Palm oil ban may fan trade war
Putting the laundry on. Grabbing a quick shower. Filling up your car with fuel for a long journey. Slapping some chocolate spread on your pancakes. Even a rather depressing solo Valentine’s evening spent eating a pizza and tucking into some icecream. The list of seemingly unrelated activities people can undertake in a day while using palm oil is long.
The demand for this vegetable oil is having environmental consequences. Rainforest in Borneo is being cut down to make way for oil palm plantations. Images of the injured and homeless orangutans that result have sparked an international outcry.
Governments and supranational bodies such as the European Union are now making moves towards a ban on palm oil, threatening a geopolitical clash with countries that rely on the industry.
Nearly 90 per cent of palm oil is produced in Indonesia and Malaysia. The climate and availability of land made these developing nations ideal places to grow oil palms. Indonesia is the single biggest producer. It exports millions of tonnes of the commodity each month.
Environmental concerns are rising at a pivotal time for the Indonesian economy. Global market volatility may drive investors to take funds out of such riskier emerging markets.
Indonesia’s government has predicted 5.4 per cent GDP growth in 2018, as the global recovery helps to boost demand for commodities such as palm oil. The World Bank has, however, warned that the nation remains vulnerable to financial shocks.
The Malaysian economy is more diversified but palm oil is still a significant source of the country’s wealth. It is no surprise, then, that plans for two EU bans are causing friction between the bloc and the Indonesian and Malaysian governments.
Gemma Tillack, director of forest policy at the Rainforest Action Network, explains: ‘‘The EU is currently working with two different palm oil measures. The palm oil ban for biofuels is specifically a climate policy measure. Another measure is the EU resolution on palm oil that applies to palm oil in foodstuffs, soaps and personal care products.’’
Malaysian Commodities Minister Mah Siew Keong is outraged. ‘‘This is a clear case of discrimination against palm oil-producing countries. The EU is practising a form of crop apartheid. Don’t expect us to continue buying European products.’’
By attempting to ban palm oil’s use as a biofuel, European politicians aim to prevent their own renewable energy targets from contributing to deforestation in developing countries. Yet replacing palm oil could be difficult. Margins on most biofuel crops are razor-thin, but oil palm plantations can make a good return.
‘‘The reason palm oil is so attractive is that it’s one of very few crops that will give very high yields of an energy-dense compound,’’ says Dr John Bothwell of Durham University. The only crops that can match palm oil are genetically modified.
‘‘In the UK and the EU, there is no obvious replacement for palm oil in biofuel,’’ Bothwell says, and alternatives may be a decade away.
Meanwhile, palm oil biofuel will be excluded from renewable energy targets from 2020. Environmental groups believe that cutting out palm oil in biofuels without considering the potential impact in Indonesia is short-sighted. Farmers may switch to crops that are just as damaging to rainforest ecology.
Greenpeace says the answers may lie not in banning palm oil but instead increasing the efficiency of farming so that no more land is needed. ‘‘The industry needs to help smallholders to produce more oil using less land, and help them raise their income by providing them access to markets,’’ says Daniela Montalto, forest campaigner at Greenpeace UK.
The Rainforest Action Network takes a different view. It believes that while the proposed EU bans might be sending the right message, the businesses that use palm oil must be forced to reform.
‘‘The problem is not palm oil per se but the way palm oil is produced,’’ says Tillack. She believes the large-scale industrial plantation model must be changed. It has made palm oil the cheapest vegetable oil on the market and increased profits for large corporates, but threatens forests.
Rubber, sugar cane and other commodity crops grown on the same model are also driving deforestation. Some campaigners are demanding a radical overhaul of farming methods, which they claim can serve businesses and make consumption sustainable.
Conservative MP Richard Graham, the UK’s trade envoy to Malaysia and Indonesia, believes the angry reaction to the EU’s proposed palm oil crackdown does not signal an impending trade war. ‘‘The EU parliament’s noise on this has been over-interpreted in Malaysia,’’ he says. He believes the Malaysians may be simply irritated by the mere suggestion of a palm oil ban.
But there may be another motive. While Indonesia favours a subtle approach to trade diplomacy through back-channel conversations, rather than via the media, Malaysia takes a more direct and public approach.
Malaysia may have gone on the offensive to raise palm oil as a major issue ‘‘before it [the ban] gets legs’’, Graham said.
Palm oil is economically significant enough to cause a row in its own right, but there are also wide economic considerations at play. The two palm oil-producing nations are engaged in wider negotiations with the EU on trade.
‘‘I guess what we [the UK] will be interested in is how this pans out as an element in the negotiations between the EU and Malaysia and their free trade agreements with the EU,’’ adds Graham, who is a member of the EU select committee.
Whether palm oil is a pawn in a bigger political game, the commodity is big business and a major environmental concern.
A study last week found that Borneo’s orangutan population has plummeted by half since 1999, as plantations have expanded.
The EU’s proposed ban on palm oil may not be the answer, but without change the ape is ‘‘highly likely’’ to be wiped out, scientists at the Max Planck Institute for Evolutionary Anthropology in Germany said. – Telegraph Group
"The reason palm oil is so attractive is that it's one of very few crops that will give very high yields of an energy-dense compound."
Dr John Bothwell, Durham University