The export barriers of Indonesian’s crude palm oil (CPO) to be continues. The European Union (EU) Parliament even plans to issue CPO from green and sustainable energy groups. In the end, the imposition of harmonization tariffs that make CPO products more expensive.
However, in the midst of the black campaign launched, the public is aware that this action is solely related to business matters. Yet the environmental issues that are being heavily used to attack have actually received the answer repeatedly: CPO is the most efficient vegetable oil and meets the element of sustainability.
Realizing this, the international palm oil council countries, now chaired by Malaysia, held a meeting in Jakarta. The aim was to choose an envoy to go to Europe for further negotiations and look for steps to anticipate the outcome of the negotiations later. It is common knowledge, Asian palm oil traders are leading the international vegetable oil market. Led by Indonesia, Asian countries contributed the highest value of exported palm oil during 2017 with shipments worth US$ 28.6 billion or 85.9% of the global total. In second place are European exporters at 6.7%, while 4.9% from the Caribbean and Latin American countries, excluding Mexico. A smaller percentage came from Oceania countries (1.6%) led by Papua New Guinea, Africa (0.6%), North America (0.3%).
The nuance of trade competition is getting stronger when the prices of Malaysian and Indonesian agricultural commodities fall back to near their lowest level in more than three years, effective from November 27, 2018.
Internal and External Pressure
Analysts said that falling CPO prices were not only due to internal pressure in the form of the issuance of new regulations related to export levies and expectations of rising stocks in Malaysia. There are also external threats: the prohibition of entering Europe and the United States (US). This ban occurred along with the decline in soybean oil prices in the US. It is not wrong if then the Minister of Finance, Sri Mulyani Indrawati, finally issues the latest regulation on export levy rates for the Palm Oil Plantation Fund Management Agency (BPDP-KS) for exports of palm oil, CPO, and derivative products.
In the Minister of Finance Regulation (PMK) No.152/PMK.05/2018 which has been in effect since December 4, 2018, the government has denied (US$ 0 per ton) all export levy rates if international CPO prices are below US$ 570 per ton (around MYR 2,365 per ton). If prices are in the range of US$ 570-619 per ton (MYR 2,365-2,570 per ton), CPO export levies become US$ 25 per ton. If international prices return to normal above US$ 619 per ton (MYR 2,570 per ton), CPO export levies are again set at US$ 50 per ton.
With the release of export levies, CPO producers in the country can be in a more favorable position than producers in Malaysia. As a result, this situation has the potential to make Malaysian CPO exports increasingly depressed. As is known, CPO prices are influenced by the movement of other vegetable oil prices, along with competition in the global vegetable oil market share. When the price of soybean oil falls, the tendency of CPO prices will also weaken. This is why the Ministerial Meeting of the Council of Palm Oil Producing Countries (CPOPC) was held in Jakarta, last February.
The meeting was attended by the Malaysian Prime Minister of Industry, Teresa Kok, and the Colombian Ministry of Agriculture represented by Felipe Fonseca Fino as Director of the Agricultural and Rural Planning Unit. The Coordinating Minister for Economic Affairs, Darmin Nasution, revealed that the ministers of the oil palm producing countries present agreed to jointly respond to the discriminatory measures that emerged from the draft European Commission or EU regulations: Delegated Regulation Supplementing Directive 2018/2001 of the EU Renewable Energy Directive ll.
“The ministers view the draft regulation as a political compromise within the EU that aims to isolate and exclude palm oil from the EU biofuel sector which benefits other vegetable oils, including EU-produced rapeseeds,” he said. Darmin’s statement reminded the public that CPO producers from Asia and South America dominate the global vegetable oil market.
Darmin stressed that the draft regulation aimed to limit and effectively prohibit the use of oil palm-based biofuels in the EU through the concept of Indirect Land Use Change (ILUC) which is scientifically questionable. The criteria used in the draft regulation directly focused on palm oil and deforestation, did not attempt to include environmental issues, including the processing of other vegetable oil sources such as rapeseed.
“Furthermore, the ILUC concept is not only a unilateral instrument aimed at attacking palm oil producing countries in the context of achieving the SDGs, but also inhibiting all biofuels produced by palm oil producing countries (not only exported to Europe). In this connection, the ministers agreed to conduct a Joint Mission to Europe to voice this issue to the relevant authorities in Europe,” he added.
