Summary
A market positioning strategy has been adopted by Pacific island palm oil producers focused on the supply of fully traceable sustainably certified palm oil through a dedicated facility in the UK which then serves the whole of the EU28 market for fully traceable sustainable palm oil. Any failure to conclude an UK-EU27 trade agreement by 30 March 2019 could see a re-imposition of tariffs by the EU27 on Pacific palm oil processed in the UK. This could disrupt the functioning of existing Pacific palm oil supply chains and compound the challenges being faced by Pacific palm oil suppliers as a result of environmental and health campaigns in the EU against the use of palm oil in food products.
There is growing demand from the European food processing industry for sustainably sourced raw materials, in the face of mounting consumer pressure for responsible sourcing practices. In the palm oil sector this has focused on ensuring palm oil is sourced from production areas which have a minimal negative effect on the environment (1).
Consumer orientated companies are coming under growing pressure to either minimize their use of palm oil or shift to fully traceable sustainably certified palm oil, which avoids deforestation. In June 2017 the EU Association Chocolate, Biscuit and Confectionary Industries, CAOBISCO, urged its members to move forward the date for sourcing 100% of their palm oil from sustainably certified sources. This was seen as essential to avoiding reputational damage, with reputation being a major sales driver for consumer orientated companies in today’s market place (2).
Major ‘CAOBISO members such as Ferrero, Mars, and Olam have already committed to 100% sustainable cocoa by 2020’. With Lindt, Nestle, Mondelez and Barry Callebaut (by 2025) all moving towards or making similar commitments on their cocoa sourcing. (2)
With regard to palm oil CAOBISCO has called on its members to sign up to no deforestation agreements. Within this context CAOBISCO is actively promoting ‘the use of certified segregated palm oil’. While at the moment for CAOBISCO this remains a recommendation not an obligation, the trend in sourcing is clear (2).
This trend has seen smaller palm oil producers in the Pacific investing in market positioning to meet this rapidly expanding component of consumer demand for fully traceable sustainably certified palm oil. In 2010 the principal palm oil producer in Papua New Guinea (PNG) and the Solomon Islands, New Britain Palm Oil (NBPO – subsequently renamed New Britain Oils) established the first segregated and traceable sustainable palm oil refinery in the EU, in Liverpool in the UK (3). In the following five years some £40 million were invested in response to ‘an increase in demand for its bakery fats linked to changes to European Union (EU) food labelling laws’, and as major UK retailers strove to meet targets for sustainable sourcing (4).
PNG palm oil exports 2007-2016 (tonnes)
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| EU | 377,688 | 417,423 | 480,780 | 490,226 | 541,185 | 563,623 | 543,642 | 537,725 | 574,695 | 550,410 |
| UK | 77,222 | 91,828 | 106,002 | 87,833 | 140,209 | 150,047 | 179,498 | 183,968 | 197,051 | 181,032 |
| EU27 | 300,466 | 325,595 | 374,778 | 402,393 | 400,976 | 413,576 | 364,144 | 358,227 | 377,644 | 369,378 |
| UK % | 20.4% | 22.0% | 22.0% | 17.9% | 25.9% | 26.6% | 33.0% | 34.2% | 34.2% | 32.8% |
Solomon Islands palm oil exports 2007-2016 (tonnes)
| 2007 | 2008 | 2009 | 2010 | 2011° | 2012 | 2013°° | 2014 | 2015 | 2016 | |
| EU | 15,766 | 21,638 | 23,240 | 23,457 | 28,907 | 32,214 | 31,282 | 33,110 | 33,749 | 28,856 |
| UK | 10,145 | 766 | 959 | 2,320 | 2,749 | 22,788 | 4,738 | 28,143 | 24,070 | 17,919 |
| EU27 | 5,621 | 20,872 | 22,281 | 20,669 | 26,158 | 9,426 | 26,544 | 4,967 | 9,679 | 10,937 |
| UK % | 22.0% | 3.5% | 4.1% | 9.9% | 9.5% | 70.7% | 15.1% | 85.0% | 71.3% | 62.1% |
° Sustainability certification was attained in 2011
°° Weather events reduced overall production
With a similar trend towards the use of fully traceable sustainably certified palm oil underway across Europe in response to EU legislation (3), UK palm oil imports from PNG and the Solomon Islands grew rapidly. Between 2010 and 2016, UK palm oil imports from PNG and the Solomon Islands grew 106.1% and 672% respectively, while EU27 palm oil imports from PNG and the Solomon Islands fell 8.2% and 47.1% respectively (5). This reflected the emergence of the Liverpool refinery as a major source of segregated fully traceable sustainable palm oil for food sector manufacturers across the EU.
The importance of this trend towards segregated fully traceable sustainable palm oil production needs to be seen in a context where NBPO’s entire palm oil production in the Solomon Islands and Papua New Guinea now falls into this category (although current market demand for segregated fully traceable sustainable palm oil lags behind supply). It also needs to be seen in a context where palm oil exports represented 49% and 32.5% respectively of Papua New Guinea’s and the Solomon Islands’ total exports to the EU28 market in 2016 (5).
