OFIC global trade policy and politics panel - initial notes

At MOSTA's OFIC Module 2, we just had a great line-up of speakers and a good panel session.

Photo: Mr Syahril at the rostrum by Khor Yu Leng

Ms Sanya Reid Smith of Third World Network drew our attention to domestic agriculture subsidies remaining in places like the US and EU within the trade agreement contexts, Malaysia's bounded export duty (up to 8.5% on CPO)exemption under TPPA (and RCEP leaked documents showing Japan and South Korea asking for zero), that IP extensions may reduce availability of non-patent agricultural chemicals (that often result in prices being 3x higher), and TPPA's potential impact on procurement by federal government entities and large SOEs, ILO labour standards becoming enforceable, and question whether palm oil milling is a service and therefore subject to liberalisation. The USA certification process for TPPA may add more requirements (beyond the text, with topics as yet unknown), and that many countries wait until the USA proceeds before making changes to domestic laws and regulations. She offered a thorough applied analysis of TPPA on palm oil that has not featured in previous public for a.

Dr Joe Feyertag of LMC International Ltd explained a profound shift in grain and vegetable oil production post 2002 with large production and acreage growth amidst the biofuels boom, rapid meat consumption transitions, oil palm expansion less than a quarter of maize and soy acreage expansion, the 2010s being the end of the biofuels decade and rise of the protein decade, future growth scenarios showing a hypothetical moratorium on palm oil volume resulting in even larger increase in soy acreage likely in the Amazon Basin, a look at US biodiesel market volume, potential volume return from Argentina and Indonesia and EU biofuels policy news of no more public support for food-based feedstocks from 2020. He concluded that environmental aspirations need to take a more nuanced consideration of how demand drives expansion across the vegetable oil complex (palm, soy, rape/canola and sun), and for GMO products.

Mr James Caffyn of Gira Strategy Consultants provided major insights into vegetable oils usage in the dairy sector - specifically analog cheese, fat-filled milk powders, growing-up milk and infant formula - with great data on dairy-veg oils price arbitrage of over 4.5x, market size and growth, vegetable oil inclusion ratios and palm oil tonnage indicators (over 1.5 million tonnes in FFMP and GUM-infant formula). What came strongly across for palm oil was the fast growth potential of this segment (especially in Asia), its technical proficiency, compelling price arbitrage, market perception, regulatory concerns and food safety.

Mr Syahril Syazli Ghazali of Ministry of International Trade and Industry (MITI) of Malaysia offered wonderful insights into TPPA, as Lead Negotiator for the Market Access Chapter. 20% of Malaysia palm products go to TPPA countries and a focus was on Canada and Mexico on duty removals, Malaysia's ability to carve out export duties (bounded basis), and the need to comply to international standards will be a cost to Malaysia industry and government but it is the way forward.

In our panel discussion, we fielded a question on EFSA's 3MCPDE issue - the greater volume concern would arise if it also affects China dairy sector demand. As for biodiesel prospects, these are quite limited to Southeast Asia. Moreover sludge oil has been removed from double-counting and is unlikely to come back soon. From the floor, we heard from MR Chandran on the problem of definitions of by-products versus waste products, and that freedom of association for labour will be an issue especially since 30-35% of production cost is labour (Sanya mentioned PWC's report finding that one week stoppage could impact 2% of revenue). On my question about a pathway for palm to USA biofuels (beyond a handful of grandfathered facilities), Joe said that GHG emissions reductions is an official problem and Syahril clarified that USA biofuels access negotiation was tried but remains on the table without a solution via TPPA. To MR Chandran's added question on USA (California) market potential (this being a growth market versus EU not being seen as having much potential), I highlighted the change in the US Customs Border and Protection (CBP) rule against forced-labour imports in force since March 2016 and that it has already disrupted cargoes of tea and sweeteners; and  it is notable that California leads in lawsuits on child labour allegedly in the cocoa supply-chain of large brand name companies. Sanya notes that the US CBP rule reinforces TPPA requirements and that complaints can be made against products and producers.

