The Green Development Oil Newsletter – Issue 26, December 2012

EU RED recognises palm oil sustainability scheme submission

The European Commission has formally recognised a submission from the Roundtable on Sustainable Palm Oil (RSPO) certification scheme that outlines voluntary requirements to assist growers to comply with the eligibility rules for the EU Renewable Energy Directive (RED).

The submission – known as RSPO-RED – stipulates a number of requirements for producers whose land was under palm oil cultivation prior to January 2008. These include compliance with the RSPO criteria and indicators; and in some cases efforts to capture methane gas emitted during palm oil production at the mill. Plantations established after January 2008 cannot meet RSPO-RED requirements, regardless of growers’ compliance with sustainability criteria or environmental management.

EU-RED requires EU member countries to implement a mandatory target for renewable energy sources. In order to be countered towards these targets, biofuels must meet defined sustainability criteria. Crop-based biofuels, for example, are recognised as sustainable if their greenhouse gas emissions (GHG) during production and use are less than 35% of those emitted during the production and use of conventional fossil fuels.

The EU has been widely criticised for its assessment of palm oil based biofuels which found that such biofuels do not meet the 35% emissions saving value. Under the EU’s guidelines, palm oil biodiesel has a default savings value of 19%. Respected researchers have criticised this appraisal, arguing that a more accurate assessment would see palm oil’s default value above the minimum threshold; thereby making palm oil-derived biofuels eligible under the directive.

On the other hand, biofuels produced from European-grown rapeseed does qualify as renewable, leading to speculation that the sustainability criteria are being used to protect domestic oil seed producers against more competitive imports from developing countries. As a result, the directive has been widely criticised for discriminating against products from developing countries and potentially contravening WTO regulations.

Wrong time for NGOs to press for high cost certification

According to media reports, producer countries are under pressure to stimulate demand in major consumer markets such as China and Europe. The sluggish palm oil market is particularly concerning for producers in Malaysia and Indonesia whose combined output account for around 80 per cent of global palm oil production.

Meanwhile, environmental campaigners are pushing for an expanded certification agenda – based on RSPO compliance – that would raise production costs and further decrease the competiveness of palm oil products. Europe’s financial situation and China’s slowing economy have led to a reduction in demand for palm oil, which has left major producers with high inventories. Demand in major markets such as India, China and the EU is expected to remain flat in the short term, due to slow economic growth and a better than expected US soybean harvest.

Yet NGOs continue to lobby for RSPO members to implement expensive certification regimes that will raise costs and further undermine the competitiveness of palm oil growers.

Certification increases costs for both growers and millers. The costs are particularly high for smallholders that collectively contribute around 40% of global palm oil production.

Given the current market climate for palm oil, producers are not looking to increase operational complexity and cost associated with RSPO certification.

Under the current market, RSPO certification looks unattractive to producers and impracticable to manufacturers. And while major palm oil producing countries are wary, policy makers in Europe and Western ENGOs appear to have little concern about rising costs and the impact on development.

With a recent IMF downgrade of projected world growth rates, and the looming potential for further global recession, NGO lobbying for eco-certification is poorly timed. Adopting their demands would jeopardise the livelihood of growers as well as the development of national economies that rely on the industry.

Ultimately, now is not the time to be raising costs and overheads through expensive certification agendas. Campaign groups with a weak understanding of commercial pressures are in no position to dictate ultimatums to business. Despite these demands, palm oil growers and refiners should be focusing on reducing their overheads in order to regain profits and competitiveness in the current market climate.

French Parliament rejects ‘Nutella tax’

A tax to increase the cost of palm oil failed to pass the lower house of the French parliament, after earlier being approved by the Senate. The proposal to tax a key ingredient in Nutella was widely criticised in the international media, and condemned by palm oil producing countries, such as Indonesia, Malaysia and Ivory Coast, as well as the food manufacturer of Nutella and leading French health experts.

A number of French journalists also accused local retailers – System U and Casino – of orchestrating a campaign against palm oil on health grounds, in expand the market share for their own home brand chocolate spreads, which do not use palm oil.

Nutella is the dominant chocolate spread in the French market. In response, Ferrero, the Italian food manufacturer of Nutella placed full pages in French newspapers, arguing that “palm oil is not hazardous to health”, and vowing to continue using palm oil as a key ingredient even if the proposed tax was passed.

