FSC Stakeholder Consultation and Awareness Building Workshop

On 8 February 2023, the Forest Stewardship Council (FSC) organised a stakeholder consultation workshop for its newly launched Natural Rubber Project in Malaysia, which is projected to be completed by the end of 2023. This project is in collaboration with Control Union, CMO Group, Malaysian Rubber Council (MRC) and supported by WWF-Malaysia. The project aims to encourage more smallholders to adopt sustainable practices through FSC certification and make them self-resilient. The project will provide technical expertise and will be empowered through training, capacity building and market entry.

The event was held at Menara PGRM, and there were around 50 attendees, mainly business owners in the rubber industry, consultants and civil society organizations. Presenters:

• Supun Nigamuni, Control Union

• Charmaine Chee, FSC Malaysia

• Michal Brink, CMO Group

• Norazwa Mohd Akhib, MRC

• Allen Lian, WWF

Some key stats about Malaysia’s rubber industry were highlighted during the presentations. Malaysia is the 7th natural rubber producer at 0.29 million tonnes, with Thailand leading at 3.79 million tonnes. Malaysia is also the 7th top consumer at 0.34 million tonnes, with China being the top consumer at 4.12 million tonnes.

Production of Natural Rubber, MRC (2022)

Consumption of Natural Rubber, MRC (2022)

In terms of trade, Malaysia is the 5th largest exporter at 0.73 million tonnes, and Thailand is the largest at 3.31 million tonnes. Malaysia is the 2nd top importer at 0.91 million tonnes, with China leading at 3.95 million tonnes. Malaysia, which was a “global supplier” of natural rubber back in the 1960s and 70s, is now a net importer of natural rubber.  

Natural Rubber Export, MRC (2022)

Natural Rubber Import, MRC (2022)

The presenters also shared problems faced by the industry. With the low rubber price, many rubber smallholders are shifting to oil palm, which offers higher incomes. Malaysia is also regarded as overly focused on manufacturing one natural rubber product - gloves. And yet, the higher-value rubber latex is widely regarded to be underdeveloped. There is also the issue of value being captured mostly downstream i.e, tyre manufacturers, while upstream - the farmers often face fluctuating and often low prices.

In order to attract more smallholders to be FSC certified, both the presenters and the audience agreed that a premium is needed to get smallholders on board. However, FSC-certified rubberwood has a higher value (the premium amount or percentage premium was not openly shared), and apparently, not enough of this value-add is shared with smallholders. 

CMO group, a forestry training and consulting firm, presented its app, PerForm. It is working together with FSC to help with group certification, which varies by country (note: certifications have national interpretations, to jive with local regulations and conditions).

Interest in FSC-certified natural rubber is increasing. Pirelli produced the world’s first FSC-certified tyre, the P-Zero tyre, which will be equipped on the BMW X5 plug-in model. Mentioned by FSC that other tyre manufacturers are also looking to produce tyres using FSC-certified rubber.

As for the much talked about EU Deforestation Regulation or EUDR, FSC highlighted its ready-traceability that fits in with the due diligence needed to export to the EU (May/June 2023 implementation). For more on this, WWF-Preferred by Nature is running a roadshow next week, 6 March in KL, 8 March in Kuching, and 9 March in Kota Kinabalu to offer more information on EUDR and FSC’s new cutoff date of 2020 in its new conversion rule and remedy framework.

Supun from Control Union giving opening remarks.

Source: FSC LinkedIn

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research@segi-enam.com | 3 March 2023

The positive of the EUDR - inclusive of millions of hectares of conversion

Amidst the apparent worry of palm oil origins, most vocally perhaps by Malaysia palm oil on the EU’s non-deforestation import rules, let’s look at the positive. This hardly seems to reach the headlines or wider discussions. However, it is quite acknowledged in specialist circles. The new cut-off dates are actually surprisingly inclusive. For instance, more recent production regions like Sarawak, which had issues meeting RSPO’s big 2007 cut-off date, now have a pathway under the EU’s 2020 cut-off. Work needs to be done, though, to prepare and share the data for due diligence, and smallholders need to be included. Recall that Indonesia oil palm smallholders are on this page, and have set out their ask for the EU to include 30% of material from smallholders.

