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Wednesday August 10, 2011

Palm oil labelling – promotes transparency or attracts negative attention

THE battle-hardened Malaysian palm oil industry is in the middle of yet another bruising fight. The theatre of war this time is Australia and the focus is on a proposed legislation that singles out palm oil as a food ingredient.

The main challenge here is to reverse the momentum because the Senate, one of the two houses of the Australian Federal Parliament, passed the Food Standards Amendment (Truth in Labelling Palm Oil) Bill in June. If the House of Representatives votes the same way, the new law will require producers, manufacturers and distributors of food containing palm oil to list it on the contents label of their products, instead of the current practice of using the umbrella term “vegetable oil”.

That in itself sounds rather harmless. Indeed, those pushing for the Bill insist that they are not calling for a ban on the use of palm oil; they say it is about transparency and giving consumers a choice. They also want to boost the production of sustainable palm oil, which comes under the certification framework developed by the Roundtable on Sustainable Palm Oil (RSPO).

The purpose of the legislation, according to the explanatory memorandum for the Bill, is “to ensure that consumers are provided with clear, accurate information about the inclusion of palm oil in foods, and to encourage the use of certified sustainable palm oil (CSPO) in order to promote the protection of wildlife habitat”.

However, the campaign for the Bill operates primarily on allegations that oil palm cultivation causes deforestation and drives the orangutan towards extinction. It is a powerfully emotive issue, backed by the efforts of the likes of environmental non-governmental organisations (NGOs) and Australian zoos.

Dompok: 'It would be labelling palm oil for the wrong reasons. It would plant in the minds of consumers that this is a bad oil and it is labelled because it is a bad oil.'

With palm oil labelling in place, the choice for Australian consumers would be based on this logic: Buying food containing palm oil that is not certified as sustainable is equivalent to imposing a death sentence on the orangutan.

It is easy to see how most people would decide. When Zoos Victoria, which runs the Melbourne Zoo, started a petition demanding that palm oil labelling be made mandatory, it collected 163,000 signatures.

“Some people want palm oil to be labelled so they can avoid it based on health or environmental reasons. And some people won't care and still buy the products. This is a consumer-choice campaign,” said Zoos Victoria director, wildlife conservation and science, Rachel Lowry.

The implications

Considering that as of April, annual RSPO-certified production capacity was less than 4 million tonnes last year, Malaysia's total palm oil production alone was 17 million tonnes it appears that the labelling move may hurt our palm oil sales to Australia, particularly because almost all palm oil imported by Australia comes from Malaysia.

But why should we be worried about the Bill when Australia only accounted for about 0.8% of Malaysia's palm oil export market in recent years?

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok pointed out that the issues raised to promote the Bill would travel beyond Australia, and there would be repercussions on the Malaysian palm oil industry.

When asked why Malaysia opposes the Bill, he said: “It would be labelling palm oil for the wrong reasons. It would plant in the minds of consumers that this is a bad oil and it is labelled because it is a bad oil. That's why we don't want this it's not true.”

There is also the concern that Australia is often used as a test market for products and initiatives that will later be introduced in the United States, the European Union and other economies in the West.

If the Bill is passed in Australia, similar laws may surface in other developed markets, some of whom buy large volumes of Malaysian palm oil.

In a different time, it would be unlikely that the Bill would have seen daylight, let alone become law. Sponsored by two senators, Nick Xenophon, an independent, and Bob Brown of the Australian Greens party, the Bill has some problematic aspects. For one thing, because it targets the Malaysian palm oil industry, it injects some awkwardness in the relations between the governments of Malaysia and Australia.

Also, some observers believe that the labelling law amounts to a trade barrier inconsistent with the rules of the World Trade Organisation, and if the matter is not resolved quickly, it may impact trade ties between the two countries.

In addition, food labelling in Australia comes under the jurisdiction of the six states, not the federal government. To complicate things further, Australia and New Zealand jointly set food standards. The Bill, therefore, can be a thorny issue if New Zealand and the Australian states do not embrace the new law.

That the Bill has come thus far in Parliament is partly a reflection of the delicate balance of power in Australian politics.

In last year's federal election, the incumbent Labour Party lost significant ground and had to rely on the support of an Australian Greens Member of Parliament (MP) and three independent MPs to form a government. This also means that the ruling party has less sway over the outcome of law-making votes. When the Bill was before the Senate, the house referred the Bill to its Community Affairs Legislation Committee for inquiry.

A submission by Dompok's ministry was among the more than 500 received by the committee. Malaysia was also represented at a committee hearing last April by the Malaysian High Commissioner to Australia and three officials of the Malaysian Palm Oil Council, including chief executive Tan Sri Dr Yusof Basiron.

Surprise vote

Malaysia thought it had secured victory when the committee issued a report in June recommending that the Bill not be passed. However, later that month, the Senate voted in the Bill anyway.

The House of Representatives has initiated another inquiry. This one is handled by its Standing Committee on Economics, which will accept submissions up to Monday. It will also consider submissions made earlier to the Senate Committee.

In an Aug 3 statement, Chair of the House Economics Committee Craig Thomson said: “The Committee recognises the community interest in the issues around the Bill, such as preserving forests and the habitat of the orangutan. In addition to these community concerns, the Committee will also examine the Bill's other aspects, such as trade, food quality, costs to business, and the rights of consumers.”

Dompok has already indicated that Malaysia will again be represented when the committee holds a public hearing. Consistent, credible and persuasive arguments and submissions by the Malaysian Government and palm oil industry will definitely be a key factor, but in the end, the lobbying for and against the Bill is part of a political process.

You need leverage, influence and savvy as well to gain the upper hand. This is possibly the Malaysian palm oil industry's toughest test to date.

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