Asian governments were scathing. The Indonesian Sustainable Palm Oil Commission, an Indonesia Government agency, argued that the proposed tax was ‘an action of discrimination’, not supported by any scientific evidence or health risk assessment.

According to the Commission, it “has been proven by a scientific research that palm oil contain mono-poly unsaturated fatty acid which is a source of vitamin A and E. Palm oil and palm kernel oil also has a good role in reducing trans-fatty acid that contain in other vegetable oils.”

In Malaysia, the Palm Oil Council complained the proposed tax “was not based on science, and was an unjustified attack against hundreds of thousands of small farmers across Malaysia”. According to Tan Sri Datuk Dr. Yusof Basiron, head of the Council, the measure could harm more than 240,000 Malaysian small farmers that rely on palm oil production for their livelihoods.

In Africa, the Ivory Coast palm oil industry group (AIPH) claimed the tax would threaten the livelihood of 2 million people – equating to 10 percent of the population – who depend on the industry.  It was denounced by African economists as a “colonial tax” that would undermine the trade of palm oil from Africa and Asia.

Meanwhile, French claims that palm oil harmed health were quashed by a respected French food and health policy foundation – Le Fonds Français pour l’Alimentation et la Santé (FFAS) – who confirmed that palm oil is a relatively healthy product compared with substitute oils in comparative products. The study was widely reported in French media, where co-author Jean-Michel Lecerf – head of nutrition at the Institut Pasteur de Lille – argued that a proposed tax on palm oil is not justified on health grounds. According to Lecerf, palm oil has helped to replace partially hydrogenated vegetable fats that have been associated with heart disease. The scientist also argued that palm oil contains a number of beneficial nutritional components such as tocotrienols, a form of vitamin E, and carotenoids.

The debate over palm oil’s nutritional status was in fact silenced a decade ago when scientific consensus arrived at the conclusion that it was a relatively healthy vegetable oil and a healthier option then comparable products used in food processing; particularly vegetable oils containing trans fats.

‘Nutella Tax’ fiasco carries important message for NGOs and multinational branded food producers

The success of the aggressive defence of the Nutella brand by its manufacturer – Ferrero -carries important lessons for both NGOs and the multinationals whose brands NGOs so often threaten to devalue to swing companies to support their campaigns.

Nutella is one of the most popular branded food products in France.  When aggressively responding to the attack on palm oil, Nutella knew the power of the value of its brand.   All food producers understand the consumer loyalty that attaches to brands.

So do NGOs, like Greenpeace, who specialize in attacking these brands; as well as other NGOs which offer to “help” companies deal with such attacks by offering membership of their certification schemes to enable demonstration of the environmental responsibility of the producer.  WWF has a long record of collaboration in sustainability campaigns with Greenpeace.

Two years ago Greenpeace attacked Kit Kat, a very famous brand recently acquired by Nestle.  A vicious YouTube clip produce by Greenpeace accused Kit Kat of killing orang-utans.  This was claimed to be the effect of forest clearance to establish palm oil plantations.  It was untrue.  Instead of attacking the criticism as false and malicious, Nestle cancelled purchases of palm oil until the palm oil suppliers signed up to WWF positions.  Nestle have made the brand value of Kit Kat hostage to Greenpeace’s favour.

It is an avowed strategy by WWF to capture supply chains in products like palm oil.  They have argued to producers that WWF endorsement increases brand value which consumers recognize in meeting the higher-priced products certified as ‘WWF sustainable’.  Most producers know this is untrue.

Consumers at large set market values, not NGOs.

African growers win case against French retailer anti-palm oil campaign

The Commercial Court of Paris has ruled that large French retailer – Système U – cease its anti-palm oil advertising campaign. The ruling has been hailed by growers in developing countries as a victory against anti-palm oil campaigns which seek to reduce the attractiveness of the product in order to protect markets from more competitive vegetable oil imports.

The Tribunal de Commerce reportedly ordered Système U to halt all further dissemination of its anti-palm oil advertisements within 15 days. The court further ruled that any future violations will incur a penalty of 3000 Euro per infringement.

