January 13, 2023
JAKARTA – The strong commitment displayed by Indonesian President Joko “Jokowi” Widodo and Malaysian Prime Minister Anwar Ibrahim to the fight against discriminative trade policy on palm oil following their summit on Monday should be an encouraging development for the industry.
The new commitment for cooperation by the two countries, which account for more than 95 percent of the global palm oil production, which in turn supplies almost 50 percent of the global vegetable oil, is timely in view of the increasing tendency among the advanced countries to cope with climate change issues through trade policies.
Whereas the prevailing view had been that trade and environmental issues were only tangentially related and the primary role of trade policy was to expand trade flows, which in turn would create higher incomes, it is now believed that higher environmental standards should inevitably follow. This trend has sharpened the division between the advanced and developing countries.
But proactively addressing environmental issues through trade policy is emblematic of a much broader shift. Trade policy is no longer just about trade. It is now being tied to a set of broader concerns that will require trade negotiators to wade into areas that were previously far beyond their remit.
The European Union will soon enforce a deforestation regulation, which will ban from the EU market farm commodities and their derivatives, which do not fulfill the sustainability standards as unilaterally set by the EU in the regulation.
Even though the EU claims the deforestation regulation will be enforced on all farm commodities, major producing countries, notably Indonesia and Malaysia, suspect the rule implicitly aims at palm oil, which is the most productive and consequently most competitive among all vegetable oils.
Ibrahim’s and Jokowi’s camaraderie to jointly fight discrimination against palm oil and strengthen their cooperation through the Council of Palm Oil Producing Countries (CPOPC) mark a shift of approach of the two countries from the earlier accommodative stance as they showed in allowing the Roundtable on Sustainable Palm Oil (RSPO) to set sustainability standards for the commodity.
Such a fresh change of approach should be highly applauded by the palm oil industry as evidence of the governments’ acknowledgement of two important issues. The first is the government recognition of the strategic values of palm oil to the economies of the two countries. Secondly, the admission that there has been systemic discrimination against the commodity.
Despite the big socioeconomic impact and critical contribution of palm oil export to Indonesian and Malaysian economies, the governments were often indifferent or ignorant towards the smear campaign by EU stakeholders and NGOs against palm oil.
But the recent election of Anwar Ibrahim and a more assertive Jokowi’s policy on foreign affairs have created a good momentum for both countries to change the course of palm oil global trade. Both leaders are well aware of the hypocrisy of the EU market toward palm oil to protect their less competitive edible oil.
Also, they realize that so far, the EU has been acting as they are the standard bearer and trend setter in defining the palm oil sustainability standard using their own judgment without adequate scientific backup. The EU seemed to have been overconfident that all producers of vegetable oils should abide by the sustainability standards as those they unilaterally set in the deforestation regulation.
The Indonesian and Malaysian leaders share a common agenda to refine the norms toward a more just and fair global trade while addressing the climate change concerns. But to achieve such goals, the two governments need to agree on the four agendas.
The first is to enhance cooperation among palm oil producing countries by strengthening the resources of the CPOPC, implementing its priority working programs and expanding its memberships to include Thailand, Papua New Guinea and African countries.
Second, to change the spirit of competition into cooperation. It is undeniable that there seemed to be a sense of competition between Malaysian and Indonesian growers, which sometimes was counterproductive. The CPOPC could serve as a clearing house and center of communication among all palm oil players and run as an information center to address all palm oil-related issues.
Indonesia and Malaysia need to have a new reference price for palm oil and disregard the current reference set in the Rotterdam market. Simultaneously, the CPOPC and the member producing countries must be determined to expand the palm oil market in the Asia Pacific regions, including China, India, Pakistan, Japan and South Korea. Other potential markets also include Latin America, the Middle East and Africa.
Third is the development of common market standards of sustainability, which will be applicable for both the niche and traditional markets. Any production standard must be developed on the basis of proven scientific method applicable to the tropical areas where the palm oil is cultivated.
Lastly, as the largest palm oil producers, Indonesia and Malaysia need to review their engagement with the EU to agree on a level playing field for setting the market norms, including sustainability standards
The CPOPC is the right forum for the two countries and other palm oil producers to protect their interests. The CPOPC has rightly selected six priority areas for its working programs based on producers’ interests, namely sustainability of palm oil, productivity of smallholders, research and innovation, industrial cooperation to create value added, technical regulations and standards and trade policies. What is urgently needed now are more resources to improve the CPOPC’s institutional capacity to execute the programs.
The CPOPC should support the EU’s legislative initiative on minimizing the risk of deforestation and forest degradation associated with products placed on the EU market.
The problem is that EU policies often focus on selectively and conveniently chosen subjects only, not paying much attention to the agricultural, industrial and comparative differences between palm oil and other vegetable oils. The blunt fact is palm oil is far more productive and sustainable than all other edible oils when it comes to crucial production factors.
Therefore, the CPOPC should step up their lobbies to convince the advanced economies that sustainability standards must be multilateral in nature and not unilaterally imposed. The CPOPC should emphasize the need for reliable information as the fundamental basis for correct policy-making, which must be scientifically-based, measurable and available for all countries and for all affected commodities.
The writer is a sustainability analyst.