Once an unglamorous cheap commodity, palm oil has suddenly become a test case for how far big food and cosmetic brands are committed to sustainability

For one strange week at the end of April, environmental campaigners, dressed as orang-utans and making jungle noises, descended on the offices of consumer goods giant, and the world’s largest consumer of palm oil, Unilever. The orange-costumed activists from Greenpeace called on Unilever to clean up the palm oil industry, which they claim is fuelling deforestation – and the loss of orang-utan habitats – in south-east Asia.

In a simultaneous report, “How Unilever suppliers are burning up Borneo”, Greenpeace accused Unilever of “driving the destruction of the last remaining habitats of the endangered orang-utan and the rainforests in Indonesia and massively speeding up climate change”.

A week later, on 1 May, Unilever chief executive Patrick Cescau told delegates at the Prince of Wales’s May Day Climate Change summit in London that his company would buy all of its palm oil from certified sustainable sources by 2015. Cescau said he wants Unilever to have all the palm oil it uses in Europe – in brands such as Dove, Flora, Persil, Vaseline and Wall’s – fully traceable by 2012. He also called for a moratorium on the destruction of rainforests to make way for palm oil plantations.

Observers say Unilever’s 2015-target for sustainable palm oil is now the benchmark for its rivals to match, giving rival consumer goods giants including Nestlé, Cadbury’s, Procter & Gamble and Kraft Foods something to think about. Greenpeace, having celebrated Unilever’s pledge as a “quick win” for its campaign, has talked with a number of other major brands but the group will not confirm which ones.

Complicit and ‘shameful’

In November 2007 Greenpeace accused several leading brands – including the aforementioned Unilever, Nestlé, Cadbury’s, Procter & Gamble and Kraft Foods, along with Gillette and Burger King – of being “complicit in the expansion of palm oil at the expense of Indonesia’s peat-lands”. The report, “How the palm oil industry is cooking the climate”, also named and shamed palm oil’s largest trader Cargill, the world’s biggest biofuel manufacturer ADM-Kuok-Wilmar, traders Sinar Mas and Golden Hope, and retailer Tesco.

Responding to the Greenpeace report, UK retailer Sainsbury’s pledged in November to ban all palm oil from unsustainable sources in its own brand products, but it did not specify a deadline for doing this, or how it would source sustainable palm oil.

Earlier, in July 2007, Asda, the Wal-Mart-owned UK retailer, said it would not accept products made from Indonesian palm oil. But Asda has not made it clear how it would trace the source of oil, raising doubts about the effectiveness of the pledge. In the same month, The Body Shop became the first company to commit fully to sustainable palm oil when it announced that it would source palm oil from sustainable grower Daabon in Colombia.

There are three major problems with unscrupulous expansion of oil palm plantations, according to environmentalists.

First, biodiversity-rich rainforests and peat lands – critical stores of carbon – are being destroyed to make way for oil palm plantations in Indonesia and Malaysia, which account for 90 per cent of world’s total palm oil production.

Forest destruction is speeding up climate change because forests, when standing, absorb significant carbon dioxide from the atmosphere. A 2007 United Nations Environment Programme report says that palm oil plantations are the leading cause of rainforest destruction in Indonesia and Malaysia. Degradation and burning of Indonesia’s peat land areas alone is said to be responsible for 4 per cent of global greenhouse gas emissions – from an area making up less than 0.1 per cent of the world’s surface.

Second, palm oil producers are destroying orang-utan habitats by clearing rainforests in Indonesia, critics claim. Apart from the orang-utan, other endangered species at risk are Sumatran tigers and Asian rhinoceros as their habitats are cleared to make way for plantations.

Third, aboriginal communities are losing their livelihoods as palm oil companies illegally clear their community-owned land for plantations.

In fact, in recent years, demand for palm oil has grown exponentially. Since 2006, US food companies have increased palm oil use to meet regulatory requirements to limit trans-fats in their products. Palm oil is low on trans-fatty acids and is considered a healthier option, and US imports of palm oil tripled between 2003 and 2006, according to the US agriculture department.

Demand for palm oil is rising because it can be used to make biofuels. The European Union’s target to have 20 per cent fuel from renewable sources has created a huge market for bio-diesel and thereby for palm oil. Several biofuel plants have sprung up in south-east Asia to take advantage of palm oil supplies.

Then, there is ever increasing consumption of palm oil in China and India, mainly as vegetable oil in processed food, cooking oil and as an ingredient in soaps.

