Gapki Chairman Joko Supriyono. (Photo courtesy of Gapki)

Indonesia Readies for Potential Trade War Should EU Curb Palm Oil Imports

NOVEMBER 03, 2017

Nusa Dua, Bali. Indonesia is ready to curb imports from the European Union should the bloc make it harder for member countries to purchase palm oil produced in Southeast Asia's largest country, Trade Minister Enggartiasto Lukita told reporters on Friday (03/11).

"Should Europe continue to disrupt our palm oil [exports], we can [halt imports of] milk powder," the minister said on the sidelines of 13th Indonesian Palm Oil Conference and 2018 Price Outlook, an annual event held by the Indonesian Palm Oil Association (Gapki).

Indonesia imports significant amounts of milk powder from Europe, Australia and the United States.

The minister also hinted at the potential to limit wine imports from France and several other products from other EU member states should Brussels pass legislation curbing palm oil imports.

Indonesia generated about $18 billion in foreign exchange revenue from palm oil exports in 2016, 16 percent of which was exported to Europe.

Enggartiasto said negative campaigns that highlight sustainability issues around palm oil cultivation in Indonesia displayed an "unhealthy trade competition," adding that the country will no longer be on "the defensive."

The minister said he has met with top officials and members of parliament in EU to express Indonesia's concerns.

"I told them that this is unfair, if it continues like this […] You start a trade war."

In recent years Brussels has vocally pointed to palm oil cultivation as the main culprit for mass deforestation in Indonesia.

In April, Brussels passed a resolution calling for EU member countries to phase out biodiesel vegetable oils by 2020 that are deemed to be produced in environmentally unsustainable conditions.

France has individually said that it will reduce the use of palm oil in biofuels.

Enggartiasto said Indonesia has not turned a blind eye towards to the palm oil sector, one of the country's largest. He has called on relevant stakeholders to counter what he calls "negative" overseas campaigns depicting the country's palm oil cultivation as unsustainable. In this vein, the government plans to lobby the international community to see the benefits of that palm oil has brought, both domestically and to overseas markets.

Joko Supriyono, Gapki chairman, said industry players have made strong efforts to ensure that all domestic palm oil products meet international standards, while also prodding the government to seek out alternative markets in case of an EU embargo.

In his keynote speech on Friday, Joko cited data from agribusiness consultancy firm LMC International that forecasts an additional demand of 50 million tons of vegetable oil by 2025, when the world's population is expected to approach 8 billion.

Indonesian Palm Oil Association chairman Joko Supriyono. (Photo courtesy of Gapki)

"The question is how to make such a huge increase?" he said, adding that LMC's study showed that an additional 50 million hectares of rapeseed plantation area would be needed to meet global demand by 2025.

The study also showed that global demand for sunflowers would stipulate an increase to 70 million hectares of cultivation land, while 96 million hectares would be needed to meet demand for soybeans.

"But if palm oil is to fulfill global demand for vegetable oil, only 12 million hectares would be needed," Joko said, adding that palm oil yields can be increased to 8 tons per hectare due to recent technological advancements.

"It means by choosing palm oil, it will reduce land use globally and reduce environmental impacts as well. In the context of Indonesia, such a yield increase is very much possible, especially because of smallholder plantations, whose areas contribute to about 50 percent of oil palm plantations here," he said.