The ministers also agreed to continue to oppose the draft regulation through bilateral consultations, ASEAN, WTO, and other appropriate forums. At the same time, oil palm producing countries remain open to conducting environment-related dialogue with the EU in the framework of the SDGs 2030, which has been widely accepted by all UN members. The meeting also agreed to continue collaborating with multilateral organizations, especially UNEP and FAO to increase the contribution of palm oil to the achievement of the 2030 SDGs. The discussion also involved the role of smallholders.
“Ministers welcomed CPOPC’s efforts in expressing their concerns about palm oil and food security, specifically 3-MCPD and GE. The meeting agreed on a joint position to use a maximum limit of 3-MCPD and GE for all food oils and fats,” he said.
3-MCPD and GE are Tri Mono Chlori Propane and Glycidyl Esters ingredients contained in palm oil. The Codex Alimentarius Commission (CAC), a UN agency that handles food standards, has carried out studies related to the contamination. 3-MCPD and GE classified as karsiogenic which trigger cancer cells at a certain threshold, and palm oil far exceeds that threshold.
Indonesia, Malaysia and Colombia take the problem of EU trade barriers seriously. In fact, based on data from the Association of Indonesian Palm Oil Entrepreneurs (Gapki), the export volume of CPO and its derivatives (olechemical and biodiesel) during January 2019 reached 3.25 million tons, growing 4% compared to December 2018 which amounted to 3.13 million tons.
Gapki Executive Director, Mukti Sardjono, stated that from the total export realization, CPO contributed 746.06 thousand tons or around 23%. The remaining 77% is a combination of derivative products or processed CPO. Gapki data also shows the success of CPO market diversification. In January, Gapki recorded exports to the African continent of 315.91 thousand tons, a significant increase of 74% compared to December last year which recorded 181.84 thousand tons. Export increase followed by Bangladesh which grew 43%, US 26%, Middle East 13%, and India 9%.
In addition to increasing exports, Mukti said there was a decline in exports of three main markets in January. The largest decline in exports occurred in the Pakistani market which fell 8.5% to 265.49 thousand tons from 290.26 thousand in December 2018. In the same period, the EU also decreased 4% and China 3%. Even so, global palm oil prices began to improve with an average price increase of around US$ 530.7 per ton per January. This price is better than the previous month which is still in the range of US$ 490.5 per ton. Many parties considered that this success was also due to the implementation of the B20 palm oil mandatory program which was initiated by Indonesia, followed by Malaysia. Indonesia even targets to start the B100 program in stages over the next three months, starting with B50 trials for the transportation sector, until the development of refineries specifically for B100.
In Indonesia, global sales of palm oil exports reached US$ 33.3 billion in 2017. Of the 15 exporting countries, Indonesia led with US$ 18.5 billion (55.5% of exported palm oil), followed by Malaysia US$ 9.7 billion (29%), Netherlands US$ 1.4 billion (4.1%), Papua New Guinea US$ 512.8 million (1.5%), Guatemala US$ 446.5 million (1.3%) ) Next Colombia is US$ 381.7 million (1.1%), Germany US$ 343.4 million (1%), Honduras US$ 335.8 million (1%), Thailand US$ 216.7 million (0.6 %), Ecuador US$ 208.3 million (0.6%), Italy US$ 129.2 million (0.4%), Costa Rica US$ 119.1 million (0.4%), Denmark US$ 113.6 million (0.3%), United States US$ 98.5 million (0.3%), and the United Arab Emirates US$ 71.2 million (0.2%).
The 15 countries exported 97.5% of global palm oil in 2017 based on value. Among the above countries, the fastest growing palm oil exporters since 2013 were Colombia (up 111.4%), Italy (106.9%), United Arab Emirates (84.5%) and Denmark (73.3 %). Meanwhile, countries that experienced a decline in sales of exported palm oil were led by Thailand (down -50%), Malaysia (-21.4%), Costa Rica (-20.6%), Netherlands (17.4%) ) and Germany (-11.3%).
With the existence of two EU countries in the list of countries with negative CPO export growth, it is only natural that public perceptions arise regarding trade wars. Moreover, the voice of Germany and the Netherlands is very influential in the EU Parliament.