The Green Development Oil Newsletter – Issue 25, October 2012

Proposed French palm oil tax likely to push up prices, breach WTO and harm smallholders

A French Socialist Senator has introduced an amendment that would levy a tax on palm oil coming into France on the grounds it is harmful to human health.  The tax proposed would increase the cost of cosmetics and baked goods, most likely breaches France’s obligations as a member of the World Trade Organization, and makes producers of palm oil in developing countries, particularly smallholders in Asia and Africa, uncompetitive in the French market.

The measure appears to reflect pressure from French producers of oil seeds objecting to imports, particularly the sunflower industry.

The amendment was introduced as part of the ‘Social Security Finance Act’ currently being considered in the French Senate.  It calls for a tax of 300EUR per tonne to be placed on palm oil, coconut oil, and palm kernel oil including on imported or processed foods that contain palm oil.

It is likely that the Finance Ministry will endorse the amendment, though this has not yet been confirmed. If the Finance Ministry does endorse the Amendment, it is more likely to be accepted in the final vote of the French Parliament.

The Senator who introduced the amendment represents the region of Picardy, in the North-East of France. The region is a hub for France’s agricultural industries. Almost 1 billion Euro worth of cereals, including sunflower seeds, are produced in the region annually.

Presumably the contention is that a tax on imported palm oil would help boost this sector by providing financial incentive to French food processors to use vegetable oil refined from locally grown crops instead of cheaper imported palm oil.

This is unlikely to work. Palm oil has qualities most others do not which is why it used extensively in the baked goods and cosmetic industries, although not in great quantities. The proposed tax would probably just increase the cost of those products.

The proposed change is based on factually incorrect claims that palm oil is an unhealthy vegetable oil. Palm oil has a number of beneficial nutritional qualities and is regarded as a relatively healthy vegetable oil option. Importantly, it is widely recognized as a healthy alternative to trans-fats often used in food processing.

The amendment asserts it is justified on health grounds.  The rules in WTO Agreements permit restrictions of imports if there is a threat to human health.  To justify use of that measure, there has to be scientific evidence of harm to human health and a formal, technically-based risk assessment.  There is no evidence in the legislative measures those conditions have been met.

Increasing the price of goods containing palm oil would be detrimental to smallholders in developing countries. According to news reports, the French campaign has already “led to a major uproar among oil palm smallholders worldwide.”

African smallholders are pushing back, calling for several French retail chains and food companies to end their campaigns against palm oil. In Malaysia, smallholder sentiment is flaring with around half a million growers reportedly frustrated with moves in France to label products without palm oil.

Malaysian Government officials have also expressed concern over the French campaign. After Malaysian statistics indicated that no Malaysian palm oil exports entered France in February, May, July, August and September of 2012, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok reportedly announced that his ministry would set up a committee to assist local palm oil producers gain access into the French market.

This was initially envisioned by some stakeholders as the purview of the RSPO. But the RSPO has been unable or unwilling to assist smallholders gain access into the French market. According to media reports, the RSPO has been criticized for pursuing an agenda to certify smallholders, rather than supporting and promoting palm oil products in consuming countries.

 

US EPA visits palm oil producers in SE Asia

The US Government’s Environmental Protection Agency (EPA) recently concluded a visit to Indonesia and Malaysia this week as part of their review of an assessment whether to allow palm oil derived biofuels to be recognized under the United States’ renewable fuel standard.

In January 2012, the EPA released an assessment of lifecycle greenhouse gas emission benefits from biofuels derived from imported palm oil.  A World Growth sponsored submission from Sonecon, a consultancy run by a former senior economic official in the Clinton Administration, Dr Robert Shapiro, found the EPA rating for palm oil imports relied on speculative assumptions and could not substantiated.

Following complaints by Indonesia during the recent APEC Summit in Russia that palm oil was not treated as sustainable, the Obama Administration committed the EPA to visit the two largest palm oil producing countries (Indonesia and Malaysia) as part of its review of the EPA assessment.  The EPA assessment comes after a personal request by Indonesian President, Susilo Bambang Yudhoyono, to Secretary Clinton, to revisit palm oil eligibility under the US renewable fuel standard. This is a wise move. Biodiesel from palm oil is a cost effective and sustainable renewable energy source. Major palm oil producing countries are also significant trading partners.

The US Administration appear as well to appreciate that WTO rules do not allow the EPA to set a carbon emission standard for producers in one country which would be different to that applied in the US or a third country.

The EU has done this. Several countries are likely to challenge it in the WTO, with persistent rumours that a case will soon be filed, and the US mission in Brussels engaging in the issue. It appears that the US Soybean industry is pressing the Obama Administration to challenge the EU regulation on the basis that it discriminates against imports of US soy-bean based products.

The Obama Administration is likely aware of the irony of challenging the EU in the WTO, only to find the EPA is proposing introduction of a similar measure in the US.

Meanwhile, environmental NGOs including WWF and the Union of Concerned Scientists, an alter ego for Greenpeace, continue to denigrate palm oil and lobby for its exclusion under the renewable fuel standard, on the basis of unsubstantiated data and emissions ratings. The NGOs have rallied against palm oil by claiming that the crop drives forest conversion, which supersedes the environmental benefits derived from using biofuels.

