Europe is one of the continents worst affected by COVID-19, with over 1.3 million infections and more than 160,000 fatalities. Worldwide, 345,000 deaths had been reported as of 25 May 2020.
All 27 member states of the European Union (EU) are affected by the corona crisis to varying degrees. According to the Johns Hopkins University, the countries with the highest number of infections registered as of 25 May were Spain (235,772), Italy (229,858), and France (182,709).
All three have imposed the strictest lockdown measures of all EU member states. Some restrictions have been extended to the end of June and are only being eased very tentatively.
Also, Germany has a comparatively high number of infections (180,328). But while there are fewer fatalities (8,238) and seriously ill patients than in other EU countries, the number of people who have recovered – over 160 thousand – is higher.
Finally, the United Kingdom, which left the EU on 31 January 2020, is also severely impacted with approximately 260 thousand infections and more than 36 thousand fatalities
Economic Impact of the Crisis
Apart from its serious health impact, COVID-19 also has grave implications for the economy.
According to the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD), the global economy is plunging into a recession worse than that of the financial crisis of 2008-9. All EU member states are affected.
The government of the EU´s largest economy, Germany, anticipates a fall in gross domestic product (GDP) of 6.3 percent for 2020. France, the second-largest economy, of six to eight percent and Spain at least four percent. Some forecasts see the economy of the United Kingdom contracting in the first quarter by as much as 15 percent.
Based on our experience from the crisis year of 2009, one percent fall in GDP means an additional one million unemployed.
The tourism, hospitality, retail, and commerce sectors have been badly hit everywhere. In Italy, for example, 81 million guest-nights have been lost due to the lockdown controls imposed since the beginning of March.
Measures at EU Level
The EU institutions face the challenge of combating the pandemic without destroying the economy. By acting in concert, the member states intend to make full use of the options provided by the general rules for state assistance and the EU stability and growth pact.
To this end, the European Commission and the member states have agreed on adjustments to various structural and investment funds to make a total of EUR 37 billion available at short notice. A second financial package is to follow.
The EU solidarity fund, originally intended to support member states in the event of natural disasters, can now be used for public health crises as well. This means that in 2020 up to EUR 800 million will be available in the fight against COVID-19.
The rules of the stability and growth pact, which impose conditions on the member states for running a balanced budget, have been suspended to give member states greater financial freedom to tackle the crisis.
Moreover, the European Innovation Council is making funds of EUR 164 million available to SMEs whose work involves dealing with COVID-19.
EU member states are allowed to provide direct guarantees, tax advantages, and payments of up to a maximum of EUR 800,000 per company.
Further European institutions like the European Central Bank (ECB) and the European Investment Bank (EIB) have also created their programmes and support packages.
In addition to these measures at EU level, most national governments have announced aid packages worth billions of euros to support the economic sectors worst hit by the corona crisis like gastronomy and tourism.
The packages include emergency credit (like the UK programme worth 300 billion) as well as grants.
Impact on the Consumption of Palm Oil
Before the corona crisis, global demand for palm oil was estimated to be about 74.6 million tons and expected to rise further from 2020 to 2027.
Palm oil is the most important plant oil imported by Europe. Just four EU member states, the Netherlands, Italy, Spain, and Germany, account for almost two-thirds of total EU palm oil imports.
However, the global pandemic is having severe repercussions for the supply, demand, and prices of oil and fats in general, including palm oil. Estimates say that the consumption of oils and fats in the EU member countries and the UK will decline by 1 -1.5 million tons in 2020.
For the same period, a worldwide decline in imports of palm oil by 2.7 – 3.0 Million MT in comparison to the previous season is forecast. In the EU, imports will probably drop by as much as 1.0 Million MT, mostly due to the energy sector and the sharp decline in biodiesel consumption.
According to Bloomberg, in 2018 the consumption pattern of palm oil in the EU was as follows:
- 50% for biodiesel
- 40% for food, animal feed, and cosmetics
- 10% for heating and electricity.
Since 2010, the total European consumption of palm oil has risen by approximately 8% annually, mainly due to biofuel. However, the demand for edible palm oil has fallen in recent years.
The precise impact of the Coronavirus pandemic on the market for palm oil is unknown as of now. Given the current economic standstill and the high levels of unemployment that will probably affect much of Europe, it can be assumed that the overall consumption of palm oil will only start to rise slowly again in the medium term.
Much will also depend on the recovery of restaurants and hotels and the tourism and event sectors in general. The widespread lockdown has led to the closure of countless canteens and restaurants and has choked off demand for edible oil within the European Union as well as in the major importers, India and China.
On the other hand, some analysts assume that palm oil usage in the production of food and personal care products may not undergo significant changes in Europe as demand might remain strong.
Even before the Corona-crisis, palm oil was under enormous pressure on the European market because of the supposed ecological impacts in producing countries. It is expected that the pandemic will lead to even higher environmental sensitivity.
As a result, consumers – at least in Western and Northern Europe – will be more interested in certified sustainable palm oil. The EU intends to adhere to its goal of only importing and processing palm oil that is 100% sustainable by the end of 2020.
Another critical factor amplified by the COVID-19 crisis is the widespread call for consumers to make greater use of local and regional products, including vegetable oils. This trend is supported on the political level by the EU as well as by many national governments.
The recent decline of almost 10 percent in the price of maize, palm oil, rapeseed, and soya beans is closely linked to the falling demand for ethanol or biodiesel and the related drop in oil prices.
It is not possible to make reliable predictions about how the price of plant oils will develop. The marked fall in demand for palm oil in recent weeks, both worldwide and in Europe, is likely to last at least until the middle of 2020, depending on the trajectory of the pandemic.
Summary
It is likely – despite the absence of conclusive data – that 2020 will be characterised by very sluggish demand for palm oil in the EU. Nevertheless, it will be possible to stimulate some market segments more quickly than others. It remains uncertain how prices will develop.
Producing countries, including Malaysia, should adopt appropriate marketing and communication measures to reinforce the standing of palm oil as the most productive, cost-efficient, versatile, and healthy oil of its kind.
These times are difficult for producers, importers, and consumers alike. Therefore, it seems paramount to ensure close contact and the free flow of information between all the parties involved. That is a chance for producers to position themselves as flexible and trustworthy partners.
It also is an opportunity to position Malaysian palm oil more strongly as a brand and to communicate its advantages (certification (MSPO), a high level of transparency, no deforestation) even more clearly.
In the current situation, given the loss of millions of jobs worldwide, the social aspect of Malaysian palm oil (i.e., the devastating effect on small farmers) should be accentuated.
Prepared by Uthaya Kumar
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