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The Oil Palm The Oil Palm

From Timber to Palm: Is FLEGT a Viable Model for Palm Oil?

The recent resolution on Palm Oil by European Parliamentarians put forward a number of policy proposals on Palm Oil imports into Europe. One of them was a ‘FLEGT-style’ (Forest Law Enforcement, Governance and Trade) regulation for Palm Oil.

This regulatory approach isn’t new. It was first floated in 2012 when the European Commission undertook its broad study on the impact of European demand on global deforestation. Last week, the Commissioner for Environment Karmenu Vella stated in an official response that it is “considering the development of a Union action plan on deforestation and forest degradation.” In other words, the Commission is studying a policy proposal such as a FLEGT for Palm Oil.

So what is the FLEGT Regulation?

As it is, it currently applies to certain timber and timber products. There are two parts to the regulation.

At the European end, a ‘due diligence’ regulation has been introduced. Anyone who puts specified timber products (including paper) on to the European market must undertake ‘due diligence’ on the legality of the product.

Legality in this sense means that it has been harvested and processed according to all applicable local laws and regulations, that appropriate taxes have been paid on the products (e.g. border taxes), and that risk of corruption has been minimised.

Companies can choose how they comply with this. They can use legality verification and chain-of-custody systems that are offered by auditing companies, or they can develop their own methods for assessing legality.

There are two components of non-compliance. The first is by not undertaking the due diligence process. The second is if in the event of ‘illegal’ timber the seller decides to put the timber on the market regardless.

The second part of the FLEGT model is assisting exporting developing countries to ensure that their exports are ‘legal’. And this is where things get more complicated.

Exporting countries enter a bilateral agreement with the European Union called a ‘Voluntary Partnership Agreement’ (VPA).

A VPA aims to reform and consolidate forest laws and governance in the harvesting country, and establish an export licensing system for ‘legal’ products entering the EU. These FLEGT licenses constitute a waiver for the due diligence checks.

Has FLEGT been successful?

FLEGT has had limited success. A report issued by the European Court of Auditors in 2015 calculated the cost of the EU program at EUR300 million (around MYR1.4 billion), at which point no FLEGT licensing systems were operational after a 12-year project period.

One of the upsides of the program is that it has hastened forest law reform in many countries. There is an upside for many producer-country governments that may have previously been short-changed on revenue from illegal harvesting activities.

Can FLEGT be applied to other commodities such as Palm Oil, Soybean or Beef?

There are two immediate hurdles.

First is that FLEGT applies to legality, not sustainability. No serious observer would suggest or could claim that there is ‘illegal Palm Oil production’, but unregulated deforestation is possible in many countries – and that deforestation might impact commodities across the board..

Defining a product’s sustainability for export purposes would be particularly difficult as there is no universally accepted definition of either sustainability or sustainable production. Smallholder farmers, for example, cannot meet the same environmental standards as large producers (and they certainly cannot meet standards routinely demanded by Western NGOs and European Governments). But to call smallholder farmers ‘unsustainable’ is absurd given their social and economic significance.

Second, if a broader FLEGT program truly wants to achieve an objective of tackling deforestation and environmental degradation, it would need to be applied to a range of commodities. Why? Focusing on Palm Oil is not the most effective route to combating deforestation. As has been pointed out several times over – by the EU’s own research – the biggest contributor to agricultural deforestation is beef. The biggest contributor to global deforestation from European demand is soybean. Indeed, even Western NGOs have accepted this fact and have resolved to focus less on Palm Oil and more on other commodities.

Hypothetically, if these hurdles were to be overcome, what would a FLEGT model for Palm Oil look like?

Ideally, the due diligence component would require checking that Palm Oil was produced according to a national government-endorsed standard (such as MSPO) or a voluntary standard (RSPO), or a company-based assurance system. The export licensing component would be based on these standards.

Palm Oil would be ahead of the curve in this context; no other industry (with the possible exception of forest products) has the same level of sustainability certification that Palm Oil does. As has been noted by RSPO, there is an excess of certified sustainable Palm Oil, such has been the producer commitment to sustainability.

There are, however, potential hurdles.

Small countries would need to consider whether the compliance costs associated with developing and/or implementing a sustainability system are worth it. The question would be whether the Europeans would be willing to fund the development of national standards in poorer countries.

The other question is whether small countries without a VPA would have a case for arguing that they are effectively being blocked from EU markets, which would potentially clash with WTO rules. This would definitely shape how the EU approaches any agreements, and whether it includes other commodities that are responsible for greater levels of deforestation, such as soybean.

There are broader questions for Malaysia. Malaysia was one of the first countries to start negotiating with the EU on a VPA for timber and has been doing so for ten years. A timber legality assurance scheme (or certification) has been developed. Where the negotiations go from here remains to be seen and there will be lessons to be learned.

However, the following is clear: EU policymakers want to implement this regulation on Palm Oil.

The clear lesson from the FLEGT for timber is that engagement is key. It is a mistake to assume that any of the truths about Malaysian Palm Oil that we take for granted here are known or respected in European capitals.

The broader question for the EU though is how far it is prepared to go down this route.  It will likely be expensive, controversial and potentially have little impact on global deforestation. It will need to be prepared to devote considerable resources over the long term if it is to undertake this exercise and remain on-side with many of its trading partners. The exporting countries remember the timber and paper wars well.

If the current FLEGT process is any guide, this will be a drawn out process.

Categories
The Oil Palm The Oil Palm

Why Does Norway Want to Ban Malaysian Palm Biofuels?

Not for the reasons you’d think…

Norwegian MPs have recently passed a resolution calling for Palm Oil biofuels to be banned from any and all public procurement in the country. When The Oil Palm learned of this resolution, we immediately assumed the motivation was environmental. After all, Norway has a long history of implementing environmental rules that disadvantage developing countries (despite the fact that Norway’s entire national wealth is built on fossil fuels).

However, on closer examination all is not as it seems. The usual environmental explanation may, in this instance, only be window-dressing. What lies behind it looks very much like a protectionist attempt to restrict Palm Oil imports, to prevent competition with domestic bioenergy production. Norway’s bioenergy demand is rising, and banning better-value Palm Oil imports will clear the path for domestic production to take the prize.

