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The Oil Palm The Oil Palm

ICYMI: Achieving Malaysia First & America First, Together

The Oil Palm would like to bring to your attention an opinion editorial authored by Datuk Seri Mah Siew Keong, Minister of Plantation Industries and Commodities for Malaysia, that appeared in Morning Consult ahead of the meeting between Malaysian Prime Minister Najib Razak and U.S. President Donald Trump, celebrating the 60th anniversary of ties between the two nations.

Morning Consult: Achieving ‘Malaysia First’ Along With ‘America First’

“My ministry oversees Malaysian commodities that include timber and rubber. It also oversees Malaysia’s world-leading palm oil sector, which provides low-cost, high-quality vegetable oil and food for U.S. producers and retailers. In particular, Malaysian palm oil has helped U.S. companies to reduce transfats levels, benefiting the health and well-being of the American people.”

“More importantly, the farmers that cultivate and produce Malaysia’s rubber and palm oil are reminiscent of the American agricultural success story. Malaysia is a small country relative to the U.S. — we have 650,000 small farmers compared to millions in the American heartland. In Malaysia, we are as supportive of our small farmers across the country as President Trump is of his farming communities in great agricultural states like Nebraska, Kansas and Iowa, to name a few.”

Read the full opinion editorial here: Achieving ‘Malaysia First’ Along With ‘America First’

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The Oil Palm The Oil Palm

Why September is a Crucial Month for Palm Oil in Brussels

The European Parliament’s recent hostile Resolution on Palm Oil and Deforestation was voted through in April 2017. The Oil Palm has previously highlighted the multiple errors and falsehoods in that Resolution.

However, the Resolution was not legally-binding. For all the controversy and media coverage, nothing in the Resolution had immediate legal effect.

In the coming months, Members of the European Parliament (MEPs) will be debating and voting on a Directive that does have a real-world and immediate impact on Palm Oil. The Renewable Energy Directive (RED) has legal standing, and the MEPs – the same people who overwhelmingly voted in favour of the negative Palm Oil Resolution – have the power to restrict or ban Palm Oil biofuels: potentially removing at a stroke Palm Oil’s hard-earned market success in Europe. Companies across Malaysia, and elsewhere – as well as millions of small farmers – could see a major market undermined or disappear. Any changes made will be implemented in EU law from 2020.

What, then, are the proposed changes that would impact Palm Oil?

First, an amendment proposed by the Council of the EU:

“Member States may … distinguish between different types of biofuels, bioliquids, and biomass fuels produced from food and feed crops, for instance by setting a lower limit for the contribution from food or feed crop based biofuels produced from oil crops, taking into account indirect land use change”.

If implemented as written, this means that each individual EU Government would have the ability to pick and choose limits for different types of biofuels, including imports. Although in principle this rule covers all possible feedstocks, in reality there are only two that will be targeted and affected: Palm Oil and soybean. The proposed RED text appears to give a free pass to any EU Government that wants to restrict (or, possibly, even ban altogether) Palm Oil imports for biofuels. This rule would take effect from 2020 – less than three years away.

The danger for Malaysian Palm Oil exporters is clear. The French Environment Minister has already stated his wish to totally remove Palm Oil biofuels from France. The RED votes in September and October are the key to how he could realize that vision. Other EU countries, notably Belgium and Italy, have demonstrated already a political predisposition to attack Palm Oil. Palm Oil biofuel exports to these countries could therefore be drastically reduced, or stopped altogether.

Other amendments being considered include –

  • Katerina Konecna MEP, author of the Resolution on Palm Oil, has tabled an amendment calling for Palm Oil biofuels to be totally banned from the EU, post-2020.
  • MEP Merja Kyllonen, a Finnish far-left MEP, submitted amendments for the ban on Palm Oil biofuels to be implemented at a later date: namely from 2021.
  • MEP Gilles Pargneaux, a French Socialist, has also proposed amendments to remove Palm Oil biofuels from the EU, post-2020.
  •  MEP Pargneaux has also tabled amendments to further discriminate against Palm Oil in the GHG emissions calculations, post-2020. Such a situation would ensure that, even if Palm Oil were not banned, the new EU biofuel regime would be heavily weighted against Palm Oil and in favour of EU feedstocks such as rapeseed.
  • MEP Albert Dess (Germany, centre-right), MEP Fulvio Martusciello (Italy, centre-right) and MEP Michel Dantin (France, centre-right) have tabled amendments removing Palm Oil advanced biomass and biofuels from the EU’s formal counting. This would discriminate against advanced Palm Oil biomass feedstocks, effectively removing them from consideration for EU buyers.

These are only a selection of the most egregious amendments. Dozens of others impacting Palm Oil have also been tabled. The timeline is short; decisions will be made imminently.

These amendments, along with hundreds of others, were debated in the Parliament’s Industry, Research and Energy Committee (ITRE) on 4th September and the debate in the Environment Committee (ENVI) and other opinion giving Committees will follow soon.

The Committees will vote quickly – only a few weeks later. It is expected that ITRE will vote on 28th November. In other words, in a matter of weeks from today, MEPs could decide the fate of Palm Oil biofuel exports to Europe post-2020. A final vote of all MEPs – heavily influenced by the Committee votes – could take place as soon as the week starting 11th December 2017.

The Parliament does not act alone. The Council of the EU (made up of all EU Governments) will also finalise its recommendation during September and October. Negotiations between the Council, Parliament, and the EU Commission will establish a final Directive, probably before the summer of 2018.

It is worth recalling that proposals not specific to Palm Oil – such as the potential introduction of Indirect Land-Use Change (ILUC) factors in the RED – could also significantly impact the Malaysian industry. ILUC factors would represent another, unscientific, opportunity for protectionist EU politicians to discriminate against Palm Oil imports.

