Indonesia unhappy with European Union plans to ban palm oil biofuels

The EU is Malaysis'a second biggest export market for palm oil. Source muhd fuad abd rahim  Shutterstock

The EU is Malaysis'a second biggest export market for palm oil. Source muhd fuad abd rahim Shutterstock

Palm oil is one of Malaysia's biggest exports, making up five percent of total exports.

Crude palm oil (CPO) prices are also expected to hit $690 a tonne on a free-on-board basis, he told an edible oils conference in Karachi, Pakistan, according to an early copy of his presentation.

He described that the EU Parliament's decision last night on banning the palm oil usage in biofuels was a "black day" for free-trade practice as it is seen as discriminatory against palm oil.

A large part of palm oil shipments to the European Union are used as a substitute for the crude oil to make bio-fuel.

European lawmakers approved draft measures to reform the power market and reduce energy consumption to meet more ambitious climate goals.

"This year we target some two million hectares of oil palm area to be MSPO-certified", he said, adding that the government-driven certification assures consuming countries that Malaysia produces palm oil on a balanced need of People, Profits and Planet.

"Palm oil producer countries have to take action", Mah said. "After that, you can expect output cuts to end, primarily because traditional oil exporters can see the USA shale oil industry taking advantage of higher prices to ramp up their output".

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"This morning, I have written to Malaysian ambassadors in the EU to convey our disappointment on the EU Parliament's vote". But it will harm the livelihoods of more than three million farmers cultivating oil palms across developing nations. Last year, Malaysia warned of reviewing its trade with France after Paris chose to limit the use of palm oil in bio-fuels.

Rising stock levels typically weigh on benchmark palm oil prices, which have lost more than 10 percent since November on rising Malaysian stockpiles.

The E.U. has long criticised palm oil industry for potential destruction of forests due to largescale plantations.

Members of the European Parliament voted on Wednesday for the resolution to phase out palm-based biofuels from the EU energy mix after 2020.

Mah said Malaysia's ambassadors in the 28 European Union member countries will raise objections and that he will work closely with Indonesia to protect the interests of smallholders. The European Parliament, the executive European Commission, and the EU national governments must now negotiate a final draft of the legislation and approve it.

Indonesia and Malaysia are the world's top two palm oil producing countries, accounting for almost 90 percent of global supply.

"We are protesting (the EU's call) ... as we will lose out", said Aliasak Ambia, president of the National Association of Smallholders, which has submitted a petition to the European Union representative office in Kuala Lumpur in protest of the vote.

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