The trade politics behind your cooking oil

From cooking oil to soap, palm oil plays a ubiquitous role in the average Singaporean’s daily life.

But not many people here understand how important the industry is in South-east Asia - let alone the dynamics of the power play behind it.

Indonesia and Malaysia are the world’s top two producers of palm oil respectively, together accounting for 85 per cent of total global production. Dubbed ‘nature’s gift to the world’, palm oil provides food, fuel and raw materials used in daily products. It is also an increasingly viable biofuel.

But palm oil is also a controversial crop linked to biodiversity loss and deforestation.

While Singapore is not a producer, Singaporeans should care about the palm oil industry. There are many local shareholders of listed palm oil giants Wilmar International and Golden Agri-Resources.

Major investments wooed by the Economic Development Board, such as Finnish Neste Oil’s renewable diesel plant in Tuas costing nearly $1 billion, would not be based here if not for proximity to biofuel feedstock from neighbouring countries.

Deforestation in neighbouring countries - partly caused by poor palm oil production methods - has also resulted in haze pollution here over the past decade.

The raging debate over palm oil was brought home to Singapore recently when the Netherlands-headquartered NGO Greenpeace rattled corporate Singapore by lobbing fresh accusations at Golden Agri hours before its annual general meeting for shareholders in April.

Greenpeace claims Golden Agri’s units are destroying rainforests and peatland in Indonesia for planting purposes, even as it renewed promises to its shareholders that its palm oil is sustainably produced.

Golden Agri replied that it had suspended a manager responsible for the plantation at the centre of the allegations and launched an independent study to investigate the claims.

While the row seems to be between two individual entities, in reality it mirrors a larger debate on the practices of an industry that has drawn close scrutiny and criticism.

Civil organisations such as Friends of the Earth, Oxfam International and Sawit Watch of Indonesia, which protects the rights of indigenous people, have launched many campaigns in recent years alleging that expansion of palm oil plantations have destroyed forests in Indonesia, and threatened many endangered species existing in rainforests.

Land conflict is also an issue, with local communities and indigenous peoples losing their land to palm oil plantations.

But such strident lobbying sits oddly with the fact that oil palm is one of the world’s most sustainable crops.

A World Bank report in March on the industry highlighted the plant’s efficiency - its average oil yield is 3.8 tonnes per ha, which is 9.3, 7.6 and 5.8 times higher than soybean oil, rapeseed oil and sunflower oil, respectively.

The crop uses less land compared to the others. It provides jobs and reduces poverty in rural communities.

It drew international attention during the 1997 Asian financial crisis. Then, palm oil was Malaysia’s salvation and top foreign exchange earner. Forest fires in Indonesia also polluted Singapore, and most of South-east Asia, with haze.

Western NGOs suddenly sat up and took notice of this booming industry. Activists discovered that some palm oil producers were destroying forests of high conservation value protected by law.

But some industry observers say the debate is not just about sustainability. There is a growing perception in the industry that the aggressive campaigns over palm oil are linked to trade barriers.

Malaysian and Indonesian palm oil producers have been particularly provoked by a recent European Union Renewable Energy Directive, which has assigned a much lower greenhouse gas emissions savings value of 19 per cent to palm oil, potentially disqualifying the commodity as a biodiesel source for use in Europe.

European rapeseed biodiesel, on the other hand, would meet the criteria.

Both Asian countries say they intend to lodge this as a case of discrimination with the World Trade Organisation.

Malaysian Palm Oil Council chief executive officer Yusof Basiron added that the EU directive affects not only palm oil exports into Europe, but businesses of European biodiesel producers planning to use palm oil as its biofuel feedstock.

To complicate matters, recent reports have linked EU funding to certain Western NGOs such as Friends of the Earth.

Dr Yusof wrote in his blog that such funding implicates the EU in creating barriers to trade for agricultural products from developing countries, and called the environmental groups’ activism a ‘senseless and immoral attack’.

The World Bank observes that the industry has improved considerably in methods to cultivate the crop sustainably. For example, a certification system for sustainable palm oil was set up in 2004.

But there is still room for improvement. The presence of international non-governmental organisations in the industry is a good monitoring tool, but they can improve their own case by making sure their charges are based on solid evidence.

Beyond the green lobby groups, there is a need for an independent scientific study to ascertain the true value of carbon savings of palm oil compared to other crops, to settle the dispute with the EU once and for all. The EU must embrace the results even if these are unfavourable to its own biofuel producers.

The bottom line: what we need is less finger-pointing and more practical solutions in the great palm oil debate.

Demand for palm oil is increasing. Good solid data and transparency from all involved is needed, so this promising crop can be cultivated more sustainably - not at the expense of Asia’s fragile rainforests. Nor should it be denied export markets due to trade politics.

Source: The Straits Times

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