Why is the EU so protectionist about biofuels?

Put simply, the interests of both well-funded environmental campaign groups and uncompetitive European vegetable oil producers are aligned. Environmental arguments are used as a justification for imposing a trade barrier. This has been the case since the first incarnation of the RED in 2009. The EU’s classification of Palm Oil as causing more GHG emissions than European oilseeds has been criticised by scientists for almost a decade.

Malaysian Palm Oil, despite the attempts to hobble it under RED, remains remarkably popular as a biofuel in the EU. The German-led International Sustainability and Carbon Certification (ISCC) has been accepted as a gold-standard certification for Palm Oil biofuels, as has RSPO-RED. Once again, uncompetitive European rapeseed farmers find themselves unable to compete with Palm Oil in the marketplace, and so turn to politicians to rig the system in their favour, and against Palm Oil.

Like all anti-Palm Oil campaigns, the RED has acted like a ratchet – constantly squeezing and tightening restrictions, and attempting to impose new barriers with every new iteration. So it will be now, in the forthcoming votes. This time, if they succeed, it will not be just the sound and fury (as with the EU Parliament Resolution earlier this year); it could be the end of Palm Oil biofuels in Europe.

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The Oil Palm The Oil Palm

Anti-Palm Oil Campaign Dressed Up As ‘Certification’

The demonization of palm oil has stepped up a notch with the official launch of a new anti-palm oil certification scheme in both the UK and in Australia. The International Palm Oil Free Certification Accreditation Program (IPOFCAP) claims that it will certify products as being ‘palm oil free’ through an auditing process.

When we first read the press release, a few questions immediately presented themselves.

Why does this ‘palm oil free’ scheme need to exist? The short answer is that it doesn’t. Ingredient lists exist already. Having a ‘certification program’ for a non-ingredient is superfluous and faintly ridiculous.

So, then, why does it exist? The only logical reason this new IPOFCAP scheme exists is because the individuals behind it want to publicly attack oil palm growers – most specifically 600,000 small farmers in Malaysia whose families depend on oil palm for their incomes and livelihoods. It is that simple. The IPOFCAP exists to bring harm to the lives and incomes of small farmers in Malaysia, and across the developing world.

The second question to consider is – why on earth would any company sign up?

Is there a sustainability rationale for putting this logo on your product? No. Palm oil certification schemes already exist – both governmental and multi-stakeholder. This is simply not serious by comparison.

Perhaps consumer demand is a reason for a company to sign up? No. Palm oil remains the world’s most-popular cooking oil, and many of the best-selling products in the UK and Australia contain palm oil.

Could there be a publicity or PR benefit to joining in? Again, no. It’s an unknown scheme marketed by an unknown (and largely secretive) group of individuals. Even the launch has attracted very little attention.

There is only one reason that any company would sign up to participate– they want to support an attack against palm oil small farmers. If a company wants a proper certification scheme, those exist already. If a company signs up to IPOFCAP, however, it has made a conscious decision to promulgate untruths and harm against small farmers.

Let’s take a closer look at the victims of this new campaign.

The victims are from rural villages all across South-East Asia. In the mid-twentieth century these areas would contain some of the least-developed communities in the world. The agricultural revolution made it to those people primarily through oil palm. Malaysia’s poverty level has reduced from 50% then, to under 5% today. However, by no definition are these communities rich. They could not compete with wealthy Australian and British supporters of the IPOFCAP scheme, in terms of lobbying expenditure or corporate power. Is IPOFCAP trying to push those farmers back into the poverty they had previously escaped?

It is clear, then, who is harmed. The natural next question is – who does it help?

Well, it could help giant multinationals – such as Casino in France – in their anti-palm oil lobbying campaigns. It could also help rich European farmers who milk taxpayer subsidies in order to fund lavish (but highly unproductive) EU oilseed production. (If palm oil use is reduced, companies will be forced to turn to the uncompetitive EU oilseeds and consumers will pay higher prices).

To summarise – the potential beneficiaries are large, rich, Western multinationals, landowners and lobbyists. The potential victims are 600,000 small farmers in Malaysia, and millions more across Africa, Indonesia and elsewhere. IPOFCAP have essentially designed a plan for inverted wealth transfers: taking from the poor to give to the rich.

Outside of the obvious moral bankruptcy, there are a couple of more self-interested reasons why companies will not sign up to the IPOFCAP scheme.

First, many such companies already work with existing palm oil certification schemes. RSPO rules, for example, prevent companies from undertaking actions that undermine sustainable palm oil. Clearly, signing up to IPOFCAP would be contrary to the spirit of RSPO rules.

Second, many of the major multinational brands have significant operations in Malaysia, Indonesia and other palm oil-producing countries. We’re talking about retailers, food producers, snack brands, cosmetics manufacturers, etc. Signing up to a campaign for ‘Palm Oil Free’ certification is not a sensible activity for companies operating in palm oil-producing countries. Both Malaysia and Indonesia have stated they will oppose anti-palm oil measures by Western companies and governments. Why would a multinational risk its market share in SE Asia for a ‘certification’ scheme that no-one has heard about? The likelihood is that most companies won’t take the risk of offending the consumers and governments in South-East Asia.

The Oil Palm has written many technical analyses of new developments in the palm oil marketplace in the past – from IISD, IDDRI and IFPRI; from the Innovation Forum to the Kiel Institute to Columbia University; and many, many more.

IPOFCAP is not serious enough to deserve such an analysis. It is a spiteful campaign against small farmers, pure and simple, and should be treated as such by all concerned.

