STRONG PARTNERSHIPS
REQUIRED
The EU and ASEAN Joint
Working Group on Palm Oil recently
defined an ambitious agenda of research, dialogue and cooperation. That
is
excellent news, because EU legislation is dead on arrival without strong
partnerships. There are a lot of issues to be discussed around finding
common
ground to foster an energetic partnership.
Let’s explore some
critical issues on the agenda as we move
away from disinformation, boycott
strategies and anti-palm oil marketing. In
brief, I will first evaluate the old debate on biofuel and explore the
new
dialogue on legislation. Finally, I will share some thoughts on
refocusing on
the pressing issues of deforestation through an economic lens.
Let’s move away from
disinformation, boycotts and anti- palm
oil marketing.
BIOFUEL: ENDING THE
WAR
For many years the
ASEAN-EU dialogue on palm oil was
dominated by a polarized debate on the use of palm oil for biofuel. The
European Commission ended the debate unilaterally in March 2019 by
announcing
it would phase out palm oil in biodiesel by 2030. This policy did not
take into
account the differences in productivity and carbon emissions between
palm oil
and vegetable oil alternatives from European sources. That verified
scientific
data is significantly in favor of palm oil.
At the same time,
recent market intelligence clearly shows that the transition to electric
power
in the transport sector is gaining momentum. The diesel engine will be
obsolete
by the end of the decade, regardless of the outcome of ongoing World
Trade
Organisation (WTO) procedures that are still dealing with conflicts that
have
lost their meaning given the status of the energy transition.
Not only is the noisy and
dirty combustion engine fast
becoming a technology of the past, it is inextricably linked to the
software
tampering scandal corrupting the integrity of EU regulations. Still, the
fact
that there is no future for biodiesel in Europe is not because of EU
parliament
resolutions, but because of the changing realities of the renewable
energy
transition. A similar process can be observed in countries like China
and
India, which are rapidly moving towards electric cars. It is high time
to bury
the hatchet.
MANDATORY DUE DILIGENCE
IS THE NEW ROUTE
The European market is
already moving from voluntary
standards to legislation, defining and enforcing sustainability by law.
This
process is being accelerated by the global climate ambitions that
translated
the Paris Climate Agreement into the European Green Deal, aiming to make
the EU
climate neutral by 2050. The Farm to Fork strategy at the heart of the
Green
Deal seeks to make food systems fair, healthy and environmentally
friendly. This
strategy combines both regulatory and voluntary initiatives, using the
synergy
between good governance and market-driven commitments.
Recent figures show that
Europe is a de facto RSPO dominated
market: More than 86% of palm oil imports are already RSPO-certified.
BEYOND THE EU
Asian palm oil exporters’
voluntary sustainable
certification under the RSPO scheme is no longer seen as a market
barrier or
distortion. More than enough certified palm oil volumes can be shipped
to the
EU to meet demand. New mandatory sustainability requirements are not an
issue
for exporters, partly because sustainable volumes receive a market price
premium as an incentive. There is more hesitation in political circles.
The
EU’s failure to recognise the importance of the national sustainability
standards in Malaysia and Indonesia (the MSPO and ISPO respectively) is
a
serious worry for governments.
But there is a further
consideration. The EU’s ambition must
go beyond cleaning its own footprint of palm oil imports. Europe only
represents 6.4% of the global palm oil market. Making this relatively
small
volume sustainable will not bring systemic change –including upscalable
innovative solutions and structural benefits for farmers – to the sector
as a
whole.
NATIONAL STANDARDS
VERSUS VOLUNTARY STANDARDS
Right now, there is an
opportunity to reconcile positions
and strengthen cooperation
worldwide. Politicians are
likely to agree that at the end of the day, only governments have the
mandate,
authority and responsibility to transform national agricultural and
industrial
sectors to ensure they meet ambitious sustainability standards in line
with
international agreements. That’s why national standards are the vehicle
of
choice for sector transformation that leaves no-one behind, raising the
floor
through legally binding minimum requirements. These should work side by
side
with voluntary standards as a way for first movers to raise the bar,
continuously testing further improvements. In this optimal dynamic of
interactions, the power of markets and of good governance are
constructively
combined.
National standards are the
preferred vehicle for sector
transformation.
