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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.

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The Oil Palm The Oil Palm

EFSA Latest: Experts Speak Out Over European Science Alarmism

Members of the European Food Safety Authority (EFSA) met recently in Parma to discuss, among other items, EFSA’s recommendations for potential restrictions on 3-MCPD, a contaminant generated during processing of vegetable oils. The meeting was an important moment for Malaysian Palm Oil exporters, following over 12 months of negative media coverage in the wake of EFSA’s original report. The meeting focused on technical discussions around the impact of 3-MCPD, and provided little new information. EFSA confirmed that its revised report, including recommendations for EU regulatory actions, should be ready in November.

In 2016, EFSA released a report calling for possible EU limits on Palm Oil, due to the reported presence of “process contaminants”, including 3-MCPD, in vegetable oils. The reason the report is now under revision by EFSA, is due to significant European and international criticism of the findings. Before such criticisms were apparent, the original report made quite an impact.

Most notably, the report led to a significant amount of negative international media coverage for Palm Oil, which received a level of criticism that did not match the report’s findings.

This is particularly true of Malaysian Palm Oil. The EFSA Report’s primary goal was to ascertain the current levels of certain ‘contaminants’ that are generated during the processing of certain foods – including vegetable oils – and to advise whether the EU should regulate to bring down those levels.

The levels of such contaminants in Malaysian Palm Oil have indeed been reduced significantly over recent years, thanks to proactive action from industry. The EFSA report acknowledges this progress –

“While occurrence data from a relatively recent period were used, current industry action to mitigate the formation of 3- and 2-MCPD fatty acid esters and glycidol fatty acid esters during oil refining might have led to a recent reduction in their levels in certain oils, leading to an overestimate of the exposure”

The amount of contaminants in Palm Oil entering the European market has halved in recent years, a track record of self-regulation and progress unmatched by other oilseeds.

Malaysian Palm Oil producers can, and should, feel aggrieved that their proactive efforts to lead the world in reducing such contaminants have not been recognised. Instead, the Malaysian industry that has provided leadership and forward-thinking, is being criticised in European media. It is notable that neither EFSA, nor the EU Commission, has intervened to correct such inaccurate and damaging media reports.

At EFSA’s most recent meeting from 19th-21st September, it was stated explicitly that EFSA has not reviewed or considered the data relating to the industry’s impressive work. This progress will not therefore be taken into consideration in EFSA’s revised report. In other words – the sterling efforts by the Malaysian Government and Palm Oil producers, to reduce contaminants, will not be recognised by the EU authorities.

Criticism of the EFSA Report is not limited to the mis-categorisation of Malaysian Palm Oil.

The Joint Expert Committee on Food Additives (JECFA) of the United Nations Food and Agriculture Organisation/World Health Organisation reported that the conclusions of EFSA were not appropriate, and the European Commission Joint Research Centre (JRC) stated that the methodology used to calculate the EFSA Report ‘has a negative impact on method accuracy’.

The criticism from international organisations was also supplemented by scientific experts and commentators, including in Europe and the U.S.A.

A scientific paper by Drs. Clemens, Hayes, Sundram and Pressman highlighted inaccuracies in the EFSA report such as the quality of the data used, the absence of clinical tests on humans, as well as the complexities and variation in food harvesting, processing temperature, refining, preparation and patterns of consumption that can influence levels of contaminants.

French scientist Jean-François Platon recently noted that ‘Palm Oil should not be singled out – nor should any vegetable oil. These outcomes are not exclusive to Palm Oil, but occur in the refining of all vegetable oils, including rapeseed and sunflower. EFSA, in its conclusions, did not recommend any ban, or restriction, or reduction in the consumption of Palm Oil, and didn’t conclude Palm Oil was carcinogenic’.

Morten Elsoe, a Researcher in Lifestyle Diseases at Aarhus University Hospital, indicated that ‘EFSA did not recommend to stop consuming products containing Palm Oil and there was a need for further studies before they could establish any risk of cancer for people’.

