EU environment committee clears path for momentous deforestation vote as palm oil prices stumble

18 Jan 2023 --- The Committee on the Environment, Public Health and Food Safety of the European Parliament gave the green light to a new deforestation regulation, which aims to cut deforestation globally by not allowing the import of products from at-risk areas.

The vote – which passed with 60 votes in favor, ten against and six abstentions – will antagonize the leaders of Indonesia and Malaysia as the world’s largest palm oil exporting nations. 

The Asian nations might avoid the EU market altogether and let their exports sail toward more regulatory-friendly countries.

“The option could be we just stop exports to Europe, just focus on other countries if they give us all a difficult time,” says Fadillah Yusof, Malaysian Deputy Prime Minister and Commodity Minister.

Palm oil prices have been spiraling down for months, with few signs of relief for exporters, reaching their lowest level since February 2021 as global import demand remains “sluggish,” according to FAO.

After the Environment Committee approval, the European Parliament will have its say in the weeks ahead.

United Southeast Asian front
More belligerent with the EU, Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartarto, called out what he considers a double standard of the EU. The minister believes the EU has had a “sneaky” approach to palm oil by banning its biofuel use and effectively prioritizing domestic crops.

The EU plans to halt its palm oil use for biofuels in 2030.

According to Hartato, it doesn’t make sense that the EU actively engages in protectionism, yet criticized Indonesia in the past when it introduced its short-lived palm oil export ban.

The EU plans to halt its palm oil use for biofuels in 2030.The leaders of Indonesia and Malaysia met last week to coordinate their response to the new EU directive.

India to benefit
The Solvent Extractors Association of India notes that the country imported 30% more palm oil during the last two months of 2022 compared to the same period one year earlier.

The country benefits from cheap palm oil imports as the product is considerably more affordable than other vegetable oils. However, excess imports are leading to record domestic stocks, which are almost 100% higher than one year earlier. 

The FAO Agricultural Outlook predicts India’s vegetable oil consumption to grow 2.3% annually until 2030, compared with flat consumption outlooks in the EU and US.

Furthermore, a higher use of palm oil in the biofuel mix in Indonesia starting in February is set to consume part of the excess palm oil reserves in the country. The Indonesia Biofuel Producers Association forecasts the new biofuel regulation will raise prices temporarily. 

“This is an accurate step that Indonesia must take in the midst of a recession threat. Palm oil importing countries are expected to experience a recession so that global demand for palm oil will slow down,” says Tungkot Sipaying, director of the Palm Oil Agribusiness Strategy Policy Institute. 

According to the Indonesian Palm Oil Association, Indonesia’s palm oil exports in 2022 reached 33.7 million metric tons, with exports expected to fall to 26.42 million metric tons this year. However, domestic consumption might make up for some of the lost exports.

“The EU forgets that Indonesia, apart from being a crude palm oil producer, is also the world’s largest consumer,” says Gulat Manurung, chairman of the Indonesian Palm Oil Farmers Association.

Manurung calculates that raising the biofuel mixes will consume as much palm oil as all palm oil exports to the EU in a year – four to five million metric tons.

By Marc Cervera