allow time for proper work to be completed, with the added advantage that MEPs, distracted by electioneering, would no longer be driving the process.

All of these developments come at the same time as 20 environmental NGOs leaned in on EU Commissioner Miguel Arias Canete in an attempt to influence the drafting of the EU’s Delegated Act on ‘High Risk’ biofuels.

The NGOs’ demand was that palm oil be subject to high-risk status, and that generally a tougher line be taken by the Commission against certain biofuel feedstocks.

Clearly, the NGOs have an agenda of their own. What should be the approach taken by the Commission, though, when considering the relevant facts?

A WTO-Compliant Delegated Act

First on the list must be working to ensure compliance with WTO. As noted on several occasions, Malaysia, Indonesia and several other countries have been quite aggressive towards the EU at World Trade Organization meetings because of lack of detail around the RED.

The WTO Agreements are there to prevent countries from distorting trade. The RED is likely to violate the following principles within the WTO:

Most favored nation (MFN) and National Treatment (NT). MFN is the principle that all countries must be treated the same, and that there should be no discrimination between products that are essentially the same – even if they have come from different countries or ecosystems. The problem with ILUC in the RED is that by singling out palm, it is singling out a crop that only grows in tropical climates, and implying that emissions from tropical biomass and soils are higher than in non-tropical climates. It’s therefore possible to argue that there is a degree of discrimination against tropical countries.  National treatment also stipulates that exporting countries must be afforded the same treatment as goods produced domestically; given that the EU has no tropical climates, the requirements extending to non-EU countries will be tougher.

Technical Barriers to Trade (TBT).  The TBT Agreement requires that any technical measure be necessary for its proposed objective, it not be more trade-restrictive than necessary, and that any technical barriers be based on available scientific and technical information. All of these points are contestable. The available scientific information does not present a consensus on ILUC. And it’s arguable that if the objective is to reduce greenhouse emissions then discriminating against palm oil will have no impact at all – producers can just sell to other markets or use the fuel domestically.

The EU had a similar problem with WTO rules when it introduced rules on illegally-imported timber. It undertook two regulatory paths.

First, the EU couldn’t stop timber based on the idea that it was harvested illegally elsewhere. However, it could place an onus on importers to undertake ‘due diligence’ to ensure that imported timber was harvested legally. Clearly it would be harder for those importing from developing countries to undertake those inquiries.  ‘Due diligence’ for palm oil sustainability would be close to impossible; sustainability is not like legality and would require a bilateral or multilateral consensus on what sustainable production is.  But, this could happen via standards such as MSPO.

Second, the EU negotiated ‘voluntary partnership agreements’ (VPAs) with some exporting countries to give a ‘green light’ to their exports. The first VPA was with Indonesia. Developing the VPA required the development of a legality standard for Indonesia and an export licensing system. This was in part because of the many complications of the Indonesian legal system; defining legal production was difficult, necessitating a legality standard. But, given that MSPO is mandated in Malaysia and based on both sustainability and legal criteria, would a VPA for Malaysia be necessary for palm oil?

High Risk Designation

The question also arises of what mechanism will exist to deal with the ‘high risk’ designation – or other proscriptive elements – contained within the Delegated Act, when the EU signs bilateral, multilateral or international deals. This could be anything from a Treaty, to a Free Trade Agreement, a sector-specific deal (such as a FLEGT) or a cooperation agreement such as a DCA or a VPA. Typically, for many such deals domestic regulation must be put on the table as part of the negotiations – and the possibility of mutual recognition of standards or regulations is common. The Commission therefore should explicitly acknowledge that future bilateral or other agreements could supersede the ‘high risk’ designation, and other elements of this Delegated Act. This may have the unintended – but probably positive – consequence of encouraging third countries to continue to negotiate such deals (the EU is in FTA or VPA discussions with several palm oil producing countries and regions at present, including Mercosur, Malaysia and Indonesia).

Could such an approach eventually lead to mutual recognition of sustainability certification from other jurisdictions – such as MSPO or ISPO? It seems unlikely at present, in this iteration of the Deforestation Criteria. But future bilateral deals and/or politically-driven recognition remains a significant possibility if palm oil producing countries are willing to prioritise that ask in future negotiations with the EU.

Focusing on the Science

Perhaps the trickiest part of the Commission’s work is to balance science against politics. It’s essential that officials come down on the side of science. As a first order of business, the EU Parliament’s political clamour for particular outcomes – without first acquiring the evidence to support those outcomes – should be disregarded.

A second important step would be to acknowledge where existing science and regulation is fair and workable, and therefore could be applied to the new Delegated Act. This helps with predictability and consistency. A good example in this case would be the cutoff date of 2008 – which exists within the existing RED, and is broadly accepted now by most stakeholders and commentators. Similarly, the existing definition of HCS in the RED has been surprisingly uncontroversial (given the battles elsewhere over that definition), and so there is a strong case for retaining this rather than re-opening Pandora’s box.

Thirdly, the Commission should accept and work within the limitations placed upon it by current scientific conclusions. The most obvious example of this is ILUC. Every serious study undertaken and every serious attempt at regulation has shown that ILUC isn’t definable or measurable to the level required for regulation. It needs to be dropped.