Rob Lyons, of the Institute of Ideas in London, affirmed ‘What certainly does not need to happen is for governments to now intervene on the basis of the original EFSA report. The science has been questioned, and is being reviewed. Intervention now would be nonsensical’.

The pushback against the report forced EFSA to back-pedal.  EFSA’s Expert Committee CONTAM announced that it would ‘re-open its scientific opinion’ on Palm Oil, ‘to address the identified scientific divergence’. This is a signal of internal acceptance from EFSA that the original report was flawed and unsound. EFSA has a responsibility to accurately report the truth in its new report, and ensure that credit is given to those who are leading the way in reducing the contaminants already.

However, only 3-MCPD will be considered in EFSA’s revision. Other key issues will not be revised. The EU is moving full speed ahead with regulatory action on another set of contaminants – glycidyl esters (GE). On Monday 25 September, a behind-closed-doors vote was scheduled to set maximum GE levels for infant formula, follow-on formula and food for special medical purposes for infants and young children. It is expected that EU limits on GE will be fully implemented in early 2018, and fully enforced in mid-2019. Limits on 3-MCPD will not be far behind, if the recent EFSA meeting is a guide.

What, then, are the options for Palm Oil producers, if they wish to influence the process?

In Brussels – The European Parliament and Council will now have the next 3 months to consider the GE proposals, after which they will become EU law. In principle, both institutions are open to hearing the views of producers – though, given the European Parliament’s recent hyper-negative resolution on Palm Oil, it’s perhaps unlikely that they will be sympathetic.

In parallel, the Commission’s decision will be referred to the World Trade Organization (WTO). Under WTO rules, countries are required to notify the organization if they are to introduce a law or regulation that will impact another country’s trade. The notification happens through the Technical Barriers to Trade (TBT) Committee. The convention is that implementation of any new rule is frozen for 60 days while consultations occur and stakeholder inputs are accepted. The key objections will be raised by exporting countries in the TBT Committee itself. This represents a more viable potential opportunity for Palm Oil producing countries to examine and question any areas of concern.

But enterprises and economic operators within the EU that will be adversely affected by the rule can also bring up objections via the EU TBT Enquiry Point. This would obviously include major importers and users of palm oil – and any other vegetable oil – in the European Union. This would be a highly technical, and uncertain, process: but if done correctly it could offer an opportunity for Malaysia to raise a formal objection to the new EU limits.

The EU process is nearing its conclusion. It appears as though the final EU conclusions will impose limits on both GE and 3-MCPD, regardless that this may impact some palm oil producers. It also appears that the EU will not give any credit or recognition for the good work done by Malaysian producers in bringing down limits voluntarily in recent years. The revised EFSA report, when published, and any announcement of new limits will likely lead to a new round of anti-Palm Oil media in Europe. It is clear that neither the EU Commission, nor EFSA, feels any pressure or responsibility to assist Palm Oil producers.

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The Oil Palm The Oil Palm

The EC’s Proposals on Deforestation: The Good Ideas

In the next of our series on the EU’s plans to reduce global deforestation, we assess the policy proposals put forward in the recent COWI Report commissioned by the EU. Which proposals can be considered good?

There are 15 measures proposed. The COWI Report splits them up into supply-side and demand-side measures.

The ‘bad’ measures, which we will look at in the next blog, are largely demand-side measures. Why are such demand-side measures generally negative? Asking people not to consume something or keeping it off a market necessarily entails stating that it is defective, inferior or harmful. Palm oil is none of these things.

In this blog, we first examine the measures outlined in the COWI Report that qualify as ‘good’ in our estimation, of which there are three. Two of these are supply-side measures.

Best Practice Support to Smallholders via Technical Assistance

The aim of this proposal is, as it suggests, to support smallholders with better farming and environmental management and, importantly, it aims to improve yields. Why is this good? First, it actually recognises that smallholders and local communities are a key part of any approach to preventing deforestation.