 New cut-off dates inclusive of millions of hectares of conversion:

• Palm oil. (i) RSPO cut-off date 30 Nov 2007. (ii) ISCC cut-off date 2011. (iii) Wilmar recognises 31 December 2015 as the cut-off date for supplier compliance with all provisions of the NDPE policy.

• Timber. FSC chose the year 1994 as its cut-off date. After that point, certification of plantations converted from the natural forest is excluded.

• The radically changed cut-off dates from (i) EU’s deforestation regulation (EUDR) mandatory due diligence affecting palm oil and timber products (as well as others) is 31 Dec 2020 and inclusive of 13 years of conversion (versus the de facto 30 Nov 2007 of the RSPO), and the (ii) FSC’s changed P&C rules for 31 Dec 2020 cut-off to be inclusive of 26 years of conversion (versus 1994) are big game changers.

• FSC. Under Motion 37, the FSC, on 13 Oct 2022, voted to move the crucial cutoff date from 31 Dec 1994 to 31 Dec 2020. Mongabay (Oct 2022), notes: “With FSC rule change, deforesters once blocked from certification get a new shot…. logging companies that have cleared forests since 1994, but before 2020, will be allowed to obtain certification from the body, something they weren’t allowed to do before… To qualify, companies will have to restore forests and provide a remedy for social harms done in the 1994-2020 period in their concessions…. The decision has sparked responses from both critics and supporters, with the former saying the new rule rewards known deforesters, and the latter saying it opens opportunities for forest restoration and remedies for Indigenous and local communities.” FSC (2022a) argues that “millions of hectares of forests can be restored and then become FSC certified and managed in a responsible manner.” FSC has been considering revising its 1994 cut-off date on forest destruction for at least 11 years (FSC-Watch, 2022). Read about the FSC Remedy Framework consultation (FSC, 2022b).

• EU due diligence. (i) 31 Dec 2020 deforestation cut-off date is volume expansive (versus the popular RSPO Nov 2007 cutoff) and could offer more origins and suppliers market access depending on whether stricter voluntary cutoffs are preferred. (ii) Traceable to farm. (iii) Due diligence. Failure to comply could result in fines of up to 4% of a company's turnover in the EU (and not 8% in an EU country, as previously suggested).

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research@segi-enam.com | 2 March 2023

Interview - CNA Explains: What might be the potential areas of focus in Malaysia’s updated budget for 2023?

Segi Enam’s Khor Yu Leng was asked to comment on Malaysia’s 2023 updated budget by Channel News Asia (CNA).

Economist Khor Yu Leng, Southeast Asia research director at Segi Enam Advisors, told CNA that a “leaner fiscal budget is needed to better manage Malaysia’s large national debt”.

“But if it is not politically possible (to do so), Anwar has to ensure that development spending is corruption-free and that it is effective in generating economic multipliers,” said Ms Khor.

Read the full article here.

Malaysia and Indonesia Palm Oil Export Ban to the European Union

Segi Enam’s Khor Yu Leng was interviewed by Free Malaysia Today (FMT) on Malaysia’s latest position on plans to ban on palm oil export to the European Union (EU) following the new deforestation regulation. She mentioned that the ban will cause an “unexpected effect” and that many of Malaysia’s palm oil suppliers are still keen to supply to the EU as it is a premium market. She also points out that “Indonesia’s multi-pronged approach shows that it also takes pro-buyer and pro-climate action while voicing concerns from government to government”. Read the full article by FMT here.

On PalmTrack, we also wrote about this. Read it here (subscribers only).

In other related news:

• Arbitrary decision to stop palm oil export to EU is futile attempt, The Edge.

