Forced Labour: Legislators Seek Tougher Action on Forced Labour

The heat on palm oil companies is turning up. In December 2020, the US House Ways and Means Committee asked the United States Customs and Border Protection whether it had considered a blanket ban on palm imports from Malaysia and Indonesia, citing the Associated Press investigative piece on widespread labour abuses, which include rape, child labour, and hazardous working environments, within the sector. While acknowledging the USCBP’s recent efforts in penalising companies suspected of using forced labour, the 25 legislators in a formal letter raised concerns about the limitations of imposing import bans in curbing forced labour problems as a whole, explaining that “these odious labor practices and their pervasive impact across supply chains highlight the need for an aggressive and effective enforcement strategy.”

It may be harder to allay lawmakers’ concern without clear data evidence from producer companies and countries about incidence rates and measured improvements. Segi Enam principal Khor Yu Leng pointed that while there is a Jakarta-based council set up to address the concerns linked to palm oil production, the council has yet to “show any muscle.” There is also an newly established ASEAN-EU ministerial-level Joint Working Group on Palm Oil, which seeks to address sustainability concerns associated with palm oil. With the first meeting just only held in late January 2021, its true effect on the industry remains to be seen.

Forced Labour: Customs Officials, Import Bans, and Labour Rights

Destination regulatory bans are beginning to move into the headlights as the hopefully effective measure in enforcing labour laws. The States, via its United States Customs and Border Protection (USCBP), remains as one of the countries with much tougher labour rules—other countries, including the UK, Australia, and particularly Canada appear to be catching up. Ana Hinojosa, a USCBP Office of Trade executive director reveals that slapping companies with withhold release orders (WRO) is meant to send an “unambiguous” message to the trade community, maintaining that “[c]onsumers have a right to know where the palm oil is coming from and the conditions under which that palm oil is produced and what products that particular palm oil is going into.”

So far, the US imports bans seem to have an effect. The Malaysian-based companies who were slapped with the ban have respond to these allegations. WRP and Top Glove, who were issued bans following allegations of labour abuse against their migrant workers (including debt bondage), are reimbursing recruitment fees incurred by their foreign labour force (the WRO issued against WRP was revoked four months later in March 2020). Sime Darby recently conducted an internal assessment and claimed that it did not reveal evidence of systemic forced labour issues in its operations; the company stated that it will also be engaging an independent assessor. FGV has similarly stated that it will be appointing a third-party auditor to assess its operations.

Forced Labour: The Role of NGOs in Labour Rights Enforcement

The past couple of years have been rough for several Malaysian-based companies, who were slapped with withhold release orders (WRO) on grounds of forced labour allegations, effectively prohibiting the importation of their products into the States. These orders, issued by the United States Customs and Border Protection (USCBP), came in light of rising social-related concerns along supply chains inadvertently uncovered by the Covid-19 pandemic.

NGOs have played a significant part in the issuance of these WROs, with some of the orders being made in response to concerns raised by such organisations. The WRO against FGV Holdings, for example, was issued in response to a joint complaint filed in 2019 by the Global Labor Justice–International Labor Rights Forum, Rainforest Action Network, and SumofUs pursuant to the US Tariff Act. A petition from Liberty Shared similarly resulted in the USCBP issuing an order, this time against Sime Darby—the anti-trafficking advocacy group would later file additional complaints of the same to the UK.

These instances are in line with the ongoing role of NGO as watchdogs against companies flouting labour and human rights. As NGOs continue to pressure customs officials to penalise these companies, it would, as described by Segi Enam principal Khor Yu Leng, pose a significant challenge for the palm oil and rubber gloves sectors, both of which Malaysia happens to be the world leader.

BFM: Travel Bubble with Indonesia Gets Green Light

Segi Enam Advisors principal Khor Yu Leng was invited on BFM to give her thoughts on the recent developments in the trade relationship between Malaysia and Indonesia. This remains a highly relevant issue, especially in light of the recent meeting between Prime Minister Muhyiddin Yassin and President Joko Widodo, which saw the two leaders discuss various regional concerns, including the two countries’ ongoing defence of palm oil and the political unrest in Myanmar. Click on the following link to listen to the podcast: Travel Bubble with Indonesia Gets Green Light.

With Malaysia and Indonesia agreeing in principle on a Reciprocal Green Lane, we speak to Khor Yu Leng to understand if this would strengthen trade ties between both countries, and if this points to the re-opening of our economy internationally.