Second, it is a straightforward intervention that will produce social, economic and environmental benefits.

Third, it’s an intervention that has few political ramifications. It doesn’t call for high-level political involvement or vast and complicated problematic solutions – such as land reform or cooperation from exporting authorities. In short, it uses existing knowledge and applies it at the local level.

Partnership agreements for forest risk commodities

Partnership agreements for ‘forest risk commodities’ work as follows: two governments, say Malaysia and the European Union, develop or agree on sustainability standards for the exporting country and the importing country. The result is that any products exported from the producer country are certified sustainable, and any products on the import market fall under the same certification. The upside to a partnership agreement is that both countries have to agree on the standards that get implemented: it’s a negotiation, not an edict. Such an agreement should cement a national standard such as the Malaysian Sustainable Palm Oil (MSPO), for example.

The downside is that if the process is handled poorly, the agreement could become too unwieldly. If too many EU-side interest groups get hold of the process, any number of additional factors — land tenure, gender, economic and social inclusion – could become part of the discussion, getting further away from the policy’s objective: controlling forest loss.

The downside can be seen in the current crop of partnership agreements (VPAs) for forest products. After more than a decade, and hundreds of millions of Euros, only one agreement has been brokered, and only just. These agreements were only supposed to tackle the seemingly narrow field of illegal timber products. So why has it taken so long? In developed countries, good legislative and regulatory frameworks mean that all aspects of legality (e.g. land tenure, taxation, licensing and permits) are covered. But in many developing country contexts this simply isn’t the case.  It’s not that anyone is breaking the law; it’s that the laws governing forests and forestry don’t exist, or implementing regulation is missing.

Now move that same idea over to the broader and less-defined area of palm oil sustainability. A country like Malaysia would not have a problem: forest laws and tenure systems are well defined; environmental regulatory frameworks are well-developed, implemented and enforced. Other countries, however, may struggle.

Public procurement for sustainably produced commodities

‘Green public procurement’ (GPP) has been applied by many governments around the world. One of the upsides of GPP is that it gives governments that say they support sustainable production, the opportunity to actually support it. This is particularly important in a market for certified products where the uptake of certified palm oil on the buyer side is small and growing only incrementally. The EU is the largest market for certified palm oil.

A GPP program for timber in the EU has been simple and effective. It has largely been information-based. It provides a list of standards or criteria for timber that can be considered ‘green’. GPP is not compulsory across the EU, its Member States or even local governments and individual departments. For example, the Department for the Environment in the U.K. (DEFRA) may seek green procurement; the Italian navy, however, might not.

As procurement is based on cost as well as outcome, the weighting of green procurement in government tenders may be different.

Palm oil and its products are not currently a significant part of government procurement. If they were, anti-palm oil campaigners would have had a field day already.

Government procurement is a sensitive area for trade as it is, and governments often feel greater pressure to source from their own country more than anything else. The WTO Government Procurement Agreement (GPA) gives a good indication of how sensitive it is. The GPA covers commitments by countries to make certain goods and services procurement processes open to all countries. The EU has listed a range of products from paper to cars; food is nowhere to be seen.

Why are these proposals good?

The common element among these proposals is that with the possible exception of the partnership agreement, they don’t try to do too much. They are within the realms of direct influence by the government; or in the case of farmer assistance, they are just trying to improve existing behaviour, not change it completely.  Most importantly, however, they do not denigrate palm oil or try to place some sort of trade measure. They generally accept the truth about palm oil: it is a competitive product that provides strong social and economic outcomes for those that produce it.

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The Oil Palm The Oil Palm

ICYMI: Malaysian Government Acts to Protect Small Farmers

‘No Palm Oil’ labels mislead Malaysian consumers and perpetrate an injustice against small farmers and other palm oil producers, Minister Datuk Seri Mah Siew Keong has explained. The economic well-being of Malaysian small farmers is threatened by the labels.