• Explainer: Why Malaysia is considering a ban on palm oil exports to the European Union, Reuters

IDEAS-FedEx: Highlights on RCEP and how it can benefit your business

On 15 December 2023, Segi Enam attended the IDEAS-FedEx event on “Highlights on RCEP and how it can benefit your business”. The Regional Comprehensive Economic Partnership or RCEP came into force on 18 March 2022. It is one of the 16 free trade agreements (FTAs) that Malaysia is part of. 

Source: MATRADE, 2022

The signatory countries are Malaysia, Brunei, Cambodia, Indonesia, Laos, Myanmar, Singapore, Thailand, the Philippines, Vietnam, Australia, China, Japan, New Zealand and South Korea; and pending ratification by Myanmar and the Philippines.

Source: MATRADE, 2022

The conference focused on increasing awareness of RCEP to businesses and its benefits.

Below are the speakers for the panel discussion:

During the panel discussion, Fahrulrazy from MITI pointed to the huge market under RCEP, specifically China and its approximately 1.4 billion population; including advantages to producers and manufacturers for sourcing raw materials within the trade area, to help increase productivity and growth. But specifics of using the provisions of RCEP versus other Malaysia-China trade arrangements e.g. China-ASEAN FTA or CAFTA were not elaborated on. 

The speaker from Deloitte provided some comparison of tariffs from different trade agreements and used a few case study illustrations including on Malaysia petrochemicals exported to the Middle East via Indonesia. Interestingly, there was some disagreement between the speakers on which Rules of Origin or ROO to apply.

Concerns were raised by Dr Juita on the lack of labour and environmental chapters in the RCEP. There are 20 chapters in RCEP that covers ROO, Customs Procedures and Trade Facilitations, Sanitary, Trade in Services and Competition. You can find all the chapters here. The panel shared that it is difficult to get a consensus on human rights. All signatories must be ready to agree on it. 

There were about 80 participants and they included business owners, agencies and regulators. The worries from the floor were on small-medium enterprises (SMEs) and their cost worries. For SMEs to participate in RCEP, there are costs to administer and apply to enjoy the provisions of RCEP (or other trade deals). SMEs have to be on their toes to understand which trade deal provisions they can avail themselves of; with constant monitoring and assessments. To this end, government support is vital. For example, the Singaporean government provides grants to SMEs to assess their readiness to export their products.

Moreover, there can also be risks to SMEs, most of the speakers cautioned on increased competition for certain sectors due to more imports. A key speaker pointed out that the agreement has come at the wrong time when many businesses are still recovering from the pandemic; and many SMEs will not have the financial capability to upgrade their businesses. There is an ongoing problem of SMEs not exporting, as they do not have the capacity to do so.  

A participant pointed out that only major businesses in Malaysia are exporting. In fact, not many SMEs are using MATRADE programs. MATRADE was asked whether any studies were conducted to determine which Malaysian products would have a comparative advantage under RCEP (compared to trade competitors). As this study is ongoing, we should await the publication of its findings. The expected date of publication of this report was not disclosed. 

Note: MATRADE reported in 2019 that local SMEs only contributed about 18 per cent in export despite making up 98 per cent of Malaysian business establishments. 

Source: MSME Performance in 2021, accessed January 2023

Slides and recordings of the conference can be found here.

From Segi Enam, we can share that doing a review of opportunities under different trade agreements is not a walk in the park. First, you need to narrow down your product codes, and which countries you are hoping to export to and export from. And if you are supplying equipment or ingredients, you may want to consider how trade deals impact the retail or industrial consumer markets you supply to. For instance, if you are supplying agro-chemicals, how does RCEP impact the trade in corn in the region?

In June 2021, we did a review for a Europe-based multinational supplier for two supply items (involving several HS codes) and three industrial consumer segments for six countries: China, Indonesia, Malaysia, Philippines, Thailand and Vietnam. Our general findings on RCEP include:

• With existing ASEAN Plus Free Trade Area agreements which offers lower, zero rate preferential tariffs, RCEP could be more relevant to new trade partners. 

