Promoting Agricultural Value Chains
In the OIC Member Countries
99
At the downstream level, the priority areas include developing biogas at palm oil mills for
energy generation, developing oleo derivatives, advancing into food and health-based
segments, and promoting biofuels. The focus on biofuels relates to the ongoing efforts of the
Malaysian Government to explore into the global market for biofuels as the demand for
renewable fuels has increased significantly over the past decade. In 2007, the Government
passed the Malaysian Biofuel Industry Act to encourage the use of palm oil domestically. Since
then all diesel fuel used in the transportation sector must contain at least 5 percent of palm oil
biodiesel (B5). The Government recently announced that this would be increased to 7 percent
from November 2015 onwards (B7). This would spur domestic consumption of palm oil
biodiesel to 575,000 tonnes compared to 472,000 tonnes in 2013 (Exim Bank, 2015).
Malaysia also looked at the USA and Europe as potential markets for biodiesel. However, the
US Environmental Protection Agency ruled that palm oil biodiesel does not qualify as a
renewable biofuel. Market entry into the EU has been more successful, as the EU has mandated
the increase of renewable energy in transport to 10 percent by 2020, which includes palm oil
biodiesel (Renewable Energy Directive of 2009). All biodiesel imported must be produced in
compliance with specific sustainability criteria to reduce greenhouse gas emissions without
adversely affecting the environment or social sustainability. Nonetheless, the EU policy has
received harsh criticism from NGOs and social movements as energy crops such as palm oil are
competing for land with food crops. Therefore, the EU is currently considering reducing the
contribution of food-based biofuels, such as palm oil, to 6 percent which would also imply a
smaller EU market for Malaysian biofuel exports.
5.5.2 Standards
The rapid growth of the Malaysian oil palm industry has given rise to sustainability concerns
related to social development and environmental protection, including deforestation of
biodiversity-rich rainforests and rights violations of local communities. Largely due to public
pressure originating in EU as one of the main importers of Malaysian palm oil, many Malaysian
stakeholders participate in the Roundtable Sustainable Palm Oil (RSPO). The RSPO was
established in 2004 as a multi-stakeholder initiative to develop and implement a global
standard for sustainable palm oil. Headquartered in Kuala Lumpur, the RSPO currently has
more than 2,000 members representing 40 percent of the palm oil industry (RSPO, 2015). Two
different standards have been developed, one for plantations and one for mills, each covering
matters relating to best agronomic and mill practices, economic, legal, environment,
biodiversity, safety, workers, community and social issues. In addition to complying with the
standards, RSPO members are required to carry out a High Conservation Value Assessment
(HVA) before establishing new palm oil plantations.
The RSPO as a form of “private voluntary governance” is generally acknowledged to have
played an important agenda setting role, having raised awareness of sustainability issues in
palm oil (Schouten & Glasbergen, 2011). More than 120 Malaysian companies and
organisations, including plantations, processors, manufacturers and environmental
organisations, are affiliated with the RSPO.
At the same time, there are several voices criticising the RSPO for either having too weak social
and environmental standards or for setting too high standards which are difficult for
producers to adhere to. Particularly smallholder farmers are often thought to be left out of the
opportunities offered by certified sustainable palm oil.