The European Union faces the threat of being labelled as engaging in trade protectionism and hence retaliation from major producers of palm oil such as Indonesia and Malaysia because of its decision to phase out its use as a transportation fuel.
For years, environmentalists have been running campaigns claiming that the extensive use of palm oil is resulting in rampant deforestation and labor abuses and pressurising the EU on this issue. The decision of the EU of the phase out therefore also signals how businesses is being impacted by the growing concerns of consumers about environmental sustainability.
Production of palm oil over the last 31 years has resulted in a loss of 56 per cent of 25 million hectares (250,000 square kilometers, which is larger than the size of the U.K.) of natural forests in the large Indonesian island of Sumatra, claims reports from Eyes on the Forest, a coalition of environmental non-governmental organizations co-founded by the World Wildlife Fund.
Last month, measures to curb the use of palm oil within the EU region were first initiated by France and Norway. This move has caused concerns in some of the major Southeast Asian countries that produce the vegetable oil whose economies majorly depend on it. More than 80 percent of the world’s palm oil is produced by Indonesia and Malaysia together.
In a larger way, as a part of a larger plan to enhance the share of renewable energy in the energy production in the EU, the EU in June announced its plans to phase out using palm oil as a transportation fuel starting 2030. Palm oil is extensively used in the EU in a wide range of products also – from baked goods to detergents, which makes the block one of the largest consumers of the vegetable oil in the world.
“This is a most unwelcome decision and goes against the very principles of free and fair trade. The vote by the (French) parliamentarians is alarming and deserves the strongest condemnation,” said Malaysian Primary Industries Minister Teresa Kok, news agency Bernama reported.
Threats of retaliation have been issued by Indonesia on multiple occasions against the EU in the face of such a move. The trade minister of Indonesia even commented that the moves of the EU to curb use of palm oil are enough to start a trade war according to a report published in the Nikkei Asian Review.
“One of the most significant risks to the palm oil sector resides in its poor sustainability records and negative reputation in developed markets, which pose threats to future demand,” said Fitch Solutions in a recent note. “Although some large plantation companies are making efforts to improve their sustainability records … we note that the reputation of the global palm oil industry has not improved.”
Measures to procure more sustainable palm oil in the short term are being adopted be some of the large food and drink companies in addition to the EU planning a phase out of the oil as a transportation fuel. Fitch Solutions added that such companies are pressurising their traditional suppliers of palm oil to comply with the sustainability standards demanded by the EU.
(Adapted from CNBC.com)