Business innovation | Business brief

Palm oil, biofuels, sustainability and the EU

Image palm oil plantation dreamstime s 124914370

Joined up thinking required

Palm oil for biofuels, and in general, has become demonised in recent years. Peter Stanbury and Toby Webb suggest ways in which a genuine, fact-based debate might be enabled, and suggest a way forward for the industry

The European Union’s 2017 announcement of a planned phase out of the use of palm oil in biofuels was greeted with delight by many. Climate change activists, the domestic EU biofuels industry, some MEPs and anti-palm oil advocates all celebrated.

Unsurprisingly, it was met with anger by the governments of the countries likely to be hardest hit by this action. Malaysia accused the EU of “crop apartheid”, and Indonesia raised a lawsuit against the EU at the WTO about what it terms a “discriminatory” policy.

The temperature of the debate has become very heated. Whilst this makes for good headlines, it makes for bad policy choices. The focus now needs to be on what the palm industry and the Malaysian and Indonesian governments can do for the best. What practical steps might be taken to encourage the EU to nuance its long-term position on palm oil?

Collaborative approach

An approach worth trying is collaborative development governance. Whilst this might be a slightly clumsy expression, the concept is clear. 

Firstly, that durable solutions to development issues such as deforestation and poverty reduction require a comprehensive and three-dimensional view of exactly what the problem is. 

Secondly, solutions will only come about through proactively coordinated actions by a range of different stakeholders, including companies, government agencies and NGOs.

The current row over palm oil could best be addressed by this type of collaborative approach, in this case between the palm industry and the governments of Malaysia and Indonesia, and eventually also including the EU itself. 

A collaborative approach needs to address the following four issues. 

(1) Demonstrate to the EU that their principal expressed concern – deforestation – is being taken seriously and managed proactively.

In order to counter criticisms of the environmental damage caused by palm, both Malaysia and Indonesia have introduced moratoriums on the licensing of new oil palm plantations. Both however, have been criticised, for being time-limited, and lacking a baseline. It is extremely important that both governments respond to the criticisms made of the moratoriums, and so demonstrate that the fears clearly felt by the EU are misplaced. If, as is possible, moratoriums themselves are halted at some stage in the future, it must be transparently clear that any new plantations are not created as incursions into primary, high carbon stock or conservation value forests or other sensitive lands.

(2) Focus on the issue on which the EU’s position is palpably short-sighted – in its impact on smallholder farmers. 

Smallholders make up about 40% of oil palm acreage and rely on the crop for a significant chunk of their income. The challenge is that smallholders remain a driver of environmental damage, yet the ban risks exacerbating the drivers of this. Smallholder farmers’ yields are low, which reduce smallholders’ incomes and so drive their expansion into forests and peatlands. The EU’s ban will further reduce smallholders’ incomes, and reduce their ability to improve productivity, thus heightening environmental risks. 

The industry therefore needs build on existing work – for example, GAR’s innovative financing programmeto reach out to support smallholders to improve. This would greatly reduce the deforestation risk associated with smallholder practices, and greatly improve the lives of smallholder farming families.

(3) Ensure that governance of the palm oil sector in Malaysia and Indonesia is robust.

For the industry, this means showing clearly that it is doing all it can to address social and environmental damage. For host governments, legal sanctions need to be in place and properly enforced, and there needs to be coherence between ministries and regional jurisdictions. 

For example, in relation to smallholders, collaboration is important, but so too will be credible enforcement of social and environmental standards, and funding of effective enforcement capacity. This is not an easy area to work out, but business can play a key role, and assisting with technical capacity where helpful. The experience of firefighting teams, and Fire Free Village programmes, are examples of where company efforts can add value.

(4) Build on previous good practice of managing commodity trading between southeast Asia and Europe.

Tensions between the EU and countries of southeast Asia on commodity issues are not new; neither, however, are imaginative ways to manage such issues. An earlier row between Indonesia and the EU – this time around timber and timber-products – led to the creation of Indonesia-EU voluntary partnership agreement (VPA). This is legally binding and aims to improve forest governance and promote trade in legal timber.

The EU unit responsible for the VPA claim this mechanism has worked well for over three years and may provide a model to address the current row over palm oil. Such an approach could have the advantage that the EU might not have to rescind its ban, but yet continue to import palm oil that met agreed standards in relation to environmental and social impact.

Workable solutions 

The current stand-up row on palm oil is deeply unhelpful. What would be better is an approach which focuses on workable solutions. What’s needed is collaboration between companies in the palm oil sector and the Malaysian and Indonesian governments, which will demonstrate both that the EU’s position is being taken seriously, but also where that position is weak and capable of improvement.

Over time, through collaborative engagement between the EU, host governments and the palm oil industry, it may be possible to develop regulations in ways which are sensitive to the realities on the ground, and to balance the needs of different environmental and social agendas. This will not only reduce the temperature of the debates on these issues, but ultimately make a greater, more durable impact in addressing key issues of sustainability and development.

Dr Peter Stanbury is principal of the Frontier Practice. Toby Webb is founder of Innovation Forum. For a more detailed analysis of the approach outlined above click here

At Innovation Forum we are committed to exploring further the wider societal and political issues relevant to supply chains, food security and apparel manufacture. As well as content like this, we are developing additional resources, formats and ways to support partner organisations in making real change happen on these issues. See here for more details, or contact Toby Webb by clicking here

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