Time for tripartite retaliation against EU on palm oil
27/03/2023 (The Malaysian Reserve) - DISCRIMINATION against palm oil has been ongoing for decades, facing Western scrutiny since the 1990s. Allegations upon allegations were thrown against oil palm estates and edible oil, each more daunting than before. Cancer triggers, killing orangutans, deforestation and forced labour are among the accusations made against producing countries.
Malaysia, the world’s most prominent palm oil producer decades ago before being overtaken by Indonesia, has always engaged in dialogues with the West to refute the allegations through research and consistent testing. However, the goalpost keeps moving.
Major palm oil-producing countries will soon retaliate with a harsher approach in trading with the European Union (EU) member economies, Deputy Prime Minister (DPM) Datuk Seri Fadillah Yusof told The Malaysian Reserve in an interview.
Fadillah said Malaysia, Indonesia and Thailand have agreed to consider counteracting palm oil resistance by reviewing EU imports or slowing down overall trade.
“If we are not treated fairly, I think there should be some counteraction by us,” said Fadillah, also the Plantation & Commodities Minister. “Together with Indonesia (and Thailand as well), we want to make the EU realise their action is a one-sided, unilateral decision,” he said.
He said Malaysia and Indonesia have recently roped in Thailand, the world’s third-largest palm oil producer, to join the Council of Palm Oil Producing Countries (CPOPC). Together, he said, the council will create a stronger voice to address discriminatory and protectionist measures against palm oil and palm-based products.
The DPM said through CPOPC, the three countries will form a collaborative mission to Europe to discuss with their leaders and MPs to alleviate their concerns and explain that their actions on palm oil don’t only affect the economies, but also affect the livelihoods of smallholders.
“In the palm oil sector alone, nearly 500,000 plantation workers rely on the industry for a living, and if we include smallholders, the total number would be larger,” he noted.
“Malaysia will be chairing the CPOPC ministerial meeting in May and will deliberate on strategies to address external challenges it has been facing through palm oil discrimination, particularly involving the EU,” he said.
The EU and the larger Western countries have implemented discriminative policies, including legislation, labelling of palm oil and segregating products onto dedicated supermarket shelves.
Late last year, the European Parliament approved a regulation to curb EU-driven deforestation and forest degradation, which includes the production of commodities such as palm oil, cattle, soy, coffee, cocoa, timber and rubber. Although the law is seen as wholesome, observers believe the legislation is the new obstacle imposed by the EU to curb the penetration of the oil palm industry.
Fadillah said implementation of the EU Deforestation Regulation (EUDR) is based on the premise that commodity products should be deforestation-free and not be produced through forced labour.
In Malaysia, the government has committed towards environmental sustainability by implementing the Malaysian Sustainable Palm Oil (MSPO) certification, while Indonesia has the Indonesia Sustainable Palm Oil. Through MSPO, Fadillah said the authorities have a system to detect the sources of palm oil, enabling the global standards recognised in Europe and the US.
“Thus, this is the real reason for the EUDR implementation (which is) purely intended to protect the environment, but may also be used as a trade barrier to protect their self-interests and their own oil products.
“Europe’s justifications for promoting this regulation are based on unsound reasoning and have a weak scientific basis since Malaysian palm oil is sustainable and one of the world’s most certified vegetable oils today,” Fadillah said.
Major vegetable oils produced in the EU originate from soybean, rapeseed and sunflower.
However, Fadillah said it is not all thorny with the EU. He said Malaysia values the EU as one of its important trading and investment partners, and is ready to enhance the mutually beneficial partnership further.
He said both parties could build on the recently inked Malaysia-EU Partnership and Cooperation Agreement and a revival of the Malaysia-EU Free Trade Agreement (FTA) negotiations.
Clearer Policy Direction Needed from EU
Fadillah said the EU could no longer afford to shift the goalposts frequently and should communicate its palm oil policy more clearly, moving forward. He said there are conflicting accounts of what the EU policy entails and what measures are necessary for palm oil producers to alleviate pressure.
Furthermore, he said the palm oil issue between the EU and producing countries has primarily been played out at the top government level.
“To make further headway, there needs to be greater incorporation of lower levels of government, regulatory bodies, smallholders and large estate representatives to ensure the impasse is dealt with holistically and collaboratively.
“Achieving this will ensure that upgrading relations to a new strategic dialogue partnership will be more than just a public relations exercise, and a boost for regionalism and interregional cooperation at a time it is sorely needed,” Fadillah said.
Fadillah said the World Trade Organisation (WTO) may soon rule on the lawsuits against the EU by Malaysia and Indonesia in connection with the bloc’s decision to phase out the import of unsustainable palm oil by 2030.
Malaysia and Indonesia denounced Brussels’ Renewable Energy Directive (REDII) as unfair and discriminatory — the regulation orders for a gradual phase-out of oil palm crop-based biofuels by 2030.
“The WTO decision seems to be drawing near. The same panel members to decide on Indonesia’s case formed in November 2020 is also reviewing Malaysia’s case,” he said.
Labour Crunch Issues to be Solved Soon
According to Fadillah, the labour shortage issue currently faced by the plantation sector can be resolved within a six- to 12-month period if there are no hiccups during the recruitment.
He said all industries, including the plantation sector, face labour shortage issues due to the freeze in new foreign workers recruitment due to the Covid-19 pandemic. As of December 2022, the total labour shortage in the agri-commodity sector was reported to be 57,149.
