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December 4, 2017
On November 9, the U.S. Department of Commerce announced final countervailing duties on imported biodiesel from Indonesia and Argentina. Countervailing duties (CVD) are an import duty imposed by countries when another country exports products that allegedly are subsidized by the exporting country. This CVD decision impacts two Indonesian palm oil biodiesel exporters that import into the U.S.: Wilmar International, which trades on the Singapore Exchange, and Musim Mas, which is privately held.
As shown in Figure 1 (below), the CVD ruling is one of three ongoing investigations. The other two are the Department of Commerce Antidumping (AD) investigation and the U.S. International Trade Commission (ITC) Injury Investigation
Figure 1 shows key upcoming dates for these three investigations. Some of these dates may change. A key consideration is that if the ITC votes against either country during the final injury phase, the overall process stops.
Wilmar’s biodiesel sales to the U.S. are small compared to the overall firm’s sales. These decisions may marginally impact Wilmar, which is also dealing with the effects of Indonesia’s recent decision to decrease the quota of biodiesel to be sold in Indonesia’s domestic market. For context, Wilmar’s Q3 2017 earnings, announced two weeks ago, fell 16 percent year-over-year with tropical oils profit before taxes down 51 percent year-over-year. Its Q3 2017 crude palm oil sales, which include biodiesel sales, were 2.9 percent lower at 5,749,000 metric tons compared to Q3 2016 5,919,000 metric tons.
BrasilAgro is a Brazilian rural real estate firm. It focuses on acquiring ‘underutilized and non-productive land’. It generates revenues by clearing and developing land and subsequently selling these rural properties. In addition, BrasilAgro produces soy, sugarcane, corn and livestock. BrasilAgro has 11 properties in its portfolio. The majority of its farms are in the Cerrado, a wooded grassland savanna and an environmentally sensitive area that sees high rates of deforestation since 2000. Most of the soy expansion has occurred by clearing native vegetation in the Matopiba region. The Matopiba region includes the Cerrado states of Maranhão, Tocantins, Piauí, and Bahia. The Cerrado is home to rich biodiversity, with 12,070 native plant species. It is also where many traditional communities reside, and it is an important source of water for all Brazilian regions. BrasilAgro’s activities in the Cerrado expose the company to deforestation-related business risks.
Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.<
We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.
Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.