Greasy Palms: Between Malaysia and the EU

There is always something to catch your attention on the international scene.

On December 6, 2022, the European Union came up with a law that would ban the sale of palm oil unless suppliers could prove they hadn’t contributed to deforestation. Yesterday, while reacting to the law, Malaysia’s deputy prime minister Fadillah Yusof said that if that’s what the EU wants to do, then there is no need for them to choose which suppliers to trade with from Malaysia, which together with Indonesia are the world’s two biggest exporters of palm oil. He said Malaysia would simply ban the sale of palm oil to the EU entirely.

“The option could be that we just stop exports to Europe and just focus on other countries if they (the EU) are giving us all a difficult time exporting to them,” Fadillah told reporters on the sidelines of a seminar on Thursday.

The EU’s decision to pick and choose is not entirely without merit. Global demand for the versatile oil has led to mass deforestation, with Malaysia losing 47% of its natural forests between 1972 and 2015. Environmental activists blame the palm oil industry for the rampant clearing of Southeast Asian rainforests. Deforestation is linked to a host of environmental problems, such as climate change, soil fertility issues, and poor water quality. Studies estimate that mammal diversity declines by up to 90 percent when forests are slashed to plant oil palms.

But palm oil is an incredibly important good, with a wide range of applications. It is not just useful in cooking; it is a feedstock for biodiesel, which is a renewable and sustainable fuel source. The pharmaceutical industry also uses it as a carrier oil and excipient. Palm oil is the world’s most popular vegetable oil, found in half of all supermarket goods and seven out of every 10 personal care products. Since 2016, global palm oil consumption has risen by 73%.

For this reason, Malaysia and Indonesia intend to milk its exports for as long as possible. In Malaysia, palm oil is the country’s second-largest agricultural export, after rubber. According to the Malaysian Palm Oil Council, the palm oil industry directly employs over half a million people in the country and contributes around 2.8% of the country’s GDP. The industry also generates significant revenue through taxes and royalties.

Indonesia is the world’s largest producer of palm oil, accounting for around 40% of global production. The palm oil industry is a major contributor to the Indonesian economy, accounting for around 1.5% of the country’s GDP and providing employment for around 20 million people. Additionally, the palm oil industry is a major source of foreign exchange for Indonesia, as the country exports around $20 billion worth of palm oil annually. For context, that’s about 50% of Nigeria’s annual budget.

So important is palm oil to the two economies that Indonesian President Joko Widodo and Malaysian Prime Minister Anwar Ibrahim this week agreed to “fight discrimination against palm oil.” When the EU mooted banning palm oil from biofuels in 2018, a Malaysian minister called the initiative “crop apartheid,” adding: “Don’t expect us to continue buying European products.”

But both countries may want to start thinking about diversifying away from palm oil because scientists have been searching for a viable palm oil substitute. They believe that microbial oils, such as those produced by microscopic organisms like yeast and algae, could provide the answer. Microbial oil factories were set up in Germany when butter and lard were scarce during World War I, but the practice subsequently fell into obscurity as soon as the war ended and there was sufficient supply again from plants and animals.

“The technology is actually very old but was never really established in industry, and I always wondered why because it has great potential,” biotechnologist Philipp Arbter told National Geographic in an article released last week.

Yet, as we have seen with crude oil, potential is not the same as reality.