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The Oil Palm The Oil Palm

Why the EU’s ‘Sustainability Criteria’ Will Likely Fail at the WTO

Recently, the European Council voted to postpone a decision on reducing tariffs on imported biofuels from Argentina after being ordered by the WTO to do so. The WTO declared the tariffs illegal after a three-year legal battle. A similar Indonesian suit may yield the same result.

The tariffs were put in place to support the EU’s ailing oilseed growers, who are struggling to compete against imported biofuels made from soybean and Palm Oil.

The delay by the Council indicates the political calculation Brussels is making when it comes to protecting its farmers against Palm Oil.

The EU could simply ignore the WTO ruling. Exporting countries would then have the right to introduce retaliatory punitive tariffs against European goods.

The EU has done this previously. It ignored a ruling by the WTO on US beef imports in 1999; consequently the US places legal punitive tariffs on European goods to the value of $100 million annually, costing the EU billions of dollars in lost export revenue.

The EU thinks this is a reasonable price to pay to keep its beef farmers happy.

So when it comes to vegetable oils, it’s likely that the EU will flaunt WTO rules in order to look after its farmers.

The EU Parliament has stated that it wants imports of Palm Oil to be ‘sustainable’ by 2020, defined by a set of ‘sustainability criteria’ that they define.

‘Sustainability criteria’ for imports of Palm Oil and related products have been floated for biofuels (under the Renewable Energy Directive), by the Dutch Government (for solid biomass), by the French Government (for all palm oil imports) and most recently by the European Parliament in a Resolution calling for the introduction of a single EU certification scheme for imports of Palm Oil.

It is highly likely that if the EU decides to unilaterally attempt to introduce these criteria it will find itself facing a WTO challenge. There are several reasons for this.

First, the EU criteria introduced for Palm Oil will likely be considered a technical regulation by the WTO. Technical regulations can’t be ‘more trade restrictive than necessary’ to fulfil their purpose.

In this case, the EU’s main purpose is reducing deforestation. But the problem isn’t oil palm cultivation; according to the EU, it’s the clearing of land. The introduction of sustainability criteria for Palm Oil won’t necessarily stop land clearing; it might stop people from planting oil palm on cleared land and instead plant rubber, cassava or other agricultural crops.

Under WTO rules, the EU would have to demonstrate that its measures reduced Palm Oil consumption in the EU (and/or increased ‘sustainable’ production), and would lead to lower ‘unsustainable’ production in producer countries – and consequently lower deforestation. This would be difficult.

Second, according to WTO rules the EU may have to treat ‘like products’ in a similar fashion. So, if the end use of Palm Oil is the same as sunflower oil and the two have a competitive relationship, the EU will need to treat the other vegetable oils in the same manner. Similarly, biodiesel made from Palm Oil will need to be considered in the same way as biodiesel made from other sources. One of the key tests is whether a ‘measure modifies the conditions of competition in the relevant market to the detriment of imported products’. This is more than likely given that Palm Oil products are solely imported.

Finally, WTO rules also allow exceptions. One is for situations where a rule is “necessary to protect human, animal or plant life or health”. Here, the definition of ‘necessary’ is quite narrow. Think of halting the import of toxic substances, endangered species or weapons. Sustainability criteria around deforestation and sustainability don’t fit in with this exception.

Another is for the conservation of ‘exhaustible natural resources’. For this exception to work, the EU would have to prove that the measures will actually prevent deforestation – as noted above, this would be difficult.

Third on the exceptions list is that the measure not be ‘arbitrary or unjustifiable’ when measured against its objective, i.e. deforestation. By this, the WTO rule is effectively stating that if Palm Oil is linked to a certain amount of deforestation, but other commodities cause more, sustainability criteria are ‘arbitrary or unjustifiable.’ Why? Because if beef causes ten times more deforestation, there needs to be sustainability criteria for beef.

The EU biofuel industry is lobbying hard both for the defensive measures (not reducing the anti-dumping duties) and the proactive measures (introducing new criteria into the RED Directive). There is no subtlety involved. The EU ethanol industry and the EU biodiesel trade association have both openly advocated banning Palm Oil.

The latest proposal from the Council puts forth a plan whereby Member State Governments would be able to implement their own rules for restricting or banning particular biofuel feedstocks – even if those rules are inconsistent with, or more restrictive than, the rules agreed at EU level under the RED. This would be the first time that such ‘flexibility’ allowed Member States to discriminate in such open terms within the RED. Prima facie this is a clear breach of the EU’s single market principles: namely that on being legally imported by one Member State (say, Palm Oil entering through the port of Rotterdam in the Netherlands), a product should have access on the same terms to the entire EU internal market. That will now, potentially, not be the case for imported Palm Oil biodiesel.

To be clear: the issue is not that Palm Oil must be used in all Member States, or that it must be used to the same level: multiple market variables determine these differences. The principle is that Government policy should not restrict or bar market access unfavourably for legally imported products, when compared with the same situation in other EU Member States.

Why is the EU considering such a breach of one of its fundamental freedoms? Simple. The lobbying power of its domestic oilseed industries. In the words of the European Biodiesel Board, opening the EU to more Palm Oil imports would “bring an end to any European biodiesel production. That statement alone illustrates the level of inefficiency and lack of price competitiveness that exists among European oilseeds, compared to imported Palm Oil.

Until the sustainability criteria and the implementing mechanism are made public, we will not actually know if they fall afoul of WTO rules; and until we see the final result of the Renewable Energy Directive, we will not know how far the EU is prepared to go, to protect its inefficient oilseed producers.