Fourth, the Delegated Act must address the involvement of existing certification schemes under the RED. These – such as the Swiss-based RSPO-RED – have been painstakingly integrated into European and international determinations of sustainability. They are generally considered a success, by industry, NGOs and government. Securing a role for such schemes is eminently sensible: recognition of their certification as grounds for a ‘low risk’ designation, for example, would both reduce complexity and ensure immediate credibility. National certification schemes with strong criteria should also be part of this automatic recognition principle. Currently, Malaysia’s MSPO is the most developed of these, but that is not to discount other schemes. The Commission must take seriously the possibility of integrating MSPO or ISPO into the Delegated Act.

Timing of the Delegated Act

The artificial deadline (set for February 2019) looks too difficult, and even Commission insiders are now admitting this fact. This deadline should now be set aside: such politically-motivated deadlines are not conducive to good regulation.

2019 is also an election year, which offers another tantalizing option for the Commission officials tasked with drafting the Delegated Act – if they are brave enough to take it. Namely, to ignore the deadline of February and to take the time to do a proper piece of work. By the time that is completed, the current Parliament will be dissolved and the Commission will have bought enough time to put a properly-constructed Delegated Act in front of a brand new Parliament later in 2019. The hope, expressed no doubt quietly in the Berlaymont – but more loudly in the offices of biofuel exporters and importers – would be that at least some of the current MEPs involved in the RED negotiations are cast aside by Europe’s voters, leaving the path clear for wiser heads to prevail.

There is another reason for the delay. The Commission has completed a draft implementing action that will permit US soybean certified under the US Soybean Sustainability Protocol to gain access to the RED. This has been drafted without the Delegated Act being completed and is being put on the table to appease aggressive trade policy coming out of Washington.  If approved, that will make the Delegated Act irrelevant under current circumstances. It indicated that the Commission needs to get its house in order and move beyond political expediency.

To summarise, much of Palm Oil Monitor’s analysis and criticism over the Deforestation Criteria and the Delegated Act, is aimed at the EU Commission. In many respects this is slightly unfair and undeserved: the Commission did not put itself in this position. It was placed in this almost-impossible position by an intransigent and politically-motivated EU Parliament, which prioritized a populist demand to attack palm oil ahead of sound science or effective regulation. The MEPs’ action also reflects the intensive lobbying by NGOs and other environmental groups: including many of the 20 organisations who recently wrote to the Commission on this subject.

It is EU Parliamentarians who should bear the blame for the morass of contradictions that EU biofuels policy is becoming. Those Parliamentarians, however, are unlikely to pause for reflection of this fact – because they are too busy electioneering. Recent history suggests that, when the Parliament and other EU institutions reconvene for a new 5-year term late in 2019, MEPs are unlikely to move far from its NGO-driven position. Nevertheless, for both palm oil exporters and the EU Commission, a delay to the Delegated Act may just be the best New Year’s Resolution they can make.

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Palm Oil Monitor Weekly Update – 20 December 2018

Malaysia keeps up the pressure at the WTO

Malaysia has again taken the EU to task at the WTO for its approach on the Renewable Energy Directive (RED).

Malaysian officials circulated a note earlier this month following the last Technical Barriers to Trade (TBT) meeting. The note gets to the heart of the matter in three points.

First, they point out again that: the TBT requires members to provide proposed technical regulations in a timely manner; Indirect Land Use Change (ILUC) has no international standards; the EU is not being particularly transparent in developing its criteria.

Second, they state that “certification of indirect land use change will result in creating unnecessary obstacles to international trade [and] it is more trade restrictive than necessary …”

Third, they also point out that the ILUC certification “will impose additional cost which will be more burdensome for the Malaysian oil palm industry, particularly to the smallholders which accounts for 40% of the planted area.”

The note specifies articles within the TBT Agreement – which is a clear shot across the bow of the Europeans.

The meeting also prompted new notes along similar lines from Colombia and Indonesia.

Is Indonesia calling out Iceland at the WTO?

At the same meeting Indonesia also circulated a new note on palm labelling, which has generally been overlooked since the beginning of the year, with the exception of strong statements by Malaysian PM Dr Mahathir.

Indonesia points out that a large number of EU-based companies are using ‘palm oil free’ labelling in the EU, noting that “EU Regulation No.1169/2011 on Food Information, Chapter V Art. 36.2, which states that voluntary shall not mislead and be ambiguous for consumers and where necessary shall be provided with scientific evidence.”

Bearing in mind that labelling hasn’t been a particularly big issue this year, and that the Iceland ‘palm oil free’ campaign started at the beginning of November, is this a case of Indonesia calling out Iceland through the WTO?

Indonesian officials have had no problem calling out Iceland’s CEO Richard Walker. Indonesia’s Ambassador to Germany Arif Havas Oegroseno has been outright trolling Walker on Twitter.

EU-Indonesia proposals see some light

The European Commission released some text proposals from its recent negotiations with Indonesia. The two proposals were on good regulatory practices and transparency. As with most text proposals published by the European Commission, there’s not a lot of detail; the proposals generally follow a template and are negotiated following that.

The release of the text follows the meeting of the committee for the Indonesia-EU Partnership and Cooperation Agreement (PCA) in mid-December. Once again, Indonesia didn’t hold back on its concern about the use of ILUC in RED. Indonesia wasn’t prepared to let the issue slide, and clearly insisted that their point be made in a joint press statement:

“Indonesia also expressed its concerns about the Renewable Energy Directive (RED) II and its Delegated Act, especially on the use low of Indirect Land-Use Change (ILUC) risk criteria as a basis for the development of new certification for conventional biofuel. Both sides agreed to continue its cooperation on this important and sensitive issue.”