• Given the relative free trade ongoing under ATIGA and other ASEAN Plus trade deals, with rules of origin at 40%, and limited technical barriers; RCEP’s base rates tariff schedule (which vary by product and country) does not point to trade competitive changes. However, the base rate changes may be a useful reading or signal into the 

Bottom-line: The report from the Malaysian authorities to hone in on which products and trade flows will be beneficial to Malaysia will be important for helping more SMEs into export readiness. Exporting SMEs should already be familiar with the market research needed to stay on top of their business and ahead of competitors. And they will know which are the key forms they need e.g. Certificate of Origin, to avail themselves of the trade provisions.

research@segi-enam.com | 9 Jan 2023

Flooding in the East Coast

December has always been the monsoonal flooding season for Peninsular Malaysia’s northern East Coast states (Kelantan and Terengganu). This year’s flood is reportedly “extraordinary” as the rainfall intensity was 627mm in a day. This is the highest in 55 years. It broke the record of 608mm logged in Kota Baru in 1967.

By 21 December 2022, 32,089 people in Kelantan were displaced to relief centres. In Terengganu, at least 40,000 people were affected at the height of the disaster.

Also memorable were the year-end floods in 2014 - 2015 where over 200,000 people were affected and 24 killed. Over a period of three days (21-23 December 2014), a record-setting 1295mm fell, equivalent to 64 regular days of rain. 

These images show the 30-day accumulated precipitation and anomalies of the region from CPC Unified data. In the 30 days to 1 Jan 2023, accumulated precipitation on the East Coast was estimated at 900mm (see the red zones in the image on the left) which was 270mm above typical (see the blue zone in image on the right). These are very high readings. Kelantan is now preparing for a possible second wave of flood.

Note:

• “Southeast Asia is globally considered one of the most vulnerable regions to climate change. Countries across the region will face rising sea levels, heat waves, floods and droughts, and increasingly intense and unpredictable weather events” (USAID, Jul 2022). The conversation is turning toward a fair approach to funding efforts on climate change.

• In Khazanah Research Institute (2022) recent Climate Strategy report: "Nationally and locally, we should be focusing on climate adaptation measures: urban greening to tackle urban heatwaves, flood mitigation and better planning to minimise the impact of the great rains, mangrove restoration and engineering works to combat coastal erosion. These measures are not rocket science, we have the local expertise and technology to pull much of this off, unlike with energy transition measures. However, we need to tap into more national and international financing to bring these solutions online. It can be done. Think City in Penang has recently secured US$10 million in climate adaptation financing to tackle heat and floods."

  Comment: Although there is no specific mention of East Coast flooding and the cost of mitigation there, we should expect more focus on this to come.

• Here are some recent initiatives by the Malaysia government for flood mitigation on the East Coast:

  • Under the 12th Malaysian Plan, RM9.19 billion was allocated for flood mitigation projects nationwide with Kelantan receiving RM1.3 billion for four projects and Terengganu receiving RM450 million for nine projects (TheStar, 2021).

  • In 2022, there will be 15 works to be implemented in Kuala Krai with an estimated cost of RM 1.1 million (TheMalaysianReserve, 2022).

  • 40 ongoing and planned flood mitigation projects in the East Cost for 2023. One of the major projects, the Sungai Kelantan Integrated River Basin Development Project (PLSB), is estimated to be at RM 2.156 billion (TheStar, 2022).

In our coverage at PalmTrack, we also monitor rainfall in the region. This has a focus on the core oil palm growing regions of Indonesia and Malaysia.

research@segi-enam.com | 4 Jan 2023

Interview - Strengthen Labour Rights, Cut the Red Tape for Foreign Workers

BFM interviewed Segi Enam’s Khor Yu Leng for her perspective and policy prescription on strengthening labour rights and reducing bureaucracy for foreign workers.

Some of the questions asked were:

• What were the main obstacles to the movement of foreign labour this year? To what extent were these obstacles caused by internal rather than external factors?

• How prevalent are the issues caused by unscrupulous middlemen?

