Malaysia draws battles lines with EU over palm oil, focusing on public relations blitz

Even as Malaysia struggles to contain a pandemic that has wrought significant damage on its economy, it now faces a potentially greater fiscal challenge: defending its main cash crop – the oil palm – against European Union efforts to stifle the consumption of palm oil-based biofuels.

But in order to win the battle and safeguard its status as the world’s second-largest producer of palm oil, Malaysia must first make a more persuasive argument for its continued use as a sustainable product, which analysts said it could do by clearing up misperceptions surrounding the industry and opting for a more forward-looking public relations strategy.

The government recently filed a complaint with the World Trade Organization, charging that the EU – in particular France and Lithuania – had imposed anti-palm oil measures that contravene WTO rules as part of the bloc’s effort to move towards other renewable energy sources. The United States has also taken a firm stance towards Malaysia-produced palm oil, citing labour abuses within the supply chain.

In filing the complaint, Plantation Industries and Commodities Minister Khairuddin Aman Razali criticised the EU for its stance, saying in a statement earlier this month that it had failed to consider Malaysia’s views on the matter, despite the country giving feedback and deploying economic and technical missions to Europe to find a resolution.

The EU’s imposition of anti-palm oil measures – it has classified palm oil as having a high risk of displacing food crops – amounted to discriminatory action against Malaysia‘s most valuable commodity crop, he said.

“This will cause the usage of palm oil for biofuels in the EU to be excluded from its renewable energy target and thus create an unreasonable trade barrier against the country’s palm oil industry,” he said, explaining the nature of the legal action.

Malaysia will also continue to act in solidarity with its neighbour and chief global palm oil producer, Indonesia, as a third party in a separate case Jakarta has lodged at the WTO, he said.

Malaysia has not filed a dispute with the WTO since 1997, making the move remarkable, industry analysts said.

Despite the current tight global supply and price volatility of palm oil, along with negative sentiment surrounding the industry in Malaysia because of allegations of labour abuses and environmental degradation, the country still stands a fighting chance of rebranding it as a biofuel – rather than marketing it as an edible vegetable oil – and maintaining its share of the global market, the analysts said.

Khor Yu Leng, a political economist at Segi Enam Advisors, said the EU’s issues with the use of palm oil – including allegations of labour abuse within the industry, concerns over deforestation and other systemic risks – have threatened its future as a sustainable product.

“These issues need to be addressed with convincing evidence that this is of low incidence and there is an improvement plan,” she said.

“On the supply side, there has been a chronic shortage of labour in Malaysia over the years that has meant less than optimal operations and production,” she said, adding that the problems point to questions over “how the Malaysian authorities can address systemic labour market problems.”

“Flat denials from the authorities regarding deforestation or other oversights and no data transparency is a contrast to how commodity producers are nowadays aiming to charm their customers – the countries we export to,” she said.

“The other thing is to consider whether it serves palm oil‘s interest to be in the limelight too much. Being criticised on social media for poor human rights records is just not a good place to be,” she said, referring to the avalanche of bad publicity Malaysia received when the US slapped bans on the country’s top palm oil plantations.

According to a Reuters poll, palm oil prices are expected to reach a nine-year-high in 2021, with production expected to rebound by 2.4 per cent, or 19.6 million tonnes, during the second half of the year. However, a “demand slump” could occur, Reuters said, as the negative effects of Covid-19 could lead to increasing stockpiles of palm oil and price suppression.

Malaysian palm oil production in 2020 tailed off because of pandemic-related labour shortages in the industry and poor weather.

Meanwhile, abuses of migrant workers have been widely reported on Malaysian palm oil plantations, with multinational corporations such as Nestlé investigating these claims after allegations arose of human trafficking, violence, exploitation and non-payment of the migrant workers.

Compounding the WTO stand-off, the United States stated last year that it would block shipments of Malaysian palm oil following evidence of forced labour and child labour, specifically targeting FGV Holdings – the investment arm of Felda – which sells its products to the likes of Unilever and L’Oreal.

In December, US Customs and Border Protection placed a ban on products from another Malaysian oil palm giant – Sime Darby.

Migrant rights watchdogs lauded the move, and domestic Malaysian labour organisations including Tenaganita called on all palm oil producers to take proactive steps to ensure that the human and labour rights of workers on their plantations were respected at all times.

Tenaganita executive director Glorene Dass Tenaganita said Malaysia, as one of main global producers of palm oil, “must be an example of fair labour practices rather than be known and cited for exploitative practices”.

Ainun Jaabi, a senior researcher with the Institute of Strategic and International Studies’ Technology, Innovation, Environment and Sustainability division, said that it was important for Malaysia to fulfil all commitments and pledges made at the international level – including the Paris Agreement on climate change, the UN’s sustainable development goals, and International Labour Organization conventions – if it wants its palm oil products accepted in European or American markets.

“This is one of the biggest difficulties, especially when progress towards sustainable supply chains has yet to be shown at a satisfactory level,” he said.

A focus on strengthening bilateral commitments with existing import partners is critical for proving such progress, said Ainun, pointing to China’s 2019 deal with Malaysia to purchase 1.7 million tons of palm oil from Malaysia through 2023.

The Malaysian government has done a lot on this. Nevertheless, there is still plenty to do.

Sathia Varqa, Palm Oil Analytics

Malaysia must also devise a clear labour market policy and implement a plan to reduce dependency on foreign workers, increase productivity and reduce inequality of yields between small landholders, estates and large plantations within the palm oil industry, said Sathia Varqa of Singapore-based Palm Oil Analytics, an online publisher of palm oil industry news.

“On sustainability, Malaysia can partner with international organisations to raise the credibility of its sustainable palm oil programme,” Varga said.

“The Malaysian government has done a lot on this,” as seen in regulations mandating sustainable palm oil certification, he said.

“Nevertheless, there is still plenty to do.”