The Chain: Brexit Impacts Palm Oil Markets

Brexit Impacts Palm Oil Markets

Malaysian palm oil futures decreased last week, partially as a result of a 0.1% forecasted decline in 2016 global GDP to 3.1%, following the United Kingdom’s vote Friday June 24 to leave the European Union after 43 years. As a result, the Malaysian benchmark palm oil futures for September delivery fell slightly to 2,379 ringgit ($582) per ton on Friday and remained unchanged on Monday.

Other vegetable oils that compete with palm oil also saw a decline in their trading prices. Soybean oil July 2016 contracts also traded down on the Chicago Board of Trade falling 1.9%. Similarly, soybean oil September 2016 contracts on the Dalian Commodity Exchange also fell 1.6%.

For palm oil producers and others, Brexit has the following possible impacts.

Food Labeling Laws

The EU enacted its law on food information to consumers (Regulation EU No 1169/2011) in December 13, 2014. This law – called FIC – requires food producers to disclose the ingredients under exact titles on labeled food. Previously palm oil was listed as a generic ingredient. Since the law was enacted, palm oil is now specifically labeled. This transparent labeling law has had a positive impact on the uptake for certified sustainable palm oil (CSPO). With the United Kingdom’s vote to exit the EU, food labeling laws such as the FIC will need to be renegotiated.

UK Sustainable Palm Oil Exports in Question

According to the Department for Environmental, Food & Rural Affairs, United Kingdom, (DEFRA) as of December 2015, 93% of the palm oil imported into the UK was CSPO. However, this figure only includes pure palm oil and does not include consumer goods that contain palm oil.

DEFRA’s analysis shows that, in 2014, UK refiners imported 289,963 metric tons of Segregated and Mass Balance CSPO (excluding derivatives and finished goods). In 2014, UK companies also purchased 106,146 metric tons of palm oil supported by purchases of GreenPalm. Together this accounts for 396,109 metric tons of palm oil.

Comparing DEFRA’s 2009 CSPO baseline for the United Kingdom to its 2014 CSPO imports, United Kingdom market demand for CSPO has grown 255% since 2009.

As of May 2016, CSPO represents 17% of the global market at 11 million metric tons. If for any reason Brexit fallout meant that the UK economy was unable to continue to pursue sustainable palm oil, global demand for CSPO could decrease 4%.