It is no secret that the palm oil sector has been facing substantial pressures from the European Union (EU) which has been churning out policies which are expected to affect international trade in the name of sustainability.
Palm oil producing countries such as Malaysia and Indonesia have been taking steps to improve in the areas singled out by the EU, such as deforestation and labour, but so far there remains no signs that the EU is willing to compromise or ease up on the pressures being placed on palm oil, including a rampant ‘Palm Oil Free’ labelling campaign with a strong impact on food and beverage products.
At the recent international Palm Oil Sustainability Debate, held as part of the Dubai World Expo, supply chain expert Professor Pietro Paganini, who hails from Italy, called out the EU for being ‘discriminatory’ in its policies against palm oil, and trying to cut off the sector without having a suitable alternative available to meet consumer needs.
“Europe is striving very hard to achieve sustainability goals, and is taking a very proactive approach to this – but we need to also look at the unintended consequences of this approach,” said Prof Paganini, who is also the Founder of Competere – Policies for Sustainable Development, a think tank focused on supply chain sustainability.
“As it is, we can see that the prices of goods and the levels of inflation in Europe are very high, and it should at least be considered that some of the proposed sustainability policies need to be reviewed and given some rational thought [as] some of the EU’s current decisions are not science-based but more emotionally-driven – They are starting from a point of needing to save the planet, but fail to consider the needs of the 7.6 billion people living on the planet.”
According to Prof Paganini, the EU’s Green Deal is looking at reducing greenhouse gas emissions by 2050 which is to save the environment, but it also needs to remember that by 2050 the global population is expected to rise to 10 billion people – people that need nutrients and energy to continue to live.
“This is not energy to say press a light switch or turn on a projector, but energy to live and survive, plain and simple, and nutrients are needed to do get this energy, e.g. sugar, protein, fat, and so on,” he said.
“So when they talk about reducing the demand for palm oil, a vegetable oil that can provide the energy that people need, and phasing this out by 2030, there must somewhere else for them to channel this demand to which has sufficient supply to meet these needs – and this alternative must be sufficient in supply, healthy, sustainable and affordable, just like palm oil is offering.
“So is there such an alternative available now? The answer is no, there is no credible alternative to palm oil at the moment, as we have seen people try to turn to other oils like rapeseed but production is not sufficient here due to its own supply chain issues, or sunflower but this also requires land and can only be harvested once a year.
“Technology might be on the way that can offer new alternatives, but the fact is that at this point in time there isn’t one, so it is not a [scientifically] feasible move.”
In addition to the consumer angle, Prof Paganini also voiced concerns over impact of the EU’s actions on its trade activities.
“Within the Green Deal the EU has proposed many things like a zero-deforestation policy which will first affect items like palm oil, cocoa, coffee, wood, cattle and derived products (leather and chocolate); as well as a benchmarking system to classify goods as high or low risk based on deforestation,” he said.
“Of the six items affected by this policy, all but one are not produced in the EU – which basically means that it is making these demands on goods that don’t come from the EU, otherwise these products will be barred from entry.
“But if you want these producing countries to become more sustainable, you cannot tell them ‘you must be sustainable but your products are not welcome in my country [because you are high risk]’ – that doesn’t work, you need to allow or even guarantee entry to these sustainable products, otherwise it is unfair competition.
“[The] Palm Oil Free labelling campaign is a good example of discrimination against palm oil [when] so much sustainability work has been done for this commodity, and the benchmarking will also have very negative impacts on consumers – imagine them going to a supermarket and seeing products from a ‘black’-labelled country, what will the impact on their purchasing decision be?
“The imposition of any strict limits without allowing supply chain players time to adapt means that these players are being excluded from the market, so why would the producing countries invest in sustainability when there is no guarantee that [the EU] will buy their products? Why should they sell to you (the EU), when they may as well go elsewhere where the demands are lower.”
As it is, this is already happening with major palm oil producers such as Malaysia starting to seek out alternative markets to export palm oil to such as the Middle East and other South East Asian countries.
“But [if this happens] and no more palm oil [goes to the EU], how will local consumer demand for [oils and fats] be fulfilled when there is no credible alternative available?” stressed Prof Paganini.
“The Green Deal proposal’s Farm-to-Fork project also highlights that care and attention must be given to primary producers [to ensure their livelihoods], and that the affordability of food must be preserved and fair trade promoted. It must be remembered that many of these primary producers come from countries such as Malaysia, Indonesia, Central America and so on, and if no one is to be left behind, as the Green Deal states, they must be considered as well.”
Who will pay?
Even more importantly, Prof Paganini reminded the floor that even though sustainability is at the heart of all of these new policies, the driver will still need to be the cost – and the EU needs to think about who will be paying these costs.
“If we’re looking at just big companies, they might or might not have the resources to implement all of these new things, but what about small companies, can they afford this and who will pay if not – [if sustainability is the most important factor here], then this is a question not just for the producing countries but also the EU,” he said.
“In fact, I doubt that the big companies will be able or willing to absorb all these economic costs, and it should also be noted that all of this is coming at a time in the EU when the prices of things are skyrocketing, so again, who will pay? Will consumers have to take the brunt, or will governments be subsidising for the sake of sustainability?
All in all, he called for rational, non-discriminatory economic thinking to be applied to the crafting and review of these policies, to ensure that these are wise and can avoid unintended consequences.
“The first thing here is the necessity for the EU and the producing countries to have a partnership agreement in the designing and imposing of these policies – there is no way you can just tell people what to do and expect them to do it, it needs to be done together,” Prof Paganini said.
“The same applies to benchmarking, as it makes no sense to benchmark someone and rank them, but not include them in the process. The legislation governing all of this also must be clear and fair, and not see changes every other day.
“It’s important to remember that most food in the EU comes from outside of the EU and most supply chains are not short, so if sustainability is the end-goal, working together is crucial.”