As we’ve noted in previous issues, the last negotiating round took place in November, but the update on the negotiations was quite blank. However, the Commission’s sensitivity on palm in trade negotiations is understandable. Any hint that the Commission will make market access for palm oil easier going forward will raise some red flags among Member States as well as NGOs.

Commission releases Interim EU-Malaysia SIA

The European Commission has also released the draft interim Sustainability Impact Assessment (SIA) of a proposed EU-Malaysia trade agreement. The interim report follows inception reports that were carried out in the middle of the year for Malaysia, Indonesia and the Philippines.

Just to be clear, the ‘sustainability impact assessment’ is very much a social and economic impact assessment, where environmental concerns are incorporated into the assessment.

The headline economic modelling result is a straightforward positive:

“The EU bilateral exports are estimated to increase in a range of €12.16 billion to €15.27 billion, whilst bilateral exports of Malaysia are projected to increase between €3.34 billion and €3.64 billion Furthermore, a future agreement is projected to lead to an overall total increase in total EU exports ranging from €6.92 billion to €8.65 billion.”

The report looks in-depth at the vegetable oils sector and notes:

“… the agreement would lead to a decline in domestic EU production of approximately €300 million (0.53%) … Growth in total imports ranging from €238 million to €252 million is estimated to occur, with bilateral imports from Malaysia estimated to increase by approximately €450 million.”

In other words, EU vegetable oil output would decrease as it is displaced by imports from Malaysia. Imports from Malaysia would also likely divert imports from other countries, hence the larger trade volumes.

The bulk of the information on palm oil reads like a litany of claims against the industry, ranging from its contribution to haze and fires to labour exploitation to deforestation. Yet the evidence provided is contradictory and slim.

So, for example, the report states that deforestation in Sabah amounted to 1.31 million ha, citing Global Forest Watch (GFW) as a source. But the GFW data is tree cover loss rather than deforestation, i.e. permanent change to land use. The GFW data states quite clearly that 61 per cent of this tree cover loss took place within plantations – which includes oil palm plantations. As we pointed out last week, conflating these two terms is very dangerous, and GFW goes to great lengths to point out that there is a clear distinction between the two.

The report also mentions the contribution of haze and peatland fires to Malaysia’s GHG emissions, as part of slash-and-burn clearing. But no quantitative data is provided. Nor is it mentioned that fire in Malaysia is not a significant problem compared with other countries in the region. Why, then, is it mentioned at all?

There are also claims such as this: “Estimates indicate that approximately forty to fifty-nine per cent of palm oil plantations [sic] have replaced previously forested areas.” But no source is provided, and nor is a timeframe given.

Fortunately, this type of data doesn’t make it into the executive summary. However, this assessment needs some sharpening. This is an official EU-commissioned assessment. It shouldn’t just be a blanket collection of statements and claims.

Indonesia trolls Iceland Supermarket

Indonesia’s Ambassador to Germany Arif Havas Oegroseno has been trolling the Managing Director of Iceland supermarket, Richard Walker. Ambassador Arif is clearly as incensed by Iceland’s actions as most people in the palm oil industry. His newest tactic? Criticising Iceland’s sale of Gouda cheese produced in the Netherlands, and calling Gouda ‘the Dutch equivalent to palm oil.’

Arif has met with a couple of Dutch researchers at the United Nations Framework Convention on Climate Change (UNFCCC) meeting in Poland this week, who have explained the Netherlands’ long history of peat drainage. According to one of the researchers, Hans Joostens, peat drainage has been taking place there for more than 1,000 years.

But why Gouda cheese? Gouda is generally made in the southern part of the Netherlands, where peat drainage has been the most extensive. A presentation by Joostens is available here. He does, indeed, call Gouda the equivalent of palm oil and even calls on EU authorities to consider a ban.

Elsewhere in Poland …

UNFCCC conferences are generally a lightning rod for environmental campaigns, and this year’s meeting has been no exception.

The German Minister for Federal Development, Gerd Muller, said that “the European Union must make certifications for palm oil a standard in free trade agreements” — and also said the same for soybean, stating “Rain forest are burning for your shampoo.”

We’re inclined to agree that sustainability standards should be a part of any negotiation between the EU and any of its prospective partners, such as Malaysia, Indonesia and Brazil. (And given that the deforestation footprint of beef is five times that of palm, perhaps beef should be included also).

But the point is that the standards – and recognition of existing standards – should be part of the negotiation. It shouldn’t – and can’t – simply be a case of the EU saying European standards are the only ones that are acceptable.

Commissioner Cañete gets served by NGOs

Also in Poland, a group of European NGOs has written to the EU’s Commissioner for Climate Action and Energy Miguel Arias Cañete. They are calling on the EU to ban the use of food and feed crops in the Renewable Energy Directive (RED).

Although this is no surprise, the letter from the NGOs demonstrates clearly how problematic indirect land use change (ILUC) is as a concept.

The NGOs (Friends of the Earth, Mighty Earth, Transport & Environment, and others) are supportive of using ILUC and the ‘high risk’ designation because it might keep soy and palm out of the RED. But they’re also wary of ‘low risk’ ILUC, as they’re aware that the increased demand for biofuels from so-called ‘low risk’ crops such as rapeseed may simply end up increasing demand for imported oils in the non-transport sector.