And spiralling demand is pushing up palm oil prices. According to Credit Suisse, the price of crude palm oil has climbed from $917 to $1,265 per tonne in the last 12 months – a 38 per cent rise. High prices have prompted palm oil producers to rapidly expand plantations – often further destroying forests and degrading peat lands, campaigners say.

Get round the table

Under pressure from environmentalists, in 2003 a number of food and cosmetics brands formed the Roundtable on Sustainable Palm Oil (RSPO), a multi-stakeholder group of companies, palm oil producers and campaigners, to find ways of ensuring sustainable palm oil production. The Malaysia-based group is chaired by Unilever and has over 200 members representing 40 per cent of the annual trade in palm oil.

Critics claim the roundtable is unable to take effective measures to ensure sustainable palm oil production as many members of the group itself are involved in forest destruction. They argue that allowing palm oil producers to join the roundtable has held back progress.

Frustration with the slow pace of change prompted The Body Shop, a founding member of RSPO, to go it alone in July 2007 and source sustainable palm oil. The company decided to apply the draft roundtable principles and criteria – RSPO members were delaying approvals – for sustainable palm oil production to audit Daabon’s farm in Colombia.

Campaigners accuse the roundtable of having done nothing until November 2007 when the Greenpeace report stung them into action. Only then did the roundtable hasten the launch of certification programme, they say. RSPO introduced the same certification principles and criteria in November that The Body Shop had already started using in Colombia.

RSPO secretary-general Vengeta Rao says that six certification agencies have been accredited while four more are in the pipeline. “Audits in several facilities have started in May [2008] and we can expect the first certification by September.”

Michelle Desilets, chief executive of the UK-based Borneo Orang-utan Survival Foundation, a member of the roundtable, says: “The RSPO lost its credibility due to slow progress and greenwashing by some members. But we want it to work. The certification programme is a step in the right direction.”

“Some RSPO members are still opening up new plantations on forest lands and indulging in violence against local communities,” says Ade Sadli, deputy director of Walhi, a Friends of the Earth affiliated campaigner in Indonesia.

Rully Syumanda, a former campaigner with Walhi, doubts if the roundtable’s certification programme will address the issues of social conflict, land ownership rights of 37 million aboriginals and the need to keep land for food rather than palm oil and bio-fuel.

Well-oiled chain

Unilever is banking on RSPO’s just-launched certification programme providing sustainable oil from later this year. Unilever’s head of corporate communications and sustainability Gavin Neath agrees that there are challenges, but is confident of meeting the company’s target of all palm oil from certified sustainable sources by 2015. “A lot of thinking has gone into it and it is pretty clearly achievable.”

Neath explains: “Now that there is agreement within the industry on the criteria as to what constitutes sustainable palm oil, the key challenges are in the supply chain. The two most significant here are ‘traceability’ and ‘segregation’.”

The palm oil supply chain works like this. Thousands of small growers harvest palm fruits that they sell to middlemen, who are local traders, or to a nearby palm oil mill. Most palm oil mills also have their own captive plantations. These mills process the palm fruit, turning it into crude palm oil. Segregating fruits that have come from sustainable plantations from those that have not is a difficult task.

Crude palm oil is bought by trading companies, such as Cargill, ADM-Kuok-Wilmar and Sinar Mas. The trading companies then send the crude palm oil to shared storage tanks at ports waiting for export. Often, the oil is shipped using shared vessels that may pick up more from other ports en route to the final destination.

Rotterdam, in Europe, is the main consolidation port for imported crude palm oil where oil from different sources gets mixed once again. At this stage, brokers sell the oil to processors. Processing companies produce various palm oil derivatives for manufacturers who use it in a variety of food and personal care products. Such is the complexity of the supply chain, it is almost impossible to trace derivatives back to an individual plantation.

Large companies like Cargill, ADM-Kuok-Wilmar, Sinar Mas and Golden Hope play a dominant role in the supply of palm oil as they themselves operate plantations, oil mills and processing plants.

The certification process

The RSPO’s certification programme aims to certify palm oil volumes at the mill level rather than individual plantations. When a mill applies for certification, it has to submit details of directly-managed plantations that supply palm fruits to it. The mill is exempt from getting associated smallholders and growers audited for three years.

The principles and criteria of the programme include standards on transparency, legal compliance, commitment to long-term economic and financial viability, best practices by growers and millers, environmental responsibility and conservation of natural resources and bio-diversity, social impacts, workplace health and safety and responsible development of new plantings.

The certification agency will visit and audit only those plantations that are directly managed by the mill. But no certification will be awarded to the plantation. Palm oil produced from the fruits coming from audited and approved plantations will be certified as sustainable.

