You are here

Malaysia, Indonesia leaders to sign up to new palm council

[JAKARTA] Malaysia and Indonesia will formally sign up to a new joint palm oil body on Saturday as the world's top two producers try to tackle an array of challenges - from bulging stockpiles to weak prices and a polluting haze caused by smouldering forest fires.

Previous attempts to develop better palm relations between the countries have had limited success, but analysts believe this time they will try harder to make it work given the plunge in benchmark prices to 6-1/2 year lows this year. "We hope we can synchronize and optimize stock management in both countries," Indonesia's chief natural resources minister Rizal Ramli said. "If we do that, we can maintain price sustainability." Supply sustainability will also be in focus. Industry watchers will seek clarity on how the council will accommodate Indonesia's push to drop a "no deforestation" pledge made by major companies at a climate summit last year. "It is still early days and they have not specified the criteria for their joint sustainability certification," said Ivy Ng, an analyst at CIMB Research. "People will be watching to see how this could potentially help prevent haze in the future and whether it will improve the reputation of palm to consumers." Green groups say smallholder farmers and palm plantations are largely responsible for Indonesia's slash-and-burn forest-clearing techniques that send vast plumes of smoke across Singapore, Malaysia and northern Indonesia every year, described by climate officials as a "crime against humanity".

Indonesian government officials have said the new body, the Council of Palm Oil Producer Countries, will educate smallholders on adopting sustainable land-clearing practices.

Indonesian President Joko Widodo and Malaysian Prime Minister Najib Razak will sign-off on the council on Saturday. This group will merge the separate sustainability certification schemes currently operating in the two countries.

It is unclear what the council's relationship will be with the Roundtable on Sustainable Palm Oil (RSPO) - an independent body of consumers, green groups and plantation firms - that many European buyers see as the global sustainability benchmark.

RSPO's co-chairman Biswaranjan Sen said it had not been approached by either government, but that the RSPO was open to working with the producer group.

The new council, which does not plan to directly support palm prices, aims to develop downstream industries, manage stocks, coordinate biodiesel mandates and re-planting schemes.

Both countries currently have huge palm oil inventories, with combined stocks set to approach 5 million tonnes this year, a record high according to the US Department of Agriculture.

Indonesia and Malaysia are afraid of a major sell-off and the new council is about reassuring the market and the smallholders "that prices will not go below the cost of production", a Kuala Lumpur-based palm trader said.