In conclusion, we covered the development and prospects for important fast-growing end-uses for vegetable oils and focussed on issues for Malaysia palm oil. Palm oil has a complex processing chain and a big range of applications. It has tremendous technical proficiency and price advantage in food uses, but if needs policy support in biofuel applications. Success in market share penetration is mediated by trade policy and new breed trade agreements (require upgrade to international standards in production and more). This affects relative price-cost and some non-price/non-tariff issues may also affect price-cost.

RSPO RT13: Reader feedback on HCS+ HCSA and RSPO convergence and more. RSPO Next "commensurate effort" and floor price efforts are no-go? Link for presentation downloads. Members terminated / suspended. EU’s Product Environmental Footprint (PEF) initiative.

RSPO Roundtable annual meeting was held in KL over three days, 17-19 November 2015 (well, there was also a reception on 16th evening).

24 Nov 2015: Reader feedback on HCS+ HCSA and RSPO convergence and more

Editor: Thank you for various reader feedback on several topics. One segment immediately below and incorporated into text further down.

Reader feedback on issue of HCS+ and convergence with HCSA and RSPO: By the way, HCS+ is proposing the Palm Oil Welfare Index (POWI). Is this required when growers are asked to do comprehensive SEIA /SIA / FPIC before any new development? Or is it the same data to be re-packaged under POWI? Some highly regarded new planting developments use the “simplified template for PalmGHG”. If growers feel the results from the simplified palmGHG is the answer to new development, then we can just forget about HCSA and HCS+?
Please also refer to other Reader feedback below in the relevant sections below:
  • A subtle shift with NGO support to push buying / take-up of certificates....
  • Lots of talk of smallholders.
  • Floor price?

23 Nov 2015: RSPO Next "commensurate effort" and floor price efforts are no-go? Link for presentation downloads. Members terminated / suspended. EU’s Product Environmental Footprint (PEF) initiative.

Editor: Have heard from RSPO observers that RSPO Next "commensurate effort" and floor price efforts are delayed and may end up no-go. Also note that EU’s Product Environmental Footprint (PEF) initiative: Fratini Vergano report
You can look at RSPO RT13 presentations here:
Other highlights from RSPO website:

Day 2 & 3: Market uptake problem, RSPO Next calls for "commensurate effort" but can quasi-matching get through legal compliance? Quality of audits. Floor price. Smallholders focus. Jurisdiction approach. Sec-Gen wrap up. A tame GA13? (updated 20 Nov morning to add what's new and data at top)

Below are abridged notes on selected talks and panel sessions at RSPO RT13. They are not comprehensive!

Editor's notes on what specialists say is new at RSPO RT13, includes:
  • A subtle shift with NGO support to push buying / take-up of certificates already in production and for RSPO Next to have take-up commitments. The acceptance of the idea of "commensurate effort" is novel. And something that CGM and Retailer sector would find new in the 13 years plus of RSPO. [Reader feedback: The first RSPO certificates were only available from year 2008 onwards, United Plantations was the 1st company in the world to receive the cert].
  • Call for comprehensive smallholder plan more or less acknowledges that trickle-down from corporate sector centric policies has been dissatisfactory. Will this find jurisdiction approach as sufficient? Audience was lackluster when asked on jurisdiction approach helping smallholders.
  • RSPO alignment-convergence with other (higher) voluntary pledges mooted and some details suggested. But do other NGOs really want to converge? Market share tussles have been quite apparent. If policy innovation effort is any indicator (but data indicators this year not good, see below) the question is: Is RSPO gaining back its mojo? This is helped by buyers and producers readjusting and realigning after the big changes triggered by the trader-processors sub-sector to pull to non-certification traceability.

Editor's notes for the data minded:
  • In LMC reports (; including presentation at MPOB PIPOC on cost of certification compliance driving the push toward non-certification traceability), this year's RSPO market share of global palm oil seen by some specialists as stuck at about 20pct. It has been increasing at 2pct-age points per year in recent years. So the slowdown this year raises many questions. Editor: This data point might explain the innovative moves on jurisdiction approaches to attract new membership volume, including for smallholders.
  • RSPO panelist notes the need for a lot of buying in the last 6 weeks of the year. There are many CGM and Retailer buyer pledges set for end 2015!
  • GreenPalm experts point out the drop in PKO certificates price and volumes. They reckon that the push up of PKO certificates to $80 plus has diminished demand volume. Worth checking this out.


