A complex, giant and growing industry needs some solutions to a lack of sustainability

Palm oil is an industry on the rise. Worth about £32bn a year, it is catching up fast with the £60bn plus annual global cotton industry. Think about the amount of cotton in the average western wardrobe and you get a sense of the reach of these commodities.

According to WWF, more than 50m tonnes of palm oil are used worldwide each year, in products from food to cosmetics. From 2010 to 2020, this volume will increase by two-thirds, according to WWF, in a recent report – Palm Oil Investor Review 2012.

In the report, Darrel Webber, head of the Roundtable on Sustainable Palm Oil, points out that among the 17 major oils and fats on the global market, palm oil has emerged as the leader, accounting for about a third of the world’s edible oil production.

That comes at a cost. Webber says: “Between 1990 and 2005 as much as 55-60% of palm oil expansion was at the expense of natural forest.” And the forests destroyed and under threat as a result of oil palm market growth harbour some of the world’s greatest biodiversity.

More than £7bn of oil palm investment is currently planned for west and central Africa alone, according to Michael Flint, a well-known independent palm oil consultant who has worked for the UK government.

Meanwhile, UK households consume 35kg of palm oil a year, accounting for about 1% of global palm oil consumption, with a market value of somewhere between £500m and £650m.

According to the UK’s under-secretary of state for international development, Stephen O’Brien, who spoke at a recent conference on palm oil organised by The Forest Trust , 43 from the 100 best-selling UK grocery brands use palm oil. His numbers appear to have come from a 2009 investigation by the Independent newspaper in the UK.

Shrinking carbon sinks

As a result of both publicity and a greater understanding of the environmental impacts of greater oil palm plantation growth, companies now question their role in the sustainability of the industry and the remaining forests around the world. These giant carbon sinks are being shrunk, with native forest cleared to become oil palm plantations, particularly in Indonesia, elsewhere in Asia, South America and Africa.

According to the UK’s Department for International Development, 13m hectares of forest are cleared annually. Deforestation is regarded as being responsible for up to 20% of global carbon emissions. Stopping it is finally becoming serious business.

Flint, speaking at the recent Forest Trust conference, argued that market demand must be moved if these forests are to be saved. Flint said that if 62% of UK consumption of palm oil was switched to sustainable sources by 2021-22, about 90,000 hectares of forestry clearance might be avoided worldwide. This would mean the prevention of 78m tonnes of CO₂ emissions. These would have a present value of £7.3bn, at a cost per tonne of C02e (avoided) of £3.60.

“We can play around with numbers [on cost benefit analysis] but it’s the financial markets and market demand [that will make the difference],” Flint says. He developed the models that generated the above data for the UK government, which has committed some £600m to an international climate fund over the next four years. The Department for International Development meanwhile, has said it will stump up an additional £22m to help protect forestry specifically.

RSPO and Green Palm

Among large multinational companies, working towards more sustainable palm oil usually involves supporting the certification work of the fast-growing Roundtable on Sustainable Palm Oil, a Malaysia-based non-profit organisation.

RSPO’s certified sustainable palm oil programme is complex, and often involves the use of Green Palm certificates. These allow companies in Europe to buy certificates issued to show that they are supporting RSPO-certified palm oil businesses, bypassing the need for segregated RSPO-certified palm oil in the supply and transportation chain.

This approach has come under criticism from campaigners such as Greenpeace, which argues that it fails to encourage the traceability that is essential to ensure that palm oil from questionable sources is excluded from the supply chain.

Unilever, which buys about 3% of global palm oil production, about 1.4m tonnes a year, helped found RSPO in 2004. The company acknowledges that certification without traceability has a limited shelf life, but defends the RSPO method as an interim step towards full traceability. Unilever will reach its target of buying 100% of its palm oil from certified sustainable sources during 2012, three years ahead of schedule.

Unilever spokesman Trevor Gorin says the company has already bought its first consignments of segregated palm oil. In 2011, 27,000 tonnes was landed in Rotterdam and used across Unilever’s European manufacturing sites.