How does Norway plan to ban Palm Oil? The Parliament’s Resolution states –

“Parliament asks the government to as soon as possible … clarify whether there is room for Norway to enforce the EU’s sustainability requirements for all biofuels sold in Norway, or changes that can be made from Norwegian side with the aim of making the EU’s sustainability requirements applicable to all biofuels sold in Norway as quickly as possible”

This, so far, is a perfectly reasonable approach: under Norway’s EEA Agreement with the European Union, EU rules in multiple policy areas are applied within Norway. Parliament seems to be requesting that this be enforced when it comes to biofuels. So far, so reasonable.

However, the Resolution goes on to state:

“Parliament asks the government investigate whether [it can implement] … an industry agreement or similar that all sales of biofuels should be Palm Oil-free.

 And, further:

“Parliament asks the government through regulatory law on public procurement to set high standards for biofuels which … will be [higher] than the minimum requirements of the EU’s sustainability requirements and no use of Palm Oil.”

These requests are problematic – because prima facie this approach seems to contravene Norway’s EEA agreement with the EU.

The EU Commission accepts Palm Oil biofuels as a sustainable renewable energy source. This is because Palm Oil biofuels are certified by independent bodies, including the German-based International Sustainability & Carbon Certification (ISCC). For Norway to reject the EU’s rigorous and fully implemented rules on these certification systems may well be in breach of its commitment to implement EU decisions.

Why, then, is Norway focusing on Palm Oil biofuels?

There may be a domestic policy motive. Norway is planning to boost its biofuels blend levels to 20 per cent – a lucrative potential market for Norwegian biomass and ethanol producers. Biodiesel use of Palm Oil in Norway is relatively small – historically, imports of ethanol from the U.S. have been more significant. Burning wood as fuel – both domestic and imported – is also more significant than Palm Oil. However, Palm Oil’s dominance in the EU market has not gone unnoticed in Oslo – a better-priced, more-efficient alternative that could undermine Norway’s inefficient local producers.

The Resolution claims that Palm Oil is environmentally destructive, and causes deforestation, and therefore should be banned. These arguments fall flat on their face. Here are the facts:

  • Oil palm uses less fertilizer and fewer pesticides that any other oilseed crop. It is also up to ten times more productive per hectare. This means that less land is used for growing oil palm to produce biodiesel, which means more land can be preserved for nature.
  • If Norway replaces Palm Oil with other biofuel crops, it will be directly responsible for more land being used for biofuels – and that means globally less land being preserved for nature. Surely this would not be a desirable outcome for Norway’s environmental policy?
  • Studies by European experts have shown that Palm Oil biofuels are significantly more efficient and productive than other oils, and that previous EU attempts to downplay the benefits of Palm Oil have nothing to do with science – and everything to do with protecting the failing European rapeseed sector.
  • EU politicians have openly admitted that anti-Palm Oil claims are based on emotion, rather than science. The danger for Norway is that it may be falling into the same trap of prioritizing emotions over hard scientific evidence.

The Resolution also makes blanket accusations:

“The Committee points out that palm oil is a vegetable oil extracted from the oil palm tree is responsible for annual cutting and burning of vast areas of rainforest to plant oil palms.”

Again, false.

The UNFAO measures forest area in countries around the globe. Malaysia currently has over 56 per cent of land as forest area: the UN’s most recent report found that forest cover in Malaysia is increasing, not decreasing.

The Resolution should not only be looked at in the context of Palm Oil and biofuels: but also in the wider context of Norway’s membership of the European Free Trade Association (EFTA). EFTA is currently negotiating an FTA with Malaysia – a process that would surely be incompatible with Norway banning Malaysia’s largest export. It is a major gamble for Norwegian politicians to potentially risk an FTA, given that Norway is an export-dependent economy.

Norway would normally pride itself on its internationalism – the country is famous internationally for pressing other countries to live up to their environmental responsibilities. Criticising Palm Oil producers may be seen by some as part of this environmental agenda.

But is Norway living up to its own high standards, at home?

It was reported recently that Norway is preparing to dump toxic waste into pristine natural environments in its fjords, with catastrophic effects predicted for animal and plant life, and the ecosystem of the ocean itself. This does not look good, when at the same time the Norwegian Parliament is criticising Palm Oil for supposed environmental defects.

There is more to this story. Norway’s wealth as a country is built entirely from fossil fuels. In other words, “drill baby drill.” This has made the people, and the companies, of Norway extremely rich. The Parliament’s resolution is in peril of looking like a country that wants to pull up the ladder to stop poor farmers in the developing world – including in Malaysia – from also improving their incomes in the way that Norway has done in the past.  That’s very nice of Norway to do.

Norway is not the only actor here: others must also be questioned. Where is the outrage and scandal of the Green NGOs about Norway’s dumping of toxic waste? Where is the censoring from the EU Commission or Parliament? MEPs recently passed a highly aggressive (and factually inaccurate) report attacking Palm Oil – but there is silence over Norway’s dumping of toxic waste into pristine natural environments. NGOs routinely attack oil palm planters – including criticising small farmers looking to escape poverty – but they give a free pass to super-wealthy Norwegian corporates that dump toxic waste. This surely qualifies as double-standards, and most certainly smacks of Green Colonialism, and should be called out by all those who value honesty and integrity in our public debate.

The science in the Resolution, related to Palm Oil’s environmental impact, is inaccurate. The motivation is cynical. And Norway’s exporting of carbon emissions and dumping of toxic waste leaves questions about its moral and civic leadership.

The Norwegian Government should see sense, and reject the Parliament’s flawed recommendations.

Categories
The Oil Palm The Oil Palm

Unpackaging the IDDRI Report for the Truth

The European agricultural sector and the governments that support it dislike palm oil. Palm oil is a cheap, efficient and sustainable product that supports the livelihoods of millions of people across the globe. Over the past decade, palm oil has become the vegetable oil of choice among many food manufacturers. As a result, there have been various attempts by European governments and their proxy organisations to denigrate palm oil on sustainability grounds.

The French Government recently funded a discussion paper and presentation by French NGO IDDRI (Institute for Sustainable Development and International Relations) to assess the role of importing countries in encouraging sustainable palm oil production. It made its presentation at a recent meeting of the European Palm Oil Alliance (EPOA) in Brussels.

IDDRI’s position has a number of significant biases. These flaws are largely informed by an ill-informed bias against palm oil in France (and the European Union) that has taken hold due to French protectionist politics and European climate policy. But there are three key flaws in IDDRI’s reasoning that must be addressed.

