Palm oil ban — EU saving its skin and the bloating subsidy

Malaysia has threatened retaliatory action against the EU’s ban which will impact about 650,000 smallholders

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

THE European Union’s (EU) action to ban palm oil can boost the prices and consumption of its own vegetable oils, saving millions in subsidy payments to farmers under the bloc’s strict but unfair agricultural protection framework.

The EU’s Common Agricultural Policy (CAP) aims to maintain commodity price levels within the bloc by subsidising production and protecting the farmers in the 28-nation community.

The framework guarantees the price of the agricultural output, but it pushes the subsidy higher if production increases and demand falls. The EU will also mop agricultural surpluses to keep prices at certain levels and protect the farmers, a move which will hurt the bloc’s financials. The region is also experiencing a slower economic growth.

The EU member countries spent €58.8 billion (RM271.5 billion) under the CAP in 2017 and the figure is expected to rise every year. The EU also imposes import levies and quotas to restrict the importation of goods into the EU to maintain the prices from its agricultural sector.

An industry expert said palm oil has been the most discriminated vegetable oil in the world as Western nations and the EU seek to protect their own interests.

“The EU has a common agricultural policy of when there is a demand on a commodity and the price would rise, the government is exempted from giving subsidies.

“For example, if there is a demand uptake in rapeseed oil, which is mostly produced by the EU, their governments will be saving more rather than spending on palm oil,” the industry insider told The Malaysian Reserve.

The EU is one of Malaysia’s biggest markets for palm oil. But in the last few years, the bloc has taken a hard stand over the use of biofuel produced from palm oil.

Under its renewable energy directives, the EU will gradually limit and phase out palm oil biofuel imports into the bloc, hurting Malaysia’s second-biggest exporting market for the commodity.

Malaysia has threatened retaliatory action against the EU’s ban which will impact about 650,000 smallholders who are part of the country’s second-biggest commodity export.

Malaysia had said it would lodge a complaint with the World Trade Organisation. Malaysia is the world’s second-largest producer of palm oil after Indonesia. Both South-East Asian nations account for 85% of the global production.

Malaysia exported 1.91 million tonnes of palm oil to the EU last year compared to 1.99 million tonnes in 2017. The largest importer of Malaysia’s palm oil is India.

The EU countries are claiming deforestation and destruction of natural biodiversity behind the proposed bank — claims that Malaysia strongly denies.

According to a report by the World Wide Fund for Nature, soybean cultivation is one of the major contributors besides cattle farming which leads to deforestation and loss of natural biodiversity.

The industry expert, however, said the palm oil industry must also work to “clean up” and erase its bad track records.

The South-East Asian haze — the worst in 2015 and had cost US$16 billion (RM65.92 billion) in damage control — had put the palm oil-producing countries in a bad light.

“At the end of the day, the world market does not see where the palm oil coming from. They see it as one product. They do not differentiate between Malaysian palm oil and Indonesian palm oil.

“The forest fire, resulted from deforestation in Indonesia, only made it worse. Close to 17% to 20% of the companies in Indonesia are Malaysian,” he said.

Council of Palm Oil Producing Countries director of strategy and policy Mohammad Jaaffar Ahmad said only 0.4% of the total plantation in the world is dedicated for oil palm plantation.

“The total global oil palm plantation is equivalent to 0.4% of the world’s plantation area.

“How can you say that palm oil results in deforestation when there are other crops like sunflower and rapeseed cultivation?

“This misconception has been planted by non-profit organisations which are against deforestation. They are claiming that we are clearing our forests. In fact, over 50% of Malaysian forests are under forest reserve,” he said.