Sunday, 24 May 2009

Catch 22 for sustainably grown oil palm

Personal note: Malaysian palm oil companies, having destroyed about as much forest as they profitably can, are now HEAVILY involved in destroying Indonesian rainforests.


Saturday May 23, 2009

The Star, Malaysia

·Dr Yusof is chief executive officer of the Malaysian Palm Oil Council

EVEN as European economies scramble to regain their foothold from the economic and financial quagmire, palm oil exports to the EU remains a Catch 22 for Malaysia’s palm oil industry as sustainably grown and certified sustainable oil palm remains a target for lawmakers in the EU.

Hastily shaped and rigorous sustainability standards specifically aimed at palm oil appear to be designed to shrink the import of the vegetable oil into Europe.

Malaysia’s palm oil industry, already inundated with onerous sustainability standards and requirements, has to recognise that the path to the large and growing EU market may prove a tougher challenge this year.

For instance, in trying to live up to their commitment to sustainable planting practices, top palm oil producers have found that the take-up rate and demand for sustainably produced palm oil have not met expectations.

This is despite going through the rigorous planting and accreditation processes that the planters have painstakingly adopted and adhered to.

Assuming the 27 oil mills have been given the go-ahead by the Roundtable on Sustainable Palm Oil (RSP0), the certification body, annual production of this premium crude palm oil and palm kernel oil can potentially approach 1.3 million tonnes.

However, these green credentials have yet to entice buyers which include top-end large retailers.

Although biofuel represents a small portion of sales of palm oil in Europe, nonetheless it is an important aspect which must be protected in the wake of the potential legislative threats.

Rubber-stamped last month, the 27 EU member states are working vigorously to produce the final text of the “climate and energy package” which includes a target of 20% reduction in greenhouse gas (GHG) emissions and 20% share of renewable energy in total energy consumption by 2020 and also a 10% target for renewable energy in the transport energy consumption.

Brussels is also determined to go ahead with its Renewable Energies Directive (RED), and the Fuel Quality Directive (FQD) which includes a set of sustainability criteria for biofuels, again placing palm oil in an unfavourable position.

The ongoing work on technical details of the sustainability criteria, which include indirect land use change (ILUC) and default values for GHG emissions savings for palm oil, would also pose a challenge for palm-based biofuels in gaining entry into the European market.

A default value for palm oil at 19% is clearly to discredit the vegetable crop in comparison to the 35% threshold level while the ILUC imposes a heavy penalty on palm grown on forest-converted land.

During implementation, some countries may favour national industries with better incentives and subsidies, which may place demand for palm oil at a disadvantage.

Challenges are probably going to be many-fold for Malaysia in the coming months. For one, Malaysia has to continue to address concerns over sustainability of palm oil, be it for biofuel or non-biofuel use.

In their clean energy pursuit, EU officials have been quick to say that the new policies would not constitute a trade barrier although it is hard not to construe it as such.

The placing of cleverly disguised trade barriers through the imposition of unduly onerous biodiesel standards such as the cold-flow-plug-point (CFPP) standard could have kept out palm oil. Fortunately, for Malaysia, a timely new technology introduced overcame the CFPP problem.

The popularity of palm oil usage in consumer products has also raised the ire of many European-based non-governmental organisations and calls are becoming louder for consumers to switch to non-palm oil based products.

With only 15% of palm oil buyers across the globe signing up as members of the RSPO, there is very little Malaysian palm oil producers can do.

Certification can mean an additional US$50 per tonne for palm oil in the market, but few are willing to fork that out, given the deepening economic crisis in Europe.

For sure, more scorecards will roll out to check the flow of the palm oil despite its traceability.

This would only mean that producers with serious intent of expanding their palm oil trade in Europe may find themselves still at the inner gates of the market, waiting for the lights to change.

Despite the tough stance on palm oil, the EU is actually a major net importer of oils and fats – even before embarking on an ambitious biodiesel development target. EU’s demand can only be met by palm oil from Malaysia and Indonesia as both countries are the only major net exporters of oils and fats.

Traditional soybean oil exporters such as the United States and Brazil are fast becoming net importers of oils and fats due to local biodiesel consumption. To increase soybean oil supply, 10 times more forest land would have to be opened for cultivation compared to palm oil.

Oil palm grown on legitimate agricultural and non-forested land in a sustainable manner will ultimately help to avoid deforestation – due to growing low-yield soybean – to meet world chronic shortages of oils and fats.

The upshot of this is that Malaysia is a net importer of EU finished goods and products. The country, therefore, requires market access for its exports if Malaysia is to continue to be a valued trading partner. Surely fair trade practices and World Trade Organisation rules call for that!