However, by the tone of the European Parliament’s recent report and efforts by Member States to discriminate against Palm Oil, it’s very likely that ‘sustainability criteria’ will be over-reaching and will find themselves at the losing end of a WTO challenge. However, in the meantime it is innocent Palm Oil small farmers that will lose out if the EU insists on introducing discriminatory measures that harm the export market to Europe. While producers may again resort to the WTO, there are other means of applying pressure that may pay more dividend in the short-term.

The EU is currently trying to engage with ASEAN countries to ink trade agreements, including Malaysia. The growing markets in South-East Asia are a major prize for EU manufacturers and service industries, looking to grow exports and increase shareholder value. Introducing restrictions on Palm Oil is not a good way for the EU to start negotiations to accomplish these goals.  Put another way in case that wasn’t clear: pressure from the vocal minority in Europe to force the Commission to adopt policies that are anti-Palm Oil that erode the shareholder value of Malaysia’s small farmers will lock out the silent majority of European businesses that want market access to the South-East Asia region.  The ball’s in Brussel’s court.

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The Oil Palm The Oil Palm

Palm Oil Leads Sustainability Certification

Other commodities should be put under the spotlight

IISD (the International Institute for Sustainable Development) has just published its second Sustainability Standards Initiative (SSI) report.

Its first SSI published in 2014 was controversial. Why? Because it was clear that palm oil was leading the way in terms of food commodity certification, yet IISD was highly critical of both palm oil and palm oil certification.

What was also clear in the 2014 report was a general ambivalence to the social and economic aspects of certification. There was acknowledgment that it is Western demands driving sustainability certification, and that this is imposing a higher cost on palm oil producers, with no corresponding financial return. However, there was no acknowledgement that this situation works against sustainability.

Not much has changed in the most recent report. The report covers the contribution of sustainability initiatives to biodiversity protection.

This presents a problem. Sustainability – and any associated certification – covers environmental, social and economic concerns. The latter are ignored in the latest SSI report. Even the emphasis on biodiversity protection is narrow; the environmental scope of sustainability certification is much broader than this and needs to be acknowledged as such.

The Western-funded report underlines the broader Western attitudes towards what certification should do, i.e. protect forests. IISD and its funders are apparently much less interested in whether certification contributes to poverty reduction than they are in protecting landscapes.

There’s also a reluctance to state that palm oil and palm oil certification aren’t the bête noire of the environment and are performing better than many other commodities and schemes.

Although the SSI has toned down its criticism of palm oil, there is very little recognition of the strides the palm oil industry has made and its superior position relative to other commodities.

Consider the following facts emerging from the SSI report.

Palm oil certification (under RSPO) covers 20 per cent of global production. Voluntary soybean certification covers 1 per cent of production. Voluntary maize certification covers less than 1 per cent of global production.  As a share of global production, palm outperforms coffee, tea and bananas. Major crops such as wheat barely figure; beef and livestock don’t even rate a mention.

The performance of the palm oil industry is highlighted further by the following factors: total global certified crop area, areas associated with deforestation, the criteria used in each scheme.

According to the SSI, the certified area for oil palm production is around 2.62 million ha. The certified area for soybean production is around 1.87 million ha. Maize clocks in at around 150,000 ha. In other words, palm’s certified area is around 50 per cent higher than soybean, and around 15 times higher than that of maize.

It has been noted well over the past two years that palm oil’s contribution to global deforestation is low. Deforestation from beef is around ten times that of palm oil; soybean is approximately double; maize is around 20 per cent higher.

The conclusion to be drawn here is that palm oil’s overall deforestation footprint is smaller, and its certification footprint is larger. Soybean is responsible for more forest loss than palm and its management of existing cropland is poorer. The same can be said for maize.

It should be noted that SSI’s assessment for palm oil doesn’t include government-mandated sustainability schemes such as MSPO.

In addition, the scope of certification schemes should be considered. Certification for maize production is under organic standards. Organic standards are not environmental or sustainability standards in the same vein as RSPO. Organic standards are generally concerned with minimising inputs rather than protecting, say, high conservation values. Compare this with RSPO, which incorporates forest protection, prohibitions on new plantings, and greenhouse gas emissions.

There are several other things that should be considered when examining the contribution of sustainability standards to biodiversity protection.

First, is the contribution towards smallholders and poverty reduction. Despite what some campaign groups might say, smallholders and the world’s poor do contribute to environmental degradation – this includes biodiversity loss. It is therefore vital that certification – and therefore better production techniques – are made available to the world’s smallholders, or there is at least some effort to include them. This is happening actively through RSPO, MSPO and other mandated schemes.

Second, IISD does not think it is appropriate to acknowledge that voluntary standards, as effective as they might be, are no substitute for strong legislative and regulatory frameworks in producer countries. Voluntary standards are always a more expensive option; if global demand for a commodity exists, there is always likely to be demand for a non-certified product.  This is borne out by the report’s repeated references to high levels of demand for non-certified palm and soybean in countries such as India and China, which constitute the majority of global demand.

The underlying solution is therefore better regulation. There is no recognition in the report that things such as better regulation of land-use planning, and stronger enforcement of biodiversity protection laws will likely have a much greater impact on biodiversity protection than, say, tightening up existing voluntary standards.  This is important when considering commodity exports from different jurisdictions. By way of example, there is considerable pressure for Brazilian beef producers to adopt sustainability standards, but no such pressure on British producers.

So what are IISD’s motives here?

The first appears to be to keep the certification debate focused on Western concerns about the environment, and push social and economic concerns to the periphery.  We can surmise that IISD likely did this report to help push the European agenda to regulate palm oil.

