The Value(s) of Palm Oil

The palm oil dispute between the European Union (EU) and Southeast Asian producers threatens trade and diplomatic relations between these two regions. Resolving this deeply entrenched divide will not be easy.

Following several highly critical European Parliament resolutions on palm oil, the European Commission revised its Renewable Energy Directive in 2018 (EU RED II) to phase out high-risk indirect land-use change (ILUC) biofuels by 2030. Following the ILUC criterion, palm oil would almost automatically be classified as high-risk. Significant restrictions on the export of palm oil biofuels to the EU would follow.

Indonesia and Malaysia, major palm oil exporters to Europe, have accused the EU of protectionism, hypocrisy, and eco-colonialism. Indonesia submitted an official request for consultation with the WTO Dispute Settlement Body over “certain measures concerning palm oil and oil palm crop-based biofuels”, and Malaysia has announced that it will follow suit. Both countries have also flagged this dispute as a deal-breaker for their respective free trade negotiations with the EU. 

The ensuing debate has assumed the familiar binary between a “northern” perspective elevating environmental concerns at the expense of (other peoples’) development and a “southern” perspective elevating development priorities (and wealth creation) above environmental issues. Bridging this divide is difficult, as both sides draw on facts that are demonstrably true.

Oil palm can produce up to eight times more oil per area than any other oil crop, which has kept prices low and demand rising. Unlike most oil crops, palm oil production remains labour-intensive, limiting economies of scale and enabling profitable production among smallholders and larger producers. Thus, oil palm offers employment and development in remote areas. However, environmentalists are very concerned that its widespread adoption in Southeast Asia has caused dramatic landscape change and threatens biodiversity.

This dispute goes deeper than environmental and economic trade-offs. It is essentially a conflict over values. Each side focusses on different types of goods vested with different meanings, which each seeks to protect. Progress towards resolution is extremely elusive as each selects particular facts while ignoring others to support their respective black-and-white positions. 

The EU underestimates the cultural significance of palm oil in Southeast Asia. Palm oil was first commercialised here in the early 20^th century. In the 1970s, it replaced large areas of rubber trees as demand for natural latex dwindled. It was planted not only on logged-over areas but also on marginal lands, bringing these so-called “waste” lands into production. Unlike most other oil crops, Southeast Asian public and private entities have driven the industry’s research and development. Despite narratives of the “big bad corporation”, palm oil remains popular among rural farmers.

Oil palm remains ideologically and functionally linked to national progress and modernisation in Southeast Asia. As Prime Minister Mahathir Mohamad said in 1980, “we are not exploiting the forests for no good reason… we need the foreign exchange without which we cannot buy what we want”. The tree features beside Malaysia’s Father of Independence on the latest RM50 note, and on the 1993 issue of the Indonesian IDR1,000 coin. It is not surprising that producer states have reacted extremely defensively to EU “attacks” on their “golden crop”; including through public relations campaigns like “Good Palm Oil” (Sawit Baik) in Indonesia and “Palm Oil – God’s Gift” (Sawit Anugerah Tuhan) in Malaysia.

What both sides miss is the transactional nature of this process that, if recognized, could help moderate the dispute.

Producer states, in turn, underestimate how environmental concerns genuinely inform consumer and policy behaviour in the EU. Government and industry stakeholders in Southeast Asia see these criticisms as motivated by the EU’s desire to protect home-grown rival commodities like rapeseed and soy. They argue that palm oil has been subjected to heavier scrutiny and regulations, and that the EU’s ethnocentric approach represents unfair burden-shifting and blame allocation that ignores the massive and disproportionate impact of the EU’s own agricultural practices and emissions.

However, environmental concerns are genuinely present. While Europe is a major consumer of palm oil, Europeans are acutely aware of links between oil palm and deforestation. Consumer pressure has trickled upwards and been quickly translated into binding regional policy, which complements the EU’s claim to be the global leader for sustainable development.

What both sides miss is the transactional nature of this process that, if recognised, could help moderate the dispute. For this to happen though, a genuine parity of esteem between the EU and Southeast Asia, based on an understanding that no country should suffer from their role in providing global public goods, is required.

The EU should disaggregate its environmental concerns from ethnocentric language, and acknowledge Southeast Asia’s role as producers of these goods. Rather than forcing concessions from the south, reasonable pricing mechanisms should be incorporated within the EU RED II based on the transaction and opportunity costs of sustainable agricultural management. Collaborative international and cross-cultural R&D projects, including strengthening academic-industry networks, can improve mutual understanding.

Producer states need to genuinely engage and not dismiss Europe’s consumer-centric perspective prioritising sustainability initiatives over simple business compliance. While progress has undoubtedly been made in industry circles, more action is needed to ensure that small- and medium-sized farmers can meaningfully participate in sustainability practices and discourse. After all, a genuinely responsible, commercially and environmentally sustainable palm oil industry can deliver more benefits to more people over a longer period.

Until this parity is achieved though, the EU-Southeast Asian oil palm dispute will rage on to the detriment of both.

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