The NGOs try to have it both ways. They call on the EU to introduce strict criteria for ‘low risk’ ILUC, pointing toward the idea of ‘additionality’. Additionality was used in the UN’s Clean Development Mechanism (CDM) program. The idea is that projects should only gain RED credits if they weren’t part of a business as usual scenario. In the CDM, this meant that gaining credits was incredibly difficult, because they were effectively not allowed to be profitable. Perhaps this is the NGOs’ way of aiming for the RED to be shut down completely.

RED won’t shut down, but we understand that additionality is a live option. The latest we’ve heard is that the EU will designate most imported oils as high risk, but will provide pathways for market access for trading partners such as Brazil, Indonesia and Malaysia.

Wilmar negotiates with Aidenvironment

Wilmar has inked a deal with Dutch NGO Aidenvironment, which is likely to end the current campaign against both Mondelez and Wilmar.

In return for peace, Wilmar is going to hand over data on all of its direct suppliers, and its entire supply chain, to an Aidenvironment platform, and also enforce a stricter suspension policy for any infractions of the company’s no peat, no deforestation and no exploitation policies.

We note also that Wilmar is going to be using satellite technology for compliance – and we’re assuming it’s the same ‘Starling’ platform that was announced by Nestlé in September. That solution was met with scepticism by Greenpeace just a few months ago.

Why the change of heart?

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Purdue’s Sub-par Palm Research

A group of researchers from Purdue University published a paper last week that claimed RSPO or sustainability certification for palm oil is no better than non-certified palm oil.

The paper has received some international attention from newspapers such as the UK’s Independent, which went on to imply that all palm oil is bad.

The basis for this claim is that all RSPO concessions record high levels – around 38 per cent – of tree loss. This statement is also made:

In none of the concessions under investigation, both certified and uncertified, did we detect zero tree removal in 15 years.

There are two massive flaws in the paper that allow them to draw such a conclusion.

First is the data they used.

The researchers were using Global Forest Watch (GFW) data as their primary source of information for tree cover loss, which looks at a 15-year period, 2001 to 2016. The GFW dataset is brilliant, but GFW goes to great lengths to point out its limitations: one, it cannot distinguish between tree cover in a plantation (including oil palm) and natural forest; two, that it does not distinguish between tree cover loss in a plantation and tree cover loss in natural forest and; three, that even when a plantation regrows according to a planting cycle, the area is still counted as loss.

On this last point, GFW again goes to great lengths to point out that it’s not possible – using their methodology – to subtract forest gain from forest loss and come up with a ‘net deforestation’.

GFW also points out that ‘tree loss’ and deforestation, i.e. conversion of forest to other uses, are different things.

In other words, all tree loss comes up as tree loss, even if it’s being replanted.

Second is their apparent ignorance of the palm planting cycle.

Most readers would be well aware that palms hit peak productivity between 7 and 18 years of planting. The optimal replanting time is around 25 years, depending on a number of localised environmental factors, but the ability to finance replanting is also a consideration, as well as the price for FFBs.

So, over a 15-year study period, it’s quite reasonable to assume that a large proportion – let’s say 40 per cent – of palms would be cleared and replanted.

It should also be noted that the researchers don’t appear to factor in replanting in their paper; and nor do they acknowledge the limitations of the GFW dataset.

Here’s an example.

The Jengka Triangle plantations were established in the 1980s by FELDA near Temerloh. GFW maps show that there was significant tree loss through 2001 to 2015.

Why would there be tree loss in an area that was established as a palm plantation around 30 years prior?

It is because replanting was taking place. The same GFW data shows significant tree cover gain through the same period. This was because the seedlings grew to maturity in around 3 years or more.

There are several disappointing aspects to this paper.

The paper appears to have been written with a predetermined outcome in mind. The authors conflate ‘tree loss’ with deforestation. In our opinion, doing so is probably either disingenuous or incompetent.

If the researchers have, in fact, somehow managed to distinguish between plantations and natural forests inside or outside plantations, they should probably tell the GFW researchers. This is something they’re keen to do accurately.

Also disappointing is that it was published at all. ‘Science of the Total Environment’ may not be the world’s most highly rated journal, but where are the standards? Purdue is a prestigious university, associated with the respected Big Ten Conference, and known for its great academic credence. This underdeveloped research hasn’t done anything for Purdue’s good name.

In October this year, a group of academics managed to have four hoax papers published in various academic journals. One received a special award. Is this paper that far off?

Finally, the coverage the paper has received in international media indicates that some journalists will happily let shoddy research get headlines – and clicks. Is this fake news? Probably. The Independent has said RSPO is yet to respond with a comment. We’re looking forward to what they have to say.

The public debate about palm oil is full of disinformation. Purdue University and The Independent have just added to it.

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Palm Oil Monitor Weekly Update – 10 December 2018

Norway excludes palm from biodiesel

Norway has attempted to follow the lead of the European Union and exclude palm-based biodiesel in its biofuels programs. The Norwegian Parliament passed a proposal that called on the current government “to formulate a comprehensive proposal for policies and taxes in the biofuels policy in order to exclude biofuels with high deforestation risk”.

Although the parliamentary action directs the Norwegian Government to develop a regulatory measure, any concrete action still has some way to go.

Norwegian politicians would be well aware that the EU has tried – and failed — over many years to have palm oil excluded from its renewable programs.

Norway is a very small user of bioenergy; it is often forgotten that it is one of the world’s larger producers of fossil fuels. Around half of its exports are crude petroleum and natural gas; and around one third of its exports to Indonesia is crude oil.

Biofuel programs were supposed to be about switching away from fossil fuels; Norway appears to have forgotten this.

