IB CASE: PRE-READING FOR FINAL EXAMINATION

Read the article below and answer the following questions.

154
The economical and versatile, palm oil has become the world’s most
widely used vegetable oil. Oil palm can produce more vegetable oil
per unit of land than any other crop. Due to this comparative
advantage, palm oil is now commonly used for direct human
consumption, as biofuel, and as an ingredient in many processed
foods, cosmetics, pharmaceuticals, and other industrial products.
However, its production comes at a heavy environmental cost,
especially in Indonesia and Malaysia, the two main producers. The
main concern is the environmental impact and the social harm.
Recently, a major energy and food crisis is unfolding as a result of the
war in Ukraine. Russian President Vladimir Putin is forcing European
nations to pay in roubles for Russian gas. And the European Union is
worried about the acute shortage of sunflower and rapeseed oils
that may cause a dent in the food industry. Many European nations
are considering reversing a ban on palm oil, not just because of the
shortage of sunflower and rapeseed oils, but also because Russia and
Ukraine produce 70 per cent of the supplies.
It is a double blow to Europe after a series of economic and business
sanctions imposed on Russia for invading Ukraine. It looks like Russia
has the upper hand, although Western nations and companies have
rejected the idea of being forced to pay for gas in roubles, claiming it
is a breach of the contract, which is set in euro. Russia supplies about
a third of Europe's gas. Hence energy is the most powerful lever at
Putin's disposal as he tries to hit back against sweeping Western
sanctions over his invasion of Ukraine.
France and Germany, for instance, are preparing for a possible halt
to Russian gas flow. It is a blessing in disguise for Malaysia when it
comes to palm oil.
Many political and economic pundits are saying that European
nations did not expect that they may have to reverse the ban on
palm oil after all the allegations that Malaysia is one of the palm oil-
producing countries that indulged in deforestation. European
countries and foreign non-governmental organisations alleged that
large areas of rainforest were often cleared to make way for palm
plantations, resulting in greenhouse gas emissions.
They mercilessly attacked Malaysia and Indonesia, which produce
about 85 per cent of the world's palm oil. Over the years, foreign
critics assailed the Malaysian palm oil industry with allegations of
child labour, forced labour and ill-treatment of foreign workers. As a
result of these baseless reports, two leading Malaysian firms were
banned from exporting products to the United States and certain
European countries.
The setting up of the Malaysian Palm Oil Board and Malaysian Palm
Oil Council, together with Malaysian Palm Oil Certification Council,
was not only meant to address anti-palm oil propaganda by Western
countries. As much as we understood the politics behind the anti-
palm oil propaganda, we also knew that we must accede to the
demands to reduce forest clearing and address the so-called human
abuse issues.
It is good that the country has been working hard on producing a
Malaysian Sustainable Palm Oil certification that provides credible,
sustainable and responsible management. It will bring about positive
social, environmental and economic impact, and minimise the
negative impact on the people and the environment. The World
Wildlife Fund said the best thing European manufacturers could do is
support sustainable palm oil and avoid boycotts, "since we know
substitutions with other vegetable oils can lead to even further
environmental and social harm".
The government and local palm oil industry players should take
advantage of this with potential demand from Europe in the near
future. For the first time in the history of the national palm oil
industry, crude palm oil prices hit an all-time-high of RM6,395 per
tonne on 31 March, 2022, bringing huge profits to palm oil industry
players, including the 400,000 smallholders nationwide.
As the palm oil industry landscape is about to change due to the
crisis in Ukraine, it is crucial to make sure the country's palm oil
industry continues to be among the largest contributors to the
national economy.
Meanwhile, the European Union's foreign ministers are also in
another dilemma which is on whether and how to slap sanctions on
Russia's lucrative energy sector over its invasion of Ukraine, with
Germany saying the bloc was too dependent on Russian oil to decide
an embargo. The EU and allies have already imposed a panoply of
measures against Russia, including freezing its central bank's assets
due to Russia’s war on Ukraine.

Russia's siege and bombardment of Mariupol port, which EU foreign

policy chief Josep Borrell called "a massive war crime," is increasing
pressure for action. But targeting Russian oil, as the United States
and Britain have done, is a divisive choice for the 27-nation EU,
which relies on Russia for 40% of its gas. Some argued on Monday
that the EU could no longer avoid such a step. But Germany and the
Netherlands said the EU was dependent on Russian oil and gas and
could not cut itself off tomorrow. "The question of an oil embargo is
not a question of whether we want or don't want (it) but a question
of how much we depend on oil," German Foreign Minister Annalena
Baerbock told reporters.

"Germany is importing a lot (of Russian oil) but there are also other
member states who can't stop the oil imports from one day to the
other. If we could we would do it automatically," she said, adding
that the bloc should instead work on reducing its reliance on
Moscow for its energy needs. Diplomats cautioned that energy was
one of the most complex sectors to sanction because each EU
country has its own red lines. "Sanctions are exponential," one
diplomat said. "The further you go, the more difficult it is to adopt
them."
They said that while some countries want an oil embargo, Germany
and Italy, which depend on Russian gas, are pushing back because of
already high energy prices. Sanctions on coal are a red line for some,
including Germany, Poland and Denmark, while for others, such as
the Netherlands, oil is untouchable. Moscow itself has warned that
such sanctions could prompt it to close a gas pipeline to Europe -
another potential deterrent.

At the time of writing, No decision on potential energy sanctions was

expected at the foreign ministers' meeting, the first of a busy week
of talks in Brussels. However, a growing number of international
companies including McDonald's, Coca-Cola and Starbucks have
suspended trading in Russia. After facing fierce criticism for
continuing to operate in Russia, Nestle has withdrawn some of its
brands including KitKat and Nesquik, but will still sell "essential
foods". But, a number of other Western brands including Marks and
Spencer, Burger King, and hotel groups Marriott and Accor say they
can't pull out from Russia because their businesses there operate
under complex franchise deals.
The European Union, later, on Friday formally adopted its fifth
package of sanctions against Russia, including bans on the import of
coal, wood, chemicals and other products.
The measures also prevent many Russian vessels and trucks from
accessing the EU, further crippling trade, and will ban all transactions
with four Russian banks, including VTB (Russia's second-biggest
bank VTB).
The ban on coal imports will be fully effective from the second week
of August. No new contracts can be signed from Friday, when
sanctions are to be published in the EU's official journal.
Existing contracts will have to be terminated by the second week of
August, 2022, meaning that Russia can continue to receive payments
from the EU on coal exports until then.
"These latest sanctions were adopted following the atrocities
committed by Russian armed forces in Bucha and other places under
Russian occupation," EU's top diplomat, Josep Borrell, said in a
statement.
The Kremlin has said that Western allegations Russian forces
committed war crimes by executing civilians in the Ukrainian town of
Bucha were a "monstrous forgery" aimed at denigrating the Russian
army.
In addition to coal, the new EU sanctions ban imports from Russia of
many other commodities and products, including wood, cement,
fertilisers, seafood and liquor, for a total value estimated in 5.5
billion euros ($5.9 billion) a year.
The EU also restricted export to Russia of a number of products,
including jet fuel, quantum computers, advanced semiconductors,
high-end electronics, software, sensitive machinery and
transportation equipment, for a total value of 10 billion euros a year.
Source:
https://www.nst.com.my/opinion/columnists/2022/04/785491/
europe-may-be-forced-turn-malaysian-palm-oil
Reuters