• How can we simplify the process of applying for foreign labour?

• Would any misalignment be caused by the lack of coordination by the agencies involved?

• How the foreign labour shortage will impact the various sectors in Malaysia?

• There are calls for various industries to reduce reliance on foreign labour. How can we do so?

• What policy recommendations would you give to the new government?

Listen to her answers here.

Interview - Malaysian Prime Minister cements his legitimacy (China Daily)

China Daily recently interviewed Segi Enam’s Khor Yu Leng on her thoughts on the stability of Anwar’s government. This is after the vote of confidence motion tabled on 19 December 2022 where we saw Anwar receiving the support of 148 Members of Parliament through a voice vote. During the same sitting, the Speaker and its Deputies were appointed as well.

Yu Leng opined that “the stability of Anwar's government will also depend on the strength of his cabinet, and the reforms and policies enforced under his term”. She also mentioned that the election of Johari Abdul as the speaker shows that currently there is majority support for Anwar.

Read the full article here.

At Roundtable (RT) 2022 - Day Two

On the second day of #RT2022, we attended a few presentations which focused on the topic of enhancing workers' rights and reducing climate change. Segi Enam’s Khor Yu Leng was also invited to present the future of consumption and production patterns of palm oil. Day One observation can be found here.

The presentations were on “Enhancing Human Rights and Labour Rights, Adapting to Future Due Diligence and Deforestation Legislation”, the panels spoke about the proposed EU Deforestation Legislation. Key points from this is that EU businesses will need to know where the product comes from and that RSPO certification is not sufficient. The panel also shared on the EU future plans for supply chain legislation, Corporate Sustainability Due Diligence Directive and Forced Labour Regulation.

Source: RSPO (2022)

In the presentation on “Operationalising Labour Standards in the Palm Oil Sector”, the panel discussed how companies can do better to improve labour standards. The speakers were from industry and they shared how grievance mechanisms are important but the moderator also stressed the importance of the need to balance the power between workers and employers for it to be effective.

Segi Enam’s Khor Yu Leng spoke on “Future Proofing the RSPO - The State of Palm Oil 2050”. She curated findings about the future of consumption and production patterns of palm oil (in the context of other vegoils) with major forecasts for expansion according to key end uses. This is led by volumes from liquid biofuels (renewable diesel, sustainable aviation fuel), an uptick in oleochemicals (think hand wipes, sanitizers and the cleanliness drive of the Covid pandemic; and also for animal feed), but with more muted expectations for the rising food use of vegoils. See screenshots and comments in (I) and (II) below.

Source: Presentations at RSPO RT, annotated by PalmTrack, yuleng@segi-enam.com, 2 Dec 2022

The key narrative for palm oil’s yield per hectare needs to be replaced by a comparative on palm oil’s carbon footprint. The presentation by Jannick Schmidt (see III, IV above) highlights:

• A certified palm oil benchmark is almost as good as sunflower oil, but rapeseed oil is significantly better on a CO2e per kg oil measure.

• This certified palm oil benchmark is a bit better than diesel on a CO2 per km measure.

In the question and answer was a point about the lack of a business model for nature conservation. In that regard, readers should note how conservation is a notable part of United Plantation’s transition to a lower carbon footprint and also refer to the large-scale conservation project of the Rimba Collective for 500,000 hectares of conservation and restoration.

Yu Leng was also invited to speak at two side events.

At the Rimba Collective’s “Delivering on Half a Million Hectares of Forest Conservation & Restoration”, where she talked about the multi-year journey of palm oil to reach a large-scale conservation mindset. She emphasized data (transparency), scale and governance.

Rimba Collective, “Delivering on Half a Million Hectares of Forest Conservation & Restoration”: From the left: Neil Judd (Senior Advisor at Lestari Capital), Reuben Blackie (Manager, Sustainable Agriculture at PepsiCo), Girish Deshpande (Global Sustainability Director at Proctor & Gamble), M R Chandran (Advisor to RSPO), Khor Yu Leng (Segi Enam)

At Fortasbi’s 3rd Appreciation Event, she gave her insight into China’s Palm Oil Market.