Day 2. Opening ceremony for RSPO RT13.

Zainal Abidin rendered two hit songs. Hijau - Zainal Abidin

Biswirajan Sen of Unilever, RSPO head. Talked of Haze Crisis pointing to need for sustainable palm oil not avoiding palm oil. Focus on jurisdiction approach to simplify admin (ed: and cost?) and include smallholders and government. RSPO Next voluntary add (ed: help get back mind and market share?). Coalition of capable and willing with inclusiveness

Bakke of Sime Darby. Sustainable Palm Oil Manifesto spent RM12 million on HCS and socio-economic development studies. To varying degrees, there are commitments to sustainable development. RSPO has reached 20pct of global production and Sime Darby has reached 99pct. But only half is sold as certified product. He calls on buyers not to wait, but to buy. Calls on working on the rest of agriculture (palm oil as a small land use footprint). Step away from propaganda, and work openly and honestly. Small farmer are important. Developing countries lack the funds to subsidise. Developed countries don't have much natural forest left. We need equitable development. Sime Darby initiatives: a) A new platform - Open Palm - traces high proportion of FFB, CPO, PKO to mill and estate and b) To assist small farmers, look and act beyond boundaries for fire safe zone up to 5km.
Oil palm versus primary forest. University of York study for RSPO. Reporting oil palm at half of biodiversity and quarter of carbon versus primary forest. Fragments need to be over 10,000 ha to recover.

Quality of audits. Answering strong questions on credibility of RSPO audits. A panelist suggestion to break link the between company that hires the auditor by allocating the auditor at random. No other concrete answer. Resolution for GA later on this issue. RSPO says it will fix the situation.
Link: Dodgy auditors undermine palm oil group’s ‘sustainability’ claims 16 November, 2015

RSPO Next. Some worries about its take up rate and cannibalise demand for regular CSPO but RSPO reps strongly assure audience this will not happen! Look also at "free and fair labour" and "commensurate effort."  

Jurisdiction approach.
  • Sabah says it has to be competitive and needs to attract investors including for POIC project. Why would buyers focus on Sabah product. If palm oil market collapses, Sabah can still sell if it goes branded. Sabah confirms that its goal for 100pct CSPO is entirely RSPO.
  • Seruyan in Central Kalimantan. Its Bupati/Regent worries that deforestation has not benefited locals peoples. Sees palm and other commodity certification has the only way to help smallholders. Fears for loss of market access. Not sure yet which brand to adopt.
  • South Sumatra. It's Governor reports 200,000 smallholders for oil palm. It will work with assistance from IDH in a program that covers palm oil and other commodities.
  • RSPO explains that the jurisdictional approach is to reduce transaction cost for smallholders. Save on HCV assessment, HCS and SEIA by doing all this at landscape level as shared cost with government and NGOs. This will also remove need for HCV set-asides and allow land swaps. With such scale, individual smallholder transaction cost can fall. Question was asked to audience if the jurisdictional approach will help smallholders. Response perhaps less than half certain?
 Including smallholders.
  • Lots of talk of smallholders. A panel leader asked if there is a need for "RSPO Light" for smallholders as there has been a lot of talk of smallholders but few of them. [Reader feedback: Instead of making the requirements easier for smallholders, it was tightened further. They are certified under Group Certification. The first draft review was rejected by stakeholders (mainly grower) and the RSPO WG came up with the 2nd draft - still not yet approved. The requirement for smallholders is not much easier or simpler compared to what a large company has to do. There has not been much voice or bargaining from the smallholders all this while, in spite of having a seat. I am sure strong representation can do this more justice].
  • Editor: past promotion of smallholders has centered on talk of increased yield including startling big claims e.g. 50pct yield increase.
  • This time a RM150,000 study done by UPM on Keresa and Sapi mills taking into consideration tree age and other key factors. Editor: But questions remain on key issues: i) on cost of certification - not asked, ii) no clear presentation of before-after time periods for the changed outcomes, iii) with "to be certified" status included, perhaps not an unsurprising to see some focus on perceptions instead of hard data (more of the latter better?), and iv) clarification on who paid for what - did palm oil mills pay for smallholder groupings and extension services or was it MPOB?
  • From question from the floor on funding of reports, ISEAL panelist noted their efforts to encourage studies without directly paying for it. Panelist also raised question of RSPO transparently looking at possible negative outcomes of its programmes. Editor: Indeed, on the side-lines an NGO complained to me that one presenter was too concise about sources of funding: "That study was actually mostly paid for by xxxxx! Why wasn't that mentioned?" But I do think that if you do need a specific study, you may need to fund it - but that does means that the study has to be more rigorous than ever!
Floor price? Ceres asked about floor price on certificates set at smallholder costing. MPOA notes that asking smallholder to make a "leap of faith" to achieve only a 20-50c premium is a problem! There needs to be buy in from smallholders i.e. there need to be solid financial benefits. Committee is being set up to look at the floor price question. Editor: Some very senior agriculture specialists worry that a floor price would become the traded price and would end up distorting the economics of certification. [Reader feedback: For many years the RSPO ex-president (Jan Kees Vis of Unilever) has made it clear that there should be no discussion on premiums for CSPO etc. This is apparently against competition rules. I thought premiums are based on willing buyer,willing seller basis?]