The complaint was brought to the court by African palm oil growers under the representation of the  Interprofessional Association for the oil palm sector in Côte d’Ivoire (AIPH), based in Abidjan, Ivory Coast.

According to media reports, Système U’s advertising campaign had perturbed African palm oil growers and producers, who claimed the campaign was harming imports from African palm oil producing countries, and discriminating against African vegetable oil producers.

Another French retailer, Casino, have also been accused by a leading African think-tank of undermining African small farmers.  To date, they have not been challenged in court. However, the question remains whether French retailers will learn from the ruling against System U and cease anti-palm oil campaigning, or risk embarrassing judgments similar to the ruling against System U.

Genetic viability of orang-utan affected by ancient events

New research by orangutan experts has indicated that the long-term viability of orangutan populations is likely to be related to events that occurred over thousands of years ago. These findings are contrary to the claims of activist groups who apportion blame for orang-utan habitat degradation on the palm oil industry.

The science paints a much more nuanced and complex story, where orang-utan populations are effected by both ancient and modern events. Recent research shows that Borneo orang-utans experienced a major demographic decline perhaps tens of thousands of years ago during the Pleistocene and Holocene periods, which likely had a detrimental impact on the genetic viability of today’s orang-utan populations in Borneo.

The authors use the example of African elephants, to demonstrate how ancient events have been known to impact on modern populations. According to the researchers, modern population decline of African elephants was linked to both poaching in the 1970’s and events from over 4000 years ago that combined to reduce the genetic viability of modern populations. The scientists indicate that Borneo orang-utans may be in a similar situation, due to events that predated man-driven land use change in Borneo.

The study investigated the genetic structure and population size dynamics of orang-utans from different sites; altogether 126 individuals were analysed. The researchers argue that the orang-utan population structure is known to “generate spurious bottleneck signals”, which suggests that orang-utan populations were affected by demographic events that started before the arrival of the palm oil industry. In biological terms, a bottleneck refers to a past event that has led to population decline and a reduced gene pool, which can result long-term constraints on species viability and survival.

Campaigner groups accuse the palm oil industry of driving a decline in orang-utan populations.The primary contention is that palm oil is the main driver of forest clearance, and by denying natural habitat, the industry is reducing the orangutan population.  This is simply not true.  In Malaysia for example, orangutan populations remain stable, and are supported by government and industry funded conservation programs. NGOs have generally been reluctant to provide similar financial support.

NGO campaigners frequently single out commercial agriculture, especially the palm oil industry, as the key driver of alleged orang-utan population decline. However, the research shows that the issue is far more nuanced, and that NGO accusations are based on campaign rhetoric, rather than scientific evidence.

World Agroforestry Centre highlights socioeconomic benefits of palm oil to rural households

A recent study undertaken by the World Agroforestry Centre (ICRAF) found that the palm oil industry offers significant socioeconomic benefits to rural households in South-East Asia. On a household level, the study found that almost 45% of households where palm oil was the major source of income had increased their income by between 22 and 25 times over a 10 year period, making palm oil cultivation one of the most attractive land-uses in the region.

The study assessed 23 plantations in Indonesia and found that palm oil production had a range of socio-economic benefits. Researchers found that a significant proportion of rural villages located within a 20km radius of plantations depend on the palm oil industry for their primary economic activity. Such villages showed a significantly lower prevalence of malnutrition and a tendency to perform well against physical, financial and human capital indicators.

The study found that during the first five years of cultivation, almost 20% of households at least doubled their income; and that the development of new oil palm plantations stimulated economic opportunities for surrounding villages by creating a market for rural farmers to sell palm fruit to local mills.

According to researchers, the average per capita expenditure recorded in an extensive household survey was more than two times the poverty line (set by the national bureau of statistics of Indonesia) in all provinces except one.

Indonesia is one of the largest palm oil producing countries, and combined with the other dominant palm oil producer – Malaysia – accounts for around 80 percent of global palm oil output. The findings hold wider relevance for the region’s palm oil industry given that most of the world’s production is located in South East Asian low land tropics.

Data indicating the significant socio-economic benefits derived from palm oil production in the region are largely being ignored by policy makers in the developed world. The European Commission recently launched a proposal that would limit the amount of crop-based biofuels it sources, while one major market recently proposed a tax on palm oil imports for food consumption.

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