15 May 2019
Indonesia’s retaliation over the EU’s restrictions on the palm oil industry
palm oil

The palm oil war in Asia is getting serious. At the centre of this commercial battle is Indonesia – the largest palm oil producer in the world. The disagreement Indonesia has is largely with the European Union, as the latter has recently tightened their regulations as to how palm oil can be used in green fuels. Recognizing how this move could have a devastating effect on the Indonesian export trade and home economy, the government has hit back by threatening to ban imports of goods from the European Union. The restrictions laid out by the European Union have already made an impact on benchmark pam oil prices.

What does Europe use palm oil for?

The interesting fact behind all of this is Europe is the second biggest market for Indonesian palm oil outside of India. A cheap and versatile vegetable oil, it can be used as a crude oil and also in its refined form. Growing easily in the tropics of Indonesia, palm oil in Europe is in demand mostly in its refined form. Consequently, it is used by consumers and businesses as an affordable ingredient in many food products such as margarine, confectionery, chocolate, ice cream and bakery products. It is also widely used as an ingredient in non-food products such as soap, candles, and cosmetics.  A recent estimate suggests that more than half the products on sale in a supermarket are made with palm oil.

Why is palm oil an issue for conservationists?

Conservationists claim the palm oil industry is having a detrimental effect globally and locally to Indonesia. Apart from the huge deforestation that is required for its production, a study by the journal Cell Biology found that 150,000 orangutans were lost between 1999 and 2015 as a result of the expansion of the trade. The International Union for Conservation of Nature (IUCN) has stated that 193 critically endangered or vulnerable animals are directly threatened by the palm oil production. There are concerns that the production of palm oil causes aggravated climate change.

palm oil

Production figures have already fallen for 5 quarters in a row in Indonesia. More than that, the overall plan by the European Union offers little hope for the palm oil industry in the future. Restricting use in 2019 is only the beginning of a much wider project. In 2023 a gradual phase-out will begin leading to a total ban in 2030.

Indonesia’s offensive

Indonesia’s actions may at first seem unfair. After all, it has a responsibility like the whole global community to further the goals of sustainability just as much as any other country. But it is far from being selfish for its own commercial profits. The Indonesian government believes that by hampering their local palm oil industry in creating such restrictions, fundamental sustainability goals in Asia are being sabotaged.

To understand this, we need to look a little closer at the Indonesian economy. Almost 20 million people are involved in the palm oil production line in Indonesia. The Minister for Economic Affairs, Darmin Nasutin commented to Bloomberg reporters that palm oil was more than just a simple export earner – it was instrumental and basic to lowering poverty. Because of this, it provides an essential criterion for meeting sustainability development goals. With this in mind, the Indonesian government is planning to lodge a formal protest with the World Trade Organization (WTO) against the European Union’s actions. The government is also encouraging businesses within the palm oil industry to take out lawsuits against the European Union if the restrictions go ahead.

Europe’s response

In response to these threats the European Parliament have stated that any such changes concerning palm oil in green fuels is totally compatible with WTO rules and regulations. However, what will follow is a 2-month scrutiny when any objections or appeals can be made. If during this time no appropriate objections are made, the proposals will become European law.

There is clearly a great deal at stake for both parties involved in the dispute and as it continues, Malaysia, the second biggest producer of palm oil, has joined Indonesia in the conflict. We will keep you up to date with any further changes.

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