Two ASEAN behemoths- Indonesia and Malaysia have joined hands to tackle the wounded global image of palm oil. The two countries produce 85 per cent of the world’s palm oil, globally used in shampoo, detergents, bread, vitamins, creamer, fuel, even animal feed (in just about everything!) According to news reports the wonder product is in 50 percent of the products that consumers use and its production is expected to grow to 107.6 million tonnes by 2024.
The production of the world’s most popular vegetable oil has increasingly come under fire world over due to its adverse effect on sensitive ecosystems through clearing of rainforests, destruction of wildlife habitat and labor right issues. According to Global Forest Watch, Indonesia lost 25.6 million hectares of tree cover between 2001 and 2018, an area almost as large as New Zealand.
International advocacy groups such as Rainforest Action Network (RAN), an international NGO and the International Labor Rights Forum (ILRF) have published reports on how workers are routinely exposed to hazardous pesticides, paid less than the minimum wage, illegally kept in a temporary work status to discourage labor unions, among other findings. In 2020, citing concerns over forced labor, the US stopped palm oil imports from FGV Holdings and Sime Darby, two of the largest Malaysian companies. Despite its omnipresence, majority of the palm oil imported to the EU is used for fuel. The EU aimed for 10% of road transport energy to come from renewable sources by 2020.
But in 2019, the EU announced that biofuels derived from palm oil would have to be eliminated because of the environmental concerns and stopped recognising palm-based biodiesel as a renewable fuel. This has led to trade and bilateral ramifications between the ASEAN and EU bloc, reaching the doors of the World Trade Organization. On 15 January 2021, it prompted retaliatory trade measures by Malaysia, which filed a lawsuit against the EU similar to the steps taken by Indonesia in December 2019.
Indonesia and Malaysia, have termed EU’s move “discriminatory” and a bid to support producers of other types of vegetable oils, which are primarily made in Europe. Malaysian Primary Industries Minister Teresa Kok had said “..it is designed to hurt the livelihoods of millions of small farmers.”
The Asian countries’ stance is that EU is discriminating against palm oil simply because it is not produced in EU. It is alleged that EU does not have similar positions against sunflower and other kinds of oil, which are also considered hurtful to the environment.
The issue may come down to not just whether palm oil is harmful, but are the alternatives worse? The yield per hectare for palm oil is much higher than for other crops including soyabean, canola and allegedly produces 10 times more oil per hectare than sunflower! It is considered a more efficient utilizer of not just land but requires far less pesticides and chemical fertilizers than coconut, corn or any other vegetable oil source. EU does not comprehensively attempt to explain why this is so, leading many to believe EU’s stance is driven more by economic considerations than environmental ones.
Reaching out to other countries instead of the EU is the road the Asian countries are falling back on. They are now looking elsewhere to fill the gap. India and China with their burgeoning demand for palm oil are likely destinations, away from the EU and the Western world, where the cry for palm oil ban is growing louder. As per EIU data, Malaysia’s overall palm oil export stood at 18.5m tonnes in 2019 with India (4.4m tonnes) and China (2.5m tonnes) leading ahead of Europe (2m tonnes) and US (0.54m tonnes). India is the world’s largest consumer and importer of edible oils (importing 9m tonnes of palm oil annually), mainly from Indonesia and Malaysia. Its demand for palm oil is expected to double by 2030. Malaysia is also looking at Africa as a potential customer for palm oil.
Shifting the trade away from the west maybe the quick fix solution the Asian countries are likely to fall back on. All in all, this might come as a respite for the ASEAN nations but the debate on the merits and demerits of palm oil will continue to simmer and is unlikely to die out anytime soon.
Sumit Dutta is the Founder and Chief Executive Officer of ASEAN Business Partners. Prior to this, Sumit spent 26 years working for HSBC, one of the biggest banks in the world, in countries including Indonesia, Vietnam, USA, Hongkong and India.
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