  • First, is that they make no distinction between palm oil from different areas, companies and countries. It assumes all palm oil is the same, and it is mostly negative. The research focuses solely on Indonesian development needs and outcomes, but assumes all palm oil producing countries have the same objectives. Focusing on one country cannot give an accurate picture of the entire palm oil sector, and you certainly cannot extrapolate one country’s results to represent all others.

          The Malaysian experience, for example, is very different, and is not reflected in the IDDRI report.        Malaysia is the second-largest global producer of palm oil – not accounting for its unique experience, for example related to higher yields, is a clear flaw at the heart of the study.

  • Second, the report is based entirely upon desk research. So at this stage, it is completely theoretical. The reality of palm oil production is nuanced, and is not reflected in IDDRI’s scratch-the-surface approach.
  • Third, IDDRI posits a false choice for palm oil: that it is either small-scale farmers or large scale plantations. The reality is that there have been pioneering models developed in Malaysia over the past fifty years that demonstrate clearly that the two can and do work together in a manner that is environmentally, socially and economically sustainable. IDDRI’s speakers admitted to this at their EPOA presentation; yet it does not appear in print. Why not?

IDDRI seems determined to:

  • Position industrial-scale operators in a negative light, in need of new regulations and other quasi-regulatory initiatives that will add costs for large scale operators, and ultimately undermine their market position and strength. This would bring about a competitive advantage for large-scale European vegetable oil producers at the expense of Malaysian palm oil producers.  This is Europe’s protectionist agricultural policy rearing its ugly head, again.
  • “De-link” small farmers/independent operators from the industrial-scale operators, even if those partnerships are beneficial – e.g. the author contends that successful and sustainable models pioneered by Malaysia, and successfully replicated across the sector globally, are unsustainable and need reform.  This would bring about deleterious effects for wealth creation for families across Malaysia.
  • Portray large producers, and the system the industry has established over the years as “insufficient”, and new regulations are required for industrial operators.
  • Provide material that will support planned current or future trade measures against palm oil in Europe, that will harm producing countries and severely limit market access.
  • Undermine the evidence that European policy efforts are in fact doing a disservice to smallholder farmers, which is a commonly held view in Southeast Asia.

Generalisations about sustainability

IDDRI has a narrow focus on sustainability outcomes. They state that they are focused on four areas: limiting the expansion of palm oil production area; social and economic outcomes for smallholders and workers; land conflicts; and the power balance between smallholders and purchasers.

Let’s consider these in the Malaysian context.

First, the land for palm oil production expansion in Malaysia is virtually non-existent. This has been well documented.  IDDRI also projects that future oil palm expansion will lead to significant forest loss; yet this doesn’t take into account the expected significant advances in yield throughout the supply chain. Malaysian yields are planned to rise to 6 tonnes of oil per hectare, a more than 40 per cent increase.

Second, the social and economic benefits of palm oil production in Malaysia have been fully realised.  Millions of people have been lifted out of poverty in Malaysia because of oil palm programmes – developed with the blessing of the World Bank – since Federation. The FELDA programs for smallholder outgrowers allocated plots of land to families. They were provided with subsidised inputs and outreach services to provide oil palm fruit for the processing facility. Outgrowers were given title to plots of land (i.e. – property rights). Downstream industries such as oleochemicals have provided the basis for a manufacturing sector.

Third, and this follows on from the previous point, land conflicts in Malaysia have been minimised. Why? Malaysia’s land tenure and cadastral systems are robust and backed by a functioning legal system; the Constitution of Malaysia supports and recognises the rights of indigenous people.

Fourth, and this follows on from the two points above, the power balance between smallholders and larger purchasers has been mitigated by a balanced approach to regulation, particularly through strong institutions.

Generalisations about smallholders and production models 

Oil palm plantations are not homogenous, and nor are production techniques. They vary significantly between region and country. There are a number of production models that are employed by different groups.

The authors identify two main production models in Southeast Asia: ‘industrial plantations’ and ‘independent smallholders’.

First, there is a generalisation about Southeast Asia. Southeast Asia is home to more than 623 million people. ASEAN comprises 10 different countries, all with different legal, political and cultural institutions. To equate the production techniques of these ten different countries – and the various environmental regulations supporting them – is simply incorrect. They are different countries with different systems. Environmental outcomes in all these countries, e.g. deforestation rates, are completely different. Malaysia’s forest area is actually increasing, as calculated by the United Nations FAO.

 

In other words, IDDRI’s conclusions on land expansion do not accurately reflect the current or future reality in the world’s second-largest palm oil producing nation. That speaks to significant flaws in both the IDDRI research method, and in the report’s conclusions.

Malaysia and Indonesia are not the only countries affected. Other producers of palm oil in the region, including Thailand and the Philippines, are themselves different.

Second, the binary ‘industrial’ and ‘smallholder’ model isn’t clear-cut. Other authors have identified multiple production models. It is also difficult to justify the statement that either smallholders or large-scale production is more ‘sustainable’ than the other. Each has its own clear benefits – and in fact, as in Malaysia, a blend of both tends to achieve the best social and economic results.

IDDRI calls for greater extension services and more support for smallholders. But aren’t these already present in Malaysia through FELDA schemes and the support of Malaysia’s palm oil institutions such as MPOB?  [For our readers that are unfamiliar with “MPOB,” MPOB is the Malaysian Palm Oil Board that is tasked by the government with regulating and licensing the palm oil sector and supporting research and development that will bring about enhanced yields, introduction of new technologies and general extension-like services].

Getting certification models right

IDDRI rightly points out that there are problems with certification. No certification system is perfect. They also rightly point out that ambitious commitments don’t always translate to great implementation – and therefore strong outcomes.

One of the key problems that IDDRI sees with voluntary systems such as RSPO and the ‘commitment’ models used by The Forest Trust is that they have difficulty certifying smallholders and only really suit large companies.

They also call for stronger state involvement in providing incentives for smallholders and other enterprises to become certified. But this is precisely what a system such as the Malaysian Sustainable Palm Oil (MSPO) standard involves.