RSPO Sec-Gen's wrap-up comments. Includes:
  • "Beli yang baik" consumer campaign in Indonesia.
  • Singapore's "Axe the Haze" consumer campaign. He notes that buying RSPO products is one part of the solution, but that alone cannot save the haze problem.
  • Markets. CFNA participation about China market and looking to sustainable guidelines for China investments overseas. UK collaboration via Infit (fact check needed). Editor: Attendees point out that China and UK say they will commit to RSPO and other credible programmes. Link: RSPO statement on UK progress report News, 18 November 2015
  • EU has goal for 100pct sustainable. Latest national alliance (to drive uptake) is for Italy.
  • Remediation and HCV Compensation Procedure policy has been endorsed by the Executive Board. This was 4 years in the making. (Editor: Specialists note that NGOs were surprised by relatively low level of compensation funds generated by the RSPO companies. but this policy is regarded as being a limiting factor in new grower membership sign-ups).
  • Those not submitting ACOP reports will be taken to task. 15 members have been terminated and 20 suspended with due process. Action taken last year too.
  • RSPO members need to band together to mitigate the haze. RSPO will convene the best on this. Certified areas are safe haven from rampant fires. How to help outside concessions? Concession map disclosure is important (Editor: legal position is that information may be voluntarily released by the company in Indonesia and many countries but Malaysia map release legality not checked yet?). Look and act beyond boundaries. In 6 months, to come out with something concrete on this.
RSPO GA13. Includes financial report. RSPO update on its smallholder fund - noting slow disbursement trend. Proposal from Oxfam, something long needed - a comprehensive smallholder focus (voted for strongly at 186). Code of conduct resolutions to strengthen action on members not promoting palm oil. Committee set up to look at floor price. Editor: Broadly, no major contentious resolutions as some in audience says RSPO issues are in maturity (and specialists also say some contentious issues were taken off!).

Post GA ruminations. Editor: RSPO Next expected to generate some legal compliance worries resulting in time out for possible reconsideration of committed ratios / volumes matching approach.


Editor's notes for Day 1.

