Forests and agriculture | Opinion

A palm oil tax on smallholders?

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Now with added tax

The French tax increase on palm oil raises some protectionism questions as well as renewed focus on smallholder farmer sustainability

France is a modest importer of palm oil. In 2015, it imported about 111,000 tonnes from Indonesia and Malaysia, which dominate world supply. By contrast, the UK imports a total of about half a million tonnes of palm oil each year.

Nevertheless, France has provoked Malaysian and Indonesian ire by upping taxes on palm oil. In mid-March, the French National Assembly voted in favour of a €30/tonne increase in 2017, with an additional levy thereafter of €20 per year until 2020 when the tax will be capped at €90/tonne.

The tax has been sold as a biodiversity protection measure. “Sustainably produced” palm oil, which does not involve forest clearance, has been exempted.

Protectionism, j’accuse  

However, there is the suspicion that the tax is really protectionism dressed up as sustainability. “Strangely, the tax does not apply to rapeseed, sunflower, soy bean or vegetable oils produced in France,” one Indonesian official has pointed out.

The tax is also being labelled an attack on smallholders. Yusof Basiron, chief executive of the Malaysian Palm Oil Council, says that the 300,000 palm oil smallholders in his country would be harmed because they could not afford the sustainability certification needed to avoid the tax.

Smallholders could therefore lose out even though, in practice, they farm sustainably, Basiron says. Smallholders “are not involved in deforestation as development occurred a long time ago, like the French oil seed farmers”.

Malaysia and Indonesia worry that other countries could follow the French lead, potentially putting palm oil at a disadvantage relative to other vegetable oils.

However, the calls to hold off from sustainability for the sake of the smallholders sound remarkably similar to disputes around the Indonesia Palm Oil Pledge (IPOP), which has so far been signed by six major multinationals involved in palm oil.

IPOP should be reeled back because smallholders cannot comply with its sustainability standards, Indonesian officials have said.

Inconsistent messages

The messages on smallholders are not entirely consistent. If, as Basiron says, smallholders are already by and large farming established plots and are de facto sustainable, they should be well positioned to meet sustainability criteria, though some (minor) financial and organisational assistance might be needed.

And smallholders themselves say that they want to achieve greater productivity levels as the way to boost their incomes, rather than to slash and burn the forest, and a focus on sustainability could assist them. And help is available. The Roundtable on Sustainable Palm Oil has a smallholders’ support fund to provide assistance with certification, for example.

Jonathan Wootliff, an independent forests specialist, says that large companies such as the IPOP signatories understand that “the palm oil business could not survive without the production by smallholders,” and are “bending over backwards to ensure that smallholders don’t suffer”. About 35% of Indonesian palm oil is, after all, produced by smallholders.

The French tax hike might be protectionism in disguise, but it draws attention to the bigger picture: that sustainability ultimately needs to permeate through the entire palm oil production structure. “There are huge challenges for everybody in changing their ways,” Wootliff says. “But if the palm oil industry is to survive and prosper, everybody has to find a way to adopt sustainable practices.”

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