The Minister has successfully demanded the removal of the labels from Arla Foods products in Malaysia. This is a welcome victory for Malaysian Palm Oil producers. The Government also invites the Roundtable on Sustainable Palm Oil (RSPO) to enforce its rules, ensuring that none of its member companies use such discriminatory labelling in the future.

Read the full Q&A with the Minister in the New Straits Times

“The ‘No Palm Oil’ labels…are there for only one reason — to imply that because a product does not contain palm oil, it is somehow nutritionally or environmentally superior. This is false and an unacceptable attempt to mislead Malaysian consumers”.

“We cannot accept that foreign companies come to Malaysia and denigrate our products”.

“I set out the government’s position very clearly that the labels must be removed. This is motivated by the need to protect our Malaysian palm oil small farmers, and all of those in the country who depend on palm oil production”.

“Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi has also said recently that the government will not be silent on any campaign against palm oil and will give a fitting response to those who harmed the palm oil industry”.

Read the full Q&A from the New Straits Times.

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The Oil Palm The Oil Palm

The Facts About ‘Forest Risk Commodities’

 ‘Forest Risk Commodities’ (FRC), a key concept in the COWI Report, is poorly defined and is based on work previously undertaken by the Global Canopy Project. This concept has a history of use among advocacy groups opposed to Palm Oil.

The European Commission is currently attempting to construct a set of policies that will determine how the EU deals with its impact on global deforestation.

At the heart of the Commission strategy is a new report assembled by COWI, which attempts to weigh up the pros and cons of different policies.

Some of the work that has led up to the COWI report has been sound, particularly on the contribution of different commodities to deforestation.

However, there is one concept at the heart of the entire exercise that requires a critique: forest risk commodities (FRCs).

The idea of ‘Forest Risk Commodities’ was first defined in 2013 as part of work undertaken by the Global Canopy Programme (GCP).

It is defined as: “globally traded goods and raw materials that originate from tropical forest ecosystems, either directly from within forest areas, or from areas previously under forest cover, whose extraction or production contributes significantly to global tropical deforestation and degradation.”

The GCP is an NGO that undertakes work on deforestation in tropical countries. It is for the most part funded by aid agencies such as the U.K.’s Department for International Development (DFID).

Consider this: A concept on deforestation, developed by an organisation funded with European aid money, is now being used to lobby the various layers of the European Union on how to shape policy on deforestation.

When the idea of FRCs was developed, it concentrated solely on four commodities: palm oil, soybean, beef and timber. But there are a series of problems with the concept.

First, the commodities themselves do not actually cause the deforestation. For example, in Asia and Africa, the major driver of deforestation is local and subsistence agriculture. In these cases, the commodities are less relevant than the fact there is a local and/or subsistence population that is attempting simply to survive. The choice of commodity or cash crop in these cases – whether it is cocoa, coffee, palm oil or rubber – makes no difference. These populations would be clearing land in order to make a living.

Second, whether a commodity is a ‘deforestation risk’ has less to do with the commodity, and more to do with the way the land use and forest use is regulated and governed in a particular territory. Beef, for example, is considered a ‘forest risk commodity’ because of the correlation between forest clearance and cattle grazing in Brazil. However, no-one considers beef from the U.S., Australia or Western Europe to be a ‘forest risk commodity’. Similarly, soybean has come under fire because of deforestation in South America, but there is very little issue with soybeans from, say, Spain or Canada.

Third, the concept of ‘forest risk commodities’ when it was developed in 2013 made a series of assumptions about the commodities associated with deforestation that have simply not held up now that better data is available. Pigs and poultry, for example, are a greater contributor to deforestation than palm oil. Maize is also a bigger contributor. Yet these are never considered to be ‘forest risk commodities’. They clearly represent a risk to forests – and a greater risk than palm oil – but are not part of the broader calculation.