Editor's notes and items noted by industry: a) "Free and fair labour" concept which includes living wage and industry note on problems of casual labour, b) apparent dial-back on RSPO HCV Compensation which has been challenging RSPO membership growth - specialists note simplifications of the matrix into two columns (instead of three which previously differentiated members with certified units and members without) and provision for certificates even after a tough Compensation status (not entirely surprised given the halt in production capacity market share growth at 19-20% this year and uncertainty driven by HCV Compensation?), c) Convergence talked of for HCS methodologies of RSPO GHG Calculator, HCS+ of Sustainable Palm Oil Manifesto, and Greenpeace's HCS Approach (which does notes it is different in protecting young regrowth trees), d) Marketing efforts in China and India - RSPO promoters continue to ask for tariff differential to favour CSPO in India, e) Side-lines chatter about the relative silence on the Haze crisis, f) intriguing to see how mills market themselves for traceable-to-mill GreenPalm certificates, g) oleochemicals wondering about traceable oleo amidst frank views by L'Oreal that its buyers only really care about safety and animal testing issues, h) Lots of talk of including smallholders and government, both of which lacked clear focus for quite a while but now to receive more attention and i) the related shift to jurisdictional marketing (sub national units eg. South Sumatra with IDH and Sabah with RSPO?).
I am attending RSPO RT13. First talk attended on social and labour issues. Prevalence of casual plantation workers, lack of independent unions, need for living wage, problem of forced labour and female workers issues discussed.
HCS+ study sets 75tC/ha hard threshold within carbon neutral approach and seeks more benefits to smallholders and fairer model. Looking to converge with Greenpeace's HCS Approach.
Greenpeace HCS Approach for landuse planning. Reports Asian Agri and BASF to join. Not just palm oil but also for pulp and paper, rubber and soya. Geographic expansion to Africa and Lat Am.
At RSPO RT13 talk on FFB supply chain issues. Talk by WWF Indonesia.
Traceable Greenpalm certificates coming January 2016!

On attendance, organizers report 800 plus. Still strong despite switch from Bangkok venue plan. Expert observers reckon on 1/3 new faces including lots of apparent non Asia origin young executives and many NGOs new to palm oil scene.

At PIPOC 2015 in Kuala Lumpur

Editor's note: We're at PIPOC 6-8 October 2015. Will put up news link and a few shots and notes.

Link to conference website:

Malaysia looks to maintain palm oil stocks at 2m tonnes: Unggah  6 October 2015 @ 12:46 PM;  KUALA LUMPUR: Malaysia hopes to maintain palm oil stocks at about two million tonnes from the 2.49 million tonnes recorded as at end-Sept by implementing replanting incentives and minimising imports. Minister of Plantation Industries and Commodities Datuk Amar Douglas Uggah Embas said the replanting incentives, to be implemented on Oct 1, aims to reduce by 83,000 hectares, the area planed with oil palm and drop production by 250,000 tonnes. “We will also minimise palm oil exports until our stocks reach about two million tonnes. This is a temporary measure and we do not have a timeline for the target.

Notes and photos

Minister Uggah Embas talks of implementation target for MSPO by 2020 and harmonisation with Indonesia policy.

Minister Uggah Embas says TPPA will benefit Malaysia palm oil via better access to USA, Canada and other member markets.
Plenary lecture by Carl Bek Nielsen of need to embrace sustainability for sake of the industry. Poor people deserve a right to palm oil development that offers a middle class opportunity. Need to stop the polarising debate and uninformed rhetoric. Cost of inaction now raises cost of action in future. Support RSPO, MSPO, ISPO....

Plenary talk by Dr James Fry of LMC

Information on MSPO

At Bursa Price Outlook Conference / POC in KL

News links:

Palm oil prices set for a "year of two halves", biodiesel demand eyed - Reuters Thursday, 5 March 2015; The bullish short-term outlook drove up palm futures to an almost eight-month top of 2,400 ringgit ($659) per tonne on Wednesday, but prices gave up gains to end at 2,365 ringgit on the long-term bearish view.... Vegetable oils analyst Dorab Mistry sees palm rising to 2,500 ringgit by May, but dropping to as much as 2,100 ringgit by December as output rises.... "This is going to be a year of two halves. Demand will outstrip supply in the first six months and gradually supply will increase in the second half," said Mistry, who heads the vegetable oil trading arm at India's Godrej Industries.
Thomas Mielke, editor of Hamburg-based newsletter Oil World, also sees "bullish supply fundamentals". He expects 2014/15 global palm oil output to grow, but by 1.5 million tonnes - the smallest rise in 13 years.... Mielke, however, said the industry must stop looking at mineral oil prices as an indicator for the edible oil market.... James Fry, chairman of LMC International Ltd, expects palm prices to average 2,260 ringgit in the first half on low demand from biofuel producers, who accounted for millions of tonnes of consumption per year for most of the past decade. Prices may drop to more than six-year lows of 1,770 ringgit if biodiesel demand does not pick up, he said. "India is the one that is most interesting," Fry told Reuters on the sidelines of the conference. "India can swing - and India does swing as prices change."...

