Concerns over deforestation – much of it illegal – could see palm oil demand drop for first time in 20 years


Palm oil demand depressed as EU buyers resist long-term deals while awaiting greater regulatory action

Global demand for palm oil could shrink for the first time in two decades amid declining imports from Europe and China and growing consumer concerns over deforestation, industry analysts have claimed.

As Europe pursues greater regulation, buyers opt for more sustainable options and Chinese demand remains uncertain due to the US trade war, some observers are anticipating a palm oil slowdown.

EU imports from Malaysia, which along with Indonesia accounts for 85% of global production, plummeted from €398 million in the first quarter of 2018 to €320 million in Q1 2019, Earthsight analysis of trade data shows.

Purchases from Indonesia fared little better. EU countries purchased €602m of palm oil between January and April 2019 – an 11% drop on 2018 levels.

“European countries can impose more restrictions on palm oil,” a Kuala Lumpur-based trader which supplies palm oil to Europe told Reuters. “Importers are not willing to take risks.”

One example was seen in March when the European Commission agreed to phase out using palm oil-based biofuel from Malaysia by 2030.

A recent survey across Europe showed that consumers are growing concerned about buying goods that fuel deforestation and 91% of respondents believed greater regulation was needed.

2014 Forest Trends report estimated that 9.9 million hectares of Indonesian and 1.8 million hectares of Malaysian forest had been cleared illegally between 2000 and 2012 to make way for commercial agriculture, mostly oil palm plantations.

The dip in EU trade may reflect importers’ reluctance to increase deals while planned EU anti-deforestation regulation is still to be finalised.

India, another large importer, will see greater demand for domestically produced oils which may taper demand for palm oil in the long-term, industry experts suggested to Reuters.

Ratings agency Fitch has said that while it holds a neutral view on the sector, several pressure points will likely impact demand over the coming months.

“First, palm oil will face strong international demand headwinds amid stagnant Chinese import demand and declining EU demand. The EU, traditionally a very large importer of palm oil, will see demand drop in the long term due to the new EU biofuel policy,” its April briefing note surmised.

“Second, the sustainability reputation of palm oil is not improving for now despite some efforts done by palm oil plantations to produce sustainable palm oil certified by the RSPO.”

Global firms have made zero deforestation commitments, yet accusations of malpractice persist.

A recent Greenpeace report said Wilmar had sourced palm oil from firms guilty of deforestation in Indonesia and some guilty of illegal forest clearance and developing concessions without permits. Wilmar was also named alongside palm oil firms Royal Golden Eagle, Musim Mas Group and Golden Agri Resources as responsible for illegal deforestation in Sumatra by Friends of the Earth in 2018.

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