It also appears to have forgotten that it’s close to the end of a set of trade negotiations with Indonesia. The Indonesia-EFTA (European Free Trade Area – comprising Norway, Iceland, Switzerland and Liechtenstein) concluded its negotiations in principle.

But that might not mean much; Indonesia had also finalised its trade agreement with Australia, but pulled back completely when Australia decided to move its embassy in Israel to Jerusalem. Indonesia’s politicians saw an opportunity ahead of Indonesia’s elections in April and ran with it.

Norwegian policymakers would do well to learn that free trade agreements don’t get a great deal of political support in Indonesia – particularly at a time when the country is running a sizeable trade deficit.

Polman exits Unilever

Paul Polman has stepped down from Unilever after a decade-long stint as CEO. Polman was always a polarizing CEO. His emphasis on sustainability riled many shareholders, analysts and investors. It also baffled a number of sustainability analysts and commentators, who noted that his ‘sustainability plan’ for the company – which mostly concentrated upon the sourcing of raw materials and climate emissions – ignored a number of areas that eventually became a problem for the company, such as sexual harassment, excessive plastic packaging, and contamination lawsuits.

Sustainability also didn’t appear to include a top-down crackdown on illegal behaviour, with the company facing the wrath of many regulators over cartel and anti-trust activities. But for palm oil, the biggest controversy involving Unilever came in 2013. As the company attempted to implement a traceable supply chain, it had to cut 80 per cent of its smallholder suppliers – remembering that Unilever is the world’s largest palm purchaser. Unilever executives said it was a ‘cull … to ensure standards’ and that social concerns lost out to environmental ones – a slight to the UN’s Sustainable Development Goals (SDGs) that seek to balance social and environmental concerns.

Unilever responded by attempting to re-incorporate smallholder farmers two years later. But for a smallholder farmer, losing a contract for a couple of years is a big deal. The move cost Unilever a lot of support amongst palm oil producing governments.

Clearly, for Polman, Dutch green politics came before the development needs of non-European small farmers, especially in the Netherlands’ former colony, Indonesia.

COMMENT: What’s wrong (and right) about Iceland’s letter on palm oil

Iceland’s Richard Walker has strengthened his resolve on Iceland’s decision to ban palm oil from its in-house products.

Iceland maintains that as a small ‘outsider’, “the only way we could create meaningful change was to shout very loudly from outside the established palm oil industry” and that Iceland “decided simply to stop using palm oil until the industry cleaned up its act.”  In addition, Walker says that palm oil’s big problem is that palm is “grown almost exclusively in areas of tropical rainforest.”

What’s wrong with these statements?

First, Walker may be an outsider, but working with Greenpeace is no small undertaking. They are arguably one of the richest and most effective PR companies in the world. Playing the ‘naïve’ card looks disingenuous.

Second, Iceland had other options when making its decisions on palm oil. If orangutans were the concern, it may have been possible to purchase segregated supply from New Britain Palm Oil in Papua New Guinea. Or from palm grown in Africa or Colombia, where orangutan have never lived. Or from established plantations in Thailand.

If this decision was not about marketing, but about ‘doing the right thing’, the other option would have been to simply make the change. No press releases or TV chat show appearances, just a switch.

Third, the ‘tropical’ problem. Soybeans and beef are responsible for extraordinary levels of deforestation in the Amazonas region of Brazil, according to EU research (far higher levels than palm oil). Also, the palm is not “grown almost exclusively in areas of tropical rainforest”, it’s grown where the environmental (soil, climate, etc) and social conditions are satisfactory for the plant. A tropical rainforest can develop there, but also an anthropic savannah or another vegetation. Why, then, is Mr Walker, not banning beef or soy products in Iceland?

So what did Iceland get right?

First, Walker “accept[s] entirely that a wholesale boycott of palm oil is not the right long term solution”.

Second, people (generally those in Europe) really do care about environmental degradation. This is also true, and his customers have responded positively to Iceland’s other major campaign, on reducing plastic waste.

But here’s a challenge to Iceland. Deforestation from beef is ten times that of palm. Soy is more than double. Perhaps Iceland should arm its customers with the full facts about deforestation, rather than simply a narrowly-focused hit-job on one commodity. That would show real leadership.

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Palm Oil Monitor Weekly Update – 3rd December 2018

Some questions on Greenpeace and Wilmar

Palm giant Wilmar appears to be taking a harder line on Greenpeace than ever before. Wilmar’s stance comes after a group of Greenpeace activists boarded a ship off Spain, calling on food manufacturer Mondelez to drop Wilmar as a supplier.

Wilmar is understandably incensed given the commitments made at the recent RSPO meeting, which included commitments to no deforestation and to supply chain transparency.

One of the problems for Wilmar is that Greenpeace’s message is very unclear. It is calling on Mondelez to drop ‘dirty palm oil’ and Wilmar as a supplier. Why is the Wilmar palm oil ‘dirty’? Greenpeace wants Wilmar to “prove its palm oil comes from producers that are not destroying rainforests or exploiting people.”

Apkasindo, the organisation representing Indonesia’s smallholders, has sided with Wilmar. Rino Afrino, head of the group, stated that Greenpeace had ‘insulted’ Indonesia.

“Can Greenpeace prove that the palm oil sold by Wilmar damages the environment?” Rino said in comments to the Jakarta Post. “Their campaign destroys the image of Indonesian palm oil.”