Fourth, and this is related to the previous two points, is that the idea of FRCs completely sidelines the fact that deforestation is the result of a complex series of variables that are often dependent on local context.  For example, Western Europe and the United States lost some 2 million ha of forest annually between 1850 and 1920 as it gave way to cropland. In these cases, poverty, demographics, technology, agricultural expansion, and land policies all contributed in some way to this forest loss. In both the U.S. and Western Europe, increased urbanization, higher living standards and better environmental management all contributed to the eventual slowing of forest loss.

That exact same pattern of decreased levels of forest loss as incomes rise has been seen over the past two decades in Malaysia, as living standards have risen and forest area has increased.

The idea of a ‘Forest Risk Commodity’ lays the blame for deforestation on a simple set of objects, driven by the misguided belief that halting the production of these commodities will magically solve this problem.

The reality is very different, and far more complex. Too often – as in the COWI report – well-paid analysts follow the ‘simpler’ explanation, even when it is inaccurate. As a result, policymakers are pressured to act on Palm Oil, even though the evidence does not support such action. For example, it is this type of faulty thinking that suggested paying impoverished local communities subsidies to leave forests standing was a simple way to end deforestation.

Our next blogs on the COWI report will examine an even thornier issue – the global debate around trade restrictions for commodities, and why Palm Oil is too often in the spotlight.

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The Oil Palm The Oil Palm

ICYMI: Danish Company, Arla Foods, Agrees to Remove No Palm Oil Labels

No Palm Oil labels that denigrate Malaysian Palm Oil will be removed from Malaysian shelves within 60 days by Danish company, Arla Foods, in an agreement made with the Malaysian Government and orchestrated by Datuk Seri Mah Siew Keong, Minister of Plantation Industries and Commodities.

Importantly, Arla Foods also agreed to collaborate with the Malaysian Government on the Malaysian Sustainable Palm Oil (MSPO) scheme.

No Palm Oil labels are an affront to Malaysia and to the millions of small farmers and hard-working Malaysians employed by the Palm Oil sector.  The acknowledgement by Arla Foods that these labels are undignified represents a first-win in the long battle to remove these illegal, discriminatory labels.

The Malaysian Government and Palm Oil industry reiterate their call for other stakeholders, specifically, the Roundtable on Sustainable Palm Oil, to show leadership, enforce its own rules and crackdown on members that openly flaunt the cause of promoting Palm Oil.

Read more about the announcement, here.

Arla Foods have confirmed it will remove the discriminatory labels on Lurpak dairy goods from sale at supermarket shelves, within 60 days”

“The government will assiduously counter any negative campaign against [Palm Oil]; be it domestically or abroad”

“The Danish Embassy and Arla Foods firmly support Malaysian small farmers and are committed to collaborate on MSPO”

Read details on the Minister’s successful intervention, here.

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The Oil Palm The Oil Palm

Where is The EU Headed on Palm Oil?

The European Commission has published a draft report assessing measures that the EU can take to combat global deforestation. The report, entitled ‘Feasibility study on options to step up EU Action against Deforestation’ was drafted by the Danish consultancy COWI.

This is the first of a series of blogs that will analyse the actions proposed within the COWI Report; and also examine the political motivations and the history behind the EU’s concern with global deforestation and its objections to Palm Oil.

In June of this year, the European Commission released a report that assessed how the European Union should best respond to global deforestation. No, not European deforestation, but deforestation in other parts of the world.

Similarly, the Commission also just released its response to the recent outlandish EU Parliamentary Resolution on palm oil. The Commission took issue with parts of the Resolution such as a Single Certification Scheme, but stayed silent on some of the egregious errors in the report. It was largely sympathetic to the perspective of Europe on sustainability and Palm Oil.

For those who are new to the global environmental debate, this may seem unusual. But this pattern of European antipathy towards forestry and agriculture in developing countries is nothing new.

As far back as 1989, European policymakers were examining ways in which development assistance (i.e. aid) and trade instruments could be used to assist in the conservation of tropical forests.

This was mandated by law in 1991, with direct European Commission budget items for the ‘promotion of tropical forests’ in 1993. This included funding for NGO activities.