The second appears to be to maintain a negative attitude to commodity production, specifically palm oil, in developing countries.  There appears to be a reluctance to either laud or criticise any certification scheme or commodity. This is a shame. From IISD’s data, it’s patently obvious that palm oil leads the global agricultural community in certification; whereas competing oils (soybean) and other staples (maize, wheat) are laggards. An obvious conclusion and recommendation is that campaign groups put more of their energy into advocating for stronger sustainability standards of palm oil so greater uptake of other commodities can occur.

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The Oil Palm The Oil Palm

Swiss Journalism on Palm Oil is Full of Holes

A documentary on Swiss television show Rundschau, purporting to claim that Swiss farmers should switch away from using Palm Oil in animal feed, has quickly been debunked as ‘fake news’, as it emerges that the proposal would substantially harm both Swiss farmers and consumers.

Rundschau claims that the use of Palm Oil is ‘embarrassing’ and quoted trade union officials calling for Palm Oil use to be ‘stopped’. However, there are multiple problems with the documentary itself, and the claims following from it.

First – using Palm Oil as an ingredient in animal feed is legal, normal, and part of the free choice of farmers in an open marketplace. Many farmers – in Switzerland and elsewhere – choose animal feed that contains Palm Oil. Why? It’s a superior product, at a more competitive price. If Rundschau does not like that, then perhaps market economics are not for them.

Second, the environmental claims made about Palm Oil have been thoroughly debunked many times over. Malaysia is not deforesting: on the contrary, the United Nations’ official figures show that Malaysian forest area is increasing as the country demonstrates its commitment to forest protection. It is a poor, and lazy, form of ‘journalism’ that overlooks such an obvious and publicly-available fact.

Third, it has emerged that the proposal to eliminate Palm Oil would have an immediate negative impact on pretty much the entire food supply chain in Switzerland. According to the website Swissinfo, replacing Palm Oil with rapeseed oil would cost Swiss farmers over $1m annually. Why? Because Palm Oil is more efficient and more productive than rapeseed – therefore, it is more price-competitive. It is also better for cows’ digestion, according to supply-chain experts. Understandably, farmers are not keen to jettison an efficient, healthy, low-cost oil for an unproven, higher-cost alternative.

Fourth, if costs rise, that means that prices will rise. Not only is Rundschau’s proposal harming the pockets of farmers, but it’s proposing to increase food prices across the country as well. Again, a basic rule of market economics that seems to have escaped the attention of the journalists.

The economic and environmental folly of replacing Palm Oil is clear. Why, then, would it even be proposed? This is not the first time that ideologues in Switzerland have tried this lobbying effort: both local Swiss governments and protectionist industry have attempted this before, without success. The latest effort should meet the same fate.

So, to summarise, the Swiss journalists’ ‘investigation’ has proposed a policy that would raise costs for Swiss farmers; raise prices for Swiss consumers; harm the welfare of Swiss cows; and give Swiss money to wealthy European landowners, instead of Malaysian small farmers.

It’s probably best if the Swiss stick to chocolate and watches, and leave the investigative journalism to someone else.

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The Oil Palm The Oil Palm

Importance of G2G Recognition of Standards

Sustainability certification for commodities is growing. One think-tank estimates that there are around 400 sustainability initiatives for different commodities around the globe, ranging from cocoa to beef. Palm oil is no exception. Roundtable on Sustainable Palm Oil (RSPO) certification is one of the most widely known standards in the global marketplace, but there are no fewer than four sustainability standards for palm oil – more than any other oil crop.

Systems such as RSPO started existence as voluntary standards; they are essentially business-to-business standards that were designed to assure palm oil purchasers that palm oil was produced sustainably.

RSPO was established in 2004 as European concerns around deforestation in Southeast Asia first emerged. However, the debate has become considerably more complicated since then. The most significant development has been lobbying by various NGOs and competing oil producers to have governments regulate the international trade of palm oil for sustainability reasons.

The most developed of these was a proposal by French legislators to place sustainability criteria on palm oil; palm oil that did not meet sustainability criteria would be subject to higher rates of taxation. This initial proposal was rejected by the French parliament, but lawmakers established a panel to determine these sustainability criteria.

Similarly, the EU is talking about a trade and environment agreement with palm oil exporting countries – a voluntary partnership agreement (VPA). This would be similar to agreements on forest products that place more stringent conditions on imports of timber that don’t meet certain environmental conditions.

The crux is what these sustainability criteria and environmental conditions will look like. Consider the following producers exporting to the EU: one with RSPO-certified operations; another with MSPO-certified operations; another with no certification from SE Asia; and another from Central America with no certification.

How should the ‘sustainability’ of each of these different exports be considered by governments when determining taxation policies or import conditions?

Some EU officials and member state lawmakers want to establish sustainability criteria to be the basis of such a determination.

The closest parallel here is the EU’s Renewable Energy Directive. The European Commission established a set of rules that determined which biofuels could be considered as counting towards a member state’s renewable energy target. The imposition of sustainability criteria prompted Argentina to launch a WTO action against the EU.

However, the key difference with palm oil is that the policy proposals specifically target palm oil, and no other oilcrops or commodities.

Given that the palm oil industry and governments of palm oil producing countries have established consensus-based standards for sustainable palm oil, it would make sense for governments to recognise these standards in policy. At the very least, it would avoid a potentially messy trade dispute with Malaysia and Indonesia at a time when the EU is attempting to forge closer trade relations in the ASEAN region.

So what would ‘recognition’ look like?

