Indonesia: the rise of the politics of palm oil by Khor Yu Leng

Editor's note: I have been anticipating the rise of the politics of palm oil for Indonesia. I've been tracking the importance of smallholders to Malaysia's UMNO-BN in electoral politics for a few years now.

A few things are coming together for Indonesia:

a) The young BPDP/palm oil fund will become an increasingly contested area. There will be a political policy tussle on allocation of funds for independent smallholder replanting versus allocation for biodiesel subsidy. The latter goes directly to a handful of conglomerate quota holders, albeit for the purpose of supporting palm oil prices for all.

b) We have the coming of a more populist Presidential election in 2019 as the timing shift of the Presidential election to coincide with national legislative elections diminishes the previous system that let political party coalitions decide the Presidency. So we have Jokowi on big tours of Sumatra in 2017 and Kalimantan in 2018, to reach out to the rural voter-base.

c) Watch for the important smallholder associations like Apkasindo and plantation worker unions. While union leaders have tried to strike deals with politicians, these don't always work out such as recently on the minimum wage tussle.

Watch out for how this will affect the balance of political-economic power between the center and the periphery in Indonesia's decentralised political system. 

In the case of Thailand, the need to support domestic prices for oil palm smallholders has caused narrowing margins for millers, sometimes causing millers to shut down operations for a while.

On the allocation of BPDP funds:
On supporting palm oil farmers with replanting, seeds, land titles:

Singapore introduces canola subsidy to cut its palm oil consumption (update 1)

3 August 2014:

EU Report Taxes on High Sugar Salt or Fat Products do Lead To Reduced Consumption, 29 Jul 2014; "The study was able to confirm a number of impacts of food taxes on the agri-food sector competitiveness. Food taxes lead to an increase in administrative burden, notably if the tax is levied on ingredients or if the rules defining which products are liable under the tax are highly differentiated and complicated... The degree to which individual competitiveness is affected is highly influenced by the product category that is taxed (as brand loyalty may be strong enough to prevent consumer switching) and by whether many similar products escape tax (which makes substitution to non-taxed products easier).... A common argument against food taxes is that they raise the price of goods relative to the prices of the same goods in neighbouring countries where no such tax exists and thereby promote cross-border shopping. However, the study found that increases in cross border shopping were rather limited and that other factors, in particular other taxes on food/drinks, are more important drivers for the cross-border shopping effect...."

Food taxes are gaining more interest, including on sugar. Some news links here: /khorreports-palmoil/2014/06/sugar-food-tax-ideas.html

Responses from some readers from the palm oil industry to the Singapore news article include:
  • Reader A: "They imply saturated fats are bad at ANY amount. People should be educated to realise that BALANCE is important. MPOB and Brandeis university came up with the optimal formula, which was marketed by Smart Balance to great success and this formulation comprised equal proportions of saturated, mono-unsaturated and poly-unsaturated oils. In other words, saturated fats are required but the proportion must be correct. A simple analogy to illustrate the importance of of balance in so many things we do. Exercise is beneficial, but if one were to exercise without adequate rest, that would not be good. Same goes for saturated fats. Studies have shown that saturated fats in palm oil does not seem to have same effect as other saturated fats in clogging arteries etc. This observation has not been explained scientifically yet. Past data on saturated fats were associated with animal fats (vegetable oils only displaced lard etc in a big way starting about 40 years ago). Palm oil (and other vegetable oils) saturated fats have slightly different molecular structure, and scientists think this may be the reason why why palm oil saturated fat does not display have adverse effect on health as animal saturated fats do."
  •  Reader B: "I am not a human nutrition expert, a notoriously difficult science,  but  from the MPOC website, I saw this apparently positive set of results from an experiment at UM and also  there has already been a response which appear to indicate that it may be wrong to push that the cooking oil blend pushed by the Singaporean authorities is healthier. Furthermore there is this statement on MPOC's website " Malaysian red palm oil has a neutral effect on cholesterol. Its effects on blood cholesterol levels are similar to olive oil, and better than common cooking oil blends." However it appears specifically to refer only to red palm oil and not the usual refined product." 