It means a part of a mill’s produce may be certified “sustainable” while the remaining volume may still be from uncertified sources. The mechanism will allow three types of claims for every individual batch of palm oil.

Firstly: “This product contains RSPO-certified palm oil”, where the mill can segregate the supply chain fully. Secondly: “This product contains X per cent of RSPO certified palm oil”, where controlled mixing of certified and non-certified oil is undertaken. And, thirdly: “This product supports the trade in sustainable palm oil” under the “book and claim” scheme.

For the first two categories, traceability from the plantation through to the certified end product is required. The “book and claim” mechanism involves issuing tradable certificates or credits to producers implementing the programme’s principles and criteria, which then can be sold to the end users who want to use RSPO certification for their products.

Traceability mechanisms

RSPO’s Rao says: “We are working on the mechanisms for traceability and certification of plantations in the near future.” He estimates that there will be about one million tonnes of palm oil certified as sustainable by the end of 2008, out of a total global output of 40 million tonnes. Next year, he expects the volume of certified oil to reach three to four million tonnes. “And within five years, the entire produce of RSPO members will become certified.”

Unilever consumes about 3 per cent of the world’s total palm production, which translates into about 1.2 million tonnes. Going by Rao’s estimates, Unilever’s target of only using certified palm oil by 2015 appears to be achievable.

The going may not be that easy, observers say. The roundtable’s certification process is voluntary and initial cost of compliance may be a disincentive. Even Unilever has not set a timeframe for its suppliers to get certified. “We have not issued any deadlines to our suppliers. We want to work with them to create a large volume of sustainable material. Many of them are embracing this challenge and are working towards meeting the agreed RSPO criteria,” Neath says.

Nazir Foead, WWF-Indonesia’s director of governance, community and corporate engagement, says: “We will need to push all members to go for certification to make it happen. If they don’t get certified within certain time limits, there should be some action.”

More certified palm oil may be on its way when the Rainforest Alliance, which certifies various crops using the Sustainable Agriculture Network (SAN) standard promoted by a coalition of NGOs, launches specialised indicators for palm and sugar by the end of the year. Chris Wille, Rainforest Alliance’s Costa Rica-based chief of sustainable agriculture, says: “After that, palm plantations that meet the standards can earn the Rainforest Alliance certified seal of approval.”

“The SAN standard will be more demanding in some aspects important to us, such as rainforest protection and ensuring the rights and benefits of plantation workers,” Wille says.

The China factor

However, there are challenges that can undermine the goal of a sustainable palm oil supply chain. Not only the largest importer of palm oil from Malaysia, some estimates suggest almost 50 per cent of the world’s palm oil ends up in China. And China is not asking for sustainable palm oil. India, where palm oil consumption is on the rise, is also not demanding sustainable oil. Some palm oil producers may then be interested in turning their supplies to China, India and other importers who do not ask for sustainability standards.

But Unilever’s Neath says: “Most of our suppliers are responsible businesses that are committed to sustainable and environmentally-sound methods of cultivation.” He points out other advantages of sustainable cultivation. “We believe that sustainably-cultivated palm will be 20-30 per cent cheaper than that which is conventionally grown. This is because yields are higher and input costs lower.”

Experts say sustainable agriculture practices result in better management and improved productivity in the long run, though initial compliance cost is typically higher as plantations will have to make significant investment to meet RSPO standards.

Wille says: “There are economic benefits to farming in a smart and responsible way. Chiquita, for example, worked for eight years to get all its farms in Latin America up to Sustainable Agriculture Network standard and certified.” While the company had to make costly investments in everything from worker housing to reforestation, over a ten-year period, productivity rose 25 per cent and costs fell 12 per cent, he says.

The Indonesian government has announced that it will more than double the area of land planted with palm by 2011. This would mean bringing another seven million hectares of land under plantation. Campaigners, fearing that this expansion will be at the cost of tropical forests, are demanding an immediate moratorium on further destruction of forests for plantations.

Unilever has agreed to support the call for moratorium and to lobby others to do the same. Neath argues that a moratorium on forest destruction will not choke the supply of palm oil. “There is ample unforested land to meet even the most optimistic projections of palm oil demand,” he says.

“There is also great potential for yield improvement in existing plantations. Average yields globally are just under four tonnes per hectare per annum, whereas some estates have yields of almost double this amount – up to seven or eight tonnes per hectare.”

Corporate action

Having secured a commitment from Unilever, Greenpeace is now said to be focusing on other brands. The major companies named in Greenpeace reports have denied that they are responsible for forest destruction. However, none of them has come up with a firm commitment to back sustainable palm cultivation as Unilever has done.