The bone of contention appears to be Indonesian group Bumitama. But even then, it’s very difficult to determine precisely what Greenpeace thinks Bumitama has done wrong, other than ‘raising serious doubts’ about its conduct.

It also should be noted that Bumitama is a supplier to Golden Agri Resources. Last month Golden Agri Resources executives were arrested for alleged bribery.

A genuine question: Why does Greenpeace dislike Wilmar so much, but appears to tolerate Golden Agri? Send anonymous tips to [email protected] or PM us on Twitter at @palmoilmonitor.

Criticisms of RED emerge from WRI, SIIA

The World Resources Institute (WRI) and the Singapore Institute of International Affairs (SIIA) held a workshop in Jakarta last week on Greening Supply Chains for the palm oil sector.

Participants varied, from RSPO and WWF to the Indonesian Government and European think-tanks. The range of topics varied, but inevitably the conversation turned to the Renewable Energy Directive and its revision.

Among the workshops, some of the conclusions on Indirect Land Use Change (ILUC) and the RED were as follows.

First, the ILUC data that the EU is using to justify classifying palm oil as high risk is outdated.  The last significant piece of work undertaken by the EU on ILUC was completed in 2012. According to Wageningen University, no major work has been undertaken since then.  For the past five years or more, the general consensus has been that ILUC models are highly variable upon the underlying assumptions. In simpler terms, the modelling is unreliable.

Second, there needs to be a strong, credible and scientific justification for the EU’s actions on palm oil. If the EU fails to justify their actions in this manner, those actions are illegal under global trade rules.

The Technical Barriers to Trade agreement requires that any measures introduced not be more trade restrictive than necessary to fulfill a legitimate objective. The legitimacy of that objective depends on scientific and technical knowledge, among other things. For example, if the EU says that ILUC emissions are significant from palm oil or that food- and feed- based biofuels can’t contribute to the EU’s efforts of reducing greenhouse emissions, it needs to be able to prove that with strong scientific evidence.

Third, relying on outdated studies or methodologies is no excuse. Trying to justify actions because of studies undertaken in 2012 on ILUC will not satisfy anyone, particularly not trading partners.  Although the EU has been consulting with its trading partners in Malaysia, Indonesia, and other countries, it will be difficult to consider those negotiations as ‘good faith’ negotiations if the EU doesn’t put the work in to improve the scientific knowledge base. This is critical given that the EU is attempting to negotiate a trade agreement with Indonesia, and is aiming to sign a Partnership and Cooperation Agreement with Malaysia in January.

Indonesia and Malaysia have already signalled they will take legal action against the EU if the RED discriminates against palm oil.

Malaysia phasing in B10, Indonesia removes export tax

Bloomberg is reporting that Malaysia will introduce a biodiesel mandate as early as this week. Bloomberg has reportedly seen a copy of a letter from the Ministry of Primary Industries to sector stakeholders, outlining the phase in one of the mandates, which will require 10 per cent biodiesel blending in diesel fuels.

For now, this will work in favour of both biodiesel suppliers and fuel retailers; current biodiesel prices are below regular diesel. It will also restore some stability to palm prices, which have taken a hit over the past few months.

On a similar note, Indonesia has removed its export levy after export prices from Indonesia fell below USD 500. The levy contributes to the country’s replanting fund. However, the levy and the currently suspended export tax, both provide some incentives for downstream processing in Indonesia. GAPKI, the country’s grower representative body, had recently called for the levy to be lowered.

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Palm Oil Monitor Weekly Update – 26 November 2018

Commission consults – but does it listen?

Last week the European Commission held a consultation on the forthcoming Renewable Energy Directive Delegated Act, which will regulate the biofuels market in the European Union from February 2019.

By design or coincidence the meeting took place at the same time the revised RED text was passed into law.

Our intel from the meeting didn’t provide any major surprises, bar one (see below). Rather, it confirms the vigour with which European rulemakers are attempting to force imported biofuels and biofuel feedstocks out of the EU market.

There were four key points to note from the Commission’s presentations.

First, as we knew, the Delegated Act will specify the criteria for high- and low- ILUC risk biofuels. The Act will also be accompanied by a Commission-authored report on how biofuels have expanded, written by the Joint Research Council (JRC). This is to deal with the particular clause in the RED text, which states that biofuels will be considered high risk if there is ‘significant expansion’ into high carbon stock areas.

Second, the Commission is still attempting to deal with ILUC in a way that is “objective, balanced and based on solid scientific evidence.” This will be difficult given the problems faced in observing ILUC. As has been pointed out several times before, ILUC can only be inferred.

Third, and this is the surprise, Member States will be able to ‘make additional distinctions’ for biofuels after the ILUC criteria have been determined by the European Commission. The process or legal instrument for this does not appear to have been determined, and it may present some tension between the Member States and Brussels.

Fourth, the JRC is going to draw heavily on its previous studies on deforestation and crop expansion, with a particular emphasis on emissions coming from particular feedstocks. This is going to present some quite tricky problems for the Commission. The JRC report from 2014, for example, notes the large differences between emissions for different countries from the same feedstocks.

This problem was raised by the delegate from Fedepalma, who stated: “The European Commission shouldn’t focus on a crop globally but look at the situation in different regions. For example, for palm oil in Columbia, there is close to no deforestation. Some here say that palm oil is responsible for deforestation, that is not true, look at the situation in the different regions”.

