Update COVID-19 in Indonesia: 228,993 confirmed infections, 9,100 deaths (16 September 2020)
18 September 2020 (closed)
USD/IDR (14,768) -110.00 -0.74%
EUR/IDR (17,496) -11.29 -0.06%
Jakarta Composite Index (5,059.22) +20.82 +0.41%
Again the government of Indonesia and the European Union (EU) are on opposite sides when it comes to the palm oil sector. Last week, EU parliament passed the Resolution on Palm Oil and Deforestation of Rainforests. This resolution will make it increasingly difficult for Indonesia to export palm oil to the EU as the bloc wants to gradually reduce the use of vegetable oils, including palm oil, that are not sustainably produced in biodiesel. This is a strategy to combat deforestation as well as human rights violations in this sector (for example child labor).
After the resolution was passed in EU parliament it will now require the green light from the European Commission, which is responsible for proposing legislation, implementing decisions, upholding the EU treaties and managing the day-to-day business of the EU. However, considering nearly all EU parliament members were in favor of the resolution chances are high the Commission will not block the implementation. Under the new plan, only palm oil that is supplied through sustainable methods can enter the bloc after the year 2020.
For Indonesia the new EU policy would have a big impact. Indonesia is the world's largest producer and exporter of palm oil, shipping between 15-20 percent of its total palm oil exports to the EU (mostly to the Netherlands, Spain, Italy and Germany). Moreover, palm oil is one of the biggest foreign exchange earners for Indonesia, collecting USD $18.6 billion - or 13.8 percent of total non oil and gas exports - in 2016.
Indonesian palm oil players immediately urged the Indonesian government to take strong action against the EU, including retaliation or even termination of ongoing negotiations on a comprehensive economic partnership agreement (CEPA) with the EU, as they consider the resolution highly unfair and based on wrong data. Contrary to the view of the EU, Indonesian palm oil businesses and the government claim the palm oil industry does not lead to excessive deforestation. Darmin Nasutian, Chief Economics Minister of Indonesia, stated that of the total 227 million hectares that are used for vegetable oils worldwide, only 9 percent is used for palm oil (while soybeans account for 44 percent of the total). As such, it is not fair to punish the palm oil sector.
Meanwhile, Siti Nurbaya, Indonesian Environment and Forestry Minister, says the EU resolution is an insult to the Indonesian Sustainable Palm Oil (ISPO) system, a local policy that aims to improve the competitiveness of Indonesian palm oil but also aims to reduce greenhouse gases and promotes sustainable palm oil production. However, the ISPO fails to gain global recognition, which is attributed to the fierce competition in the global vegetable oil market.
Also Malaysia, the world's second-largest palm oil producer and exporter, is concerned about the EU resolution as there are around 600,000 small Malaysian farmers dependent on their palm oil businesses. In Indonesia, nearly 5 million people are directly dependent on the palm oil sector.
This is not the first time Indonesia meets resistance in Europe with regard to palm oil. Since the 1970s there has been European criticism toward the Indonesian palm oil industry for environmental reasons and also social issues. From time to time this led to negative campaigns in Europe. Last year, San Francisco-based environmental organization Rainforest Action Network (RAN) reported Indonesian workers - including children - at North Sumatran palm oil plantations are being exploited.
Indonesian Palm Oil Production and Export Statistics:
(in USD billion)
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture