Demonising imports a failed economic strategy

Malaysian palm oil futures steadied in late trade on Thursday, recovering earlier losses as some traders bought palm before a possible spike in the ringgit if Britain votes to stay in the European Union.

HOW to grow the European economy? A question that has dominated European politics since the banking crisis. Speeches have been made, and solutions proffered by Francois Hollande, Angela Merkel, Jean-Claude Juncker and many others. The prescriptions differ, but one theme is more or less constant – trade.

European leaders have travelled far and wide promoting European trade, and lavish welcomes are afforded in Rome, Paris and London to the visiting delegations. This, of course, is natural – increasing European exports to the developing world will help to grow the economy at home.

However, one salient fact has been forgotten. Trade is a two-way street. Imports are also critical to a growing economy, and to a prospering relationship with new trading partners.

Imports lead to efficiencies in production, provide jobs throughout the supply chains and downstream industries, and stimulate market competition and innovation.

Sadly, the experience of many importing industries into Europe is that the rhetoric on trade does not match the reality.

Whether you speak to American food exporters, Argentine biodiesel manufacturers, African farmers or the Malaysian palm oil producers that I represent, a similar depressing narrative emerges. Protectionism is the dominant force in Europe.

My own sector provides a telling illustration. Later this year, the EU is expected to embark once again on a revision of the Renewable Energy Directive (RED). This follows the original directive from 2009, and a previous revision completed only last year.

The environmental group Transport & Environment (T&E) has recently “revealed” the “shocking truth” about palm oil’s use as a renewable energy fuel under the RED rules in the EU. Those who have examined the data behind the dramatic headlines will have learnt that the claims from T&E are neither shocking nor truthful.

The core of T&E’s complaint is that the use of palm oil for biodiesel is rising. This is true – though the real increase is nowhere near the amount that T&E claims.

This is not “shocking”, or indeed surprising, to anyone with a passing knowledge of the market or the cost of European-produced oilseeds.

Why? Because palm oil is simply a superior product. If you don’t believe me, then believe the data.

Palm oil’s average yield per hectare, per year is around four tonnes of oil equivalent. The nearest competitor is rapeseed at only 0.79 tonnes/ha. Others are even further behind.

Palm oil uses only 47kg of fertiliser per tonne of oil (rapeseed uses 99kg; soybean uses 315kg). Palm oil also needs on average just 2kg of pesticides to produce one tonne of oil, compared to 11kg for rapeseed and 29kg for soybean.

In plain English: palm oil produces vastly more oil, using less land, fewer pesticides and less fertiliser. In a world consumed by pressures on land and resources, that difference is enormous.

It is worth noting, at this point, that all palm oil imported into the EU as biodiesel must by law, under the Renewable Energy Directive, meet the strict environmental criteria laid down by the EU.

Malaysia is a world leader in palm oil sustainability – and the Malaysian Government has protected over 67% of land in Malaysia as forest area – continuing a commitment Malaysia first made at the UN Rio Summit in 1992. This environmental protection is unmatched by any EU Member State.

However, palm oil is an imported product – and so an obvious target for protectionism. The very fact that an imported fuel has seen increased usage leads to alarmist headlines – despite the clear gains in efficiency and cost.

This is not an experience unique to palm oil. Ask any non-EU food producer and they will tell a similar tale. Technology industries and audiovisual content providers have also expressed concerns about creeping EU protectionism – and that was in May alone.

Imports provide jobs, grow the economy, and reduce prices for European consumers – just as many EU exports could be superior to domestically-produced goods elsewhere in the world.

The conclusion is simple: successful imports should be welcomed and not demonised, and those who choose instead to play the cheap card of protectionism should be roundly rejected.

  • Tan Sri Dr Yusof Basiron is the Malaysian Palm Oil Council CEO. The views expressed here are entirely the writer’s own.
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