Global Political Upheavals Cause for Malaysia to Stay The Course on Sustainable Palm Oil
- The EU as one of the top three markets for Malaysian palm oil, may become more protectionist of EU industries in rapeseed with an EU swing to the right
- The looming specter of a second term for Donald Trump as US President would be a protectionist nightmare for Malaysian palm oil
- As Malaysia looks towards established trade partner China for stability, the risk for Malaysian palm oil is the weakening of sustainable practices legislated under the Malaysian Sustainable Palm Oil Certification System
Home to the iconic orangutans and pygmy elephants, the Malaysian palm oil industry protects these endangered species with numerous conservation initiatives. The latest being the Malaysian Palm Oil Green Conservation Fund (MPOGCF) which is funding conservation actions across the country.
It is no secret that the MPOGCF funding comes from tax revenues on its palm oil industry which has been accused of being a threat to the same orangutans and elephants in Malaysia. The same revenue source also funds research and development at the Malaysian Palm Oil Board (MPOB) which has made the MPOB a leading global resource on sustainable palm oil cultivation.
No deforestation no labour abuse
Despite these efforts, Malaysian palm oil has been accused of deforestation and labor abuses. The Malaysian government has sought to meet the demands of its trade partners in the EU and the US to prove that it is free of deforestation and labor abuse with the development of a gold standard for sustainable vegetable oils under the Malaysian Sustainable Palm Oil (MSPO) standards.
This has enabled Malaysia to make the bold claim of no-deforestation with the industry’s commitments to produce no-deforestation palm oil, the key demand from the European Union.
This is much different from the US which has restricted Malaysian palm oil imports with allegations of forced and child labor. To which the Malaysian government has reached out to the International Labour Organization (ILO) to establish a commitment that would fit US regulations.
These commitments to biodiversity and labor protection is what makes Malaysian palm oil a gold standard for global purposes as claimed by Malaysia.
The big question now for certified sustainable Malaysian palm oil is whether it can survive as a gold standard for sustainable vegetable oils when competing vegetable oils like rapeseed are not bound by the same standards for sustainability.
Sustainability Has Not Paid Off Yet for Malaysia
Malaysia has invested heavily into its palm oil certification standard, the Malaysian Sustainable Palm Oil (MSPO) standards to protect the welfare of half a million smallholders as well as an important source of export revenue.
These investments into making its palm oil sustainable may end up being an unsustainable practice for Malaysia as the country has to compete against US soy for key markets like price sensitive China. This is a losing game for Malaysia where US demands on labor rights in Malaysia leads to the loss of both markets in the US and China with the clear winner as US soy.
It would be tempting for Malaysia to point to “slave and child labour” in America’s agricultural industries as an example of hypocritical trade restrictions but Malaysia seems to be determined to stay on its course for producing palm oil sustainably.
Staying the course on producing palm oil sustainably has come at an awful cost in the short term as exports to both the US and the EU continue to fall even as the MSPO elevated its standards.
As it stands, Malaysia has to look towards its key buyers in China, India and the EU for market support. The problem is that neither China nor India, the biggest buyers of Malaysian palm oil, have placed any sustainability demands on their palm oil imports. Price is king for these countries and Africa which leaves the EU as the only possible saving grace for Malaysian sustainable palm oil.
Why should Malaysia stay the course on producing palm oil sustainably?
Malaysian palm oil has suffered economic losses for years due to industry inefficiencies where crops are wasted due to the lack of workers to harvest them. These losses have been estimated in billions of dollars of revenue which could have been realized if it ignored sustainable labor standards.
After all, the US which has restricted Malaysian palm oil imports due to labor concerns is a smallish market for Malaysian palm oil which could have been replaced with market expansion in Africa and the Middle East.
But the historical abuse of migrant workers who are essential to preventing financial losses in poor harvest rates, would have conflicted with the government’s aim to create a globally accepted certification standard. As of this writing, Malaysia is close to having every drop of palm oil produced on its shores certified under the Malaysian Sustainable Palm Oil standards.
It will not be one big wave that will support Malaysia’s determination to produce palm oil sustainably. It will be the ripple effects of global demand for vegetable oils.
As an example, the return of the Labour Party in the UK and its stated ambition for closer ties to the EU post Brexit opens a side door for Malaysian palm oil to the EU market. Malaysian palm oil has a financial advantage into the UK with a zero tariff under the terms of the CPTPP but how this all plays out remains to be seen. It is disconcerting to note that the UK demand for vegetable oils also relies on price rather than sustainability.
As a further example, weak demand for sustainable palm oil in the EU and US could be made up by demand from its major markets like China. China’s export of UCOs for renewable energy is being challenged by the EU and the US with baseless accusations of virgin palm oil from Malaysia being in the mix.
