Tough road ahead for Malaysian palm oil with EU ban

Despite all the jargons used to lambast the EU for its ban on the use of palm oil in biofuels, the Malaysian palm oil industry is facing a bleak future.

And there is need for calmer heads to fight back rather than accusations, criticism through the media to make one look good in the eyes of the public.

Indeed, the EU expected the Malaysian reaction. Threats to stop buying EU products will also not help. But these threats are indication that Malaysia has run out of options in its battle to prevent the EU from targeting palm oil.

Amid the cacophony, Malaysia still need a reasonable strategy and has to find a proper leverage in its fight against the ban.

“If such a resolution affects our exports, it will be a major blow,” Mah Siew Keong, Malaysia’s Plantation Industries and Commodities Minister, said in an interview in Kuala Lumpur in November last year.

Malaysian Prime Minister Najib Razak and Indonesian President Joko Widodo last year discussed concerns that a resolution passed by the European Union in April calling for tougher environmental standards for palm oil may hurt the industry. The two countries are the world’s top palm oil producers, accounting for 85 percent of supply.

But Malaysia seemed to have made their decision to go on the offensive in the event the EU banishment vote were to materialise.

On Thursday Malaysia heavily criticised the European Union for backing a ban on the use of palm oil in biofuels, calling the move a protectionist trade barrier and a form of “crop apartheid”.

But the apartheid view will not resolve the conflict and will not expand Malaysia’s palm oil exports to the EU.

The Malaysian criticism came after the European Parliament approved a plan to seek restrictions on the use of palm oil in biofuels due to concerns about its environmental impact on Wednesday.

European lawmakers approved draft measures on Wednesday to reform the power market there and reduce energy consumption to meet more ambitious climate goals. The plan includes a ban on the use of palm oil in motor fuels from 2021.

The European Union (EU) Parliament has voted in favour of an amendment to a draft law on renewable energy that calls for reducing to zero ‘the contribution from biofuels and bioliquids produced from palm oil’ as of 2021, Bloomberg reported.

It added that the assembly’s vote defines its position for talks between national governments about the draft law on renewables. The final shape of the law will be ironed out in negotiations between representatives of the EU Parliament, member states and the European Commission.

Exports of the edible oil are a key source of revenue for Malaysia, with the European Union its No.2 export market.

Palm oil can be used as a substitute for crude oil to make biofuel. A large portion of European palm oil imports are used to make biofuels, giving the palm industry cause for concern as they fear overall demand will fall.

“The EU Parliament’s plan would allow all other oilseed crops to continue operating under the RED (Renewable Energy Directive), whereas palm oil will be excluded,” Malaysia’s plantations minister Mah Siew Keong said in a statement.

“This is a clear case of discrimination against palm oil producing countries. The EU is practising a form of crop apartheid,” Mah said.

Benchmark palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange opened 0.7 percent lower on Thursday.

Palm oil producing countries will take action to protest the EU move, Mah told reporters at an industry conference in Kuala Lumpur.

“Don’t expect us to continue buying European products,” he said.

Malaysia has in the past threatened to cut off trade with countries that have vowed to reduce palm oil consumption. In July last year, Malaysia said it may review its trade with France after Paris decided to limit the use of palm oil in biofuels.

The palm oil industry has come under fire in Europe over its impact on forest destruction.