The Oil Palm The Oil Palm

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

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

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

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

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

Due diligence for commodities

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

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

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

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

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

Consumer information campaign in partnership with industries and NGOs

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

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

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

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

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

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

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

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

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

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

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

Is there any realism to COWI’s assessments?

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

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

The Oil Palm The Oil Palm

The EC’s Proposals on Deforestation: The Good Ideas

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

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

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

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

Best Practice Support to Smallholders via Technical Assistance

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

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

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

Partnership agreements for forest risk commodities

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

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

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

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

Public procurement for sustainably produced commodities

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

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

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

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

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

Why are these proposals good?

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

The Oil Palm The Oil Palm

ICYMI: Malaysian Government Acts to Protect Small Farmers

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

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

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

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

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

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

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

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

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

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

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

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

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

Read more about the announcement, here.

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

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

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

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

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EU & Biofuels: RED Is Not The Only Threat

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

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

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

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

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

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

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

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

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

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

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

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

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

The Oil Palm The Oil Palm

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

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

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

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

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

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

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

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EU Commission Response Changes Little for Palm Oil Producers

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

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

So what are the key takeaways?

Some bad ideas are still intact: sustainable finance

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

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

Good ideas aren’t acknowledged: MSPO

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

Bad ideas get worse: RED

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

This is not a panacea for palm in the EU

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

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

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

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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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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.

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.