Under EU attack, top palm oil producers rethink trade strategy
JAKARTA/KUALA LUMPUR: Facing a backlash in Europe over palm oil’s environmental toll, the world’s top producers are scrambling to find new markets and even striking unusual barter deals, such as exchanging Sukhoi jets for the edible oil.
The European Union (EU) is the second-largest palm oil export destination after India for both Malaysia and Indonesia, which dominate production in a global market worth at least US$40 billion (RM168 billion).
But palm has come under increasing fire in Europe over its impact on forest destruction, encouraging producers to look at new markets ranging from Africa to Myanmar.
Threatened by crumbling demand in Europe, the industry is waging a public relations battle and pushing producers to enter more price-sensitive markets, where Indonesia should have an advantage over Malaysia due to its lower production costs.
“Our principle is we will not let go of even one tonne of trade contract or potential demand palm has globally,” Indonesia’s Deputy Coordinating Minister for Economic Affairs Musdhalifah Machmud told Reuters.
Machmud said palm oil sales were being brought up in “every trade negotiation” Indonesia conducts.
The demand boom has spread plantations in Indonesia and Malaysia across an area of more than 17 million hectares – an area greater than the size of Portugal and Ireland. They are mostly carved out of rainforests, which critics say has lead to an increase in the greenhouse gases that warm the planet.
Environmental activists have pressured consumer companies into demanding that their palm suppliers adopt more environmentally sustainable forestry practices. But in Europe, politicians say the industry’s standards on sustainability do not go far enough.
So far, palm oil sales to the EU have held up. Indonesian exports rose about 40% to 2.7 million tonnes in the first half of 2017 from a year earlier.
Indonesia’s overall palm exports were worth US$18 billion last year, with EU sales accounting for 16%, the Indonesian Palm Oil Association said. For Malaysia, the EU made up nearly 13% of exports, government data show.
Meanwhile, Indonesia is looking at new palm oil markets in Africa offering barter trades with palm oil. Indonesian Trade Minister Enggartiasto Lukita told reporters on a visit to Nigeria he had proposed to swap palm oil for crude oil.
Indonesia signed a preliminary deal last month with Russia’s Rostec to exchange commodities, including palm, as part of a US$1.14 billion payment for 11 Sukhoi jets.
Indonesia’s Vegetable Oil Association executive director Sahat Sinaga said palm oil producers will open a marketing and research company in Russia, aiming to increase exports of 920,000 tonnes in 2016 by 4-5% per year up to 2023. The group is also planning to open a storage facility in Pakistan, which imports 1-2 million tonnes of palm from Indonesia a year.
The Malaysian Palm Oil Council says it will increase efforts to diversify into new markets such as Myanmar, the Philippines and West Africa.
Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong said in June he met EU commissioners and members of parliament for talks. The ministry did not respond to a request for further comment. – Reuters