Transport & Environment should seriously update themselves on what’s happening in the global market for vegetable oils. Palm oil has consistently been more expensive than competing vegetable oils so why would any Malaysian company “dump” palm oil to feed China’s UCOs exports? As a boost to China's contention on UCOs, Malaysian Deputy Minister Chan has assured China that Malaysia will only ship certified sustainable palm oil under the same gold standard, the MSPO.
Meanwhile, the EU is at risk of failing to meet its use of biofuels to decarbonise its transport sector. The European Biodiesel Board (EBB) which supports Transport & Environment’s claims against palm-based UCOs in favor of rapeseed does not realize that there simply isn’t enough rapeseed for biofuels unless fuel is favored over food for Europeans.
Germany’s vegetable oil trade group UFOP warned that current global rapeseed production forecasts suggest there will not be enough rapeseed to meet demand and pushed for more planting in 2025.
Pushing for expanded rapeseed planting in the EU will be difficult due to internal conflicts in the agricultural policies of EU rapeseed producing countries according to Kristina Mensah and Bettina Rudloff from the French Institute for International Relations.
Further complicating the issue of the EU growing its own source of feedstock for biofuels is the newly adopted Nature Restoration Law which may restrict expanded plantings.
Amidst the hysterical ignorance of Transport & Environment and the protectionist leanings of the European Biodiesel Board, the Malaysian palm oil industry has offered itself as a solution with a role to play in the global demand for renewable energy. This makes complete sense as a direct source of UCO based sustainable aviation fuels from Malaysia is better priced to meet both decarbonisation goals and industry profits.
The bottomline for the EU's goals of decarbonising with biofuels is that protectionist policies will "ultimately hinder broader, long-term sustainability interests of the European Union."
In addressing the EU's Deforestation Regulations, which is seen as another protectionist policy, the Malaysian Palm Oil Council’s CEO, Belvinder Sron, has forecasted stable demand from the EU based on the readiness of MSPO to meet EUDR demands.
"Malaysian palm oil producers exporting to the EU are 'more ready' to meet the EUDR requirements with the Malaysian Sustainable Palm Oil (MSPO) certification compared to other competitors."
Staying the course on ensuring the sustainability of its palm oil is therefore essential for Malaysia as all the problematic situations from China's UCO exports to the EUDR, are being hashed out. Getting a warm welcome from the EU for food and/ or fuel will however depend largely on Malaysia’s palm oil industry’s ability to keep its nose clean when it comes to deforestation.
The Malaysian palm oil industry has done a good job these recent years in failing to make the list on Trase, an initiative by SEI and Global Canopy. This has to be maintained as political upheavals outside of its realm of influence continues.
CSPO Watch Published July 2024
It is no secret that the MPOGCF funding comes from tax revenues on its palm oil industry which has been accused of being a threat to the same orangutans and elephants in Malaysia. The same revenue source also funds research and development at the Malaysian Palm Oil Board (MPOB) which has made the MPOB a leading global resource on sustainable palm oil cultivation.
No deforestation no labour abuse
Despite these efforts, Malaysian palm oil has been accused of deforestation and labor abuses. The Malaysian government has sought to meet the demands of its trade partners in the EU and the US to prove that it is free of deforestation and labor abuse with the development of a gold standard for sustainable vegetable oils under the Malaysian Sustainable Palm Oil (MSPO) standards.
This has enabled Malaysia to make the bold claim of no-deforestation with the industry’s commitments to produce no-deforestation palm oil, the key demand from the European Union.
This is much different from the US which has restricted Malaysian palm oil imports with allegations of forced and child labor. To which the Malaysian government has reached out to the International Labour Organization (ILO) to establish a commitment that would fit US regulations.
These commitments to biodiversity and labor protection is what makes Malaysian palm oil a gold standard for global purposes as claimed by Malaysia.
The big question now for certified sustainable Malaysian palm oil is whether it can survive as a gold standard for sustainable vegetable oils when competing vegetable oils like rapeseed are not bound by the same standards for sustainability.
Sustainability Has Not Paid Off Yet for Malaysia
Malaysia has invested heavily into its palm oil certification standard, the Malaysian Sustainable Palm Oil (MSPO) standards to protect the welfare of half a million smallholders as well as an important source of export revenue.
These investments into making its palm oil sustainable may end up being an unsustainable practice for Malaysia as the country has to compete against US soy for key markets like price sensitive China. This is a losing game for Malaysia where US demands on labor rights in Malaysia leads to the loss of both markets in the US and China with the clear winner as US soy.
It would be tempting for Malaysia to point to “slave and child labour” in America’s agricultural industries as an example of hypocritical trade restrictions but Malaysia seems to be determined to stay on its course for producing palm oil sustainably.
