EU palm oil strategy risks investment in Africa

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The European Commission has knocked back using ILUC in the past for the simple reason that vegetable oil markets depend on a web of variables that can’t be measured or verified. It is purely theoretical. [Shutterstock]

The European Union is quietly but determinedly preparing a new rule that is designed to block palm oil exports from Africa and Asia out of the EU market. The EU’s actions on palm oil risk trade and investment in Africa, writes Thompson Ayodele.

Thompson Ayodele is director of Initiative for Public Policy Analysis, an independent public policy think-tank in Lagos, Nigeria.

In July this year, after 18 months of fractious debate, the various arms of the European Union declared they would allow palm oil – arguably the rich world’s most hated vegetable oil – to continue to be accepted as part of the EU’s renewable energy mix.

However, that is not the end of the story. The EU has put in place a caveat. The European Commission will determine which biofuels it considers to be ‘high risk’ or ‘low risk’ in terms of ‘indirect land use change’ in ‘high carbon stock’ areas.

‘Indirect land use change’ is the proposition that when demand for one commodity goes up, demand for secondary commodities goes up too. The stinger is that any deforestation caused by the secondary commodities should be attributed to the first commodity.

The European Commission has knocked back using ILUC in the past for the simple reason that vegetable oil markets depend on a web of variables that can’t be measured or verified. It is purely theoretical.

The EU has cleverly avoided this problem. Rather than trying to measure ILUC, it is going to classify different biofuels – and their farmers – as being ‘risks’ for land-use change, and merge ILUC and other factors into a wider ‘Deforestation Criteria’ to determine the level of ‘risk’.

This poses an existential threat to farmers who rely on palm oil: the EU essentially wants to designate millions of developing world farmers as ‘risky’. This kind of signal would be devastating for future trade, investment, and employment.  Furthermore, declaring palm oil risky is a disrespect to millions of farmers.

It appears as though the EU has already made its political decision on palm oil – to remove it from the market in order to protect uncompetitive EU oilseeds.

In Jakarta last month, EU Ambassador Vincent Guerend said the EU would continue its move towards phasing out palm oil from its biofuels programs. And last week, Yewande Sadiku, the Executive Secretary, Nigerian Investment Promotion Commission (NIPC), said that NIPC had been told by officials that the EU proposed to ban the importation of palm oil to Europe.

Now, the EU is simply putting together its case on ‘risk’ post-fact in order to justify the political decision. At the same time, the broader implications of the EU’s actions are myriad.

On trade, the market effects should be reasonably straightforward. Demand for palm-based biofuel – and palm oil — will fall. This will knock global palm prices down, affecting farmers around the globe.

On investment, there will be bigger problems, particularly for Africa. Investment in new oil palm plantations will likely fall. There has been significant interest from European investors to supply both the EU’s biofuel and food markets.

The problem, though, is that the EU’s push on palm-based renewables isn’t just about energy. It’s more about a pure dislike of palm oil: because it is imported mostly from developing countries.

The EU has signalled that it is seeking to lower the EU’s global deforestation footprint. It is attempting to place curbs on products that it considers to be linked to deforestation. In reality, this is simply cover for keeping out cheaper imported commodities and propping up its declining agricultural sector.

It already has several programs across different commodities – timber, fish products — to achieve this aim.

Palm oil has been – and could continue to be – a windfall for Africa and for African agriculture. There are an estimated 4 million oil palm smallholders in Nigeria, across nearly 90 per cent of the country’s cultivated area.

Most of Nigeria’s palm industry relies on natural groves and local-level processing. Greater foreign investment could introduce a production model similar to that common in Malaysia and elsewhere in Africa: a major investment for processing and infrastructure, with local farmers supplying the raw material. This would lead to improvements in productivity and logistics.

This, now, is all under threat. Policymakers in Brussels have the arrogance to determine whether Nigerian palm oil growers are defined as ‘risky’, with the sweep of a pen.

When EU policymakers make such a move, they’re not just talking about palm oil within the context of renewable energy, they’re talking about palm oil production and its use across the world. What remains baffling is how natural smallholder palm groves in Nigeria have anything to do with deforestation in Brazil or northern Europe.

The EU’s plans are a step back to the past and will reduce the daily labour of farmers in Nigeria and elsewhere across the world to little more than a concocted risk factor in a spreadsheet. There is one word for this: dehumanising.

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