Under the RED, the legislation allows for recognition of voluntary and government schemes. For palm oil this includes the International Sustainability and Carbon Certification (ISCC) scheme and the RSPO RED scheme. Government schemes for palm oil (Malaysian Sustainable Palm Oil and Indonesian Sustainable Palm Oil) have not been recognised. One government-backed scheme, the Austrian Agricultural Certification Scheme, has been recognised.

However, there are key differences between what RED is attempting and the proposed sustainability measures for palm oil. RED is attempting to boost the use of renewable fuels over fossil fuels and reduce direct and indirect emissions, but the palm oil measures effectively seek to regulate the production of palm oil in other countries, notably Malaysia and Indonesia, and make it ‘sustainable’.  Sustainability under this broader definition would incorporate social, environmental and economic measures.

The first problem for European policymakers will be determining whether environmental, social and economic policies in other countries are ‘sustainable’ given their circumstances – and whether this is remotely appropriate.

The national standards that have been introduced – such as MSPO – are appropriate, particularly as they are in line with national development goals and are produced under a democratic system. They are also mandatory. This is significant given that European sustainable palm oil groups are calling for compliance with these schemes and recognising that there is room for multiple schemes. An endorsement of a national scheme that is mandatory is effectively an endorsement of exports from those countries.

Would traceability need to be a part of this? Not necessarily. If palm oil has been produced under a standard and that standard meets expectations, then traceability is just an additional cost. No one is calling for traceability for sunflower oil, for example, and nor are they demanding traceability for beef cattle.

The second problem for European policymakers, will be assessing whether enforcement and compliance of any laws and regulations is up to the task. Countries may have strict  laws on, say, fire management, but have no capacity to enforce them.

And this is precisely where both national and voluntary standards and certifications are useful.

Rather than attempting to build a new set of regulations from the ground up, the EU would be better off using what is in place. If it is seeking assurance on compliance, it can use certification processes. In other words, RSPO, ISCC and national standards such as MSPO are going to be as good a starting point as any.

So how would this work under a broader trade arrangement?

Under World Trade Organisation rules, countries are generally blocked from introducing technical regulations on imports that are too onerous (technical barriers to trade – TBT).  A sustainability regime may fall under these rules. But there are potentially better solutions. These could include using the Malaysia-EU FTA negotiations to set out a dispute resolution procedure for TBT, or a memorandum of understanding between the EU and Malaysia on the recognition of sustainability standards within any forthcoming legislation or regulation.

But it also needs to be remembered that FTAs are supposed to reduce trade barriers and make trade between countries easier, not more difficult.

Some observers are calling for a ‘comprehensive’ sustainable development chapter; there is clearly a misunderstanding here of what trade agreements can and should do. Trade agreements do not permit one country to regulate another country’s production methods or standards for a ‘sustainable’ result. Nor do they provide ‘aid’ that changes production methods, or mandate how one country should manage its natural resources. What they can and should do is regularly monitor the implementation of the agreement to ensure that ‘sustainable development’ isn’t going backwards.

By some accounts a palm oil chapter is being discussed in the MEUFTA. NGOs and sustainability groups should not consider this a bandwagon for their grievances, and nor should some groups see it as an opportunity for protectionism. It should be a precise and technical document that ensures trade of palm oil between Malaysia and the EU is easier, not more difficult – that is the solution that will work for both sides.

It’s arguably easier for governments to acknowledge each other’s standards. But recognition of sustainability standards doesn’t need to be difficult. The EU has already shown how easily it can be done.

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The Oil Palm The Oil Palm

French Sustainability Criteria Commission Report: What Does It Mean for Malaysian Palm Oil?

The new French Environment Minister, Nicolas Hulot, has stated publicly that he plans to examine ways to ban Palm Oil – specifically Palm Oil biofuels – from the French market. Malaysian Minister Datuk Seri Mah Siew Keong last week sent a clear message that if the EU continues to discriminate against Palm Oil, it would endanger the EU-Malaysia Free Trade Agreement.

Does Minister Hulot’s speech mark the beginning of a new French assault on Palm Oil? It is too early to know for sure – but it is essential for Palm Oil exporters to understand why and how such an assault may be happening.

The recently-published report from the French Government’s Sustainability Criteria Commission (SCC) must be read in this context. The Report is titled The Sustainability of Palm Oil and Other Vegetable Oils, and contains multiple recommendations for how the French should regulate Palm Oil imports. Let’s quickly recall the background: the SCC was set up in the aftermath of the defeat of the latest incarnation of the Palm Oil Tax, in May/June 2016.

The plan was that four hand-picked French experts would examine the alleged sustainability issues around Palm Oil, and report back. Those experts are –

  • Alain Berger, a French agriculture specialist and civil servant
  • Marie Hélène Aubert, a career politician with the French Green Party
  • Michel Regis Talon, a civil servant with a background in environment & agriculture
  • Jean-Jacques Bénézit, a government official focused on sustainable development

In particular, the SCC was designed to focus on whether France should impose sustainability criteria for Palm Oil imports, and whether any new taxes should be levied on Palm Oil.

The final SCC Report has now been published. It serves as a joint-report between the Ministry of Environment and the Ministry of Agriculture, and carries several recommendations that will potentially impact Palm Oil exports to France, and the EU more widely.

The headline recommendations are –

  1. The issue of whether or not Palm Oil receives preferable treatment (e.g. lower tariffs) should not be led by the French Government: there should be an investigation at EU level, instead.
  2. The French Palm Oil Tax should be dropped.
  3. The plan for French Sustainability Criteria should be dropped; instead the EU should again take the lead in studying the idea of a possible future EU Scheme.
  4. France should support current sustainability initiatives in the Palm Oil sector, notably RSPO.
  5. The EU should adopt a clear definition of HCS land.
  6. The EU should consider a FLEGT-style agreement for all commodities (including vegetable oils).
  7. France should redouble its actions to promote the sustainability of vegetable oils.
  8. France should consider changing the Customs Code to reduce the tax benefits offered to Palm Oil biofuels.