For example, it was announced earlier in 2017 that MSPO will be mandatory for all palm oil enterprises. For companies, the compliance date is mid 2019; for smallholders it is the end of 2019. The Malaysian government now essentially has a law that mandates sustainable palm oil production. Malaysian rules regulating agricultural production already ensured their sustainability with regards to environmental regulations – this includes areas such as pesticide use, water management and land clearing. These regulations are incorporated into MSPO. Further, MSPO incorporates MyGAP, Malaysia’s Good Agricultural Practices standards.

The clear incentive here is the prospect of criminal prosecution or civil penalties. Further, the Malaysian Agricultural Research and Development Institute has flagged the prospect of soft loans for certified operations.

IDDRI also states that there is a conflict of interest in the auditing process because there is a financial relationship between the auditor and the company. But this conflict can be eradicated simply.

The problem can be solved – and has been – by ISO processes. The problem is not in the financial link between the company and the auditor. For RSPO, the problem remains. In the case of RSPO, there is not a degree of separation between the standard setting body (i.e. RSPO) and the accreditation body (the body that accredits auditors to undertake auditing work). Under the RSPO model, the standard setting body and the accreditation body are the same. This means that the RSPO can withhold accreditation to auditors if it produces results that it does not consider appropriate. This cannot happen under the ISO model (i.e. – rules adopted by PEFC, for example). Under the ISO process, the incentive for auditors to produce robust work is to remain accredited by the IAF, not the standard-setting body.

What the authors fail to note is that RSPO was established in a way that did not conform to these processes.  MSPO, on the other hand, was. Yet, this was carefully disregarded by the authors. Certification standards that are governed by national standards bodies – such as the Malaysian Timber Certification System and MSPO certification – conform with ISO and IAF best practices.

But certification in palm oil needs to be considered in context.

The authors acknowledge that there is virtually no economic incentive for producers to introduce certification schemes to their operations. However, they do not acknowledge that while the supply of certified palm oil is plentiful, there is little to no demand in any markets beyond Europe, and even there, demand at the consumer level (as opposed to the purchaser level) is similarly close to non-existent. The authors do not acknowledge that producers have been cajoled into applying and paying for a certification system by purchasers that they themselves are not willing to pay for. Despite this, the authors call for certification standards, i.e. at the producer level to be strengthened.

At the same time, there are no other agricultural commodities that have this many certification schemes in place to ensure sustainability. Beef and soy – both of which have larger deforestation footprints according to EU research – have perhaps one certification system each. Palm oil has at least three voluntary standards.

IDDRI is clearly concerned with environmental outcomes more than broader social and economic outcomes. As such, they should be advocating not for stricter certification, but for better environmental regulation, enforcement and compliance where environmental outcomes are suboptimal. This needs to take place at different governmental levels. The authors, however, do not put this forward as a solution; it is reasonably obvious they do not consider the governments in palm oil producing countries to be competent enough to do so.

But, as noted in detail above, Malaysia and the institutions that surround Malaysian palm oil are ticking all of IDDRI’s boxes.

Undoing the mistrust created by Western campaign groups

IDDRI contends that ‘beyond certification’ commitments by purchaser companies have not resulted in the expected changes in practices that have been sought by NGOs.

This may be the case. However, it should be understood that from the producer perspective a significant level of distrust has been generated by the actions of NGOs and purchasers.

NGOs (particularly WWF) and purchasers went to great lengths to convince producers that a premium would be generated by RSPO certification and that there would be high demand in Western markets. Neither has materialised. Businesses invested significantly in certification and (in some cases) segregated supply chains in order to capture this premium.

The more recent campaign by NGOs and producers to ‘double down’ and attempt to impose even tighter environmental conditions generated outside of the consensus process amplifies this level of distrust. The cost of imposing the ‘no deforestation, no peat, no exploitation’ commitments is even greater. This is not because it means significant changes in practices, but because the compliance costs associated (e.g. monitoring mechanisms and traceability systems) are massive. It has been well noted that the imposition of these systems has resulted in a large number of smallholders being excluded from supply chains.

IDDRI needs to understand that calling for higher standards or proposing elaborate solutions isn’t going to get this trust back among producer nations. There is the possibility they are simply adding to the problem.

Putting IDDRI on the right track

Despite having a knowledge of the palm oil sector, the authors of this discussion paper have clearly used generalisations about the industry to make sweeping conclusions and recommendations. The reality is much more nuanced.

Presenting ‘sustainability’ of palm oil production as an either/or choice between large plantations and smallholders in misleading. Each has their merits. Production models vary well beyond the binary position presented.  More importantly, production models vary significantly from country to country. Malaysia’s palm oil sector has got a number of things right and continues to do so. These need to be highlighted and used as a model for other countries.

The effect of presenting such false and simplistic choices is that the IDDRI analysis and conclusions simply do not stack up when compared to reality in Malaysia, one of the world’s leading palm oil producers.

It seems more likely that IDDRI has chosen this methodological path in the knowledge that it will lead to a more negative picture of the palm oil industry. In other words, the methodology has been chosen to produce a pre-desired result that will show palm oil as bad – in every country, with no exceptions.

In order to produce such negative analysis, IDDRI needed to cherry-pick, which included removing or ignoring results that showed palm oil in a positive light – such as higher yield numbers in some countries.

This obfuscation is all too clear, once the methodology and data are examined closely. Such an approach will not generate trust amongst palm oil producers, and certainly will not help to bring balance and reason back to the palm oil debate.

There is a lesson here, for EU policymakers. Taking the same approach as IDDRI – contending that palm oil producing countries and their certification systems are inadequate, even when you know that advances are being made in some countries – will fail. Instead, the EU should be honest enough to account for individual countries, rather than taking IDDRI’s blanket approach. Individual success stories should not be ignored; the national laws and development goals of each country should be treated separately. The EU must have the honesty and good sense to work with, and recognise, schemes such as MSPO.

Rather than following IDDRI’s example, EU policymakers would do well to instead examine its failings, to better avoid making those same mistakes in the future.

Categories
The Oil Palm The Oil Palm Unclassified

TRADE FOR ALL: The Implications of EU Trade Policy for Malaysian Palm Oil

The EU’s record on trade is patchy. It garnered the reputation as ‘Fortress Europe’ from its agricultural policies and technical standards, which were designed to shield the bloc’s farmers from international competitors.

More recently, it has looked to environmental regulations and health measures as a method of erecting regulatory barriers – mostly to favour European products over imports, or to reduce the competitive advantage of products from outside of the EU. These include measures to restrict imports of timber and paper from Asia and restrictions on imports of US beef.

