OFIC 2021 Virtual Conference: Day One

The Oil and Fats Congress 2021 (OFIC 2021) is having its annual conference, this time going virtual. The first day yesterday proved highly informative, and many interesting points made throughout:

1. The presentation by Professor Loh Teck Peng of Nanyang Technological University explored whether it was possible to create a fully green, biocompatible synthetic material. Research by Professor Loh’s team has shown that it is entirely possible to create an “aqueous media” using “practical and green chemical process” which generates less waste.

2. During the Sustainability and Climate Change Modules:

   1. Dr Gary Theseira, a senior research officer with the Forest Research Institute Malaysia (FRIM), recommended that sustainability policies should be approached from a more resource-based perspective. To that end, he emphasised the importance of a comprehensive census of resources to dispel the narrative that the palm oil industry is a land and labour hungry sector frequently associated with indirect land use change (ILUC).

   2. Dr Alain Rival of the French Agricultural Research Centre for International Development (CIRAD) pointed out that while oil palm plantations have the advantage of high oil yields and wide agronomic plasticity, it has poor climatic resilience; this is due to factors including large-scale monoculture and risky geographic concentration, i.e. 90% of global palm oil is concentrated around the Malacca Straits. It is thus prudent if research were to pay more attention to the climatic resilience of palm oil.

   3. Sime Darby Oils (SDO) Managing Director Mr Mohd Haris Mohd Arshad believes that evolving global opinions on sustainability points to several indications: (1) sustainability sourcing will be mainstream; (2) ultra transparent supply chains; (3) higher climate change urgency; (4) clearer expectations on human rights protection and remedies, including labour rights; (5) a shift from voluntary to regulatory-based compliance; and (6) increasing investor pressure on sustainability sourcing, e.g. BlackRock CEO’s annual letter to CEOs.

   4. Dr Denis Murphy of University of South Wales presented an interesting observation: the Covid-19 pandemic has increased demand in the personal care sector. This provides an opportunity for companies to address environmental concerns associated with palm oil consumption. There is also rising negative attention directed at the palm oil industry in general, this time most likely fuelled by more recent labour allegations against several palm oil companies.

China Dialogue: Sustainable Palm Oil and Affordability

China Dialogue has recently published an article exploring whether sustainable palm oil is only affordable to western buyers. Our 2019 report written in collaboration with Proforest and WWF Indonesia was cited in the article, specifically the fact that the premium paid for crude palm oil (CPO) is the lowest when Roundtable on Sustainable Palm Oil’s (RSPO) book and claim supply chain method is used. The article also cited that only in general, bigger companies will find it easier to obtain RSPO’s highest levels of supply chain certification compared to smaller ones, thus allowing the former to reap more benefits from the price premium.

China Dialogue also reached out to Segi Enam principal Khor Yu Leng for additional comments, who explained that many growers have opted for both RSPO and the International Sustainability & Carbon Certification (ISCC) certifications in order to better cater to market demands. She also expects that demand for palm oil from the EU would remain stable despite commitments to end biofuel use by 2030, stating that:

“The premium of certified sustainable palm oil will likely rise if new players, such as fast-moving consumer goods companies from Japan or China, start to buy certified palm oil and its derivatives. That will cause a shortage of certified palm oil rather than an oversupply, and the premium will go higher. That, in turn, could stimulate new supply.”

To read more (and you should! The article is pretty interesting and informative), head over to the following link: "Can only western buyers afford sustainable palm oil?"

BFM: Non-essential Companies Reportedly Getting MITI Approval

Segi Enam principal Khor Yu Leng recently went on BFM to discuss about reports that some companies are slipping past the “essential sectors only” rule, enforced as part of Malaysia’s third lockdown, via approval letters purportedly issued by the International Trade and Industries Ministry (MITI). Given the rising public tension with regard to how the government is managing the coronavirus pandemic, this issue is unsurprisingly quite a heated one. Click on the following link to listen to the podcast: Non-essential Companies Reportedly Getting MITI Approval

As we go through MCO 3.0, there have been reports of non-essential companies that seem to have received permission from MITI to remain open and operate. We discuss why this might be happening, and how the vetting process can be improved.

Image Source: Jon Tyson, Unsplash; produced by: Kelvin Yee, Azlyna Mohd Noor; presented by: Sharmilla Ganesan, Lee Chwi Lynn

Vegan Watch: OmniPork vs Actual at Price Parity

Riding on the rising demand for alternative meat products, OmniFoods has recently announced a significant retail price reduction worldwide for its several of its flagship products, including the OmniPork Mince, OmniPork Strip, and OmniPork Luncheon. The price drop puts OmniFoods’ signature pork alternative products on par with pork meat. As described by OmniFoods founder and CEO, David Yeung, the price parity effectively means that consumers now have “an additional powerful alternative solution to tackle the global challenges of climate change, food insecurity and public health.” With factors such as the relatively high prices for pork compared to before the 2018 African swine flu, it would be interesting to see how much these price reductions will feed into the already growing public interest in plant-based alternatives.

Source: Vegconomist (2021). Product name and product specifications may vary in different international markets or according to halal requirement.

Look out for our post on price competitiveness of beef and its alternative vegan products next!

Protected Planet: Map of Protected Areas and OECMs

Protected Planet is an online database of protected areas and other effective area-based conservation measures (OECMs) as part of a joint project between the International Union for Conservation of Nature (IUCN) and United Nations Environment Programme (UNEP).

We explored the dataset offered by Protected Planet and took a look at the protected areas in Malaysia. The map was fascinating—Malaysia’s national parks like Taman Negara and the Endau-Rompin National Park were easily identifiable, along with other nature reserves and wilderness areas where human contact is strictly limited. While not displayed here, it should be noted that the dataset also offers marine-based conservation areas.

Out of curiosity, we overlaid the dataset with a map of rubber plantations by Transparent World (2015) via Global Forest Watch (GFW), and found that the two maps fit very nicely around each other with little overlap. We’ve also grabbed locations of saw mills based on search results on Google Maps just for kicks.

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.”