Two of these stand out: First, the recommendation on changing the Customs Code on biofuels. This is notable because new French Environment Minister Nicolas Hulot has stated publicly his desire to restrict Palm Oil biofuels – and the Council of the EU (of which the French Government is a member) has put forth proposals to allow such discrimination under the EU’s Renewable Energy Directive. It now seems that a concerted move is underway to allow France – and possibly other EU countries – to adopt measures that would restrict Palm Oil biofuel imports.

Secondly, the French Palm Oil Tax has been rejected in principle by the SCC. This is a vindication of the efforts of Malaysia to educate and convince French policymakers that the tax is unjust.

Additionally, the dangerous plan for a ‘French Sustainability Criteria for Palm Oil’ – put forth during the French debate on the Biodiversity Bill in 2016 – has also been rejected.

The Report’s full recommendations are well worth reading. Standout quotes include this on tax –

“Environmental taxation which would only affect palm oil does not appear to be possible. On the one hand, it could lead to a move to other oils with an equally negative environmental impact (copra, soya, etc.).

“On the other hand, it would pose a high risk of non-compatibility with WTO rules.”

… on sustainability criteria –

“… the introduction by France of a binding sustainability standard applied to imports of vegetable oils, particularly palm oil, is not a practical or feasible measure. But the feasibility of such a measure deserves to be studied at European level, within a broader framework.”

… and on a possible FLEGT-style deal at EU level –

[The SCC] recommends that the Government bring to the European Commission, together with other Member States, the elaboration of a new regulation which would make it possible to integrate criteria of social and environmental responsibility for imports of agricultural commodities (including vegetable oils), drawing on the experience gained through the FLEGT scheme and adapting customs tariffs accordingly (as bonuses or penalties).”

The final quote is revealing. While the SCC Report contains good news on rejecting the Palm Oil Tax and other issues – it does ask the EU to take measures that could negatively impact Malaysian Palm Oil exports.

What, then, does this mean for the Palm Oil industry?

  • Does this Report mean that the ‘Nutella Tax’ is dead?

Yes, for now. The SCC Report recommends no new taxes on Palm Oil in France. It is therefore likely that the new French Government will not immediately implement new taxes or sustainability criteria.

However, this Report is only advisory. Anti-Palm Oil MPs may still put forward a Palm Oil Tax when the French Budget is debated later in 2017.

  • Why is France deferring several issues to the EU?

The EU Commission has competence both on external trade policy, and the internal EU market. The French Government cannot unilaterally direct such policy, without recourse to Brussels.

Discriminatory taxes, tariffs, etc, would contravene the EU rules set out by the Commission. However, the French campaigners are powerful, and demand action against Palm Oil. The SCC Report is aware that these two positions are incompatible. Instead of taking such a difficult decision itself, it proposes that the French Government ignore the difficult decision, and pass the problem over to Brussels.

  • Is France planning a biofuel tax or restriction that would harm Palm Oil?

The Report suggests that measures could be taken to hit Palm Oil biofuels financially, as a way of disadvantaging Palm Oil compared to the present situation in France.

However, renewable energy policy is the competence of Brussels – not the French Government. Current EU rules – adopted in the Renewable Energy Directive (RED) – would not allow such explicit crop-based discrimination. The EU Council and Commission are now pushing for these rules to be changed: and for Governments to have the opportunity to discriminate between different biofuel feedstocks. Given that most of Palm Oil’s competitor oils are from the EU, realistically Palm Oil is the only target of this measure.

This will not only be limited to France. Other recent moves to restrict Palm Oil biofuels – such as by the Norwegian Parliament –  are probably linked to this move as well. Changing the RED rules in Brussels is the way for the French Government to achieve its objective of banning Palm Oil biofuels.

  • Does this impact MSPO at all?

The SCC Report recognizes MSPO’s progress – though it makes an error in stating that MSPO ‘is not mandatory’ (it is, as announced by Minister Datuk Seri Mah Siew Keong). The Report identifies that MSPO can assist with small farmer certification, noting that –

[MSPO has] a level of detail broadly analogous to that of RSPO … the certification requires independent auditing … has modules of traceability analogous to RSPO … the scheme covers sustainable social and economic development to a satisfactory standard.”

Finally, perhaps the most important question for palm oil producers: does this SCC Report mean that Palm Oil’s problems in France are over?

The short answer is no. The network of anti-Palm Oil activists in France has not gone away, and likely will seek to influence the EU’s FLEGT process and other Brussels-based activity.

It is also unknown how the new French Government will approach the many policy issues related to Palm Oil imports – many of the Ministers and MPs involved do not have a track record in public office, and so it is difficult to predict whether they will accept the recommendations of the SCC Report, or if they choose to pursue a different path. It is clear that in at least one area – restricting Palm Oil biofuels – the new French Government plans to be as hostile to Palm Oil as its predecessors, and perhaps even more so.

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The Oil Palm The Oil Palm

ICYMI: Malaysia – EU FTA Unlikely If Europe Discriminates Against Palm Oil

As negotiators meet this week on a Malaysia-EU FTA, the Malaysian Minister of Plantation Industries and Commodities Datuk Seri Mah Siew Keong sent a clear message to Brussels: an FTA is unlikely if Europe discriminates against Palm Oil.

“Malaysia’s free trade agreement talks with the European Union (EU) is not likely to conclude if Palm Oil continues to be discriminated with tariff and technical trade barriers, Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong said today.”