The moment has come to
fully acknowledge the relevance of
the national sustainability standards for the palm oil transition in
Indonesia
and Malaysia. The creation of a EuropeAid- funded producer support
programme
for implementation and improvement of ISPO and MSPO, with a focus on
smallholder inclusion, will open a new chapter beyond polarisation.
Bringing
legislation to life requires collective action.
DOES PALM OIL REALLY
DRIVE DEFORESTATION?
Deforestation is a very
critical subject in the building of
a more common understanding. In the dominant discourse in the West, the
expansion of the palm oil sector is identified as the main driver of
large-scale
deforestation: it is blamed for the destruction of one of the last
remaining
rainforest biomes, situated in the Southeast Asian archipelagos. It is
crucial
to look beyond this facile conclusion to create effective, scalable
solutions
that tackle the issue’s root causes.
The real driver of palm
oil-related deforestation is poverty
– on the production side, palm oil appears to offer improved prospects
to
millions of farmers, while on the market side, there is strong demand
from
low-income consumers for affordable cooking oil. These combined economic
forces
have driven the growth of the palm oil sector as an economically
efficient
solution for decades. Forests are hard to maintain unless trees are
worth more
standing than cleared. Otherwise, there is always some crop or other
that is
seen as a good reason to cut them down. Alternatives like cocoa, coffee,
tea,
rubber, timber or rice are less productive and will accelerate the
expansion of
agriculture at the cost of forest even faster. Millions of smallholder
farmers
will be negatively impacted. Competing land use against forest requires
an
economic response; making maintaining forests an economically valuable
alternative. No palm oil substitute can solve this challenge. In
reality, there
will be an opposite effect.
HOW TO OFFSET THE
OPPORTUNITY COSTS
The core question is this:
Can we build effective financial
mechanisms to offset the opportunity costs of keeping the forest
standing?
These costs should not just be borne locally. Given the discrepancies in
forest
coverage between continents and their stages of development, an
international
settlement is needed. Asian- European cooperation must include this
financial
dimension, possibly as part of the proposed EuropeAid funding.
Investment in maintaining
the forest should be shared by all
actors in the supply chain.
MARKET-BASED
SOLUTIONS
In essence there are two
parallel routes to take:
Market-based solutions and good governance. Combining the two is most
probably
the smartest way forward. Market-driven solutions to deforestation
entail
developing the farmer business case for sustainable palm oil production
in at
least two scenarios:
• One is the concept of
agroforestry, combining agriculture
with forest coverage and using the economic potential of intercropping
without
destroying biodiversity. Most probably, this scenario will require
additional
earnings for farmers to achieve a living income. These could take the
form of
payments for environmental services and carbon sequestration. As
mentioned
before, the resulting financial burden cannot be borne locally; all
supply
chain actors must contribute.
• Secondly, agroecology
could redefine the concept of palm
oil cultivation at scale, moving from maximization to optimization of
production while respecting the boundaries of the landscape and
ecosystems.
This would help preserve fertile soils, clean water, biodiversity,
carbon
storage and other environmental services on which we are all heavily
dependent. Markets are best positioned
to bring together the innovative power of science and technology,
capital and
entrepreneurship to accelerate these innovations towards functioning
agroecological systems.
GOOD GOVERNANCE:
ANOTHER CRUCIAL COMPONENT
The existence of public
goods and the provision of ecosystem
services like clean air, water, fertile soils and biodiversity, should
not
depend on their economic value alone. Society – as represented by
governments –
has a responsibility to safeguard these for future generations. This
requires a
very different timeline than short-term profits. If we put a monetary
value on
public goods as a strategy to save them, there is a risk of their being
appropriated by the wealthy few. Governance on a global scale is
required to
deal with climate change and other cross-border issues like poverty,
migration,
fair trade relations, epidemics, etc. The Green Deal is a
laudable European
interpretation of a continental
responsibility to deliver sustainable development solutions. At the same
time,
we are all interconnected with other continents through trade relations.
One-sided measures will not have a positive outcome. Financial transfers
to
help developing countries are crucial to achieving outcomes that serve
the
worldwide community as a whole.
The EU and ASEAN Joint
Working Group on palm oil is to meet
again, preceded by expert meetings, to discuss possible two-way
cooperation.
Let’s put the conflict behind us and work together.