Energy Rout Resuming Seen by Coleman Weighing on Palm Oil Prices

Palm Seen Rising to May by Mistry in ‘Year of Two Halves’

Palm Crop Optimists Seen by Mistry Overlooking Harvest Risk

Biodiesel prog in Malaysia and Indonesia key to CPO price stability Intan Farhana Zainul, The Star/ANN, Kuala Lumpur | Business | Wed, March 04 2015, 12:40 PM; The continuous implementation of the biodiesel programme in Malaysia and Indonesia would be the key to ensure price stability of crude palm oil (CPO) prices for this year.United Plantations chief executive director Carl Bek-Nielsen said he expected CPO prices to trade between 2,150 ringgit (US$593) and 2,450 ringgit per tonne this year if Indonesia was able to execute its biodiesel programme well.“If it’s not going very well, I estimate the average CPO price would be between 2,000 ringgit and 2,200 ringgit per tonne,” he said during the roundtable session at the Palm and Lauric Oils Conference and Exhibition Price Outlook 2015/2016 (POC 2015) yesterday....Bek-Nielsen said bio-fuel accounted about 44 per cent of annual growth in demand for the 17 oils and fats from 2013 to 2014. “Indonesia will hold the key where the price will go. Having said that, it is still early part of the year. We have to keep an eye on the one factor and the biggest joker of them all, namely the weather,” he added.According to plantation industries and commodities minister Amar Douglas Uggah Embas, the full implementation of the B10 biodiesel programme in Malaysia will see domestic annual consumption of palm oil, reaching 1.2 million tonnes.....

Attended MPOC forum (update 1a)

It was very useful to attend the MPOC forum yesterday. Thank you MPOC.
Useful highlights include:
- Biodiesel call for B20 and view on this implementation by both Malaysia and Indonesia could rebase palm oil price to over RM3,000 per tonne. Assertions on financial viability of biodiesel on its own under Euro 5 standard without subsidy. But on the no subsidy viability point we have heard other views from analysts and others.   
          *Post conference info: Ambank in its 16 February note says "Reuters reported that Malaysian biodiesel producers are seeking new incentives after their Indonesian peers were given subsidies. A source said that Malaysian biodiesel producers are looking for tax incentives. The source added that it is unlikely that Malaysian producers would be receiving the type of subsidies given in Indonesia as Malaysia is moving away from that. Presently, the pricing formula of biodiesel in Malaysia is linked to CPO price." Thus, analysts note the CPO+ price basis has been advantageous to Malaysia biodiesel and added support is sought (which is a contrast to the statements in the paragraph above?)
- Labour permits for G2G Bangladesh worker recruitment proceeding (and to look into improvements in the process) but the Ministry observes some slowness in companies finding and bringing in workers once given the permit.
- Update on 3 new refinery licenses granted for 1.6 million tonnes of capacity.
- Info cited of a real quote on smallholder RSPO certification costing from a service provider. About RM400,000 per site per year; for a site comprising 50 smallholders of 50 hectares each. We did ask, but the name of service provider is not disclosed at this point. We know a handful are active in this sector. The conclusion is that the current premia indicate break-even for such a smallholder (assumes 100 percent of certificates sold under mass balance); which means no incentive to certify unless with the financial support of a large company. Bottom line: companies with processing assets can garner more from RSPO certification; the premia gains are out of reach of smallholders.