Khor Yu Leng of Segi Enam speaking at Forstabi’s 3rd Appreciation Event.

Asked to speak about China market opportunities for Indonesia independent smallholder (ISH) RSPO Credits, we referred to two key reports in which Segi Enam was author/co-author:

• Business Case for Certified Sustainable Palm Oil, (WWF,2022)

• Sustainable Palm Oil Uptake in Asia: Where do we go from here? (WWF, 2021)

Source: Presentations at FORTASBI event, referring to two WWF reports on sustainable palm oil market, compiled by PalmTrack, yuleng@segi-enam.com, 2 Dec 2022. Link to the presentation.

Fortasbi also awarded their top 12 buyers at the event. They were:

• Unilever

• PepsiCo 

• ACT Commodities

• Proctor and Gamble

• Saraya

• Nestle

• Estee Lauder

• Werner & Mertz

• Blommer Chocolate

• KAO Corporation

• Give and Go Prepared Foods Corporation

• Johnson and Son

There were also exhibition booths by various NGOs and other palm oil-related organisations promoting their sustainable initiatives.

Proforest

Rainforest Alliance

High Carbon Stock Approach (HCSA)

Sime Darby Plantations

Palmoil.io

Fortasbi

We will post further views for PalmTrack (subscribers only).

research@segi-enam.com | 2 Dec 2022

At Roundtable (RT) 2022 - Day 1 Observations

From 28 to 30 November 2022, the Segi Enam team attended the RSPO’s Roundtable (RT) 2022 #RT2022 at the Shangri-La Hotel, Kuala Lumpur, Malaysia. The theme was “Scaling up the sustainable palm oil value chain through collective action.”

We contributed to the judging effort for the conservation and smallholder segments of the RSPO Excellence Award, with Yu Leng as one of the three judges, alongside conservationists Dr Erik Meijaard and Dr Nadine Ruppert. The awards were given out at the evening event preceding two full days of conference proceedings on 29-30 November.

Day one kicked off with a celebration of smallholder certification:

Palm Oil Smallholders receiving certification

Professor Tan Sri Dr Jemilah Mahmood gave the keynote speech. In her down-to-earth address, she touched on issues related to the palm oil industry and stressed that more needs to be done. The open questions about palm oil include those on zoonotic diseases, air and water pollution, floods and impact on indigenous people.

There were 13 discussion sessions (over two days) covering issues related to sustainability, conservation, certification and labour rights. We attended presentations on “The Asian Dialogue - Catalyst for Sustainable Palm Oil”, “Balancing the Needs of People, Planet and Prosperity in Sustainability Standards” and “Ensuring the Development of Sustainable Palm Oil Drives Smallholder Inclusion at Scale”, and had numerous meetings on the side lines, which covered diverse topics from labour issues to smallholder inclusion. We also looked in at evening events hosted by Musim Mas and WWF.

The Asian Dialogue - Catalyst for Sustainable Palm Oil. Key points on the businesses in Asian countries are promoting sustainable palm oil products. SuperIndo is the first business to promote RSPO certified palm oil in Indonesia.

Balancing the Needs of People, Planet and Prosperity in Sustainability Standards. Key points on how to achieve sustainability and not leaving certain stakeholders out.

Please, view the list of discussion sessions and speakers here, and presentations can be accessed here. RSPO also published its Impact Report 2022. Below are some excerpts from it. We will post further views for PalmTrack (subscribers only).

Indonesia and Malaysia remain the largest producers, collectively 80% of the CSPO volumes.

Growth in RSPO Certified Area. Stark increase in RSPO Certified Area in Africa.

Certified smallholders (scheme and independent), 22,000 globally with 65,603 hectares and FFB production at 1.2 million Biggest is in Indonesia, where there are 10,953 farmers, with an area of 26,839 hectares.

research@segi-enam.com | 2 Dec 2022