Palm oil crisis: ASEAN’s largest agri export shaken by risk of UK rule changes and ‘backstabbing’ by Malaysia

By Pearly Neo contact

- Last updated on GMT

The ASEAN palm oil industry has been shaken by a new set of attacks attempting to use legalities to block its exports. ©Getty Images
The ASEAN palm oil industry has been shaken by a new set of attacks attempting to use legalities to block its exports. ©Getty Images

Related tags: Palm oil, Asean

The ASEAN palm oil industry has been shaken by a new set of attacks attempting to use legalities to block its exports, as well as a shock change in stance over contaminants rules from key member Malaysia.

Top of the list of concerns are moves by the UK to restrict palm oil entry, which some fear may then spread to the EU.

Opposition to palm oil in the west is nothing new. According to to trade policy consultant Khalil Hegarty, who also manages pro-palm oil monitoring site Palm Oil Monitor, this has been ongoing since the 1990s.

However, the UK’s exiting of the EU is creating new threats.

“Now the United Kingdom is out of the EU, the EU is actually looking to the UK to take the lead on what to do with palm oil, especially its Department for Environment, Food and Rural Affairs (DEFRA). DEFRA has responded by planning a ‘write-around’ process which would restrict palm oil imports into the UK,”​ Hegarty told FoodNavigator-Asia​.

“There’s always been this plan [in the West] to implement regulations that would restrict palm oil entry, but the problem for them has been to do this without coming across as breaking international trade rules – the World Trade Organisation needs a lot more than just ‘it causes deforestation’ to allow a ban.

“So the new idea is to introduce a Due Diligence requirement for palm oil importers in the UK, and making them declare whether their imports have a negative environmental impact and what measures they are taking to mitigate this, such as certification.”

Such a move would put the onus on importers to take the responsibility for any potential palm oil coming into the UK, and add additional costs for them, essentially making avoid ‘dodgier’​ countries or those with poor track records – such as South East Asian countries.

“Doing this would deter importers and get around the trade rules, but it is fraught with risks,”​ said Hegarty.

“For instance, how are we going to get one definition on what ‘sustainably produced’ means across countries? This is going to be really difficult at a government-to-government level.

“Additionally, would this ban also be applied to all ‘like products’, i.e. all vegetable alls including soybean and rapeseed oil? If not, then it looks like this is being designed just to pin palm oil, which is hardly on the level.”

One possible option would be for importers to rely fully on RSPO-certified palm oil, yet this carries its own set of problems such as costs and a very skewed, limited set of palm oil producers to buy from.

“RSPO-certified palm oil is more widely-accepted in the UK, and it has always sought to have only this palm oil accepted there – this was part of the 2014 Amsterdam Declaration,”​ Hegarty explained.

“But limiting imports to just the RSPO-certified producers would mean locking out all other certification standards such as Indonesia’s ISPO and Malaysia’s MSPO, which also means locking out smallholder producers that do not yet have the means to be RSPO-certified.”

Why take the risk?

Even more worrying are the trade implications that such a move would carry – Given the United Kingdom’s fresh break from the EU, it would be expected to want improved trade and diplomatic relations with South East Asia, one of the world’s major economic blocs.

As it stands, Indonesia has already accused parties trying to discriminate against palm oil as starting a ‘trade war’, and further attack on one of the bloc’s largest export commodities is clearly unlikely to do these relations any favours – so why would the UK want to take such a risk?

“The two major forces at play here are politics and awareness – people in the UK simply just think that palm oil is terrible, and that the risk is worth it to just remove this terrible thing from the country,”​ Hegarty explained.

“There are those who are more aware, such as in the Department of International Trade, who don’t agree with such a measure, but overall in the UK people just aren’t aware of how important palm oil is as a commodity – there’s very education or proper messaging to help improve this either.”

He added that this differed slightly from outlook in the EU or the United States, which was more economically-driven.

“The EU is more protectionist of its agricultural industries and the farm sectors hold a lot of power. Palm oil has also emerged as a threat to the rapeseed (for biodiesel use) and sunflower (for edible oil use) sectors,”​ he said.

“As for the United States, the main crop to protect in relation to palm oil is soybean oil – this went offline for a while due to high trans fats levels being found, but now they’ve found a process to eradicate these high levels so they’re surely going to look to push for soybeans again.”

Internal conflict

Apart from all this external pressure, the industry has also seen a shock ‘backstabbing’ by Malaysia, the world’s second-largest palm-oil producer, when it basically backed out of an agreement to push for equal contaminant standards for all vegetable oils as opposed to having an individual one set for palm oil.

The contaminant in question is 3-monochloropropane diol (3-MCPD), which is found in most refined vegetable oils including palm oil, sunflower oil, soybean oil and more. The EU has proposed that palm oil be given a higher contaminant limit than the other vegetable oils, i.e. 2.5ppm (contaminants in milligrams per kilo) for palm oil and 1.25 ppm for all others.

As part of the Council of Palm Oil Producing Countries (CPOPC), Malaysia had together with Indonesia in ASEAN been pushing for all vegetable oils to have a the same limit of 2.5ppm of 3-MCPD to avoid palm oil being viewed as ‘lower quality’ or less healthy than others, but suddenly backed out.

Indonesia’s Coordinating Ministry of Economic Affairs Deputy for food and agriculture coordination Musdhalifah Machmud told Reuters ​that the Ministry of Plantation Industries and Commodities (MPIC) had written a letter to them confirming that it would be going along with the EU’s two-level proposal, citing fears that a single-level proposal would affect other oils.

“There is a high possibility that our request for one level for all types of vegetable oils and fats to be set at a level of 2.5 ppm would be questioned by other vegetable industry players. [Nothing] will stop them from requesting for it to be set at one level of 1.25 ppm, the level that can be met by their oils and fats industry,”​ MPIC’s letter had said.

Hegarty called this change a ‘reasonably big deal’​, especially when it comes to food manufacturing.

“There is an understanding among food producers that the higher limits for palm oil will allow competitor oils to market themselves as ‘healthier’ or make a claim of ‘low 3-MCPD’ -
This is precisely why CPOPC has been pushing for the same limit to apply to all oils,”​ he said.

This is not the first time Malaysia has backed out on palm oil-related debates on an international front – it also withdrew support a few months back in a fight against the EU’s Renewable Energy Directive (RED), a baffling action considering how severely under threat​ the country’s palm oil sector already is.

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