Haze may impact CPO in Europe mart
Published on: Wednesday, October 07, 2015
Kuala Lumpur: The current haze may affect Indonesia's oil palm exports to Europe, which is strict on sustainable practices.Demand from the continent, a major importer of CPO, is likey to drop in the near future as the fires, which start around July each year, become increasingly publicised, say analysts.CPO demand outside Asia is largely driven by biofuels in Europe, non-hydrogenated oils in both the US and Europe, and cooking oil in China and India.
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"NGOs (in Europe) are urging consumers to turn away from products containing palm oil as a sign of protest. Demand is dropping as more emphasis is placed on claims that CPO plantation methods lead to the destruction of natural habitats and forest area," says an analyst."Over the years these global campaigns have gained momentum as NGOs become more influential. Ten years ago no one outside Asia ever knew where CPO came from, or even questioned it but now all the environmental issues are highlighted," he adds.Palm oil and its derivatives are used in more than half of the processed products found on supermarket shelves, from food items like instant noodles, margarine, and chocolate, to detergent and cosmetics. Palm oil as a cooking oil is also gaining popularity due to its cheaper price. Its high melting point make it ideal for deep frying.An industry source says that Malaysian CPO export figures could be affected once the European Union begins enforcing strict rules on CPO that enters the region. In 2017, the EU will begin implementing carbon standards that require imports of CPO to fall below a certain benchmark of carbon emissions.
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Last year, the EU imported 6.8 million tonnes of CPO, an increase of more than 200 per cent since 1999. Import growth has, however, started to slow. Between 2012 and last year, import growth was only 0.03 per cent. Overall, the EU is the world's second biggest importer of CPO, behind India."Malaysian companies have been, to this extent, mindful of their impact on the environment, but only under certain categories such as encroaching into reserve areas. At some point, carbon emissions came into the picture, but the government has not implemented strict measures to curb emissions.
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"Many companies have plantations in Indonesia which has even more lax environmental control laws when it comes to oil palm plantations. There are no guidelines (on emissions)," says the industry source.Dry weather conditions, sporadic rainfall and large areas of plantation make it difficult to monitor and control the fires.Malaysia and Indonesia combined make up 85 per cent of global CPO output. According to the source, the majority of Indonesian and Malaysian plantations do not meet international carbon emission standards and have a high carbon footprint."In Malaysia and Indonesia there are illegal smallholders that will fall below the radar when it comes to enforcing environmental laws. The risk is if the EU decides to place a blanket ruling covering both countries based on the carbon footprint generated by smallholders, many of which still practise slash-and-burn techniques to turn their soil," says the source.However, it isn't entirely fair for the palm oil industry to shoulder the blame for the haze, says United Plantations Bhd executive director Martin Bek-Nielsen."The industry continues to receive much criticism and no doubt its image is blurred a little due to the repeated fires year after year. The bulk of the blame falls on the industry, which is factually unfair. Many other industries and individuals outside the plantation business are also responsible."Having said that, it is the responsibility of the companies to take precautionary measures to pre-empt and prevent this situation by having proper equipment and fire-fighting measures ready," he tells FocusM.Bek-Nielsen adds that poverty and poor access to basic needs such as electricity has led some small plantation owners and individual farmers in Indonesia to use burning as the cheapest means to clear land.Stern action from the RSPO (Roundtable for Sustainable Palm Oil) as well as the government ensures plantation operators avoid illegal practices like open burning, he says.Demand from Europe is unlikely to suffer in the long term as a result of the open burning, says Bek-Nielsen who admits that smaller groups of environmentally-conscious consumers will likely stay away."This is a short-term situation and pricing will determine demand more than anything else. If El Nino turns out to be less disastrous, as many are predicting, prices will likely fall below RM2,000 (per tonne) again."The majority of the fires are related to non-plantation businesses and smallholders. Buyers are focusing on the factual aspects of the burning. No doubt if this continues and consumers start looking for a scapegoat, the demand from critical consumers may suffer," he says.Palm oil authorities from both countries are meeting this month to discuss how to stabilise the slump in CPO prices which has continued for more than a year. They could also address the European demand issue."Something definitely needs to be done to improve Western views on Malaysian and Indonesian palm oil. We will have to see the result of the meeting," says analyst Ong Keng Wee of Affin Hwang Investment Bank.Being the world's largest producers of CPO comes at a huge cost for Indonesia and Malaysia. Forests are being cleared to make way for plantations. When forests are cleared, carbon emissions immediately increase. Oil palm is traditionally planted on mineral soil, but the increasing clearing of forest on peat soil, which stores a high amount of carbon, leads to years of emissions.Its high yield and low cost makes it unlikely that Malaysia will ever decide to reduce dependency on CPO exports. A single tree can produce fruit for more than 30 years, providing much-needed employment for poor rural communities. The plant yields more oil per hectare than any major oilseed crop.Stay up-to-date by following Daily Express’s Telegram channel.
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