Image Source: Afif Kusuma, Unsplash; produced by: Adeline Choong; presented by: Lee Chwi Lynn, Sharmilla Ganesan

Malaysia-Indonesia Top Exports (4 HS code)

Top Indonesia exports to Malaysia

1. Coal, briquettes, etc.

2. Petroleum coke, bitumen, etc.

3. Palm oil and its fractions

4. Flat-rolled products of stainless steel

5. Copper, refined, alloys, etc.

Top Malaysia exports to Indonesia

1. Petroleum oils, etc.

2. Polymers of ethylene

3. Polymers of propylene, etc.

4. Semi-finished products of iron or non-alloy steel

5. Electronic integrated circuits

SCMP: Palm Oil, Trade, and Talks of Cooperation

Last Friday, Malaysian Prime Minister Muhyiddin Yassin met briefly with Indonesian President Joko Widodo to discuss several ongoing regional issues, one of which included a reaffirmation of the two governments’ intentions to combat against palm oil discrimination. This follows Malaysia’s recent move of filing an official complaint with the World Trade Organisation (WTO) against the EU for its anti-palm oil campaign.

SCMP reported the meeting between the Southeast Asian two leaders, and Segi Enam Advisors principal, Khor Yu Leng, was quoted. Here are her full comments:

“In Indonesia and Malaysia, palm oil remains a popular and even a hot topic in high politics. So we won’t be surprised if Muhyiddin and Jokowi touched on it when they met in Jakarta this week. Palm oil producing countries have formally set up a Council in Jakarta (CPOPC), but we’ve yet to see its muscle. We now have an ASEAN-EU ministerial level Joint Working Group on Palm Oil, whose first meeting was attended by Indonesia, Malaysia, Cambodia, Thailand, Laos, Vietnam (Philippines and Myanmar are also rising producers of palm oil). Indonesia’s big palm oil production has shifted policy leadership to Jakarta, which influences the market with its biodiesel mandate.

“Talk of cooperation wafts through these lofty circles, but this floats above the reality of cut-throat competition for export between dominant producers, Indonesia and Malaysia. Malaysia eyes its monthly export market share by tweaking its export duty relative to Indonesia’s. Earlier, the duo were inking bilateral FTAs with big importers so that relative tariff advantages would flip annual majority market shares from one to the other. Malaysia’s recent problems with US Customs and Border Patrol is seen as a boon to Indonesia exports.

“Moreover, Indonesia is quite ahead of Malaysia in trade negotiation with the EU. Vietnam’s recently inked EU trade deal is now in force and it has acceded to stopping forced labour, and we should expect Indonesia to do similar. Neither have the big immigrant labour force conundrums faced by Malaysia. Even with CPTPP in the bag, Malaysia’s trade (and labour) policy needs to find better footing as its ASEAN powerhouse neighbours eye more big trade and FDI deals.”

The Effects of Near-real-time Deforestation Alerts

The Global Land Analysis and Discovery System, otherwise known as GLAD, is a popular tool that flags disturbances to the global forest canopy which may be due to deforestation. Developed by the University of Maryland’s Global Land Analysis and Discovery laboratory, the system relies on NASA’s Landsat satellite imageries and is mainly designed to provide law enforcement authorities, local communities, and the like near-real-time alerts of potential deforestation activity. An interactive map showcasing the alerts is available on Global Forest Watch.

A recent study by Maffette et al. (2021) has shown that the benefit GLAD has brought extends beyond its primary role as an alert system. The study, which analysed deforestation rates across 22 nations between 2011 and 2018—the last five years before and two years after GLAD was launched—indicated that GLAD has resulted in carbon sequestration benefits worth hundreds of millions of dollars in just the first two years of its use; in Africa alone, it is estimated that the social cost of carbon for avoided deforestation, i.e., the measure of economic harm due to carbon dioxide emissions, was worth between USD149-696 million within that same time period. Interestingly, according to Moffette:

“We think that we see an effect mainly in Africa due to two main reasons. One is because GLAD added more to efforts in Africa than on other continents, in the sense that there was already some evidence of countries using monitoring systems in countries like Indonesia and Peru. And Colombia and Venezuela, which are a large part of our sample, had significant political unrest during this period.”

SCMP: Improved Public Relations a Must in Malaysia's Defence of Palm Oil

Malaysia’s defence of palm oil against the EU continues, with the former’s more recent move being filing an official complaint with the World Trade Organisation (WTO) on grounds that the EU anti-palm oil campaign is in violation of WTO rules. SCMP, however, reports that experts believe Malaysia needs to improve its public relations in order to succeed in its complaint and its defence of palm oil in general. One of the interviewed experts is Segi Enam principal, Khor Yu Leng, who was quoted as below:

Khor Yu Leng, a political economist at Segi Enam Advisors, said the EU’s issues with the use of palm oil – including allegations of labour abuse within the industry, concerns over deforestation and other systemic risks – have threatened its future as a sustainable product.

“These issues need to be addressed with convincing evidence that this is of low incidence and there is an improvement plan,” she said.

“On the supply side, there has been a chronic shortage of labour in Malaysia over the years that has meant less than optimal operations and production,” she said, adding that the problems point to questions over “how the Malaysian authorities can address systemic labour market problems.”