Despite this, the EU has attempted to maintain its trade bona fides; it wants to be seen as a reliable trade partner. It made much of its ‘Trade For All’ strategy when it was first published in 2015, which expanded on its previous 2012 trade strategy. Both expand the notion of what trade policy should set out to achieve. It should, according to the EU, foster sustainable (economic, environmental and social) development, not just economic development.

For this reason, the EU has incorporated and aggressively promoted a range of policy concerns that are well outside of the trade frame. These include human rights, environmental management, climate change, and social justice. It has included such issues within Free Trade Agreements, publicly pressured partner countries, and used a variety of other means to promote these concerns as part of ‘trade policy’.

There has also been a shift in focus of EU trade officials towards Asia. In 2012, the EU paid almost no attention to trade with Asia.  This has changed. With a pending FLEGT regulation for Palm Oil from Brussels, what do these two directions in policy mean for Malaysian Palm Oil?

First to Malaysia. It’s apparent from the Trade For All document that the EU now considers Asia to be a priority. This is a change. Previously, the EU’s trade policy relationship with Asia was very much reactive. The maintenance of the market share of European companies (mostly manufacturers) within the European market was the priority.

However, as consumer demand within the EU waned, European companies (mostly German manufacturers) have struggled. Exports outside of the Eurozone became a priority. Asia, particularly China, Korea and ASEAN, with growing middle classes and consumer demand were the obvious candidates. Access to ASEAN markets – including Malaysia – has become a central plank of the EU’s export strategy. The emergence of the Trans Pacific Partnership Agreement and Regional Comprehensive Economic Partnership put additional pressure on Europe to re-focus towards Asia. Trade agreements with ASEAN countries have become a priority.

In some ways we’ve been here before when the EU and ASEAN launched inter-regional negotiations in the early 2000s. But in 2008, the EU effectively called off the negotiations. The reason was that it objected to Myanmar’s record on human rights. The EU stated any agreement couldn’t include Myanmar, leading to an impasse.

Since then, the EU has instead chosen to pursue bilateral deals with individual countries as “building blocks” for a ASEAN-EU agreement. This includes Vietnam and Singapore. Both the EU and Malaysia have stated that negotiations will re-start in 2017 following a stocktaking exercise – this is further underlined by the Trade For All document.

The key difference now is that EU companies need to find new export markets for goods and services, and they need to invest in markets that will generate growth. The relative size of Malaysia’s middle class is bigger than any other in ASEAN with the exception of Singapore. The Asian Development Bank predicts Malaysian household consumption will continue to rise.

But EU exporters face considerable competition in Malaysia. Germany’s biggest export to Malaysia is circuitry and electronics, but its exports are massively outweighed by Asian and Pacific trade partners. It is a similar story for many other European exports, including agriculture and cars (dominated by Japan). As Asia-Pacific trade relations become more integrated, either under the TPP or by ongoing reviews of existing trade agreements, access for EU exporters will become more critical.

This means that Malaysia and other ASEAN nations will have greater leverage when negotiating European market access.

How will Palm Oil be handled during these negotiations? Anti-Palm Oil campaigners will use the negotiations as a platform for demonising Palm Oil and further demonising the product among European consumers and purchasers. And even those that are supposedly supportive of Palm Oil in Europe would certainly attempt to use any negotiations with Malaysia (or Indonesia) to secure inclusion of special conditions for Palm Oil exports leaving for the EU.

At the same time, Malaysia could use negotiations to call on Member States – such as France – to wind back any proposals that would place onerous burdens on Palm Oil imports.  For example, Malaysia’s deputy trade minister stated that negotiations will include a response to and discussion of the European Parliament Resolution that was critical of Palm Oil.  For that matter, Malaysia can insist any agreement recognise MSPO.

In terms of what a negotiated agreement would look like, the EU-Vietnam agreement is a good indicator.

In the agreement, there is a commitment that neither country will weaken environmental laws in order to promote trade or investment or introduce an environmental regulation as a disguised restriction on trade.

There’s also an agreement that countries will work together to prevent technical barriers to trade and recognise each other’s technical standards – in Malaysia’s case this would include sustainability standards such as the Malaysian Sustainable Palm Oil standard.

The significance of such clauses is that they prevent backsliding by either party. So, if recognition of MSPO is part of the agreement, it becomes very difficult for the EU to renege on any recognition.

Underpinning these is a dispute resolution mechanism that parties can use if things go awry, if for example a member state introduced a law or regulation that can be considered a trade barrier.

So, if a regulation or a standard is introduced and can be considered to conflict with EU rules, there will be a mechanism for Malaysia to complain about it.

Similarly, the EU’s laws require that member states comply with the EU’s competencies as they relate to trade and harmonised standards.

The problem for Malaysia and Malaysian Palm Oil isn’t so much the outcome of the negotiations. Trade agreements are a negotiation and they should be of mutual benefit. The problem is the mud-slinging that will occur on the way to an agreement.

Categories
The Oil Palm The Oil Palm

Is Palm Oil a Driver of Deforestation?

European policymakers, NGOs and vegetable oil producers have been attacking Palm Oil solidly for more than a decade – using environmental, health, and other scare stories to make their presence felt.

The primary argument against Palm Oil is its supposed contribution to deforestation. In the missives against Palm Oil, deforestation is taken as a given. That is the starting point. Malaysia often hears these claims in discussions with the European Commission. This is then used as a justification for a range of discriminatory policy measures and regulations against Palm Oil that include trade restrictions, taxes, illegal labels, procurement restrictions and local (though largely symbolic) bans from local governments and other institutions.

However, these actions rest on a false assumption – namely that Palm Oil is a major driver of deforestation. In order to assess this, we must ask the following questions:

  1. How much does Palm Oil contribute to global deforestation?
  2. How much of this is due to demand in Western markets?
  3. Will development of agricultural land happen regardless of the crop that is grown?

In 2012 the European Commission undertook a study into the impacts of various commodities on deforestation. The global results were clear, though not welcomed by anti-Palm Oil campaigners. They read as follows:

  • Of a total of 239Mha of deforestation that took place globally around 55 per cent of deforestation comes from forestry and agriculture;
  • Around 28 per cent of global deforestation is from crops, 24 per cent is from livestock (58Mha), which makes livestock the biggest single source of global deforestation;
  • Of deforestation from crops, the largest source is soy (5.4 per cent of the global total or 13Mha), followed by maize (3.3 per cent, 8Mha) and then oil palm (2.5 per cent or 6Mha);

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. That answers our first question.

