Independent senator Nick Xenophon and the Greens party, secured the support of the Australian opposition for the passing of the bill in the Senate.
Conservation groups say the labelling is necessary because palm oil contains high levels of fat, and its plantations destroy native forests in Malaysia and Indonesia.
But business groups say the proposed law will harm Australia's relationship with those two countries, and become a barrier to free trade.
Presenter: Nasya Bahfen
Darrel Webber, Secretary-General, Roundtable for Sustainable Palm Oil; Irwan Gunawan, Corporate Engagement Manager, WWF Indonesia
Palm oil is labelled "vegetable oil" and the Heart Foundation of Australia says it contains 50 per cent saturated fat. That's many times more saturated fat than other vegetable oils, according to Nick Xenophon, the independent senator who sponsored the bill along with the Greens party. But palm oil is Malaysia's biggest export, and the Malaysian government says if the bill becomes law, the jobs of five hundred thousand workers in the palm oil industry could be affected. That would strain Australia's relationship with Malaysia at a time when Prime Minister Julia Gillard is under pressure for a controversial plan to swap refugees with the country. Even the non-government organisation who issues one of the sustainable palm oil certifications has reservations about forced labelling. The Swiss based Roundtable for Sustainable Palm Oil has offices in Kuala Lumpur and Jakarta. Its secretary general Darrel Webber disagrees with the rationale for forced labelling, saying the Australian bill singles out just one type of edible oil.
It's my understanding that one of the big reasons why this bill is being put forward is there's a strong implication that palm oil is the only edible oil that causes environmental destruction. I'm surprised to think that people assume that only palm oil causes environmental destruction. All the other edible oil crops face the same issue.
He says the effect of forced labelling may even be detrimental to sustainability efforts, by shifting demand to other edible oil crops.
Palm oil has very high yields compared to other edible crops - between four to ten times more. So if you shift demand to another edible oil crop the effect would be that there would be four to ten times more areas required to plant edible oil crops, just to meet the current need.
The people who are supporting this law or pushing this law say Australians should have a right to know what they're eating. Would you agree?
I agree. But why single out only palm oil?
Conservation groups like the WWF say forced labelling of palm oil products will encourage palm oil producers to comply with sustainability standards.
So basically this initiative would definitely be in line with the mission of the WWF to transform the behaviour of the palm oil producers towards better and sustainable practices, on the ground and along the supply chain.
That's Irwan Gunawan, from WWF Indonesia. He says he isn't surprised by criticism of the bill from business groups like World Growth, who say it's a restriction of free trade.
The criticism from industrial chambers at the moment is that certification is deemed as a trade barrier, but from the perspective of the conservation organisations it is the time to start encouraging and trying to do better practices on the ground. So this kind of reaction would come from the business community.
The bill still has to pass the House of Representatives. Senator Xenophon believes it has a good chance of getting through Australia's lower house of parliament, with the support of independent members of parliament Andrew Wilkie and Bob Katter.