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Tuesday March 12, 2013

Market access poser for palm oil, new move by major consumers to completely avoid using palm oil

Commodities Talk - By Hanim Adnan


There is a new move initiated by major consumer goods and retailer groups to completely avoid using palm. There is a new move initiated by major consumer goods and retailer groups to completely avoid using palm.

THE market access for palm oil has become a growing debate of late, especially since global palm oil inventories from major producers are bursting at the seams.

In the European Union (EU), there is a new move initiated by major consumer goods and retailer groups to completely avoid using palm oil on the stale grounds of deforestation and biodiversity often championed by non-government organisations.

Hanim Adnan Hanim Adnan

The biggest fear now is that big names like Unilever, Carrefour, Sainsbury, Wal-Mart and Kraft in the EU could also influence and jeopardise stronghold markets like China, India and Asean in the near term, given their big presence there.

Ironically, these Western companies are mostly members of the Roundtable on Sustainable Palm Oil (RSPO) grouping, which supports the production of certified sustainable palm oil (CSPO).

In fact, the RSPO Western consumer goods and retailers group is believed to be demanding stricter standards on crude palm oil (CPO) under the RSPO principles and criteria, which is being reviewed at present.

Even the United Nations' Food and Agriculture Organisation (FAO) in a recent report had warned that certification schemes could serve as “indirect trade barriers if not properly managed”. It could also threathen oil palm smallholders from participating in the global biofuel market.

It also raises concerns that certification schemes like the RSPO are being used as trade barriers by Western biofuel producers to restrict trade with competitive biofuels entering the lucrative European market.

For Malaysia, this could have a devastating impact on its oil palm smallholders, who contribute about 40% of the country's total palm oil cultivation.

The FAO report also found that many certification schemes, which are voluntary and largely privately-operated, might exclude small-scale farmers because they are dominantly designed for the large-scale agro-industry.

Therefore, these structured schemes may tend to favour big players and provide incentives for scaling up production to absorb certification costs.

Palm oil biofuel can be economically viable without direct subsidies, unlike European biofuels produced from domestically grown crops which require subsidies to improve market competitiveness.

Palm oil also, by far, is the most efficient source of biodiesel alongside sugarcane. Its yield per unit of land far exceeds alternatives like rapeseed, sunflower or soybeans 10 times the amount of biodiesel can be produced from one ha of oil palm as from soybean.

Even Dr Robert Shapiro, the former Undersecretary of Commerce for US President Bill Clinton, concluded that palm oil could generate between 58% and 64% of greenhouse gas savings, compared with assessments done by the Malaysian Palm Oil Council, which found palm oil could reduce emissions by at least 62%.

Unfortunately, wealthy and low-income communities throughout the world may not be able to enjoy this low-cost, low-emission food and energy source if small-farmer production is limited by cumbersome and costly certification systems.

Another interesting observation is that the RSPO is now encouraging smallholders to produce CSPO, with its showcase being Thai smallholders heavily subsidised by German financial aid.

Malaysia and Indonesia also have a large number of smallholders.

The situation would be unviable if these smallholders are not able to sell the CSPO since there is simply no effective economic demand for the oil out there.

A recent WWF study showed that only 38% of the palm oil production by the RSPO members has been certified sustainable, while the remainder is still bidding its time to get certified.

  • Deputy news editor Hanim Adnan thinks that despite all the hard work involved in getting CPO certified, it is rather sad to see that CSPO is not fetching a premium over the non-certified version.

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