Home Insider The Specter of the EU Palm Oil Ban

The Specter of the EU Palm Oil Ban

Last January 17, 2018 the European Union (EU) parliament approved measures to ban the use of palm oil in biofuels starting in 2021. Palm oil is the biggest source of vegetable oil globally, and in Europe, it has been part of the energy efficiency initiative where palm oil as an ingredient in biofuels is used for cars.

The ban was decided based on basically environmental concerns. First is deforestation. With increasing demand for palm oil, more tropical forests are continuously converted into palm oil plantations. Second, with the destruction of tropical forests, natural habitat of endangered species are also destroyed, which in the future may lead to extinction of these species, something that is irreplaceable. There is also a . concern that the gas emission from biofuels have not minimized greenhouse gases contributing to global warming.

Ripple effects of the decision

The countries most affected by the ban are Indonesia and Malaysia, the top two producers of palm oil. Almost 90% of the EU palm oil imports are from these countries. Millions of hectares of lands are presently devoted to palm oil plantations, and more are being developed, and with it millions of families depending on the commodity for their livelihood.

It is expected that more negotiations will happen as the measures will have to be ratified by the EU member-countries. The governments of Indonesia and Malaysia are worried with the effects of the ban on their respective economies. They may appeal the decision and may initiate campaigns to stop, if not to delay, the final implementation of the ban in 2021. Affected farmers in Malaysia started to hold protests expressing their frustration with the decision of the EU.

As early as this time, governments of the two countries are now starting to work out coping mechanisms to soften the impact of the ban. Plantations cannot be easily converted and it will require several years before alternative crops can replace existing areas devoted to palm oil. Looking for new, or expanding current markets will be one of the main directions that will be pursued. Being a palm oil importer, Myanmar will be in the list of these countries

Palm oil in Myanmar

Palm oil is not among the main agricultural products of Myanmar. Most of the palm oil plantations are found in the southeastern states of Tanintharyi, Mon and Kayin, along the border with Thailand. The palm oil plantations were established in the 1990’s when the military government then promoted the commodity. This is part of the selfsufficiency program on edible oil which traditionally depend on oilseeds as source of domestic cooking oil.

Despite the hundreds of thousands of acres transformed into palm oil plantations, the output was not adequate to address the demand for edible oil. This pushed the government to import palm oil from Indonesia and Malaysia with volume starting from 400,000 metric tons in 2012, to an estimated annual volume of 700,000 metric. As the economy grow, the demand for edible oil also increased and is expected to continue increasing. With the current reality in the market, the demand will not be supplied by products from local oilseed or palm oil producers but from cheap palm oil imports.

Effects of palm oil ban

The price of palm oil will expectedly be low with huge volume available as a big chunk of the global market closes in the next two years. Surplus palm oil from Indonesia and Malaysia will surely find its way to Myanmar and in other Southeast Asian countries. It would not be hard to guess who will be affected.

The first will be the end-users: households who use edible oil in their daily food preparations, enterprises involved in the food business and manufacturers using palm oil as ingredients in their production process. There will be positive effect for them as the expected low price will lower their cost and will have substantial impact on their profitability. This positive effect however may offset the negative effects on other sectors of the Myanmar society. Negative effects will be on those who invested in the establishment of palm oil plantations in the southeastern states of the country. The cost of development of the plantations may not be recovered immediately with cheap imports flooding the market. The options will either to continue maintaining the plantations at very thin or almost zero profits, or to shift to other commodity which will again require additional investments and several years of waiting.

Another sector that will be affected are the oilseed producers, farmers raising groundnuts, sesame, sunflower and soya. With cheap palm oil in the market, commercial production of oil seeds may stop, unless other alternative uses aside from edible oil can be identified and developed. Without government support for research and development this sector may be the first to go extinct. At the bottom of the industry are the workers and wage earners. If plantations will have to streamline its operation, first to be affected are the workers. In a community where the main source of income is the plantation, it would be hard to look for livelihood where there are no other resource except the plantation. Loss of livelihood and sources of income may cause people to become restive and arouse discontent with the government. The main ethnic armed groups may signed peace agreement with the government but splinter groups are causing trouble and may find new sources of recruits if life in these areas becomes too hard.

Courses of action

The ban if ratified will be implemented and the effects may be felt in the next two years. The government should not wait for the time. This early, a comprehensive plan has to be mapped out to address the potential effects of the ban.

The first course of action is setting up a safety net to help those who will be directly affected. These includes the farm workers who will lose their source of income when the plantations decides to close their operations and downsize their work force. There should also be support for the investors who would shift from palm oil to other commodities. For those who are shifting, assistance in providing information on the ideal commodities to pursue with the corresponding financial support should be prioritized. Without financial assistance it would not be possible for those who have invested to immediately shift.

It is a reality that the country has limited funds for the agricultural and challenges like this will give the government a headache. But it is imperative for the government to confront these challenges head on. The private sector has to be tapped and together prepare for the ideal approach before the issue becomes unmanageable.