ASEAN Focus 1/2018 Opinion Piece: EU Palm Oil Ban

Below is the full text of an opinion piece/commentary I recently wrote for Vol. 1 2018 of ASEAN Focus, a publication of the ISEAS-Yusof Ishak Institute, Singapore. You can view the entire publication here.

EU’s Anti-Palm Oil Measures Do Not Help the Environment

Southeast Asia is the world’s top palm oil producing region with 89% share of the world’s supply. The sector accounts for 5% to 7% to the gross domestic product (GDP) of Indonesia and Malaysia which contribute 53% and 32% of the global supply respectively. 17% of Indonesia’s and 13% of Malaysia’s of palm oil exports are shipped to the European Union (EU), which is the world’s biggest palm oil importer, taking 21% of the global palm oil imports. According to the law of supply and demand, the two regions should be locked in a harmonious relationship of mutual dependency.

However, recent developments at the European Parliament have pitted the two regions against each other. Early this year, the European Parliament passed two resolutions to phase out palm oil from the EU biofuels programme by 2020, and impose a single certified sustainable palm oil (CSPO) scheme for all palm oil entering the EU after 2020. These resolutions are now set to go through the European Council and European Commission for approval. Indonesia and Malaysia are trying desperately to prevent this from happening by lobbying individual EU countries and sending joint diplomatic missions to the EU. Malaysia has also threatened to raise this matter at the World Trade Organisation (WTO).

These EU resolutions were the culmination of years of intense lobbying from various European groups for the boycott and outright banning of palm oil in response to the purported negative environmental impacts of palm oil production. To be sure, land conversion for oil palm plantations has been a significant driver of deforestation which is linked to habitat destruction of endangered species. Palm oil is also linked to climate change when carbon locked up in old-growth rainforests and deep peat deposits is released during conversion. This is a major argument against the use of the carbon-intensive palm oil to replace fossil fuels in Europe. Furthermore, fires linked to land clearing for plantations are a major contributor to the almost annual transboundary haze pollution in Southeast Asia.

On the flipside, palm oil is the world’s most “environmental friendly and efficient” vegetable oil. The land area needed to produce the same amount of oil is much smaller for palm oil than any other major vegetable oil. Palm oil plantations produce an average of 3.7 tonnes per hectare per year, while rapeseed (the second most efficient oilseed) plantations generate only 0.7 tonnes per hectare per year. Palm oil takes up 6.6% of land used for oilseed crops worldwide but produces 38.7% of the global supply of vegetable oils.

The relative efficiency of palm oil is the major argument used by large producer countries to push back against anti-palm oil sentiments. If palm oil production were to stop, a significantly larger area of forest will need to be converted into other types of vegetable oil to meet demand. Currently, about 46% of Europe’s palm oil imports are used for biofuels.  If the ban is enforced, the EU would have to source more vegetable oils to offset the drawdown of palm oil in order to meet its biofuel mix goals. Considering the comparative inefficiency of other vegetable oils, this will substantially increase the demand for land and drive further deforestation.

Both Malaysia and Indonesia have declared the EU’s ban as discriminatory and protectionist, going as far as to labelling the move ‘crop apartheid.’ This contention is understandable considering the EU is the fourth largest rapeseed producer in the world, and also a modest producer of sunflower oil. Given its history of agricultural protectionism (recall its Common Agricultural Policy in the context of the WTO), it is not unreasonable to assume that the EU may be trying to phase out palm oil to carve out a better deal for its own oilseed farmers.

The other major palm oil importers are India, China and Pakistan. While their demands are likely to remain, the removal of a significant chunk of demand from Europe may cause the global palm oil price to drop as supply outpaces demand. This would likely have trickle-down effects on the revenues of major palm oil companies like Golden Agri Resources (Indonesia), Wilmar International (Singapore) and Sime Darby (Malaysia). Further down the supply chain, smallholder farmers who sell their oil palm to the larger companies can expect to see lower prices for their fresh fruit bunches.

This situation is especially dire considering the challenges, in terms of both cost and procedures, that these smallholders have already had to overcome to get some sort of certification, be it RSPO, ISPO, or MSPO, for their palm oil to be sold on the global market. Another European certification requirement will be an additional barrier for these smallholders. Of course, the percentage of smallholders who currently produce certified sustainable palm oil (CSPO) is small – much of the CSPO palm oil comes from large corporate plantations. However, the system-wide effects of a drop in demand and price will affect smallholders and large companies alike.

In Indonesia and Malaysia, the plight of the smallholders has been highlighted in the attempt to appeal against the resolutions. Malaysia lists 650,000 smallholders whose livelihoods could be affected, while Indonesia cites the ‘millions’ who could suffer. In Malaysia, more than a thousand smallholders took to the streets in organised protests last month (January 2018), while many more signed a petition which was handed over to the EU Mission in Kuala Lumpur. While the relative silence from the corporate actors is curious, this strategy is similar to that used by the EU highlighting the plight of their farmers during free trade negotiations.

By phasing out palm oil from biofuel completely, the EU is painting the entire palm oil industry with one broad brushstroke. It fails to acknowledge the serious efforts of many producers to improve their practices, and all but ignores the fact that palm oil can in fact be grown sustainably. Furthermore, by insisting on its own CSPO certification scheme, it also belittles the efforts of existing schemes like the RSPO, ISPO, and MSPO for their efforts in promoting sustainability in the sector. Hence, it is not surprising that palm oil producer countries feel that they have been unfairly singled out, while other vegetable oils are getting away scot-free.

However, at the same time, major producers like Indonesia and Malaysia must also acknowledge their weaknesses in handling criticism of the sector. Generally, allegations that palm oil sector drives deforestation, peatland degradation, and transboundary haze are met with defensiveness and denial, which often slips into emotive arguments of nationalism and apartheid. While these allegations may be somewhat conflated or politically motivated, the ‘exaggeration’ of denial on the side of the producers has not been helpful either.

The EU has thus far incentivised sustainable practices the palm oil industry by using its burgeoning CSPO market as leverage. Hence, its recent resolutions may in fact be counterproductive to sustainability as producer countries, blocked out from such a major market, will have less incentives to undertake costly sustainable measures. Instead, they may choose to focus on markets such as China, India and Pakistan which have less vigorous sustainability requirements. In short, the EU may be harming the cause – anti-deforestation – that it purports to champion.

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