“If the EU continues to discriminate against Palm Oil, I think it would be very difficult to conclude the free trade agreement. We don’t want trade barriers to work against our Palm Oil exports.”

“If we need to proceed to the WTO, we will because the livelihoods of some five million smallholders cultivating oil palms, in this region, is at stake.”

Let’s be clear about what this means: should Brussels enact regulatory measures that either block or create unequal market access criteria for food and biofuels or establish standards that unfairly target Palm Oil based on environmental and health grounds, this will unravel any hopes and dreams Brussels may have about a free trade deal with one of South East Asia’s biggest economies. This only hurts European consumers and businesses who seek cheaper goods, and new markets for their goods.

Read the full article here: New Straits Times: Difficult to conclude FTA with EU if Palm Oil continues to be discriminated: Mah

 

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The Oil Palm The Oil Palm

The EU Fine Print That Could Ban Palm Oil Biofuels

So much of what the European Union does, affects Malaysian Palm Oil. Trade negotiations; environmental rules; customs procedures; the list goes on. The devil, though, is often found in the details of the EU’s smallprint.

The EU is currently reviewing the Renewable Energy Directive (RED), the legislation that governs, among other areas, the import, support and use of Palm Oil-based biofuels in the European Union. Previous incarnations of the RED have witnessed attempts by the normal coterie of anti-Palm Oil activists – primarily Green NGOs and protectionist oilseeds – to restrict Palm Oil biofuels’ export to the EU. Most of these previous efforts have failed. This time may be different.

To understand why, we must look to an event that occurred in Paris, last week. The new French Environment Minister, Nicolas Hulot, outlined a proposed plan to prevent Palm Oil biofuels from entering France. Minister Hulot said:

“We will close a window that was giving the possibility to incorporate palm oil in biofuels…

“The climate plan foresees an end to this imported deforestation, that is to say, products that contribute to the destruction of the three major tropical forest basins of the world, Amazonia, Southeast Asia and Congo Basin, especially for the production of unsustainable palm oil or soybean”.

First, it’s important to note that under current RED rules, France cannot unilaterally ban the import of Palm Oil-based biofuels. Palm Oil is certified as a sustainable biofuel under EU-approved schemes, including the German-based ISCC and the multi-stakeholder RSPO-RED. The EU runs this show, not France.

However, now the RED rules are being revised, the Council of the EU – of which the French Government is a powerful member – is at the forefront of writing the new rules, and this is the “window” the Minister was referencing. The Council’s most recent proposal for the RED revision includes the following under new Article 7:

“Member States may … distinguish between different types of biofuels, bioliquids, and biomass fuels produced from food and feed crops, for instance by setting a lower limit for the contribution from food or feed crop based biofuels produced from oil crops, taking into account indirect land use change”.

The EU Commission also supports this change.

What, then, would this mean in practice, and how would it affect Malaysian Palm Oil exports to Europe?

If implemented as written, it means that each individual EU Government would have the ability to pick and choose limits for different types of biofuels, including imports. Although in principle this rule covers all possible feedstocks, in reality there are only two that will be targeted and affected: Palm Oil and soybean. The proposed RED text appears to give a free pass to any EU Government that wants to restrict (or, possibly, even ban altogether) Palm Oil imports for biofuels. This rule would take effect from 2020 – less than three years away.

The danger for Malaysian Palm Oil exporters is clear: some EU countries, notably France, Belgium and Italy, have demonstrated already a political predisposition to attack Palm Oil. This RED proposal gives an opportunity to those Governments to please the domestic siren voices – radical Greens, protectionist oilseed industries, anti-trade campaigners – and actually implement restrictions. EU law would no longer protect Palm Oil. Palm Oil biofuel exports to these countries could therefore be drastically reduced, or stopped altogether.

The Minister’s speech in France provides a graphic illustration of this reality. The French company Avril is Europe’s largest biodiesel producer (using rapeseed), and is an avowed public opponent of Palm Oil. Minister Hulot’s speech is the mirror-image of Avril’s campaign against Palm Oil. Protectionist oilseed industries are driving European policy against Palm Oil.

This scenario, of course, is looking to the future if the proposed RED rules were to be introduced. The legislative process is a long way from completion, and all three EU institutions – the Parliament, Council and Commission – could listen to a concerted campaign by producing countries, if one were to materialize.

Back in the present-day, it’s important to return to the French Minister’s speech. This speech was made in the context of the RED discussion. Minister Hulot likely knows that current EU RED rules prevent him from implementing a wholesale ban. He also likely knows that the situation could change, and his speech is a signal that France will be supporting that change fervently. Others are likely to join: Norway has recently also promoted the banning of Palm Oil biofuel imports.

Minister Hulot’s declaration chimes with a broader narrative that has taken hold in the EU in recent months. Leading Palm Oil producers have repeatedly been told that the EU considers Palm Oil a “driver of deforestation” – this phrase runs through, and lies behind, recent European initiatives, including the drive to push for a FLEGT-style arrangement for Palm Oil, the EU Parliament’s anti-Palm Oil Resolution, and the recent report from the French Sustainability Criteria Commission.

The RED debate is linked to this narrative: it does not take place in isolation. The EU’s revision of the rule on biofuels runs concurrent to the “driver of deforestation” narrative, and is shaped by it. The comments from Minister Hulot and others are not incidental: they are pointed, and aimed to shape where the RED is going.

It is sometimes easy to dismiss the speeches of ambitious (and newly-arrived) European politicians as simply words, designed to provoke media reaction. In this instance, there is hard action underway behind the words, it is action vocally supported by the long-time opponents of Palm Oil, and it is action with a very serious intent.