Under EU attack, top palm oil producers rethink trade strategy

JAKARTA/KUALA LUMPUR: Facing a backlash in Europe over palm oil’s environmental toll, the world’s top producers are scrambling to find new markets and even striking unusual barter deals, such as exchanging Sukhoi jets for the edible oil.

The European Union (EU) is the second-largest palm oil export destination after India for both Malaysia and Indonesia, which dominate production in a global market worth at least US$40 billion.

But palm has come under increasing fire in Europe over its impact on forest destruction, encouraging producers to look at new markets ranging from Africa to Myanmar.

Threatened by crumbling demand in Europe, the industry is waging a public relations battle and pushing producers to enter more price-sensitive markets, where Indonesia should have an advantage over Malaysia due to its lower production costs.

“Our principle is we will not let go of even one tonne of trade contract or potential demand palm has globally,” Indonesia’s deputy Coordinating Minister for Economic Affairs Musdhalifah Machmud told Reuters.

Machmud said palm oil sales were being brought up in “every trade negotiation” Indonesia conducts.

Palm oil is used in thousands of household products, from snack foods to soaps, as well as to make biodiesel.

But the demand boom has spread plantations in Indonesia and Malaysia across an area of more than 17 million hectares – an area greater than the size of Portugal and Ireland. They are mostly carved out of rainforests, which critics say has lead to an increase in the greenhouse gases that warm the planet.

Environmental activists have pressured consumer companies into demanding that their palm suppliers adopt more environmentally sustainable forestry practices. But in Europe, politicians say the industry’s standards on sustainability do not go far enough.

So far, palm oil sales to the EU have held up. Indonesian exports rose about 40 per cent to 2.7 million tonnes in the first half of 2017 from a year earlier.

Indonesia’s overall palm exports were worth US$18 billion last year, with EU sales accounting for 16 per cent, the Indonesian Palm Oil Association (GAPKI) said. For Malaysia, the EU made up nearly 13 per cent of exports, government data showed.

Meanwhile, the Malaysian Palm Oil Council (MPOC) says it will increase efforts to diversify into new markets such as Myanmar, the Philippines and West Africa regardless of the EU Resolution.

Malaysia’s plantation industries and commodities minister Datuk Seri Mah Siew Keong said in June he met EU commissioners and members of parliament for talks. The ministry did not respond to a request for further comment.

Malaysia is more reliant on palm oil exports than Indonesia, shipping out more than 90 per cent of its palm oil last year, compared to about 70 per cent in Indonesia.

Production costs in Malaysia are also 10 to 15 per cent higher than in Indonesia, analysts estimate.

“If EU doesn’t take up palm for biodiesel, demand for palm oil globally will fall and prices will be affected on the downside . . . which will impact everyone equally,” said Ivy Ng, regional head of plantations research at CIMB Investment Bank.

Europe is particularly concerned about the soaring use of oils, including palm, as a biodiesel fuel. Once regarded as a green alternative, an EU-commissioned report now says it creates more emissions than fossil fuels. — Reuters

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