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Top palm oil growers go on defensive against EU curb threat

[KUALA LUMPUR] As concerns about palm oil's sustainability simmer in Europe, the world's second-biggest grower is ramping up its defence of the most-consumed edible oil.

Malaysian Prime Minister Najib Razak and Indonesian President Joko Widodo will this week discuss concerns that a resolution passed by the European Union (EU) in April calling for tougher environmental standards for palm oil may hurt the industry. The two countries are the world's top palm oil producers, accounting for 85 per cent of supply.

"If such a resolution affects our exports, it will be a major blow," said Mah Siew Keong, Malaysia's Plantation Industries and Commodities Minister, in Kuala Lumpur.

"Any form of discrimination is not acceptable, and we will be compelled to act if it's enforced to protect our own interest."

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The European Parliament's non-binding resolution urged the bloc's executive arm to step up efforts to prevent deforestation as a result of palm oil production. The expansion of plantations in the two countries has seen farmers accused of illegally using slash-and-burn methods to clear land, destroying rainforests and habitats for animals, and causing a severe haze that can blanket parts of Asia. Indonesia has said it is ready to retaliate against further attempts to curb palm oil exports.

The EU is Malaysia's biggest export destination, accounting for about 13 per cent of shipments of palm oil and palm-based products last year, according to the Malaysian Palm Oil Board. About 90 per cent of Malaysia's biodiesel exports also go to Europe, Mr Mah said.

Mr Mah met with 18 European ambassadors on Monday, according to a statement from the ministry. EU officials are consulting with stakeholders from palm oil producing countries and the resolution is being worked through European commissioners and the European Council before possible legislative measures are proposed, the statement cited Maria Castillo Fernandez, ambassador and head of the EU's delegation to Malaysia, as saying.

Indonesia's president has asked the EU to end discrimination against palm oil as it harms economic interests. Palm oil is the country's number one export commodity to the EU, representing 49 per cent of the region's imports, according to the EU. The industry helps alleviate poverty, narrow the development gap and develops an inclusive economy, according to Mr Joko.

Farmers are the most vulnerable group, according to Mr Mah. In Malaysia, there are about 650,000 smallholders who depend on palm oil as an economic lifeline and the ministry estimates another three million workers are involved directly and indirectly in the industry. While most of the large, listed plantation companies are certified by the Roundtable on Sustainable Palm Oil, additional stringent sustainability criteria "will be very detrimental" to the smallholders, he said.

Malaysia's commercial palm oil industry began in 1917, with expansion supported as part of government measures to alleviate poverty by increasing agricultural output. Palm plantations began replacing rubber from 1961 and became Malaysia's main economic crop in 1989. In terms of net exports, palm oil exceeds petroleum and electronics, Mr Mah said, and makes up 4.3 per cent of gross domestic product.

A major part of the concern about Europe's resolution is that the region is often seen as a trend setter in food and nutrition, Mr Mah said. Most members of the European Parliament who support the resolution on tougher environmental standards probably have little knowledge about palm oil, Mr Mah said. That's spurred invitations to regulators and parliamentarians to visit.

"We need to get more of them to come over to Malaysia to see for themselves. Those who come to Malaysia are always amazed and shocked when they see that we really do look after the environment," Mr Mah said.

"Someone commented that when he looked down from the plane, he saw that there's actually forests and greenery. The perception is that here we burn and destroy all the forests. That's a very wrong perception."

Still, while Mr Mah said Malaysia is ready to retaliate if the resolution is implemented, negotiations are continuing. The country's certification programme, Malaysian Sustainable Palm Oil, will be made mandatory in stages for all smallholders and plantations from next year.

"It's an ongoing battle," Mr Mah said. "We hope for the best, but we are prepared."