“Flat denials from the authorities regarding deforestation or other oversights and no data transparency is a contrast to how commodity producers are nowadays aiming to charm their customers – the countries we export to,” she said.

“The other thing is to consider whether it serves palm oil‘s interest to be in the limelight too much. Being criticised on social media for poor human rights records is just not a good place to be,” she said, referring to the avalanche of bad publicity Malaysia received when the US slapped bans on the country’s top palm oil plantations.

US Agriculture Exports: Day 3 Highlights on Trade Deals, Weather, and Aquafeed

Day 3 of the AG Supply Chain Asia 2021 conference moved on to policy, economics, and weather factors relevant to the US grain industry. There were some interesting news and updates on these fronts, including ongoing evaluation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) by the new Biden administration, expectations that the USD80 billion of farm purchases by China will push up US produce prices, and predictions of La Nina dissipating in the first month of spring in North America, resulting in sudden spells of precipitation to the region.

Source: Garriss (2021)

Interestingly, the third day of the conference also included presentation on aquaculture and aquafeed, particularly shrimp. It gave several interesting insights into the industry, such as projections of the aquaculture supply chain are also discussed, such as declining live marine fish processing, forcing players to look for ways that would allow them to keep their produce over a much longer period of time. Notably, however, the presentation emphasised on the sustainability of aquaculture practices, particularly that of unused feed, i.e., uneaten feed and feed passed into faeces, discharging into lakes and destroying the quality of water, and offered a distiller’s dried grain with soluble (DDGS) as a possible alternative to the usual soybean meal and wheat flour fed to shrimps.

US Agriculture Exports: Day 2 Highlights on Supply and Logistics

The 3rd Agricultural Supply Chain 2021 has just ended its three-day run covering a wide range of topics surrounding the US grain and corn industry, and supplemented with discussions from agricultural and trade experts.

Day 2 of the conference focused primarily on the US and global agribusiness supply chain. Unsurprisingly, one subject matter of interest is how the Covid-19 pandemic has affected the industry. Production-wise, the pandemic has resulted in a significant loss of more than USD 4.7 billion between January and June 2020 for US soybean farmers and crushers, although projections have suggested much more optimistic conditions for crushers in 2021, with positive projections including strong demand for soybean meal productions and protein-based products.

Source: National Oilseed Processors Association (2021)

From a logistics and transportation viewpoint, one expert discussed the undergoing changes in the transportation network of the food supply chain in general as the world adapts to the “new normal” resulting from the Covid-19 pandemic.

Source: IHS Markit (2021)

Again, discussions on the impact of the coronavirus outbreak on the agribusiness supply chain is timely. News is surfacing about shipping carriers rejecting an estimated 177,938 containers of US agricultural products during October and November 2020, preferring allegedly more profitable Chinese exports instead. This occurred during a peak season for agricultural products, following the harvest of crops, and according to port trade data, has resulted in a loss of USD632 million from the Port of New York and New Jersey alone. US exporters have been petitioning the Federal Maritime Commission, warning that the delays from these refusals are undermining industry reputation and threatening profits.

Rising Soybean Demand in China Threatens Oil Palm

We are currently attending the 3rd Agricultural Supply Chain Asia 2021, a three-day conference organised by the US Soybean Export Council and US Grains Council, aiming to provide the latest updates on corn and soybean sectors.

Source: Bloomberg, 2021

The conference is timely, given the recent market development in the soybean industry. China’s palm oil imports are expected to dip following large amounts of soybean purchases recently made. As palm oil’s top contender, and the primary source of animal feed, the major Chinese importers are, according to Bloomberg, “scooping up unprecedented quantities of soybeans and corn on world markets to feed domestic hog herds that are rebounding after being devastated by the African swine fever.” Interestingly, there have been a resurgence of the African swine fever (as well as a new strain of the virus), expectations are that a possible outbreak would not be as deadly as that in 2019.

Accordingly, soy stocks in the US and other key origins, are forecasted at lows. But traders point out that world stocks have shifted to South America in the last few years (and the US operates on tighter stocks due to higher logistics costs and seasonal factors), so the world stock-to-use ratio may not be so bad (see DTn graph at the bottom ). The question now is how this would affect the palm oil trade, especially in light of the improving weather conditions in Brazil and Argentina over the past two weeks.

By Nadirah SHARIF, 26 Nov 2021

Editor: This reminds of our chat with some traders about the Malaysia palm oil stocks situation. While these were reported at multi-year lows, some pointed out that tanks were surprisingly full. Are well monitored stocks figures getting less reliable and/or representative? Commodity reporters have in recent years noted that the Malaysia MPOB (official count) stocks are perceived as less reliable. For Malaysia it is worth asking if more tank farms ended up in customs free zones. For palm oil, there is also attention on (mostly unofficial) estimates of stocks for Indonesia, China and India.