Unsurprisingly European activists launched broadsides against the Malaysian timber industry at around that time.  NGOs and importers of tropical timber in the UK and Netherlands went so far to suggest tariffs and levies on imported tropical timber. Does this all sound familiar?

EU policymakers subsequently took aim at the Malaysian and Indonesian plywood industries and Indonesian pulp and paper. European pulp and paper producers in particular found themselves under significant pressure from low-cost Indonesian imports. The ‘promotion of tropical forests’ worked as a perfect cover for protectionism to prop up uncompetitive domestic European industries. Again, does this sound familiar?

Fast forward to the late-2000s and EU NGOs set their sights on agriculture, particularly palm oil. Why palm oil? The key political driver here was not actual forest loss, but the fortunes of European oilseed producers. Changes to European agricultural policy around this time encouraged the production of oilseeds, particularly for biodiesel. But subsequent imports of better-value and higher-quality palm oil for both food and biodiesel were putting a strain on EU oilseed farmers. Not only were they unable to take advantage of new demand, they were losing existing market share.

Again, tropical forests were the perfect justification for EU policymakers, industry and NGOs to target palm oil. Note that the angle taken by EU Parliamentarians is not to address the problem of deforestation or biodiversity loss, but to address palm oil itself.

Against this decades-long background came a large piece of research that was published by the EU in 2012.  It found that between 1990 and 2008:

In other words, Palm Oil is a very small contributor to global deforestation. Beef and livestock are around ten times larger; soy is more than double; and maize is also larger.

In addition, the study says that:

In other words, palm oil isn’t a big risk for global deforestation or even the EU’s contribution to deforestation.

The follow-up to this 2012 report has come in the form of a new assessment looking at possible EU policy measures to address global deforestation.

Should oil palm growers be concerned? Yes.

Despite palm oil being a small contributor to both global deforestation and EU ‘imported deforestation’, palm oil is still on the table. Palm oil may be small compared with beef and soybean in terms of deforestation, but taking measures against palm oil is more politically feasible.

Why? The EU produces soybean and beef; it doesn’t produce palm oil. Palm oil only really comes from two countries, Malaysia and Indonesia. Both soybean and beef come from some of the EU’s largest trading partners, including the US, Brazil and Canada.

So, while the facts on deforestation may stack against beef and soy, the politics stack against palm oil. And politics, not facts, rule in the EU. This is the context in which the COWI Report must be read – and the context in which the EU’s entire approach to deforestation and commodities must be understood.

In our next blogs, we’ll look at the concepts and assessments in the COWI report.

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The Oil Palm The Oil Palm

EU & Biofuels: RED Is Not The Only Threat

The revision of the Renewable Energy Directive (RED) contains multiple threats to the future success of Malaysian Palm Oil biofuel exports to Europe. The Oil Palm has documented specific threats in the small-print and in the most recent amendments.

It feels almost like a case of déja-vu, this being the third iteration of the RED. Those who have seen all three must surely be asking each other: do you remember the first time? The first discussions on the amendments to the RED have taken place in the Industry, Research & Energy Committee. However, other controversies linked to the EU’s approach to biofuels have also surfaced this week, all of which could potentially impact Malaysian exports.

First, the European Commission confirmed its acquiescence to the Parliament’s goal of removing Palm Oil biofuels from Europe: this was set out in the Commission’s response to the European Parliament Palm Oil and Deforestation Report.

Second, the Commission released a study that it had commissioned on the impact of bio components in transport fuels. The study has been kept hidden for two years before finally being released. Why would the Commission put on hold a study that it asked for? Simple. The study provides data to support the benefits of biofuels and therefore contradicts the political objectives of the Commission and MEPs.

Third, technical changes to the EU’s biodiesel calculations came into force in early September, albeit without any razzmatazz. The Commission has the power, according to the RED, to amend such technicalities, which in this case refer to the GHG calculations of certain types of bioenergy. It is worth remembering that such technical changes will likely continue to be in the Commission’s gift after the new RED is finalized, returning like a bad cover version of the first Directive.