Nestlé has not even joined RSPO. However, speaking to Ethical Corporation, Nestlé’s Geneva-based spokesperson Nina Backes says that the company is considering joining the roundtable. However, she adds: “We feel the problem cannot be solved within the confines of the RSPO alone. We believe that the engagement of a broader group of stakeholders needs to be involved in order to halt environmental destruction effectively.”

Backes says: “Palm oil is a minor raw material for us and our use is decreasing. Also, we only buy processed palm oil that often comes from multiple sources, and have no direct link to crude palm oil. This complicates our ability to trace our palm oil back to source.”

However, the Greenpeace report “Cooking the Climate” claims that “by painstakingly piecing together diverse evidence, we have traced the links between Riau’s peat land destruction and leading global food, cosmetic and retail brands, including Unilever, one of the world’s largest food giants, and Nestlé, one of the world’s leading chocolate manufacturers”.

Kraft Foods’ Chicago-based spokesman Richard Buino says: “We are aware and concerned about the long-term environmental and social impacts of palm oil production and we will continue to work with suppliers to monitor and investigate the issue.”

Too slow

Commenting on corporate feet-dragging, Desilets of Borneo Orang-utan Survival Foundation says: “Companies not choosing to make a clear commitment will be soon singled out in the marketplace. Consumers will know which companies are ethical and which are not.”

Asked if Unilever will be able to achieve its goal of sustainable palm oil by 2015 if other companies do not set time bound targets, Neath says: “There is no way that Unilever can achieve this goal on its own. We need to build a broad coalition of growers, millers, users, banks, NGOs and governments who all work together to convert the market. This coalition will have to include both people who use palm oil for food as well as those who use it for bio-fuel.”

Neath says: “We have written to both members and non-members of the RSPO asking them to join us in accelerating this trend.”

Though Unilever has taken the lead, the rest of the industry will have to act too for there to be any real impact. A public commitment by large companies to purchase palm oil only from certified sources will send a clear signal to producers on the ground. Failing to act may turn sustainable palm oil into a pipe dream.

Palm oil – the players

· Malaysia accounts for more than 47 per cent of world palm oil production and 62 per cent of world exports.
· Last year, it produced 15.9 million tonnes of palm oil from 4.17 million hectares of oil palm plantation.
· Malaysia’s export earnings from palm oil grew from $4.26 billion in 2001 to $9.54 billion in 2006.
· China is the biggest importer of Malaysian palm oil, followed by the EU, Pakistan and the US.
· Indonesia accounts for over 43 per cent of world palm oil production and hopes to overtake Malaysia in 2008 with predicted production of 18.4 million tonnes.

Source: Malaysian Palm Oil Council, Malaysian Palm Oil Board, Indonesian Palm Oil Association, Oil World and independent estimates

Palm oil – the uses

· Palm oil is the largest produced vegetable oil in the world followed by soybean oil.
· Of the 149.62 million tonnes of total edible oil produced in the world in 2007, palm oil contributed 27.5 per cent.
· Palm oil is the cheapest edible oil, almost 25 per cent cheaper than soy.
· Palm oil is low in trans-fatty acids and is considered a healthier alternative to other edible oils.
· Palm oil is used in thousands of products, including chocolate, biscuits, crisps, ice cream, margarine, instant noodles, baby formula, toothpaste, soap, detergents and cosmetics, and bio-fuel.

Source: Malaysian Palm Oil Council, Malaysian Palm Oil Board, Indonesian Palm Oil Association, Oil World and independent estimates

Saving the orang-utan

Wildlife activists allege reckless destruction of rainforests to establish palm plantations is destroying the habitat of the endangered orang-utan in Sumatra, Indonesia and Borneo, an island shared by Indonesia and Malaysia.

Deprived of habitat and food, hungry orang-utans wander into palm plantations where they are either killed or captured by plantation workers to protect the crop. Campaigners say most plantations offer bonuses to workers for killing or capturing orang-utans.

An estimated 5,000 orang-utans are killed every year, according to Borneo Orang-utan Survival Foundation, a UK-based NGO that is targeting Asda, Sainsbury’s, Tesco, Morrisons and Waitrose to support sustainable palm oil. It estimates that at current rates the orang-utan will be extinct in ten years.

Wildlife activists are asking companies to source ‘non-destructive palm oil’ to save the orang-utan. Their demands include using already degraded land for palm cultivation, an immediate halt on conversion of high-value forests into palm oil plantation, stopping slash and burn practices to clear land, and protecting the corridors connecting forests for free movement of the orang-utan.



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