This presents the problem of a potentially perverse outcome. If, for example, palm oil is considered a ‘high risk’ feedstock by default with no distinction between countries, but certain producers access the RED via certification, then there is nothing to prevent any number of countries simply cutting down large tracts of forest to plant oil palm going into the future. In other words, there is no incentive for any countries to adapt their domestic laws to prevent expansion. This underlines the sheer absurdity of the ‘feedstock’ approach.

One point of contention among most representatives at the meeting was that prior to the consultation, the EU held a government-to-government meeting with ‘high level experts’ from the EU’s trading partners. FEDIOL, the EU body that represents the bloc’s vegetable oil industry wondered why no one in the industry – or even NGOs – are considered ‘high level experts’.

Indonesia tees off at the WTO; Mahathir trashes EU

The Government of Indonesia has taken the European Union to task once again at the World Trade Organization over the Renewable Energy Directive during a Technical Barriers to Trade (TBT) meeting on November 15.

Following on from its questioning at previous TBT meetings, according to Borderlex, Indonesia didn’t hold back, stating:

Can the EU unequivocally state that RED II will not be used to discriminate against palm oil to the advantage of EU home produced vegetable oils, especially rapeseed, at EU, member states and regional level? … If no action is taken by the EU to counter trade-restrictive actions at member state or regional level, does the EU acknowledge the right of Indonesian regions to likewise encourage ‘voluntary bans’ on imports of, for example, wines from Europe to Bali?

Indonesia also accused EU Member States of asking processors to keep palm methyl ester out of biofuel blends and only use its rapeseed equivalent.

At the previous TBT meeting in September, a number of palm-producing countries – Malaysia, Indonesia, Ecuador, Colombia, among others – questioned the EU’s approach on renewable policy. Indonesia again raised the UN Sustainable Development Goals and whether or how the new rules would impinge upon developing countries’ ability to meet them.

Prime Minister Mahathir also let fly at the EU during last week’s ASEAN Summit, criticising the bloc’s overall approach to palm oil. When asked about free trade and the European Union, Mahathir stated, “On the matter of free trade, I said (how) free trade but they start labelling Malaysian palm oil … That is not part of free trade.”

Iceland and Greenpeace pop RSPO’s bubble

The Iceland advertisement controversy did an extraordinary job of spiking positive media coverage of palm oil and new ‘no deforestation’ commitments coming from RSPO members. The advertisement – which was a re-badge of a Greenpeace animation — was deemed to be ‘political’ by advertising clearinghouse Clearcast, and therefore couldn’t be considered a commercial advertisement.

The advertisement underlined the ‘anti-palm’ nature of Greenpeace’s most recent ‘drop dirty palm oil’ campaign, despite Greenpeace’s protestations that it’s not ‘anti-palm oil’ and only ‘anti-deforestation’.

Iceland has doubled down. It is sticking to its guns and stating that it does not believe palm oil can be sustainably produced or procured, even with ‘no deforestation’ commitments.

There are some reasonably high stakes here. At last week’s RSPO meeting, RSPO Board Member Belinda Howell – who represents European retailers – stated that she was convinced that voting for new, stricter Principles and Criteria on deforestation and peat would mean the end of attacks on palm oil. It took less than 24 hours between the RSPO’s vote in favour and the attacks to commence.

Greenpeace, unsurprisingly, has stayed silent. The video has been re-watched and re-tweeted again and again since the media blow-up, anti-palm oil messages included.

An honest question: Wilmar and GAR worked with Greenpeace in good faith on the High Carbon Stock Approach (HCSA) and getting ‘no deforestation’ commitments through RSPO; do they have any regrets?

Popping RSPO’s bubble … continued

What was notable at last week’s RSPO meeting was that there was close to no discussion of the RED. There were some indirect mentions, namely that the incorporation of HCSA might assist palm oil to gain compliance with the RED ILUC criteria.

This sums up the divide between the world of RSPO and what’s best described as the ‘real’ world of hard laws and regulations.

RSPO – rightly or wrongly – is completely fixated on certified and non-certified palm oil. Everyone outside of RSPO, which is to say most people and particularly those in Europe, are more likely to see palm oil or palm oil-free. This is underlined by Iceland’s use of Greenpeace’s campaign material to reinforce its no-palm stance.

It’s this kind of thinking that has pushed Europe further away from having a policy that looks at the overall sustainability of palm oil and towards a policy aimed at removing palm oil from the RED altogether.

With this in mind, two questions around RSPO are as follows.

First, can the RSPO increase demand? The certified and non-certified fixation may have run its course. The EU is the only substantial market for RSPO-certified oil. That market is saturated. Uptake has levelled out for now.  Producers are rightly saying that the ball is in court of the purchasers; purchasers got everything they wanted last week.

Second, can the RSPO increase supply? All the world’s major producers are part of RSPO. The barriers to entry are high, and there is an excess of certified product. Given the compliance costs, what is the business case for joining RSPO as a new major supplier? Why wouldn’t companies simply go with a national standard like MSPO?

One answer might be yes, but only if purchasers really come to the party. And when they do, they’re going to have to battle the Iceland, Greenpeace and ‘anti palm oil’ thinking all over again.

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RSPO Daily Update: 15th November 2018

The final day of the Roundtable and the General Assembly produced the results that were expected – with a few minor hiccups. Here are the key takeaways from both, plus some broader questions about the financial future of RSPO.