Finally, the recent decision by the World Trade Organisation (WTO) confirmed that the EU should make plans to re-open the biodiesel market to Argentinean exports. Argentina and Indonesia had challenged Europe’s anti-dumping duties on biodiesel back in 2013, to condemn a clear act of protectionism from the EU. The deadline of 24 September is approaching fast, and preparations are underway.

All of this external activity affects both current and future biofuel exports from Malaysia to the EU. Meanwhile, in the European Parliament, MEPs were debating the biggest factor: the RED itself.

The ITRE Committee members debated amendments submitted over the summer on the draft Report of MEP José Blanco López. MEPs were in general highly critical of the Commission, and it is clear there will be substantial disagreement on a number of issues. Opinion on whether or not to ban first-generation biofuels (including Palm Oil) is split and will be one of the most contentious points. MEPs will also likely get lost in the weeds of different GHG calculation numbers, once compromise amendments are agreed between the different political groups.

The focus of MEPs also fell onto the Commission’s process. The Regulatory Scrutiny Board, whose role is to ensure the EU makes evidence-based policy, twice rejected the Commission’s Impact Assessment. Why? The Board signalled clearly that the motives behind revising the RED were wrong. This has been supported by others with knowledge of the EU process.

MEP Christofer Fjellner confirmed those doubts about the impact assessment, in a speech in the European Parliament, while also emphasizing that the ‘post 2020 biofuels proposal from the Commission lacked scientific evidence’.

Simon Godwin, Head of the Impact Assessment Institute (IAI) also criticized the Impact Assessment, in a recently published study that describes how the EU process works. The study shows that the Commission proposal is flawed and ‘scientifically unfounded’. Mr. Godwin added that the proposal had ‘fundamental shortcomings’ and ignored the EU’s own ‘Better Regulation’ principle.

This shouldn’t come as a surprise to anyone who has followed the debate. The European Commission admitted this back in 2016, when a Director in DG Energy confirmed that Palm Oil policies were not based on facts but on emotions. That much has been clear for a long time: and it is not only biofuels policy where Palm Oil suffers from regulation that is not based on facts.

Some in Brussels are trying to put a positive spin on the situation. The EU Commission’s recent response to the EU Parliament’s Resolution on Palm Oil was well-crafted, attempting to claim that something changed. However, reading both what was written in the Commission’s response – and just as important what was not in the response­ – it is clear that efforts to impose European sustainability rules on Malaysian Palm Oil will continue. The fear is that RED is a forerunner for EU sustainability criteria on food, or restrictions on financing of Palm Oil companies. Whether these would be applied through EU legislation, or a bilateral approach (such as CEPA or FLEGT) is as yet unclear. What is clear is that Brussels’ long summer holiday is over, but for Palm Oil exporters the countdown now begins.

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The Oil Palm The Oil Palm

ICYMI: Malaysia Considering New Strategy To Counter ‘No Palm Oil’ Labels

The Oil Palm would like to bring to your attention an op-ed by the Malaysian Minister for Plantations and Commodities, Datuk Seri Mah Siew Keong, who called out European companies who openly undermine and attack Malaysian Palm Oil and millions of the country’s small farmers.

The Minister singled out Denmark’s Lurpak, an RSPO member, which has brazenly decided to launch anti-Palm Oil labels inside the borders of Malaysia. The comments from the Minister signal an apparent new determination on the part of the Malaysian Government to deal with the problem.

Read the full opinion editorials from the New Straits Times and The Star

“It is the responsibility of all of us to hold to account those companies that are undermining our national interest in this way and deliberately undermining palm oil, which is a key pillar of the Malaysian economy.”

“Lurpak’s parent company is a member of the Roundtable on Sustainable Palm Oil (RSPO), whose rules include a commitment from members not to besmirch or undermine sustainable palm oil production. Lurpak’s packaging is a clear attempt to undermine and criticise Malaysian palm oil, and to openly promote alternative oils.”