WWF’s ongoing criticism of the palm oil industry may come as a surprise to some, given that RSPO is much a WWF conception.   But it is no surprise to those who realize the strategies are two sides of the same coin – attacking palm oil while using the RSPO system to ramp up obligations on palm oil producers that will limit expansion of the industry.

It is not yet clear how the EPA will rule, but under the current management, it is expected it will lean to the WWF/Greenpeace position.  This is a mistake, if the US is serious about engaging South-East Asia, fostering trade ties, and developing allies in the region. Rejecting Malaysia and Indonesian palm oil, a key sector for millions in the region, is no way to achieve these goals. At the same time, China, a major palm oil importing country, is looking to increase influence in the region, and will potentially seize any missed US diplomatic opportunities by purchasing large quantities of palm oil if the EPA rejects it based on radical green ideals. Realists in the Democratic Party should be concerned.

 

Draft Malaysian Sustainable Palm Oil standard published

A draft of the Malaysian Sustainable Palm Oil (MSPO) standard has been published for public consultation. The standard appears to be developed by a standards development organization recognized by the Malaysian standards authority.

According to media reports the MSPO standard has been under development since last year and has been developed through consultation with a range of stakeholders.

In its current draft, the standard covers a rage of areas with principles and criteria requiring:

-          overarching management policy;

-          internal audits and management reviews;

-          requirements for continual improvement;

-          transparency requirements;

-          compliance with legal requirements including tenure and customary rights;

-          provisions for social responsibility, health, safety and employment conditions;

-          reductions of pollution and emissions;

-          water resource and biodiversity management;

-          implementation of best practice agricultural procedures; and

-          a number of restrictions on new plantation developments.

It is a very healthy development.  With the development of this standard and the implementation of an Indonesian standard (although that is in the form of a compulsory Government regulation), this creates competition in the certification world. Until now, the only system-wide certification of sustainability was the RSPO scheme.

This now gives options to producers and businesses to demonstrate sustainability. It enables them to compare the terms of RSPO standards, and changes proposed to them, with the terms of other standards.

It also alleviates the concerns of producers and buyers that adoption by dominant operators in the supply chain, such as consumer goods producers or retailers, of a single sustainability standard, like those developed by WWF, may result in those entities exercising a monopolistic role in the market and start dictating the terms of supply to producers and the availability of products to consumers.

In this respect it is important to note that WWF has stated that its ambition with certifications systems is to use them to control the supply chain in important food products. WWF is unlikely to support MSPO. They campaigned against a similar national certification initiative to develop a sustainable palm oil scheme in Indonesia. National standards developed through International Organisation for Standardisation (ISO) mechanisms represent international best practice in standards and conformance. But WWF view them as competitors with the certification schemes they helped established and continue to influence.

The MSPO standard is still in its infancy, but Malaysia should be working to improve the viability and foreign recognition of the certification scheme. France would be a good start, where a campaign against palm oil is aggressive and spurious. It is important that Malaysia engage France in order to secure the support and adoption of MSPO as a legitimate tool to demonstrate sustainability and environmental compliance.

 

FAO finds RSPO certification unsuitable for small farmers

Smallholders in Thailand recently achieved certification under the RSPO, marking a first for independent smallholders in the RSPO system. The Secretary General of the RSPO has commended these efforts, arguing that the benefits smallholders derive from certification outweigh the costs incurred.

A FAO-commissioned assessment of the Thailand project indicates this is not the case. The case study found that without external funding, farmers would have been unable to pursue certification.  The project was paid for by overseas donors.

No other independent smallholders have achieved certification, most likely because costs are inhibitive; there are too many technical and administrative obstacles while small-scale farmers often lack capacity to achieve certification by their own means.

The authors identify a range of certification costs and technical challenges, concluding that “the benefits of certification alone are too low and the challenges for smallholders are too high to successfully proceed with certification”.

The FAO publication estimated costs of almost US$50 000 to certify less than 1800 ha of plantation in the first year of certification alone.

The study also indicated that the meagre premium offered for certified palm oil does not reflect the high costs associated with achieving certification. The report noted that Thai smallholders could expect to receive only US$0.0003 per kg of fresh fruit bunches, based on the price paid for GreenPalm certificates. This figure is too small to incentivise farmers to pursue costly certification.

With insubstantial returns on certificates and weak incentives for small-scale farmers to peruse certification, the viability of the RSPO system is being called into question.

Meanwhile certified independent small-scale farmers in Thailand may feel cheated – the aid funding that assisted them could have been better spent on improving agricultural practices and training in farm management. The FAO research shows this is what they really wanted when they signed onto the project. Advancements in achieving these goals were only indirect results of the certification project.

Improving environmental outputs and increasing productivity should be key priorities for overseas aid investment in developing countries. Certification consultants and auditors are the real winners from such ‘development’ projects.

