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Why does the EU’s recent Resolution on Palm Oil matter to ASEAN?

12 May Why does the EU’s recent Resolution on Palm Oil matter to ASEAN?

The European Parliament adopted the Resolution on Palm Oil and Deforestation of Rainforests on 4 April 2017, whose stated aim is to reduce the negative impacts of deforestation due to unsustainable or illegal palm oil production. The Resolution has incited a great deal of controversy and opposition, especially from industry players and ASEAN member states.

What is controversial about the Resolution?

The Resolution contains two particularly controversial proposals. The first is the development of a new, single certification scheme for palm oil and palm oil products by 2020. The second is the phasing out and replacement of palm oil used in biofuels with EU-grown vegetable oils, also by 2020.

How will ASEAN’s oil palm industry be affected?

If enforced, the Resolution threatens to shut a significant proportion of ASEAN’s palm oil industry out of the lucrative EU market. The EU palm oil market is worth approximately S$8.3 billion and accounts for 17 percent (4.37 million tonnes) of Indonesia’s and 13 percent (2.09 million tonnes) of Malaysia’s palm oil exports, respectively. Losing access to this market would have a negative impact on the numerous communities within ASEAN that depend on palm oil for their livelihoods. These include migrant workers from Myanmar who work on palm oil plantations, as well as the Indonesian and Malaysian smallholders who contribute about 40 percent of global palm oil production.

If the EU switches to a new single palm oil certification scheme, the market for palm oil certified under existing schemes, such as the Roundtable on Sustainable Palm Oil (RSPO), would be especially affected. For example, the EU currently accounts for over 70 percent of the sales of physically certified palm oil under the RSPO. The loss of this demand would seriously jeopardise the momentum of the global oil palm industry towards achieving industry-wide sustainability standards.

How have affected ASEAN countries reacted?

The resolution has incited strong objections from Indonesia and Malaysia, which jointly account for 78% of the EU’s palm oil imports. The two countries will send a joint ministerial delegation to Europe in May to counter the resolution. Following the recent 30th ASEAN Summit in Manila on 29 April 2017, the Chair of the Summit also released an official statement which urged the EU to recognise the palm oil certification schemes that already exist in the region, such as RSPO, Malaysian Sustainable Palm Oil (MSPO), and Indonesian Sustainable Palm Oil (ISPO).

What are some of the problems with enforcing the Resolution as proposed?

The EU’s Resolution stems from valid concerns and signals an important shift in the EU’s level of commitment to sustainable supply chains. However, the palm oil issue is highly complex, and the Resolution is unlikely to be the silver bullet desired by the EU.

For one, while the Resolution rightly criticises existing palm oil certification schemes for containing various loopholes and shortcomings, it is worth noting that these standards have undergone a process of revision and improvement over a period of several years. RSPO, the longest-running of the existing schemes, began in 2004, while ISPO and MSPO were launched in 2011 and 2015 respectively. Given its tight three-year proposed deadline for implementation, it is unclear that the EU’s proposed single certification for sustainable palm oil would perform better at avoiding these same pitfalls.

Another issue is the ability to trace the palm oil within a finished product back to the mills and to the plantations where it originated. Though traceability is an essential step for ensuring that the palm oil was produced sustainably, it is a notoriously difficult and expensive process, due to palm oil’s extensive and complicated global supply chain. To complicate matters further, about 60 percent of the palm oil consumed globally is in the form of processed derivatives, which exist in over 200 forms. For many of these derivatives, it is difficult to say with certainty whether they were produced from palm oil or not.

Finally, the proposal to phase out the use of palm oil in biofuels is of particular concern, as approximately half of the palm oil imported by the EU is used to produce biofuel. If implemented, the resulting decline in the EU’s palm oil demand may lead palm oil producers to focus on other major markets, such as China and India. The two countries are the world’s fastest growing markets for palm oil exports; however, neither has made a commitment to sourcing sustainable palm oil. Hence, the Resolution runs the risk of actually increasing the rate of deforestation.

What should be done instead?

Rather than relying on certifications alone, it is important to support smallholders to adopt sustainable agricultural practices in a stepwise manner. By providing targeted incentives and support in terms of access to agricultural training, markets, and finance, governments and large companies can steadily prepare smallholders to be certified without being shut out of lucrative markets in the meantime.

This approach has already proved successful for several smallholder co-operatives, including the Amanah Association in Indonesia’s Riau province. Two years after training and engagement activities were launched by a coalition of partners, including WWF Indonesia, the Riau provincial government, and the major palm oil producer Asian Agri, all 349 farmers under the co-operative successfully achieved RSPO certification in 2013, on top of agreeing a supply commitment from Unilever until 2018.

These multi-stakeholder solutions will necessarily require more time and resources to implement than the EU’s proposed Resolution. However, these short-term costs must be borne for the palm oil industry and the ASEAN region to achieve sustainability in the long term.

Photo Credit: Oil Palm Plantation in Malaysia / Craig (Public Domain)