Read the full opinion editorials from the New Straits Times and The Star

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EU Commission Response Changes Little for Palm Oil Producers

The European Commission has responded to the European Parliament’s outlandish resolution on palm oil. The Commission is the EU’s executive arm, and is responsible for proposing all EU laws: so their opinion matters.

That doesn’t mean that the Commission is all-powerful. It is just a small part of the EU and its decision-making processes. The Parliament, the European Council and member governments are the wielders of real political power at the end of the day. Although the Commission and the Parliament will often find themselves at odds, the Commission is generally a reliable barometer of bureaucratic thinking in Brussels. The situation in Paris, Rome or The Hague is often radically different. These nuances are important when considering that the Commission’s response will have limited impact on the existing anti-palm oil efforts underway throughout Europe.

So what are the key takeaways?

Some bad ideas are still intact: sustainable finance

On the one hand, the Commission is taking a sensible line on trade. It has effectively rebuffed the worst and least-informed ideas put forward by the Parliament on differentiated tariff codes for certified palm oil, proposing new tariff codes for certified palm oil, and the idea of a ‘no deforestation guarantee’ in trade agreements.

On the other hand, the MEPs’ thinking on sustainable finance for palm oil investments is very much intact – and quite explicitly supported – by the Commission. Think also of the fact that the Commission – like everyone else in Brussels – hasn’t denounced the resolution’s egregious error of stating that ’40 per cent of global deforestation’ is caused by palm oil.

Good ideas aren’t acknowledged: MSPO

Arguably the best idea that Malaysia has pursued in relation to palm oil over recent years has been the development and implementation of the Malaysian Sustainable Palm Oil standard (MSPO). But the virtues of MSPO aren’t mentioned once. In the MEP resolution, voluntary certification schemes are roundly criticised; it states that certification should be replaced by a single EU-based certification. However, the Commission’s response hasn’t been to laud voluntary standards; it states that they can be built upon. More to the point, however, the response does not state how important national standards such as MSPO are given that they are developed under national and international rules for standard setting with the backing of national governments. In the case of MSPO much of the standard relies upon existing regulations. If the Commission is genuine about wanting to work with producer country governments, it might consider offering more support for what those countries are doing, when they are attacked by the EU Parliament.

Bad ideas get worse: RED

The Renewable Energy Directive has consistently been a thorn in the side of palm oil producers. The Commission has admitted that its plans for the current RED revision (due for a vote in the EU Parliament in only a few weeks) are a significant threat to the use of palm oil as a feedstock for biodiesel. The Commission has proposed that the share of food-based biodiesel in the EU’s renewable target be almost halved by 2030 and that member states can arbitrarily lower the use of biodiesel from oil crops because of indirect land use change. European rapeseed producers will never have been so happy. The Parliament resolution wanted the demise of palm-based biodiesel going into the EU. The Commission’s actions in RED, and confirmed in this response, are aimed to deliver exactly this outcome.

This is not a panacea for palm in the EU

The MEP Resolution was radical, and the Commission response has rebuffed some of these ideas – including the idea of a single certification scheme. But it is a mistake to think that this is the end and that these ideas are off the table.

For example, the idea of a single certification scheme for palm oil going into the EU will likely continue to be promoted by influential MEPs, and other key stakeholders. It may not maintain traction within the Commission, but the idea of setting sustainability criteria that some certification schemes will fit under – as per RED certification – will remain and could be expanded to new areas, such as food imports.

The Commission document doesn’t change the fact that member state governments and legislators (such as those in France), along with NGOs and MEPs, still want palm oil out of the European Union. Importantly, this coalition does have the political will (and muscle) to make that happen. In recent years, palm oil’s position in the EU has been eroded due to legislation imposed by the Parliament and Member States – including RED, food labelling rules, proposed taxes, etc. This recent history teaches us that warm words – whether from the Commission or elsewhere – do not prevent harmful legislation from passing. As we’ve seen plenty of times in the EU it is political will – not facts – that make all the difference.