2 August 2014:
Ever since French legislators proposed a "Nutella Tax" on palm oil and it was defeated, palm oil producers breathed easier. However, a recent move by Singapore, the key financial and trading hub for Southeast Asia (located alongside mega palm oil producers Indonesia and Malaysia) questions the health aspects of palm oil and uses a subsidy (instead of a tax) to make canola oil more attractive to be blended for cooking oil usage in the city state. Analysts worry that this move by Singapore, with its well regarded bureaucracy, sends a negative signal. It is not only developed markets looking at "fat taxes" or its variants. A 2013 paper by Basu et al.* in the British Medical Journal notes that 43% of India's current population consume palm oil in their home; the paper looks into the cost-benefit of taxes to constrain palm oil usage in India. For pricing reasons, alternative oils have recently been gaining some ground in India. 
*They simulate the effects that a 20% food tax on palm oil would have on serum cholesterol and mortality from coronary heart disease and cerebrovascular disease in India. The modeling approach combines an economic model of household consumption with a health micro simulation model that translates changes in oil consumption arising from the tax into changes in mortality from myocardial infarction and stroke.
News item: HPB to Subsidise Healthier Cooking Oil at Food Joints Oil subsidies to promote healthier fare at food joints - HPB wants food outlets to buy palm-canola mix of cooking oil By Salma Khalik, The Straits Times, 14 Jul 2014; "TO MAKE eating out healthier for food-loving Singaporeans, the Health Promotion Board (HPB) will be spending millions a year on subsidies to get food joints to use healthier oil. Starting this month, the HPB will absorb the difference in cost between palm oil - which is generally used by food outlets - and a healthier mix of palm and canola oil, which costs 20 per cent to 30 per cent more. The HPB is subsidising wholesale oil suppliers to get them to sell the healthier mix to restaurants, hawker stalls and other food outlets at the same price as palm oil. The aim is to get 20 per cent of food outlets to switch from palm oil to the canola mix by 2020. Palm oil is the cheapest cooking oil and costs around $6 to $8 for a two-litre bottle in retail shops. But it has 50 per cent saturated fat, clogs up the arteries and can lead to heart attacks and stroke. The canola and palm oil mix reduces the fat saturation to 38 per cent. The HPB hopes that this will make a huge difference to diners' health - provided they do not use it as an excuse to eat more deep-fried food. Said Mr Zee Yoong Kang, HPB's chief executive officer: "By the time the oil gets down to the individual plate, we're being literally poisoned for one or two cents a plate. "But if you sell 5,000 plates, it makes an appreciable difference to the bottom line."..... Health Minister Gan Kim Yong had said in Parliament last week that the Government would work with community partners to make healthy living as "effortless as possible".... Ms Ong (of Sime Darby, Singapore) suggested using soya oil instead, as it costs less than half the price of canola. But Prof Henry said soya does not have the same heart-healthy benefits as canola, which contains omega-3, omega-6 and alpha-linolenic acid...."

Background on France "palm oil free" and tax proposal, from Khor Reports' Palm Oil e-newsletter Mar/Apr 2013:
Some are unconvinced by sustainable palm oil and have questions on health impacts. In 2012, palm oil faced a strong negative campaign in France. The three‐prong anti‐palm oil campaign uses classic tactics. We can call it the “shun it, tax it, ban it” combination.

Shun it, tax it … “Palm oil free” products were being launched and gaining traction in the EU markets, especially in France where the “Nutella Wars” were playing out in the latter part of last year. The chocolate hazelnut spread, made by the Ferrero Group, was facing a challenge by a similar new product made by the Casino Group, which was marketed prominently as “sans huile de palme”. The Casino Group has been aggressive in switching its food products to other vegetable oils. It reports: “In 2011, the Casino brand had 312 items without palm oil, or 62% of its food offer. The removal of palm oil is continuing and should reach 72% by 2012. In the case of non‐food products… the Group has been using the RSPO supply line since March 2011.” Casino claims that its brands have a 50% market share in France. Green campaigners also encouraged the Mayor of Paris to ban palm oil from use in schools and in government contracts. This should have a domino‐effect, to push others to do likewise. At the same time, the French Senate Committee on Social Security proposed an amendment for a tax of EUR 300 per MT on palm oil. On top of the existing tax of EUR 100 per MT in France, the amended tax would amount to EUR 400. This was dubbed the “Nutella tax.” The campaign against palm oil in France was based primarily on claims that palm oil is bad for health and the environment.
The defence. The anti‐palm oil campaign has been unravelling. In June 2012, a case was brought by smallholder farmers from Cote d’Ivoire to the Tribunal de Commerce in Paris against Systeme U’s
advertising campaign against palm oil which said “No to palm oil, yes to low prices. But not if it costs the earth.” In December 2012, the French retail cooperative (comprising about 800 independent hypermarkets and supermarkets) was ordered to end its misleading advertisements. Systeme U was to cease all further dissemination of anti‐palm oil advertisements or be subject to a penalty of EUR 3,000 per infringement. The French Senate's “Nutella tax” amendment was defeated in its own chamber, and in the National Assembly. Representations were made by delegations visiting from Malaysia and Indonesia. Various food manufacturers such as Ferrero and Carrefour also publicly defended palm oil usage. Malaysian smallholders also spoke out.