In the Malaysian palm oil sector, there is much concern about the European Union's (EU’s) new Deforestation Regulation. This concern is justified: the regulation is thinly veiled protectionism, and will raise costs and lower incomes for both our small farmers and our successful companies.
This is not the first such EU regulation to target palm oil, nor will it be the last. In the past decade at the Malaysian Palm Oil Council (MPOC), we have seen many efforts by European special interest groups to ban or restrict palm oil. Malaysia has succeeded in defeating those attacks, and we must do so again in 2023.
It is helpful to consider, first, what is our objective when responding to such a regulation? We have a direct objective: to keep the EU market open for our palm oil exports. European companies are important buyers of our palm oil products, and partnerships between Malaysian suppliers and EU customers often stretch back decades. We also have an indirect objective: to prevent unfair regulation from harming our industry around the world.
Looking at the year ahead of us, there are two areas of EU regulation that MPOC is following closely as we defend the interests of our sector. The first is the now-famous Deforestation Regulation. The EU Parliament and Council will soon approve the draft text of the regulation, and implementation will begin.
There’s a fundamental point that the EU does not seem to understand about Malaysian palm oil. Our exporters can meet the rules that Brussels requires: there is no question about this. Palm oil is by far the most certified vegetable oil in the world, and Malaysia is the market leader. Malaysian companies already supply, on a daily basis, the highest levels of certification and traceability, because they are demanded by our European customers. Our complaint about the Deforestation Regulation is not about the EU applying sustainability standards.
Our complaint is about discrimination, and unfair treatment. The EU is applying costs and barriers to palm oil, but not to other oils. It is a known fact that the oil palm is the most efficient oil-bearing crop. The regulation is a deliberate effort to reduce market access, and increase the costs of Malaysia’s exports thus reducing the competitiveness of Malaysia’s palm oil.
The implementation phase will also include the EU creating a unilateral list of ‘high risk’ and ‘low risk’ countries. This is also clear discrimination and unfair treatment. It would be unacceptable for Brussels to label our country as ‘high risk’. There is no justification for it in the scientific literature, or in the forest protection data.
The second area of focus is on labour rights. The EU Commission’s draft ‘Forced Labour Regulation’ currently takes a reasonable and balanced approach to this sensitive topic. It focuses on the importance of ILO Protocols (which Malaysia has ratified) and of domestic reforms (which Malaysia is undertaking). Perhaps most importantly, the EU proposal includes a commitment to due process which we welcome.
The EU Forced Labour Regulation is still early in its legislative process. There will be many amendments offered, including, no doubt, some amendments targeted at Malaysian palm oil. Securing a positive outcome from this regulation, to keep the EU market open and protect Malaysian exports is a core priority for MPOC in 2023.
Addressing these immediate threats via the campaign activity that MPOC undertakes is essential. It must continue. However, as leaders in the palm oil industry, we must also ask big-picture strategic questions. A key question is: how to engage with the EU, moving forward? The answer is simple: engagement and cooperation must be conditional on good faith being shown by all sides.
Successive Malaysian governments, and the palm oil private sector, have shown more than good faith: they have made serious commitments to advancing ambitious environmental, social and governance (ESG) goals.
The reality is that developing countries often have to find a balance between their development needs, the livelihood of their people, and global environmental targets. Notwithstanding this, our major companies are launching net-zero aspirations that have been celebrated globally.
On labour rights and social issues, the private sector has committed to a new Responsible Employment Charter. This is typical of the industry’s long-term thinking that looks ahead and considers the needs of investors, customers and employees alike.
Another key strategic question is around cooperation with Indonesia. Both countries share opposition to the EU regulation. Stepping up joint activity and cooperation benefits everyone. In the coming 12 months, the Deforestation Regulation is the most-immediate challenge. A robust response, coordinated with the Malaysian government and our partner countries, is both justified and necessary.
Europe is an important market, but by no means the most important. Malaysian exporters continue to diversify and expand our efforts into new and growing markets, especially across the Asia-Pacific region. If we can marry short-term campaign successes with leading the way on long-term strategy, then Malaysian palm oil will continue to lead the world.
Belvinder Sron is the acting chief executive officer of the Malaysian Palm Oil Council (MPOC).