Palm oil exclusion from biofuel would result in contradictory outcome

The exclusion could cause the crop’s price to drop and in turn attract bulk buying from countries outside of the EU


THE European Union’s (EU) move to exclude palm oil from its biofuel sector is deemed as an ineffective move to reduce the use of the crop that has been pegged to deforestation issues.

Khazanah Research Institute’s (KRI) report titled Palm Oil: Malaysia-EU trade issue stated that the move could still result in a contradictory outcome as the crop’s price would drop and in turn attract bulk buying from countries outside of the EU, such as China and India that are among the top importers of palm oil by volume.

“After the short-term shock, the decreased prices of palm oil will attract demand from outside of the EU.

“Thus, one of EU’s biggest reasons to exclude palm oil, which is deforestation, is not applicable as the lack of demand by the EU will just be picked up by other countries, such as India and China.

“This is a cause of worry as both countries have no explicit commitment to source sustainable palm oil,” KRI’s report read.

Despite its opposing stance towards palm oil, the EU — Malaysia’s second-largest palm oil import market — currently imports more than 70% of sustainable palm oil certified with Roundtable on Sustainable Palm Oil (RSPO).

The bloc’s campaigns of sustainable palm oil could be traced back since 2015 when six EU member countries — Denmark, France, Germany, the UK, Netherlands and Norway, signed the Amsterdam Declaration on Dec 7 to show support of sustainable cultivation.

Following the declaration, the EU has raised its effort through the “Palm Oil and Deforestation of Rainforest” report presented to the Members of European Parliament which singles out palm oil as the major cause of deforestation.

In contrast, the exclusion, according to the research institute, will push for a lower standard and quality requirement by other countries as the demand for palm oil, particularly from the biodiesel sector, will remain unchanged.

“By reducing imports of palm oil through its exclusion from the biofuel sector, it will reduce the push of the global oil palm industry towards attaining industry-wide sustainability standards.

“Demand for biodiesel will not change. Palm oil producers who are not sustainable and not certified can continue to freely supply to other markets,” it said.

For the EU, the move that is intended to promote sustainability would backfire as palm oil could be substituted by the lower-yield vegetable oils that require more land to fill the absence.

“The absence of palm oil will be substituted with lower-yield vegetable oils that will have greater impact on land use. This could possibly induce land-use change at the cost of grasslands and forests.

“It may also increase deforestation as other vegetable oils do not have a strict set of guidelines to follow, unlike palm oil,” KRI said.

Palm oil, among other vegetable oils, will produce a higher yield with a production of six to 10 times more than other major vegetable oils from the cultivation of a hectare of land.

Instead of phasing out the commodity, KRI suggested that greater focus should be prioritised on smallholders as the prime issue lies in the cultivation process.

“A phasing out of palm oil will make things worse as the prime issue is not palm oil. Smallholders account for about 40% of total global palm oil production. Thus, more emphasis must be given to them as they are significant in the efforts towards sustainability,” it said.

According to RSPO, smallholders are farmers who grow oil palm on a less than 50ha plantation alongside with subsistence crops, where the family provides the majority of labour and the farm provides the principal source of income.

The definition could also be determined by a country’s own national interpretation. For example, Malaysia defines smallholders as a group of planters who are cultivating oil palm area in an area of less than 40ha.

To date, more than 5,000ha of independent and scheme smallholders have been certified in Malaysia, involving 650,000 smallholders.