The EU under its Green Deal policy has adopted proposals to cut its net greenhouse gas emissions at least 55% by 2030 compared with 1990 levels — including through a gradual phaseout of biofuel feedstocks with high deforestation risks such as palm oil. EU governments and the bloc’s parliament are reportedly planning the next round of negotiations on a new EU anti-deforestation law this week, which could accelerate the phaseout.
Gapki expressed concerns over repercussions in Indonesia’s palm oil industry. “Either [the] EU doesn’t understand the existential threat that the law will cause to millions of Indonesian small farmers, or it simply doesn’t care,” the association said in a written statement on Friday, adding that palm oil farmers “will be blocked from the EU market, damaging Indonesia’s economic growth and killing jobs.”
Officials in Indonesia and neighboring Malaysia, another major palm oil producer, have repeatedly called the EU’s anti-palm oil move “discriminatory” and “protectionist,” slamming the use of “palm oil free” labels in food products and other items sold in European supermarkets.
James Fry, founder and chairman of British consultancy LMC International, told the Bali conference that EU imports of palm oil for food this year have stabilized, as users seemingly turned to it after Russia blocked the Ukrainian sunflower oil trade. However, nonfood demand, mainly for biofuel, is falling sharply due to the bloc’s palm oil policies.
“So if China is disappointing, the EU as a market for palm oil is a disaster,” Fry said.
Meanwhile, Thomas Mielke, executive director of German agricultural research company Ista Mielke, said production of other vegetable oils including soybean, rapeseed and canola oils in Latin America, Canada and elsewhere is expected to grow. He added ample supplies of these oils are expected to lead to a “downward trend” in prices during the first half of 2023. This poses another downside risk for palm oil, traditionally the cheapest among edible oils. Mielke said palm oil currently accounts for half the world’s exports of all vegetable and animal oils and fats.
Increasing production of the other oils also could erode the dominant share of palm oil in the global vegetable oil market, he added, while production is structurally declining in Indonesia and neighboring Malaysia due to the considerable slowdown in expansion of cultivation areas.
“We have acreage limitations, and it will be increasingly difficult to expand production into new areas,” Mielke said. “The big challenge for the future is to raise yields per hectare … in a sustainable way.”
Over the longer term, Indonesia and Malaysia also may face a challenge in India, which is keen to cut edible oil imports. The Indian government has introduced a program to expand by 2026 oil palm plantations to 1 million hectares from 350,000 hectares and annual palm oil production to 1.12 million tonnes from 300,000 tonnes, said B.V. Mehta, executive director of the Solvent Extractors Association of India, at the conference.
Indonesian palm oil producers have expressed hope for their government’s biodiesel program to buoy palm oil demand. The program had supported the industry in recent years amid the EU’s palm oil policies, prior to coronavirus-related supply disruptions and price hikes that discouraged Jakarta from expanding the biodiesel policy. With palm oil prices now on the decline, the government is reportedly planning to increase palm oil content in the biodiesel mix sold in Southeast Asia’s largest economy to 40% from 30%.
Reuters reported that 14 major global food trading companies on Monday detailed a plan at the COP27 U.N. climate summit in Egypt to end deforestation in their supply chains by 2025 for soy, beef and palm oil. Among the companies participating in the move aimed at helping avoid damaging climate change are Cargill, Bunge, Archer Daniels Midland, Louis Dreyfus, JBS of Brazil and China’s Cofco International, the news egency said.