A second major concern of the EU, however, is whether its demand for products contributes significantly to global deforestation.

The study says that of the 239Mha of deforestation, 22.4Mha (around 10 per cent) is traded internationally in the form of global commodities such as beef and soybean. According to the EU’s figures, 11.5Mha of deforestation is ‘exported’ as soybean. Around 2.39Mha is ‘exported’ as Palm Oil.

Drilling down to what goes into the EU, the numbers become smaller. The report says that around 7.4Mha of deforestation is exported to the EU as different commodities. The majority of this is soybean, clocking in at 4.44Mha (60 per cent); Palm Oil on the other hand clocks in at 0.89Mha (12 per cent).

Again, the deforestation of other commodities, in this case soybean, is significantly larger than of oil palm.  The EU report also breaks down its ‘imported deforestation’ by country; it says that Malaysia’s contribution in this period was 3 per cent (0.22Mha).

From this it’s possible to make the following conclusions:

  • Global trade is not a significant contributor to global deforestation; most deforestation – around 90 per cent – is a result of local factors and local demand. If global trade were to be halted tomorrow, global deforestation would continue.
  • European demand is an even smaller contributor to global deforestation. Around 3 per cent of global deforestation can be considered to be related to European demand for imported products. If the EU were to block all imports of so-called ‘deforestation commodities’, it would make nearly zero difference to the problem of global deforestation.
  • The role of the Palm Oil trade in global deforestation is, once again, insignificant. Just 1 per cent of global deforestation can be attributed to Palm Oil exports and imports. The role of European demand for Palm Oil in global deforestation plays an even smaller role, comprising 0.37 per cent of global deforestation.
  • Malaysia’s historical role is even smaller. European demand for products from Malaysia – mostly Palm Oil – contributes to 0.09 per cent of global deforestation. Consider that the UN Food and Agriculture Organization says that Malaysia’s forest loss is now effectively zero and the country’s forest area has in fact increased over recent years.

Is it therefore possible to say that both Malaysian oil palm plantations and the demand for Malaysian Palm Oil are not drivers of deforestation? Yes.

Anti-Palm Oil campaigners may counter by stating that historical oil palm expansion in recent years has contributed to deforestation, or that ongoing deforestation in other countries means that measures should be taken against Palm Oil regardless of where it comes from.

But no one would seriously suggest that Australian or European beef should be subject to boycotts or campaigns because of high deforestation in the Brazilian Amazon caused by beef. And no one would suggest that US farm or timber products should be boycotted because of deforestation that took place in previous decades.

The facts need to be separated from the hyperbole. If European policymakers and campaigners are concerned about deforestation and not just Palm Oil, then it is the drivers of deforestation that need to be tackled – not the consumption of Palm Oil.

Despite this, European policymakers have been seriously considering new regulations against Palm Oil instead of focusing on other commodities that pose a much greater threat to global forests, namely beef and soybean. This includes the equivalent of a FLEGT (Forest Law Enforcement, Governance and Trade) regulation for Palm Oil that would restrict Palm Oil imports in the same way it has restricted timber imports.  These ideas were floated again in the recent controversial report on palm oil by Members of the European Parliament.

This begs the question: Why not soybean or beef?  If the EU is serious about solving the developing world’s environmental problems, it needs to broaden its view.  Palm Oil plays a small role in global deforestation.  Is the EU ready to challenge the Trump Administration on beef and soya exports?

Brussels needs to prove that it is willing to conduct serious environmental and trade policy analyses, beyond the symbolic hysterics of Europe’s MEPs. One way it can do this is by taking Malaysia’s environmental record (particularly on deforestation), environmental management policies and sustainability standards seriously. This would include recognising MSPO in the so-called Amsterdam Declaration on Palm Oil and other official communications. Neither the Commission nor the Parliament have done so.

This needs to change, especially as Europe looks to Asia as Commission President Junker has recently so loudly proclaimed.

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The Oil Palm The Oil Palm

It’s Official: No Palm Oil Labels ARE Illegal

It is now official – the “No Palm Oil” denigration campaign, undertaken by European opponents of palm oil, is illegal. The Belgian Court of Appeal in Brussels ruled last Friday that the Belgian supermarket Delhaize broke the law when it made wild and inaccurate allegations about Palm Oil, including on the labels of its own ‘Palm Oil Free’ product.

The Belgian Court stated that Delhaize’s allegations about Palm Oil were “unverifiable and therefore not objective” in relation to both environmental and health allegations. Delhaize must immediately cease and desist from making these illegal and unjust claims, on pain of serious financial penalties.

This court judgement is at once both wholly unsurprising, and totally unexpected. It is unsurprising because the decision made by the Court is so clearly and obviously accurate. The claims made about Palm Oil by “No Palm Oil” manufacturers and retailers – including Delhaize – are untrue, unjustified, and denigratory.

That has always been the case. Back in 2012, Palm Oil producers from the Cote d’Ivoire won a court case against French retailer Systeme U, forcing Systeme U to cease a similarly unjustifiable anti-palm oil campaign. In 2015, the major international law firm, Hogan Lovells, produced a memo outlining how No Palm Oil labels were illegal under multiple EU, French and Belgian laws, including –

  • EU Food Information to Consumers Regulation (1169/2011)
  • EU Directive on Food Labelling (2000/13/EC)
  • EU Unfair Commercial Practices Directive (2005/29/EC)
  • Belgian Law on Market Practices (2010)
  • French Commercial Code (Articles L450-1 & L450-4)

The Belgian Court has simply expressed in a legal judgement what experts have known for years to be true – the anti-Palm Oil campaign is denigratory and inaccurate.
Why, then, is this court judgement so totally unexpected, and out-of-the-blue?

The reason is because European authorities – governments, regulators, and courts – have refused for several years to enforce their own laws. ‘No Palm Oil’ campaigns have been allowed to continue, unchecked, despite the clear violation of European laws. Authorities in France – such as DGCCRF, in charge of addressing consumer fraud – are well aware of the issue, but refuse to enforce the law or censure the offending companies. In Belgium and Italy, the situation is the same. In Brussels, the European Commission sits on its hands and allows consumers to be misled by untrue and denigratory advertising by Delhaize, Systeme U and others.

