The Oil Palm The Oil Palm

The EC’s Proposals on Deforestation (Part 2): The Bad Ideas

In our previous blog, we assessed the good proposals put forth in the COWI Report, commissioned by the EU. Now, we look at the bad elements of the COWI Report.

The bulk of the measures being proposed by the EU are demand-side measures. At the heart of this is shifting consumers away from palm oil and onto other alternatives, or shifting consumption to so-called sustainable products.

And this already presents a problem: it implies quite plainly that there’s something wrong with palm oil as it is. This position itself is not supported by evidence.

With that in mind, let’s take a look at the worst of the individual assessments in the COWI Report.

Due diligence for commodities

In 2010 the European Union introduced a ‘due diligence’ regulation for imported timber products. The regulation requires importers to undertake a ‘due diligence’ process to ensure that all the products they are putting on the European market can be considered legal.  The proposal is to apply a similar regime to different commodities.

The COWI report considers this ‘feasible’, but with some caveats, namely that it will be incredibly complicated. For timber, the process is relatively simple to a point. Chain of custody systems have already been developed for timber products. This is partly due to the ease with which timber can be traced.

Now consider applying that same model to the 3 million or so smallholders around Southeast Asia and assessing whether each of those small farmers has complied with all federal, state or local rules and regulations.

Then think about whether – when faced with this question – purchasers might just opt away from purchasing palm oil from smallholders and switch only to major plantations. And then also think about how that might impact on smallholders’ livelihoods.

So, while this might be ‘feasible’, it’s better to consider it ‘possible’ – but barely.

Consumer information campaign in partnership with industries and NGOs

Although this might sound reasonable in practice, there is an inherent danger in attempting to fund information campaigns promoting sustainable products. This became readily apparent during the EU’s campaigns against ‘illegal’ timber as part of the due diligence regulation. There was so much publicity about ‘illegal’ or ‘unsustainable’ commodities that consumers and purchasers immediately jumped to negative conclusions.

There are also perverse incentives at work. To convince consumers to purchase greater quantities of ‘sustainable’ commodities or encourage the uptake of certification, you have to convince them that there are large quantities of unsustainable commodities on the market. This immediately becomes a negative campaign.

We are already seeing this to an extent with European sustainability alliances trying to distinguish between RSPO-certified and non-RSPO certified palm oil on the market.

It also goes further. NGOs have and will continue to question whether certification commitments or legislation go far enough in prompting the uptake of certified commodities. This leads to the overall impression that certification schemes are inadequate.

Again, COWI assesses this as being ‘feasible’. This may be the case, but once again the effect is far from ideal.

Consider this: would it be feasible for Malaysia to fund an anti-European NGO inside European borders, or a campaign against European commodities? Would it be feasible, as long as Malaysia footnoted these efforts with an asterisk that Malaysia doesn’t control or have any responsibility for the content, messages or negative outcomes associated with the campaigns?

Mandatory disclosure of information on deforestation-proofing of financial investments linked to production or processing of FRCs

This final proposal runs in parallel with a proposed policy on sustainable financing. Financing for sustainable agriculture in developing countries is already plagued by a general lack of investment; it has been well noted that it is a lack of investment in developing country agriculture that is the problem, not an oversupply of capital.

With this in mind, the idea of adding an additional layer of compliance at the financing end of agriculture is a fast road to making investment in agriculture even more difficult. The mandatory disclosure of information to a European authority is likely to further impede investment from the European side. It should also be noted that several major financial institutions already have well-established lending policies that take account of environmental as well as financial risks. The Equator Principles, for example, have a broad prohibition on clearing of high conservation value areas.

In addition, capital flows freely. If capital from the EU dries up, there are significant investors around the world prepared to invest in profitable projects. Outward investments from China over recent years are clear evidence of this.

Despite this, both financial proposals are considered feasible by COWI’s Report, though their effectiveness is questioned.

Is there any realism to COWI’s assessments?

There is throughout the COWI report a reluctance to shoot down any idea, no matter how unworkable. The proposal, for example, on differential tariffs for sustainable palm oil clearly violates WTO rules and would be almost impossible to implement via the World Customs Organization. Yet COWI isn’t prepared to say this; they simply avoid making a judgement.

This sets a bad example. Leaving all ideas on the table – no matter how egregious – means there might be politicians out there who are prepared to use them.