NGOs are comfortable lobbying for certification of smallholders in developing countries. Would they similarly campaign for US small farmers in Illinois or Missouri to certify their 100 acres of corn?  The NGOs strategy of demanding smallholders pursue certification would cause uproar if applied to America, European or Australia family farmers. Small scale farmers throughout the world already face serious economic challenges, without demands for certification that would further decrease their competitiveness.

 

African palm oil farmers undermined by French retailers

The Inter-professional Association of Oil Palm Industry (AIPH) of Cote d’Ivoire has brought a legal complaint before the Tribunal de Commerce de Paris against System U for running a campaign against palm oil.  The complaint has been supported by a group of African economists and businesses, who have criticized several French companies for running a campaign detrimental to economic development on the continent.

Nigerian based policy think tank – the Initiative for Public Policy Analysis (IPPA) – and several leading African economists wrote to the chief executives of Casino, System U, Jacquet and Lays, requesting an end to an anti-palm oil campaigns being run in France.

According to the letter, the French retailers have been “engaged in a slanderous and reprehensible campaign against small palm oil farmers in Africa, Asia and Latin America [and] caused a drop in their income, disparaged their livelihood, and unfairly damaged the reputation of the crop they grow”. The IPPA accuse the French companies of “colonial behavior” having a harmful effect on small farmers’ livelihoods and standards of living.

The letter claims that “main beneficiaries of your campaign are likely to be sunflower producers in Russia and the French rapeseed industry… [P]alm oil is a healthy, natural, low-cost oil which uses less land than any competing product. It raises incomes for small farmers in Africa and Asia; and it lowers prices for consumers in France.”

Recent World Growth research has highlighted the significant role smallholders play in the palm oil industry in South-East Asia, and the economic and social benefits to small scale growers from participation in the industry.

With failing development indicators throughout much of the continent, the palm oil industry offers significant opportunities for low income African farmers. According to the IPPA one of the major obstacles to development appears to be European campaigns, particularly those in France, run at the expense of African development.

 

UK Government policy heavily influenced by greens

The UK Government’s Department for Environment Food and Rural Affairs (DEFRA) published a statement on the ‘sustainable production of palm oil’ which  includes a government procurement pledge, that “the United Kingdom is working towards achieving 100% sourcing of credibly certified sustainable palm oil by the end of 2015”.This is an unusual political action for a Department of State.  For a start the Government is not a significant purchaser of Palm Oil.  It is advocating WWF policy.  WWF is co signatory of the Statement.

DEFRA would not normally set UK Government procurement policy, nor set policy which governs how businesses should source products

Procurement policies that recognize sustainably production should be based on robust assessments of sustainability certification schemes. The UK Government established a body to assess certification schemes for the UK timber procurement policy, known as the Central Point of Expertise for Timber Procurement (CPET). It appears that CPET may eventually provide advice on sustainable palm oil procurement.

Several years ago, at the urging of WWF, the UK procurement body ruled that only timber certified under the WWF-sponsored certification system, FSC, should be procured.  The Australian Government pointed out this breached competitive rules for government procurement and would rule out purchase of Australian timber certified under the national sustainable forest standard set by the Australian standards authority.  CPET then reversed its policy.

It is not immediately clear how DEFRA defines ‘sustainable’ palm oil, but the statement refers to the certification of the RSPO as the dominant system to verify palm oil sustainability. The statement does not state that RSPO certification will be an exclusive procurement objective.

WWF of course is a founder of RSPO and is also a key supporter of the Consumer Good Forum (CGF). Through the CGF, a number of companies have pledged to procure only sustainable palm oil by 2015. They are finding it difficult to meet these commitments. The date for UK Government’s compliance with DEFRA’s sustainable palm oil pledge is also 2015.

As part of the statement, DEFRA also pledged to “encourage other consumer nations in Europe and more widely to take action to switch to sourcing sustainable palm oil”. Governments do not usually lobby other government to implement procurement policies that have little economic impact on their producers. The UK is not a significant vegetable oil producing country. Lobbying governments to implement procurement policies that recognize WWF endorsed certification schemes such as RSPO and FSC (Forest Stewardship Council) certification is in fact a key WWF objective. DEFRA have packaged the pledge as part of a wider UK effort to curb trade in ‘illegal’ commodities that allegedly drive deforestation, in particular the UK Department of International Development (DFID) £250 million program ‘Forest Governance, Markets and Climate Programme’.

This is getting rather silly. There has never been any serious accusation that ‘illegal palm oil’ production is contributing to deforestation.

There is some slippage however among Consumer Good Forum members about the 2015 target.  Unilever, one of the founders of the Forum (and chair of RSPO) has stated it will implement its sustainability pledge in 2020.  Perhaps DEFRA have decided they need to give WWF a hand to give weight to the 2015 target to put a bit of pressure on Unilever.

There is another possible explanation.  UK produces some rapeseed.  It is used for various purposes and oil produced from it is more expensive than oil produced from palm oil.  DEFRA may be positioning to advocate trade restrictions on palm oil other than RSPO certified palm oil.  WWF have already pressured the Dutch Government to consider this.

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