Sabah’s Deputy Chief Minister took a swipe at European NGOs. Deputy Chief Minister YB Datuk Seri Wilfred Madius Tangau – also the Minister for Trade and Industry – gave a speech that questioned whether European NGOs have a sufficient understanding of Malaysia’s economic, social and environmental context to be so critical of plantation practices in Malaysia. Tangau was at one point part of the Malaysian Timber Board, and travelled extensively with Plantations Minister Bernard Dompok when the country’s timber industry was singled out by European forest campaigners. Clearly that experience rubbed off on him.

The RSPO Board has signalled a new agenda. RSPO co-chair Dato Carl Bek-Nielsen gave an applause-inducing closing address that pointed out the long road ahead for RSPO. Bek-Nielsen highlighted a number of areas. His big point was uptake; he basically said that 65 per cent uptake is simply not good enough going forward. Reading between the lines, the message could be interpreted as follows: with the ‘no deforestation’ principles and criteria now approved (see below), there is simply no excuse for customers not to be buying RSPO. And more pointedly, purchasers and NGOs have got everything they wanted out of the RSPO process and then some; it’s now the growers’ turn, particularly smallholders.

Some big-ticket resolutions got through the GA. The revised P&Cs had overwhelming support in the GA, which included the new ‘no deforestation’ criteria. That said, it wasn’t without some discontent. Growers complained about the ratcheting of standards and the consequent increase in costs. Sadly, board members couldn’t respond to these concerns. UK retailers seemed to just brush off these concerns around cost completely. Perhaps they all need to spend a little more time in rural Sumatra.

One point that was made by one Indonesian grower is that significant delays in the HCVRN assessment proposal already add to costs and uncertainty – and there’s now a new process that will require additional training, capacity building and outreach.

A resolution to have lists of third-party suppliers published made it through, but a proposal to have auditors and companies financially ‘delinked’ didn’t. This was a thankful show of common sense. Although auditing isn’t perfect, conventional audit processes are used in safety standards for medical equipment, hygiene and food. These are things that have an immediate impact on a daily basis. Until there’s a resolution that proposes a compelling reason for re-thinking the audit relationship, this should be thrown in the trash.

Two smallholder resolutions got over the line that were important. One was an exemption for smallholders from ‘immediate suspension’ in the lead-up to the smallholder standard; another was for the continuation of the Smallholder Interim Group’s work on standard development.

RSPO’s financial health has some question marks.  This year’s financial report was possibly the biggest surprise of the GA. In short, RSPO is burning through its cash and isn’t quite meeting its revenue projections. The financials indicate that much of the expenditures have gone into outreach and engagement activities. This isn’t entirely surprising. One of the comments from the floor was a criticism of using PR and advertising agencies to undertake much of the outreach work, particularly in European markets.

Here’s a broader question: is the organisation simply trying to do too much? RSPO can and should be proud of everything it is achieving on environment, labour and livelihoods. But it can’t be everything to everyone. Mission creep is risky – and expensive.

Notably, the Board was cognisant of the fact that opportunities for broadening the revenue base are limited. Their main sources of income are membership fees and levies on the palm oil trade. Volumes are flat. Certified area may expand, but only if there is a greater demand response. This places an additional onus on the uptake question, which is not just about ‘shared responsibility’ in terms of sustainable outcomes, but the very financial sustainability of the organisation.

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RSPO Daily Update – 14th November 2018

Day Two at the RSPO Roundtable moved into ‘official’ business, with the opening address from RSPO CEO Datuk Daryl Webber and a keynote address from Professor Kai Chan of the University of British Columbia. But when it came to substance, the day was about two things: no deforestation commitments and smallholders. Here are the key points:

The revised principles and criteria are probably a shoo-in. Members of the Secretariat walked through the entire P&C revision process and gave an overview of the revisions themselves. The ‘no deforestation’ commitments were in their words probably the most controversial and difficult part of the revisions process. Although the assessment methodology has been defined, there are still some elements that haven’t been finalised. These are going to be left to a joint HCSA-RSPO steering group. This is a slightly uncertain element that members should probably keep an eye on; the idea that unfinalized elements can be voted on is, well, vague.

The emphasis on smallholder inclusion continues. Although the largest smallholder-related resolution is about keeping the smallholder program and strategy going, the more important element is the introduction of a smallholder standard next year, and a vote on the standard at the Roundtable in 2019. But the points that were reiterated at the meeting today were:

  • It’s essential that RSPO do better on including smallholders;
  • Smallholders will require a less stringent standard to participate;
  • Smallholders will require a high degree of support from millers and other stakeholders for inclusion to happen.

There was also a (belated) recognition that RSPO was set up for large plantation companies, and that this has led to the ongoing exclusion of smallholders; and that RSPO is by its very nature exclusive, i.e. it is difficult. Unilever’s representative was particularly outspoken on including smallholders; this is no doubt a response to the criticism the company received after excluding around half of its smallholders from its supply chain in 2013 in order to achieve traceability targets.

A speculative theory: No deforestation commitments and smallholder inclusion are related.  RSPO’s volumes are up on last year, but down from the year prior. Does this mean volumes have plateaued? If that’s the case, how does the organisation expand those volumes, particularly if it’s going to severely crimp expansion? By including smallholders, the organisation has something of an approach to expanding volumes and area, as well as achieving more on social and economic outcomes. The support the smallholder initiatives have from large processing companies adds to this narrative. While this could be read as ‘win-win’, it’s still disappointing that smallholders remain second place in relation to no deforestation commitments.

Tomorrow: the General Assembly votes on the new P&Cs and numerous other proposals.

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