October 19, 2022
JAKARTA – We are now seeing a gradual shift in the global perception of palm oil, which had been blamed as the main driver of deforestation in the past, toward the more balanced view that other vegetable oils and commodities are equally responsible for contributing to climate change and deforestation.
Subsequently, the unrelenting push for imposing exclusive and discriminative standards of sustainability on palm oil while overlooking other vegetable oils has, in some way, substantiated the suspicions over nontariff barriers imposed by vegetable oil producers in developed countries. For example, the markets in the European Union and the United States have unilaterally imposed environmental and social standards on palm oil that are more rigorous than those imposed on other vegetable oils.
But growing awareness of sustainability issues and the need for common environmental, social and governance (ESG) standards, augmented by mounting demand for inclusive and fair trade of commodities, including vegetable oils, have pushed stakeholders to shift the focus of sustainability and market requirements from palm oil to all vegetable oils.
There has been increasing public opinion pressure that sustainability standards for palm oil production and use must also be imposed on all vegetable oils, from soybean, sunflower and canola oil to corn oil.
The Indonesian Palm Oil Conference (IPOC) in Bali on Nov. 2-4 is themed “New Landscape in World Vegetable Oil: Opportunities and Challenges for Palm Oil Industries”, highlighting the role of palm oil in meeting the global demand for vegetable oils.
The conference will also look at the growing importance of palm oil within the context of the global production and consumption of vegetable oils, as well as market and consumer behavior that affects the perception and consumption of vegetable oils.
Global palm oil production has been increasing rapidly over the last five decades and is expected to reach 75 million metric tons (MT) in 2022, up from 73 million MT in 2020-2021. In 2023, production is expected to grow modestly to 77 million MT. Indonesia accounts for an estimated 55 percent of global palm oil production.
Based on a report by NewForesight, palm oil consumption has shown a downward trend in the EU-27 (minus 8 percent), China (minus 5 percent) and Malaysia (minus 2 percent). Contrary to this trend, global palm oil use increased 2 percent from 2020 to 2021, driven by increased use in Brazil (20 percent) and the US (16 percent).
IPOC 2022 will specifically focus on the EU as the most important market, not only in terms of the import volume of palm oil, but also in setting the trend on the global perception on palm oil through its unilateral sustainability rules.
The launch of national initiatives for sustainable palm oil across different European countries have stimulated similar demand in other regions. Consequently, palm oil has increasingly become the subject of different public policy-making processes in advanced countries in the field of climate, biodiversity and energy.
The takeaways of the conference will be an understanding that we have to transform sustainability standards and market requirements of the vegetable oil from a specific palm oil into a common inclusive standard for vegetable oil applicable for soy, corn, rapeseed and sunflower for any markets.
Current extraordinary circumstances call all countries and stakeholders to work together to mitigate market polarization between palm oil vis-à-vis other vegetable oils, notably those produced in the subtropical and temperate zones. The global market is expected to indiscriminately adopt the same product standards and requirements for all types of vegetable oil.
Of particular concern for palm oil producers now are two due diligence laws in the EU and US as regards sustainability standards for vegetable oils. The European Parliament voted last August in favor of due diligence legislation on its deforestation-free policy, which requires companies selling vegetable oils, cattle, coffee and cocoa must verify that they were not produced on deforested or degraded land.
The US Forest Act, which is currently under review, prohibits products linked to illegal deforestation from entering the US. Under this law, the US can prosecute both individuals and organizations driving illegal deforestation.
But the two laws, though they seem to be trying to introduce common sustainability standards, could trigger unintended consequences across the supply chain, imposing administrative burdens on importers that will automatically pass these burdens to producers in developing countries, including a large number of smallholders.
In fact, the requirements imposed by the laws could become an administrative nightmare for smallholders in Indonesia, which total more than 2.7 million.
The International Institute for Sustainable Development also has raised concerns that the spillover effect could have a negative trade impact for developing countries. How, indeed, are the different laws going to balance out?
The laws would also cause market polarization, as producers could easily move to sell in markets that have less strict legislation. Another kind of market polarization could occur between vegetable oils and palm oil. The lack of collaboration between countries setting import rules and those producing the commodities is also problematic.
The US and EU should therefore involve producers in promulgating their due diligence laws. Put another way, there should be harmonization between different regulations because they contain different deforestation requirements.
There is still time to amend the EU deforestation-free legislation, because the law must still be approved by the Council of the European Union as well as the national parliaments of the bloc’s 27 members, which must then transpose the agreed terms into national legislation by 2026.
Common and inclusive sustainability standards will be beneficial for all, particularly vegetable oil producers and consumers. The global market will then be provided with more stable supplies of a wide variety of vegetable oils, and at affordable prices under the fair competition rules.
The writer is a sustainable palm oil analyst.