He also noted that the Human Resources Ministry had implemented the Foreign Worker Employment Relaxation Plan to speed up the application and approval process for the employment of foreign workers in critical sectors such as plantation, construction, manufacturing, agriculture and services.
The challenge is to ensure enough migrant workers supply from source countries, said Fadillah.
“The challenge is to get from the source country, but as far as Malaysia is concerned, we have loosened up all the processes and procedures during this critical time and under a recalibration programme conducted by the Home Affairs Ministry.
“As long as they comply with all the terms and conditions and are applied by the employers, they should get fast-track approval.
“But the challenge is to bring from the source country because they will need to work through the agents and so on, and that one will be beyond us,” he added.
Instilling Excellence in Malaysian Palm Oil
Fadillah said that the government will look at strengthening existing export markets which could bring value-added benefits to Malaysian palm oil, particularly China, Asean, Turkey and Iran.
He said the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), ratified in September 2022, has broadened Malaysia’s access to new markets such as Canada, Mexico and Peru, which are not covered by any existing FTAs.
Through this arrangement, he said Malaysian palm oil products are guaranteed better market access through the elimination or reduction of import duties and more flexible rules of origin by the trading partner countries involved, compared to countries that do not have an FTA.
Fadillah said China is expected to accelerate its economic development in 2023, creating more demand for palm oil following the lifting of Covid-19 control measures and new leadership appointments.
He also said the country has recently dispatched several business and government delegations, including for palm oil procurement, to fulfil China’s demands during the peak food production season in the year’s third quarter.
While palm oil has been politicised in Europe, Fadillah said China had taken a great leap forward in recognising Malaysian palm oil. He cited a Chinese firm, Grand Industrial Holdings Co Ltd, which was the first foreign company certified with MSPO. Fadillah expects more Chinese companies to be certified with the MSPO in the future.
Challenges in Emulating Indonesia’s Biodiesel Efforts
Malaysia needs to catch up to Indonesia’s biodiesel implementation, a palm oil-based fossil fuel. Indonesia began its B35 programme last month, which uses a 35% mix of palm oil, while Malaysia has stopped at the B20 mandate for the transportation sector.
Fadillah said the challenges in keeping up with Indonesia include the steep price of palm oil and the inability to judge demand for biodiesel upon conversion.
“The other aspect will be if we go further, it means the government has to subsidise the cost variance in terms of whatever price we want to sell to the consumer. That would be the challenge,” he said.
The government has launched the National Biodiesel Programme, which promotes the use of biodiesel B7 in the industrial sector and biodiesel B10 in the transportation sector. Malaysia implemented the B7 and B10 programmes throughout the country, while the B20 programme for the transportation sector was implemented in several cities.
“The programme aims at increasing the use of palm oil-based biodiesel as a renewable clean-burning petroleum diesel replacement to contribute towards reducing the country’s dependency on fossil fuel,” he said.
EU & Malaysia palm oil crisis
· Malaysia emerges as world’s largest palm oil producer. Researchers realise oil palm is pollinated by a tiny weevil. Its introduction to Malaysia and Indonesia slashes costs by replacing hand pollination by humans.
· American Soybean Association sparked a rumour that food products containing palm oil was a factor to an increase in the risk of coronary heart disease due to its higher content of saturated fats.
· The rumour was squashed by several independent collaborative studies with foreign institutions and extensive research on palm oil and its effects on health.
· Palm oil producers and buyers establish the Roundtable on Sustainable Palm Oil (RSPO) to create an ethical certification system to minimise impact on forests, wildlife and communities.
· Amsterdam Declaration signed by six EU members — Denmark, France, Germany, United Kingdom, Netherlands and Norway — as supporters for 100% Sustainable Palm Oil and to end illegal logging & deforestation by 2020.
· Malaysian Sustainable Palm Oil (MSPO) certification scheme was introduced.
· European Food Standards Authority (EFSA) issued a report warning about the health consequences of 3-MCPD (3-monochloropropane 1, 2 diol), a co-contaminants created during the processing and refining of edible oils.
· EuropeanNGOslaunch campaigns to remove products that contain high levels of 3-MCPD ester from supermarkets.
· EU negotiators agree to phase out the use of palm oil in fuel for transportation sector from 2030.
· British supermarket chain Iceland announced removal of palm oil from its own-brand food products due to concerns of rainforest destruction.
· EU Renewable Energy Directorate (RED) II Amendments.
· The European Commission concludes that palm oil cultivation results in excessive deforestation and the use of harmful biofuel feedstocks, including palm oil, should be capped until 2023 and phased out by 2030.
· Indonesia filed a lawsuit at the World Trade Organisation (WTO) against the EU, claiming the restrictions on palm oil-based biofuel were unfair.
· Indonesia and Malaysia accuse the EU of discriminating palm oil under a plan to impose new limits on levels of food contaminants known as 3-MCPD esters found in refined oils and fats.
· The CPOPC offers to work with the European Commission to draft rules for the EU’s “Farm to Fork” food supply policy aimed at creating a sustainable supply chain.
· Malaysia filed a WTO complaint against the EU and its member states France and Lithuania for restricting palm oil-based biofuels.
· The EU agrees on a new regulation which bans the sale of palm oil and other commodities linked to deforestation, unless importers can show that production of their specific goods has not damaged forests.