Follow Indonesia or perish: Reality facing Malaysian palm oil industry

Looking from outside, it looks as if 1 million Malaysian oil palm small holders are against sixty thousand Orangutans; the latter on the verge of extinction and the former pride-of-the-evolution continuing its march of dominance.

The fuss is about ‘Truth In Labelling—Palm Oil Bill’ being under the consideration of Australian House of Representatives--the lower house of the Parliament--which has been approved by the Senate, but had been rejected by the Committee.

The bill was proposed by the Australian Senator Nick Xenophone way back in 2009.

‘The Australians have been consuming palm oil over the past years without even realizing that it is palm oil.’ He argues. Currently, palm oil is labeled as ‘vegetable oil’ in food packets with palm oil content in Australia. Hence, the senator through his bill has proposed that palm oil should be labeled as it is; which is legitimate.

So, what is the issue!

Australia is famous for its penchant it has been exhibiting when it comes to preservation of the nature and ecosystem, given that it is a commodity country where miners have dug their roots deep. (Remember, the carbon tax issue has been a major head-line grabber in many Australian newspapers for the better part of the current year.)

This aspect prevailing, the conservation groups in Australia and abroad have been revealed a provision for new lease of life for Orangutans—Asia’s only existing Great Ape-- in the Palm Oil Bill, that would largely affect Malaysian interests.

This is how it is:

Vast tracts of forest land in Malaysia have been cleared for oil palm cultivation killing 1000 Orangutans on an annual basis, according to Guardian.

During the period stretching from 1979-2010, Malaysian palm oil production jumped 600%; an average 7% growth per annum! This gives a fair idea of the pace at which forest land being cleared in Malaysia.

If the pace continues, by 2022, 98%of natural rainforest in Malaysia and Indonesia (another prominent oil palm cultivator) would be cleared. This is roughly equivalent of 300 football pitches of forest wiped out each hour into 2022, says Guardian.

“Malaysian palm oil companies have engineered a sustained long-term expansion of plantation area, increasing 3.85 million hectares since 1980 or 385 percent. Much of this development has been at the expense of native tropical forest, with national forest cover in core palm oil producing areas declining dramatically over the same period.”, says USDA.

And the victims are the poor Orangutans which have now been reduced to a figure anywhere between paltry 50,000—60,000.

So, if the bill gets transformed into a law that can be a game changer for Orangutans. All items with palm oil content will have to blare that it includes palm oil.

Now, with a little campaigning, the label proclaiming the presence of palm oil in a product, may well incite the imagery of innocent looking Orangutans (though Wikipedia says some Orangutans may rape women) in the average Australian and may prompt him dump his piece of favorite toothpaste or food item.

After all, an environmental conscious Australian is far more dangerous than a health-conscious one, as far as the palm oil industry is concerned. Imagine both being rolled into one!

What Malaysia stands to lose is a big pie! The palm oil exports alone fetch Malaysia $20bn in revenues. Australia alone imported 125,986 tons of Malaysian palm oil last calendar year.

“Annual global palm oil demand has increased at roughly 2.3 million tons per year over the past 10 years, with Malaysia supplying nearly 30 percent of the increase in production required to meet this demand…”says USDA.

Given these facts, it is natural that the average Malaysian farmer is getting angry.

Says, Tan Sri Bernard Dompok, the Malaysian Minister for Plantation Industries and Commodities:

‘About, 570,000 people are employed in plantations in Malaysia and a further 290,000 in downstream industries, chiefly making the oil.’

"The industry has helped a lot of our people to come out of poverty," he was quoted by The Wall Street Journal as saying.

The National Association of Smallholders, Malaysia in an open letter (to Australian Parliament Leader of the Opposition, Tony Abbott, independent Senator Nick Xenophon and Leader of the Greens Party, Tony Brown) argues that the issue of labeling has been “unjustifiably linked it to environmental issues, which the industry, on the contrary, has demonstrated an unfailing commitment to protect and preserve.”

No wonder, the Malaysian government sent across its commodities minister to Australia for lobbying.

Lessons from Indonesia

Indonesia, another prominent player in this domain has seen an opportunity in this crisis. In Sumatra, Indonesia also host a species of Orangutans. The country has decided to come up with its own version of Certified Sustainable Palm Oil dubbed ISPO (Indonesian Sustainable Palm Oil). It is similar to the voluntary RSPO (Round Table on Sustainable Palm Oil) certification but has an extra layer of teeth.

Failure to comply with the certification will be a punishable offence!

The government intends to cover 7 million hectares of oil palm acreage under the compliance regime in three years. A tough call!

The attractiveness of ISPO is that, unlike an initial audit fees averaged $25 per hectare for large plantation companies in case of RSPO, the small holder farmers in Indonesia would find ISPO to be less expensive and even subsidized.

The country is eyeing a pie of the giant EU (European Union) market.

Domino effect

If the Palm Oil Labeling Bill is signed into law, there is little doubt that it would have a domino effect, prompting other countries to follow suit.

“Last year, just 9% of world palm oil production amounting to 4.2 million tonnes was RSPO-certified. A majority – 54% of this total (2.3 million tons) – came from Malaysian plantations. Indonesia produced 1.47 million tons for a 35% market share, but it will inevitably become the major source of certified palm oil worldwide providing it can get the critical EU endorsement.” says worldcrops.com.

(Players like Nestle and McDonald’s already use only RSPO certified palm oil)

If that be the case, we can see the Malaysian Palm Oil companies getting sidelined in the race. And it seems they are acutely aware of it:

“In 2010 the (Malaysian) government estimated that approximately 58 percent of the total national land area remained forested, and that its official policy is to keep 50 percent of the country forested in perpetuity. Therefore, time and land availability is quickly running out for the palm oil industry.

The Malaysian industry indicates that owing to these constraints national palm oil area will likely peak at roughly 5.6 million hectares by 2020, meaning there is only about 750,000 hectares left for future expansion. At current annual growth rates of 180,000 hectares per year, that leaves Malaysian planters with about 6 years before they run out of land.” A USDA report says.

Will these measures prove to be adequate is a question that should be left to time. Or, should Malaysia too take initiative in floating its own version of ISPO/RSPO?

Whichever, “follow Indonesia or perish” seems to be the reality facing the Malaysian palm oil industry right away.

As published in: http://www.commodityonline.com/news/Follow-Indonesia-or-perish-Reality-facing-Malaysian-palm-oil-industry-41248-2-1.html