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The EU's Palm Oil Conundrum

By Alana Fitzpatrick

26 February 2019

Alana Fitzpatrick is a Research Assistant at the EU-Asia Centre. She is a recent graduate from the University of Aberdeen, specializing in international security and the EU's relationship with Asia as well as the Middle East and North Africa.

1.     Overview

Since the time of the Ancient Egyptians, humans have cultivated palm oil. The palm tree, producing oil-rich kernels, grows in tropical climates around the equator. Today it is the most important vegetable oil, with 69.6 million mT produced annually [1]. In the last 50 years, the production of palm oil has increased dramatically, following global demand. The EU is the second largest global importer of palm oil after India, at 6.7 million tonnes in 2017/18 [2]. In this article, I will explore the controversy around palm oil, especially relating to the environmental and economic consequences of its cultivation. 

Palm trees are grown in subtropical climates. The tree is naturally found in dense tropical rainforests. Compared to other vegetable oils, palm oil has the lowest production costs. This perennial plant can reach up to 25 years of economic life, whilst needing less space to grow than other oils. One hectare of palm oil plantations produces an average of 3.6 tonnes of oil, compared to other vegetable oils of soy and rapeseed producing only 0.3 tonnes and 0.8 tonnes per hectare [3]. 

Palm oil is harvested from the fruit and kernel of a palm tree. The oil made from the red fruit of the tree is used in cosmetics and biofuels, whereas the palm kernel oil from the seed is used in edible products, such as foods and pharmaceuticals. The oil produced is naturally high in saturated fat, meaning it does not need artificial hardening via hydrogenation to be used in manufactured goods. This makes it a cheap additive to packaged foods such as biscuits, cakes and ice cream. 

In the 1960s, palm oil was mainly cultivated in Sub-Saharan Africa and South-East Asia, by Nigeria, DRC, Malaysia and Indonesia. Today there are also cultivations in Central America. However, these remain dwarfed by the quantities produced by Indonesia and Malaysia, who together produce 90% of the global palm oil [4]. In 1990, the total area of palm oil cultivations between these two countries was 2.6 million hectares, which had increased to 15 million hectares by 2014 [5]. 

In 2014, 42 million mT of palm oil was shipped to over 70 countries, with demand set to increase in the coming decades. The biggest importer of palm oil is India with 20% of global imports, followed by Europe and China, both importing 15% of global palm oil [6]. In India and China, the oil is mostly used for cooking. A study commissioned by the EU on palm oil indicated that 2/3 of global palm oil supply were consumed by Asia, with the developing countries increasing the global demand in the next decade [7].

2.     Main Issues

Palm oil production and consumption presents a conundrum in the political sphere. There are serious concerns about the ecological and health impacts of palm oil, but also important economic and political factors to take into account. 

The negative ecological consequences of palm oil cultivation are a cause of controversy in the West. As a plant originating in the rainforest, its cultivation requires large areas of rainforest to be cleared in order to create palm plantations. This is one of the leading causes of global deforestation, as dense wildlife-rich rainforest are cut down. The land is then burned to clear all remaining debris, to be able to plant the palm trees. Not only does this release carbon into the atmosphere, contributing to net greenhouse gas emissions, but also contributes to air pollution in nearby cities and countries. 

Clearing the rainforest for palm oil has endangered the wildlife living within, notably several species of great apes. The Sumatra orangutans have been particularly affected, as its habitat in Indonesia is prime land for palm oil plantations. These apes, as well as rhinos, elephants and tigers dependant on the rainforest are forced to live in smaller areas of land. This increases human-animal conflict, as animals are pushed closer to borders with human villages. 

Sustainability is also a major issue, with soil pollution and soil erosions frequent. In the rainforest, the diversity of trees maintains soil and stocks of water. When this is cleared and repurposed for palm cultivation, the palm trees cannot stock as much water in the soil, or prevent it from eroding. 

Western societies that use palm oil to manufacture foodstuffs are becoming increasingly aware of the negative health aspects of the oil. Compared to other vegetable oils, palm provides both saturated and unsaturated fat with minimal other nutritional values once processed in foods. It is often used as a base or ‘bulking up’ product in many cheaply available packaged foods, such as biscuits, cakes, spreads, and ice creams. Because it is cheap to produce, it is present in over half of all American packaged goods [8]. This differs from Asia, where the oil is most used for frying and cooking.

