Indonesia: Draconian Policy Against Palm Oil

Palm oil has long been a key trade priority for Indonesia. However, as the fourth most populous country in the world, Indonesia is increasingly concerned about the intensifying negative campaigns against palm oil. These campaigns are driven by NGOs, competing vegetable oil industries, and governments at both central and regional levels in various countries. For instance, the European Union (EU) adopted the Renewable Energy Directive II (RED II), which arbitrarily categorizes palm oil as a high “Indirect Land Use Change” (ILUC) risk commodity. This directive mandates a reduction in palm oil consumption in the EU starting in 2021, aiming for its eventual elimination by December 31, 2030.

More recently, the EU introduced the EU Deforestation Regulation (EUDR), a policy framework aimed at reducing the environmental impact of deforestation. The EUDR requires operators and traders who place seven commodities (palm oil, coffee, cocoa, rubber, wood, soy, and cattle) on the EU market or export them from the EU to prove that these products are legal and do not come from land deforested or degraded after December 31, 2020.

Elsewhere, Norway has excluded palm oil biofuel from government procurement processes, a regional state in Pakistan proposed a tariff increase on palm oil for health-related reasons, and India has repeatedly raised its import tariffs on palm oil due to domestic political considerations. This situation evokes the beggar-thy-neighbor policy, where one country addresses its economic issues through measures that often exacerbate the economic difficulties of other nations.

For producing countries, palm oil represents more than just a commodity. The palm oil sector provides livelihoods for 16 million Indonesians through direct and indirect employment. Small farmers in rural and remote areas are heavily involved in palm plantations, comprising 42 percent in Indonesia, 40 percent in Malaysia, and 80 percent in Nigeria. In Indonesia alone, about 61 cities and small towns rely on this sector for their development and sustenance. Additionally, palm oil is a crucial source of export revenue for Indonesia, generating around $ 22.67 billion in 2023, with the EU, China, and India being the primary export destinations.

Given these stakes, it is unsurprising that Indonesia voices significant concerns over increased efforts to wage a trade war against palm oil. From Indonesia’s perspective, if the issue is environmental impact, then all vegetable oils should be treated equally. Targeting palm oil without applying the same standards to other vegetable oils appears discriminatory and biased. Indonesia believes that environmental issues should be addressed holistically, without singling out specific products or sectors.

A report issued by the European Commission’s Directorate-General for Environment (DG Envi) in 2013, titled “The Impact of EU Consumption on Deforestation,” suggests that globally, the main crops contributing directly or indirectly to deforestation include soybeans (19 percent), maize (11 percent), oil palm (8 percent), rice (6 percent), and sugar cane (5 percent). Another report highlights that livestock is a primary non-vegetable oil contributor to deforestation, responsible for 18% of greenhouse gas emissions, 55% of water consumption, and 45% of land use.

Regarding health concerns, existing studies suggest that consuming saturated fatty acids from palm oil does not inherently increase the risk of cardiovascular diseases. Even if saturated fats need to be regulated, measures should be non-discriminatory, targeting all food products containing saturated fats, regardless of their origin.

Other vegetable oils also pose health risks. For example, canola oil is associated with kidney and liver problems, heart conditions, hypertension, strokes, and growth retardation in infants due to its erucic acid content and higher trans fat levels. Over 90 percent of canola oil is genetically modified, raising concerns about toxicity, allergic reactions, immune suppression, cancer, and nutritional loss. Similarly, soybean oil is linked to obesity, diabetes, cardiovascular diseases, and inflammation due to excessive Omega-6 fatty acids. It is also manufactured using harsh chemical solvents, which can cause serious health issues.

The question remains: why is palm oil continually blamed as the main source of environmental and health problems? Palm oil is the most efficient oil crop, producing the highest tonnage per hectare. When sustainably produced and properly processed, palm oil is not a threat to nature or human health but rather a gift from nature. Campaigning against palm oil in favor of other vegetable oils will be perceived as punitive by Indonesian farmers. This approach neither addresses the issues effectively nor promotes free and fair trade.

As global value chains face disruptions and more countries adopt reciprocal trade measures, Indonesia might consider following suit if it feels unfairly treated. However, Indonesia remains hopeful that fair trade is possible, which is why it brought the palm oil issue to the WTO against the EU. It is a matter of principle, and the government should not trade off its offensive stand on palm oil for its defensive interest in nickel, for example. Indonesia should hold its ground, as the livelihoods of millions are at stake.

Tags: EU Deforestation Regulation, export, Indonesia, Vegetable Oil, European Union, palm oil, Market, consumption