Staying the course on producing palm oil sustainably has come at an awful cost in the short term as exports to both the US and the EU continue to fall even as the MSPO elevated its standards.
As it stands, Malaysia has to look towards its key buyers in China, India and the EU for market support. The problem is that neither China nor India, the biggest buyers of Malaysian palm oil, have placed any sustainability demands on their palm oil imports. Price is king for these countries and Africa which leaves the EU as the only possible saving grace for Malaysian sustainable palm oil.
Why should Malaysia stay the course on producing palm oil sustainably?
Malaysian palm oil has suffered economic losses for years due to industry inefficiencies where crops are wasted due to the lack of workers to harvest them. These losses have been estimated in billions of dollars of revenue which could have been realized if it ignored sustainable labor standards.
After all, the US which has restricted Malaysian palm oil imports due to labor concerns is a smallish market for Malaysian palm oil which could have been replaced with market expansion in Africa and the Middle East.
But the historical abuse of migrant workers who are essential to preventing financial losses in poor harvest rates, would have conflicted with the government’s aim to create a globally accepted certification standard. As of this writing, Malaysia is close to having every drop of palm oil produced on its shores certified under the Malaysian Sustainable Palm Oil standards.
It will not be one big wave that will support Malaysia’s determination to produce palm oil sustainably. It will be the ripple effects of global demand for vegetable oils.
As an example, the return of the Labour Party in the UK and its stated ambition for closer ties to the EU post Brexit opens a side door for Malaysian palm oil to the EU market. Malaysian palm oil has a financial advantage into the UK with a zero tariff under the terms of the CPTPP but how this all plays out remains to be seen. It is disconcerting to note that the UK demand for vegetable oils also relies on price rather than sustainability.
As a further example, weak demand for sustainable palm oil in the EU and US could be made up by demand from its major markets like China. China’s export of UCOs for renewable energy is being challenged by the EU and the US with baseless accusations of virgin palm oil from Malaysia being in the mix.
Transport & Environment should seriously update themselves on what’s happening in the global market for vegetable oils. Palm oil has consistently been more expensive than competing vegetable oils so why would any Malaysian company “dump” palm oil to feed China’s UCOs exports? As a boost to China's contention on UCOs, Malaysian Deputy Minister Chan has assured China that Malaysia will only ship certified sustainable palm oil under the same gold standard, the MSPO.
Meanwhile, the EU is at risk of failing to meet its use of biofuels to decarbonise its transport sector. The European Biodiesel Board (EBB) which supports Transport & Environment’s claims against palm-based UCOs in favor of rapeseed does not realize that there simply isn’t enough rapeseed for biofuels unless fuel is favored over food for Europeans.
Germany’s vegetable oil trade group UFOP warned that current global rapeseed production forecasts suggest there will not be enough rapeseed to meet demand and pushed for more planting in 2025.
Pushing for expanded rapeseed planting in the EU will be difficult due to internal conflicts in the agricultural policies of EU rapeseed producing countries according to Kristina Mensah and Bettina Rudloff from the French Institute for International Relations.
Further complicating the issue of the EU growing its own source of feedstock for biofuels is the newly adopted Nature Restoration Law which may restrict expanded plantings.
Amidst the hysterical ignorance of Transport & Environment and the protectionist leanings of the European Biodiesel Board, the Malaysian palm oil industry has offered itself as a solution with a role to play in the global demand for renewable energy. This makes complete sense as a direct source of UCO based sustainable aviation fuels from Malaysia is better priced to meet both decarbonisation goals and industry profits.
The bottomline for the EU's goals of decarbonising with biofuels is that protectionist policies will "ultimately hinder broader, long-term sustainability interests of the European Union."
In addressing the EU's Deforestation Regulations, which is seen as another protectionist policy, the Malaysian Palm Oil Council’s CEO, Belvinder Sron, has forecasted stable demand from the EU based on the readiness of MSPO to meet EUDR demands.
"Malaysian palm oil producers exporting to the EU are 'more ready' to meet the EUDR requirements with the Malaysian Sustainable Palm Oil (MSPO) certification compared to other competitors."
Staying the course on ensuring the sustainability of its palm oil is therefore essential for Malaysia as all the problematic situations from China's UCO exports to the EUDR, are being hashed out. Getting a warm welcome from the EU for food and/ or fuel will however depend largely on Malaysia’s palm oil industry’s ability to keep its nose clean when it comes to deforestation.
The Malaysian palm oil industry has done a good job these recent years in failing to make the list on Trase, an initiative by SEI and Global Canopy. This has to be maintained as political upheavals outside of its realm of influence continues.
CSPO Watch Published July 2024
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