The economic advantages of palm oil present policy makers with a conundrum. The plantations provide stable, year-round income for smaller farmers (smallholders) in less economically developed regions. Palm is relatively easy to keep compared to other crops, requiring fewer pesticides and fertilisers than other vegetable oils. With a high global demand, palm plantations seem attractive to smallholders than other crops. The harvesting of the fruits is labour intensive, as attempts to mechanise have been unsuccessful. Whilst being a financial disadvantage, it also provides a livelihood for the workers on the farm and nearby villages. 

Further along the supply chain, palm oil’s economic impact is significant to producing countries’ GDP. Palm oil makes up close to 10% of Indonesian exports, and 4% of Malaysian exports [9]. This is linked to the political relations between the producer and consumer countries. 

3.     Current affairs

The political implications of palm oil were brought to light in a recent decision by the European Commission to ban the use of palm oil as a ‘biofuel’ component. It will no longer be positively counted towards the greenhouse gas reduction quotas, set as part of the latest revision of the EU’s Renewable Energy Directive in December 2018. The revision came after lengthy discussion over definitions, after which palm oil was classified as a high ILUC, or indirect land-use change. This takes into account the requirements and cultivation of the crop and the total carbon emissions in the production of the crop. It was concluded that whilst palm oil as a biofuel emits less net greenhouse gasses, the creation of palm oil itself – deforestation and carbon released from slash and burn to clear the land- outweighs the benefit of the biofuel. Malaysia and Indonesia were rattled by this decision, saying palm oil production was a key economic and poverty reducing industry. The decision does not ban the use of palm oil, but makes it less attractive to a more renewables-conscious Europe. 

This decision by the European Commission was preceded by continued lobby efforts by the European Parliament, which, by reference to the EU’s legal obligations to work towards the progressive realization of the Sustainable Development Goals and the Paris Agreement, called upon the European Commission in early 2017 to propose legislation “to introduce minimum sustainability criteria for palm oil and products containing palm oil that enter the EU market”. The adoption of the EP resolution led a number of EU trading partners including Indonesia, Malaysia, and Costa Rica to warn of a full-fledged trading dispute. 

The diplomatic fallout of the revised Directive came to light yet again at the January 2019 meeting of EU-ASEAN Foreign Ministers, when the issue of palm oil allegedly prompted Indonesia and Malaysia to obstruct EU attempts to upgrade the EU-ASEAN relationship to one of a ‘strategic’ nature. Even though the EU is bound to follow up on its commitment to the revised Directive, a number of ASEAN leaders felt obliged to raise the issue nonetheless. This can be understood as a need to respond to concerns of domestic constituents, with Indonesia facing a presidential election this year. The country has likewise pledged to challenge the Commission decision at the WTO over the course of 2019.

Regardless, the future growth of the palm oil industry is more or less guaranteed. The growth will come from increased demand in Asian markets, particularly developing societies. If Europeans want to help reduce deforestation and net greenhouse gases, they might start with investing in sustainably sourced palm oil certification. The Roundtable on Sustainable Palm Oil (RSPO) is one group of industry stakeholders self-regulating by certifying sustainable palm oil. Of the 59.6 million MTs produced yearly, only 9.8m mT are sustainable [10]. This means it meets the standards on deforestation, human rights, transparency and labour practices.

Major companies have begun to increase their share of palm oil from RSPO certified farmers, responding to consumer demands in the West. Nestle, Unilever and Mondelez are using satellite imagery to monitor deforestation in South East Asia, by tracking the activities and expansion of the palm plantations. The inconvenience with certification is the extra costs to buyers. This is one of the reasons why the RSPO says the change to sustainable palm oil will need to be a consumer-driven process. Activist groups such as Greenpeace demand certification of sustainable palm oil, and increased transparency of supply chains. Other groups, such as WWF promote best practices at local level, so that the industry can continue without contributing an environmental and existential risk to many animal populations. A total ban on non-sustainable oil is criticised by these groups, as the ‘dirty oil’ readily finds a market elsewhere with less ecologically concerned consumers. 

References:

[1] Statista, 2019

[2] US Department of Agriculture, 2017.

[3] RSPO, 2019. 

[4] 3 Keel LLP and LMC International Ltd. ‘Study on the environmental impact of palm oil consumption and on existing sustainability standards,’ 2018.

[5] Ibid.

[6] Index Mundi, 2014.

[7] 3 Keel LLP and LMC International Ltd. ‘Study on the environmental impact of palm oil consumption and on existing sustainability standards,’ 2018.

[8] WWF, 2019. 

[9] The Observatory of Economic Complexity, 2019

[10] RSPO, 2019.