Why? There is a simple explanation. Because the No Palm Oil labels, in common with other European anti-Palm Oil efforts, benefit European industries.

Now, however, the Belgian Court has finally made it clear that the Emperor has no clothes. There is no longer any excuse for EU Governments, regulators or officials to allow No Palm Oil labels to continue with impunity. Doing so would be an open admission that those countries have in place a policy to deliberately discriminate against products from Malaysia, and to deliberately harm Malaysian exports – even when they are aware that this is illegal.

Will France, Italy, and others, now properly enforce the law? Will other Belgian companies fall into line? Or will legality go the same way as truth: discarded by Europe so that it can continue the protectionist and discriminatory campaign against Palm Oil?

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The Oil Palm The Oil Palm

Malaysia’s Ominous Warning to Europe in the Face of Renewed Efforts to Discriminate against Palm Oil

Prime Minister Datuk Seri Najib Abdul Razak stated in The Sun Daily that ‘whoever boycotts oil palm products, they will face retaliation’.

The Malaysian Minister of Plantation Industries and Commodities, Datuk Seri Mah Siew Keong, similarly stated that ‘Malaysia has strict standards. If they have unfair practice against us, we too can retaliate’.

These comments come on the heels of a baseless campaign by European interests against the global Palm Oil industry, and in particular, Malaysia, a key regional friend of the European Union.  Worse, the European Commission has begun to sing the same tune as the European Parliament, and repeat the same baseless claims about Malaysian Palm Oil.

The comments by the Prime Minister and Minister, respectively, are a clear signal to leaders across Europe that efforts to erect barriers and additional costs to Palm Oil through the EU FLEGT Action Plan/Deforestation Action Plan will be met with retaliation. On the other hand, should Europe want to constructively engage and take into account the facts on the ground and the interests of Malaysia, we stand ready to work together.

The Sun Daily: Najib threatens to retaliate EU’s resolution on oil palm

By Amar Shah Mohsen

‘The Prime Minister said he recently spoke with Indonesia President Joko Widodo at the Asean summit about sending delegates from their respective countries to the EU parliament in the coming weeks to explain and clarify matters’

‘We (Malaysia and Indonesia) will convince these countries (European Parliament) that whatever claims they have said are baseless. We will also tell them that we are not without our own capabilities’

‘We too buy products from them. So whoever boycotts oil palm products, they will face retaliation from us Malaysia and Indonesia’, Prime Minister Datuk Seri Najib Abdul Razak said during the Malaysian Palm Oil Industry 100 Years celebration.

‘EU’s claim that palm oil products are leading to deforestation is inaccurate, stressing that Malaysia has strict standards. If they have unfair practice against us, we too can retaliate. Let’s not get into specifics. But we will try to solve the matter’, Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong said.

Read the full article here: Najib threatens to retaliate EU’s resolution on oil palm

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The Star: 100 Years of Glory and the Next Horizon

by Datuk Seri Mah Siew Keong, Minister of Plantation Industries and Commodities

‘Over these 100 years we have witnessed extraordinary growth and innovation. From its humble inception, the palm oil industry is today the main pillar of the commodities sector, contributing RM67.6bil in export value in 2016, equivalent to 6.1% of Malaysia’s GDP. With more than two million Malaysians involved on the palm oil value chain including 644,522 smallholders, its impact on the well-being of the rakyat is huge’

‘Despite these successes our road to 100 years has not been the easiest … the opponents are primarily Europeans and the assault includes the French Nutella Tax … and the more recent resolution by the European Parliament. It is essentially a trade issue camouflaged as an environment protection measure’

Read the full opinion editorial here: 100 Years of Glory and the Next Horizon

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The Oil Palm The Oil Palm

ICYMI: Minister Datuk Seri Mah Siew Keong’s Vision for Malaysian Palm Oil

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. The Minister reflects on Malaysian Palm Oil’s 100 years of success, and looks ahead to the future.

The Star: 100 Years of Glory and the Next Horizon

by Datuk Seri Mah Siew Keong, Minister of Plantation Industries and Commodities

‘Tomorrow we will commemorate the 100th year of commercial oil palm planting’

‘Over these 100 years we have witnessed extraordinary growth and innovation. From its humble inception, the palm oil industry is today the main pillar of the commodities sector, contributing RM67.6bil in export value in 2016, equivalent to 6.1% of Malaysia’s GDP. With more than two million Malaysians involved on the palm oil value chain including 644,522 smallholders, its impact on the well-being of the rakyat is huge’

‘Despite these successes our road to 100 years has not been the easiest … the opponents are primarily Europeans and the assault includes the French Nutella Tax … and the more recent resolution by the European Parliament. It is essentially a trade issue camouflaged as an environment protection measure’

‘How palm oil will be remembered another 100 years from now will depend on our vision and conviction’

‘In the immediate term, the accelerated roll-out of the Malaysian Sustainable Palm Oil (MSPO) certification is totally crucial … As smallholders make up almost 40% of palm oil hectarage, the MSPO is a key bridge to ensure compliance to sustainable standards with a reasonable cost and optimised process for those with less resources.’

Read the full opinion editorial here: 100 Years of Glory and the Next Horizon

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The Oil Palm The Oil Palm

New Evidence: Criticism of Saturated Fats Is ‘Plain Wrong’

Saturated fats are not unhealthy. That is the clear, unambiguous conclusion from a new meta-analysis published in the British Journal of Sports Medicine (an affiliate of the world-renowned British Medical Journal). Leading scientists from the U.K. and U.S.A. stated in clear language that the world’s approach to saturated fats “urgently requires a paradigm shift … Despite popular belief among doctors and the public, the conceptual model of dietary saturated fat clogging a pipe is just plain wrong”.

To many, this may sound revolutionary – and against ‘received wisdom’. In fact, this is not all that new. Scientists have been calling attention to this for some time. Some media outlets have now seized on these latest results to tell this important story.

Last year, the British Medical Journal (BMJ) itself published a re-evaluation of previous studies, that also questioned the consensus that saturated fat is bad for you. This comes on the heels of other such research, over recent years.