Given the competition with domestic oilseed production, outside of trade agreements the EU maintains MFN tariffs on palm oil ranging from 5% to 8% for crude oil and around 13% for consumer ready packaged palm oil (6).
The possibility of a re-imposition of import duties on segregated fully traceable sustainable palm oil refined in the UK for onward sale on EU27 markets from 30th March 2019 needs to be seen against the background of broader campaigns by consumer groups against the use of palm oil in processed food products on health grounds (7) and parallel environmental campaigns against the use of palm oil (8).
| Comment and Analysis
Currently UK membership of the EU means palm oil can be imported into the UK from Papua New Guinea and the Solomon islands to a dedicated facility which exclusively handles fully traceable sustainably certified palm oil. The refined product can then freely flow throughout the territory of the EU28. However, if the UK and the EU27 fail to reach a trade agreement which allows the continued free flow of goods (including refined palm oil), the strategy followed by palm oil producers from PNG and the Solomon Islands to increasingly serve the market for fully traceable sustainably produced palm oi through a dedicated facility serving the whole of the EU28 market could be undermined. This suggests a need to set in place transitional trilateral customs cooperation arrangements to ensure segregated fully traceable sustainable palm oil produced in Papua New Guinea and the Solomon Islands can be toll refined in the UK and then traded into the EU27 market without any danger of import tariffs being imposed by the EU27. Such arrangement could usefully be set in place to reduce uncertainty linked to the time constraints faced in the negotiation of new post-Brexit UK-EU27 trade arrangements. This needs to be seen in a context where according to the Commercial Counsellor at the Dutch Embassy to the UK ‘the EU has never offered tariff free deals to non-EU countries’ in the agro-food sector and as a consequence it could ‘take decades to get back to the current state of affairs’ (9). Such transitional trilateral customs cooperation arrangements would be in line with evolving EU policy priorities with regard to the promotion of sustainable sourcing of food industry inputs. Given that Papua New Guinea also exports palm oil to the Netherlands (a bigger market in 2016 than the UK), Germany, Belgium and Spain there may be scope for investment in a dedicated segregated fully traceable sustainable palm oil refinery in a EU27 member state. However the investment this requires should not be under-estimated. Such an investment would not be warranted if, in due course, a UK-EU27 trade arrangement emerged which allowed the continued free flow of segregated fully traceable sustainable palm oil across all current EU28 markets. |
Source:
(1) Agritrade, ‘ACP palm oil sector development and the debate on sustainability certification’ 4 September 2014
http://agritrade.cta.int/Agriculture/Commodities/Oil-crops/ACP-palm-oil-sector-development-and-the-debate-on-sustainability-certification
(2) Confectionerynews.com, ‘Caobisco-urges-100-certified-cocoa-sugar-and-palm-oil-deadlines’, 28 June 2017
http://www.confectionerynews.com/Commodities/Caobisco-urges-100-certified-cocoa-sugar-and-palm-oil-deadlines
(3) New Britain Palm Oil, ‘Preliminary Results FY2013’, February 2014
http://www.nbpol.com.pg/wp-content/uploads/downloads/2014/02/NBPOL-2013-Preliminary-Results-Presentation-final.pdf
(4) Liverpool Echo, ‘Liverpool palm oil refinery expanding under new owner’, 3 September 2015
http://www.liverpoolecho.co.uk/news/business/liverpool-palm-oil-refinery-expanding-9976141
(5) EC, Market Access Data Base
http://madb.europa.eu/madb/statistical_form.htm
(6) EC, ‘Commission regulation (EC) No 2204/1999 of 12 October 1999 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff’, 10 October 1999
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=uriserv:OJ.L_.1999.278.01.0001.01.ENG
(7) For example see, Foodnavigator.com, ‘Don’t give children palm oil says Italian consumer group’, 23 June 2016
http://www.foodnavigator.com/Market-Trends/Don-t-give-children-palm-oil-says-Italian-consumer-group and Foodnavigator.com, ‘Clean label cull: French supermarket cuts 90 ‘controversial’ substances from private label products’, 9 February 2017 http://www.foodnavigator.com/Market-Trends/Clean-label-cull-French-supermarket-cuts-90-controversial-substances-from-private-label-products
(8) For example see the ‘Say No to palm Oil’ campaign
http://www.saynotopalmoil.com/
(9) Freshplaza.com, ‘Both challenges and opportunities for the sector’, 13 June 2017,
http://www.freshplaza.com/article/176937/Brexit-Both-challenges-and-opportunites-for-the-sector
| Key words: Palm oil, Brexit, Sustainability, Papua New Guinea, Solomon Islands, New Britain Palm Oil Area for Posting: Brexit, Pacific EPA, |