Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on April 10, 2017 - April 16, 2017

WITH images of rainforests burned to clear the way for plantations and orang-utans miserably displaced from their lush green homes, oil palm plantations have become an emotional flashpoint in the struggle between development and sustainability.

But a struggle is also taking place far from the jungles of Borneo.

Palm oil’s second largest export market, the European Union, last week passed a non-binding resolution in Parliament seeking to impose tighter restrictions on the import of the oil.

If the European Commission acts on the resolution, it could compel the 28-nation union to phase out any palm oil that fails to comply with a single certification scheme — one that the EU has yet to define.

The news is negative for the palm oil industry. Critics claim it is a thinly disguised import barrier that discriminates against the vegetable oil.

“Why isn’t the EU looking at other oil crops — crops that require 7 to 12 times more land to produce the same amount of oil as palm oil? In the last 10 years alone, 14.5 million hectares of rainforest were cleared in Brazil and Argentina for soybean plantations,” says Datuk Carl Bek-Nielsen, vice-chairman and chief executive director of United Plantations Bhd.

For perspective, oil palm plantations are estimated to total less than 20 million hectares worldwide; soybean takes up over five times that amount of land.

“I want to stress that I am 100% for sustainability. But if you look at any industry, there will be a cost to the environment. The objective must therefore be to ensure that development equals positive change. This is the overriding objective of those who have committed themselves to producing palm oil sustainably,” he argues.

Bek-Nielsen points out that the palm oil industry has made huge gains in sustainability in the past few years. While there is still room for improvement, planters resent foreign markets unilaterally imposing regulations, especially if those regulations appear to discriminate against palm oil as part of a wider agenda.

Leaving aside soybean, Bek-Nielsen points out that the beef industry is in fact the largest cause of deforestation in the world — nearly 2.7 million hectares are cut down each year. This is almost 10 times the impact of palm oil.

“Beef production is the leading cause of deforestation among the major commodities, followed by soy and maize. Palm oil is the fourth. Yet, the industry cops a disproportionate amount of bad rep — it is always being singled out,” Bek-Nielsen remarks.

A recent example was the so-called “Nutella tax”, which saw France impose a €300 per tonne tax on palm oil. Palm oil is a key ingredient in the popular hazelnut spread. The Nutella tax was abolished last year after strong protest from the Malaysian and Indonesian governments.

So, how badly will this resolution affect planters?

Currently, it is estimated that only about 20% of the crude palm oil (CPO) produced meets the highest global standards, including the certified sustainable palm oil (CSPO) standard. Malaysia and Indonesia account for 90% of the CSPO production.

Hence, of the 58 million tonnes of CPO produced each year, about 12 million tonnes is CSPO.

While this may seem like a small amount, it is interesting that the EU only imports about seven million tonnes of palm oil each year and almost half is used for biofuels.

On paper, it would appear that there is ample supply of sustainable palm oil to meet the EU’s lofty requirements. Uncertified planters could simply move their products to other markets that have less stringent requirements.

India and China are the largest and third largest importers of palm oil and are not likely to be as stringent.

However, the real problem with the EU’s resolution is that it gives the power to the EU to unilaterally impose its standards of sustainability on palm oil producers.

Members in the European Parliament (MEPs) argue that the various existing sustainability certifications, which are voluntary, are open to criticism and confusing to consumers. The single certification scheme would attempt to resolve this issue.

In other words, the EU could impose strict certification standards on planters at whim and increase their cost of doing business. Keep in mind that planters currently have little monetary incentive to acquire sustainability certifications. The EU market, which so strongly advocates them, barely pays a premium for sustainably sourced palm oil.

“Both planters and the EU want to move towards sustainability. It is the only way forward. But we cannot get from A to B in such a draconian way,” says Bek-Nielsen.

“The main problem with the EU’s resolution is it ignores the fact that 50% of the world’s palm oil is produced by smallholders. In Malaysia alone, there are an estimated 600,000 smallholders,” he adds.

Globally, it is estimated that there are over three million smallholders.

They simply do not have the resources to adopt costly sustainability practices overnight, and these practices are among the most stringent for any agricultural commodity, explains Bek-Nielsen.

“The sustainability requirements that the EU resolution would place on the industry are simply too demanding for smallholders, and will hit this vulnerable group the hardest. This is unfair, discriminatory and not in line with the EU’s façade of free trade,” he remarks.

There simply isn’t a silver bullet that can fix the complicated industry overnight, says Bek-Nielsen.

Interestingly, the press release by the European Parliament states that the resolution calls for the Commission to “consider applying different customs duty schemes that reflect real costs more accurately until the single market certification scheme takes effect”.

The language has planters worried — the EU may not place an outright ban on palm oil that fails to meet its standards but could place arbitrary import duties on palm oil products.

 

Improving yields will drive growth

Regardless of the EU’s heavy-handed push for sustainability, the palm oil industry is running out of land for new plantations.

Oil palm only grows ideally within 10 degrees north and south of the equator, and countries such as Malaysia and Indonesia are already beginning to see a sharp decline in new oil palm acreage.

Bek-Nielsen argues that the way forward for the industry is to improve yields instead of planting new acreage.

“Right now, the average is about 3.2 tonnes of CPO per hectare. But we should be able to improve it. Some private planters achieve five or even six tonnes per hectare. However, the general consumer often forgets that supporting sustainably produced palm oil such as the RSPO (Roundtable on Sustainable Palm Oil) actually holds the key to minimising future environmental impact,” he explains.

The trouble with oil palm, however, is that the trees have a much longer life cycle compared with other oilseed crops. The opportunity cost of improving productivity can be very high, especially when replanted trees take around seven years to mature.

“There is a lot of room for improvement. Planters can improve the age profile by replanting trees. They can use better germplasm, better seeds. Good agricultural practices will also boost yield — not forgetting the vital ingredient of disciplined management,” says Bek-Nielsen.

Right now, a major stumbling block for the industry is labour shortage.

“What is the point of producing 30 tonnes of fresh fruit bunch per hectare when you only have enough manpower to harvest 18 tonnes per hectare? I have every confidence that the government will resolve this issue as we are dealing with perishable goods that will be lost if the acute labour shortage persists,” he says.

 

 

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