Dr Elena Fattore, Head of Environmental Risk Unit, Mario Negri Institute for Pharmacological Research, conducted a recent review of literature and concluded that  “epidemiological evidence does not support a role of saturated fatty acids, palmitic acid or palm oil in cancer development.”

Why does this matter? These new studies confirm saturated fats are not as they have been portrayed for decades in international media. For many years, consumers have been told to reduce their saturated fat consumption to improve their health, switching to low fat diets. This perception was constantly reinforced – meaning that many healthy fats and oils, including palm oil, have been unjustly stigmatized as unhealthy.

The new research changes all of that: science now proves that those opponents to saturated fats were wrong.

What must happen now is that the new evidence on saturated fats must be made mainstream. We must listen to the new body of expert evidence. The latest BJSM study could not be clearer: “… [there is] no association between saturated fat consumption and (1) all-cause mortality, (2) coronary heart disease (CHD), (3) CHD mortality, (4) ischaemic stroke, or (5) type 2 diabetes.”

Other experts are just as clear.  Dr Rajiv Chowdhury, Senior Research Associate at the University of Cambridge has also studied the issue: “Current evidence does not clearly support cardiovascular guidelines that encourage high consumption of polyunsaturated fatty acids and low consumption of total saturated fats.”

Dr Pramod Khosla, Associate Professor at Wayne State University is clear: “As the food-industry seeks alternatives for the use of partially hydrogenated liquid vegetable oils, to use in solid fat formulations, palm oil may be one of the viable alternatives by virtue of its fatty acid composition.”

The discussion on saturated fats now must take up this new evidence, at every level: media, policymakers, regulators, companies. This is not just a scientific breakthrough; it is a public health breakthrough also. We cannot afford to cling to yesterday’s dogma any more.

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The Oil Palm The Oil Palm

European Parliament’s Skewed View of Palm Oil

Yesterday in Strasbourg, France, Members of the European Parliament (MEPs) voted through the report on Palm Oil & Deforestation. The report received a massive majority vote in favour. As a reminder, the text that MEPs supported calls for tariffs and non-tariff barriers against Palm Oil; unilateral EU interference in Palm Oil certification; and the banning of all Palm Oil biofuels in Europe, among other such impositions.

Ahead of the vote, a debate was held amongst MEPs on Monday evening. Dozens of MEPs made speeches about Palm Oil – but one thing can be said for sure. Serious policy making was sadly missing throughout the debate.

Worse than that, a sentiment hung strongly in the air: the EU wants total control over Palm Oil.  Some MEPs were explicit about this desire for control: MEP Benedikt Javor said that a mandatory EU certification scheme is required; MEP Bas Eickhout called for the EU to use its market strength as a bargaining chip to force actions on producer countries; MEP Anja Hazencamp threatened to ban Palm Oil imports altogether.

Many others supported these sentiments. MEP Eleonora Evi described Palm Oil as “unethical”; MEP Tiziana Beghin labelled Palm Oil a “dangerous product”; MEP Elizabeth Kostinger called for Palm Oil to be replaced with other products. MEP Katerina Konecna, the author of the report, was restrained, possibly feeling the effects of considered response to her wildly inaccurate claims, but her views are plain to read in the report itself, where Palm Oil is attacked repeatedly, without any basis in fact.

Not all interventions were hostile. MEP Alberto Cirio of Italy recognized Malaysia’s work on environment, and called for respect for producer countries. MEP Julie Girling noted that demonizing Palm Oil is a mistake – and she distanced herself from the extreme remarks of some of her MEP colleagues.

What does this debate, and vote, mean?

The principle of cooperation seems to have disappeared from view. The commitment of producer countries to sustainability – through MSPO, for example – was dismissed and ignored by MEPs speaking in the debate. The importance of oil palm cultivation for millions of poor farmers throughout Africa and Asia was also dismissed and ignored. Malaysia’s commitment to forest protection – over 56 per cent of forest area protected and way above any European country – was also dismissed and ignored.

One MEP speaking in the Parliament even suggested that the Netherlands should take responsibility for Indonesia, certainly referring to their colonial past (or present?).

What will happen now?

Only 12 months has passed since MEP Konecna held her first Hearing on Palm Oil. This week, her final Report on Palm Oil & Deforestation was passed by the Parliament. The European Commission is currently preparing a study to investigate Palm Oil certification schemes. MEPs have also called for a Palm Oil Action Plan to be prepared by the EU.

If the following 12 months move in the same negative direction as the previous 12 months, the threats made by MEPs could move closer to reality. A unilateral, EU-imposed certification scheme. Tariffs and non-tariff barriers on Palm Oil imports. Banning of all Palm Oil biofuels. All of these are recommendations of this European Parliament report. There will be pressure inside Brussels, and much external pressure exerted on the EU, to make these into a reality.

Finally, it’s important to return to the specific allegations made in Monday’s debate. MEP Paul Brannen had clearly read a letter signed by several producing countries, which outlined myths and facts about Palm Oil production, and urged MEPs to think again based on the facts. Mr Brannen devoted much of his speech to claiming the producer countries were misleading the European Parliament.

It’s time to fact check Mr Brannen.

 

  • Myth: Palm Oil is a major cause of deforestation.
  • Fact: The EU’s own research shows Palm Oil far behind other commodities, with at-worst a 2.5 per cent impact on global deforestation. Soy, maize, beef and others all score worse.

 

  • Myth: Palm Oil is a worse feedstock for biodiesel, compared to others.
  • Fact: Palm Oil is more land-efficient that any other vegetable oil biofuel feedstock. It has a smaller environmental footprint, and uses less fertilizer, fewer pesticides and less land.

 

  • Myth: Palm oil producer countries do not care about the environment.
  • Fact: According to the U.N.’s official Forest Assessment Report, Malaysia’s forest area is increasing, and stands at over 56 per cent of land area. This track record of forest protection, and development, is unmatched by any EU country.
  • Myth: The EU must impose a certification scheme, to avoid confusing consumers with multiple schemes (as highlighted in the Parliamentary debate).
  • Fact: Single schemes, with plans to cover all Palm Oil produced in a particular country, exist already. Malaysia’s MSPO scheme is a certification scheme that can comprehensively cover all Malaysian exports to the EU. Ignoring Malaysia’s national development priorities and laws to impose a unilateral standard is over-reach, which is often the case with Environmentalism in Europe. Recognition is a better way to approach the issue.