Now the company has set a new target of, by 2020, tracing all the palm oil it buys right back to the plantations where it is grown. Unilever has also announced the company is in advanced stages of discussions with the Indonesian government for investing more than €100m in a large processing plant for palm oil derivatives in Sumatra. “This plant will not only reduce transportation requirements and save money but it will also start to make the palm oil we use easier to trace,” Gorin says.

So if the leading companies believe RSPO’s current policies, principles and certification are a step on the long journey to full sustainability for palm oil, where’s the problem?

As one protagonist at The Forest Trust ’s palm oil conference in London in April put it: “We have to sort this before we run out of forest.”

Short of time

In 2007 the United Nations Environment Programme predicted that for Indonesia, “calculations suggest that 98% of lowland forest may be destroyed by 2022. Since mature forest is being lost from such large areas, the supply of timber will decline further. This means that the incentive to log protected areas will grow.” (These numbers, now five years old, are disputed by some experts as being exaggerated.)

The concern about a limited supply of forest resources applies not just to Asia. Huge plantations are on the cards for western Africa and South America.

Sime Darby, for example, is developing large plantations in Liberia, amid grave concerns about their social and environmental conditions.

The BBC and other media outlets are now beginning to cover Liberian palm oil. Nigeria and other states are likely to be in the spotlight next. Herakles Farms, a company investing in Cameroonian palm oil, is increasingly in the media glare.

Critics of RSPO say that to deliver sustainable palm oil it must adopt a policy that excludes deforestation from its standards. Currently it does not, and on top of that a number of producer members seem intent on continuing “business as usual”, according to Greenpeace, meaning they will carry on chopping down native forest.

Rob McWilliam of The Forest Trust says deforestation is being carried out “by both RSPO members and non RSPO members”. One of the problems is the definition of deforestation, he says.

Currently the RSPO standard includes protection of High Conservation Value Forests. These are typically primary forests but can be other forest types, such as secondary forest. McWilliam notes that any forest not identified as HCVF can be cleared. This is resulting in the clearance of secondary forests or the so-called “degraded forests”. Clearance of these, he claims, forms a large part of the 17-20% of the global carbon emissions generated by deforestation.

Darrel Webber, head of RSPO, acknowledges that “there have been lapses in compliance and the credibility of all standards”. RSPO remains a “work in progress”, he writes in the recent WWF investor report. But he argues: “Boycotting or withdrawing from palm oil is not a solution. Given the high yield of palm oil versus other edible oils, sustainable palm oil production can provide significant benefits. Global demand is growing and the key concern is how palm oil is being developed.”

Webber says that RSPO member companies must commit to measureable targets to be held accountable against. He notes that “Initiatives from RSPO members such as WWF through their Score Card help in encouraging more companies to commit to the sourcing of sustainable palm oil.”

Beyond certification

While RSPO struggles with the “growth versus credibility” conundrum that affects any successful multi-stakeholder working group on sustainability, a partnership between Golden Agri Resources (GAR – a leading palm oil supplier), Nestlé, and The Forest Trust claims to have created a new model for sustainable change.

Nestlé, pushed by a hard-hitting Greenpeace campaign in 2010, has committed to a global “no deforestation” target, alongside other members of the Consumer Goods Forum, by 2020.

The company’s partnership with its leading palm oil supplier and The Forest Trust is an example of how sustainability collaboration can dramatically change operating practices and business models.

Magdi Batato, group technical director at Nestlé UK, says that long-term sustainability is about transformation. “Your suppliers are part of it,” he argues, adding that long-term partnerships are needed to help suppliers change the way they work. “It’s very expensive for a supplier to run two business models.”

Batato says transformation around forest conservation has led to a new sustainable business arrangement between Nestlé and GAR while also creating competitive advantage for the GAR as a leading palm oil supplier. Total palm oil traceability is important to achieve trust, he says, and is achievable.

Peter Heng, head of sustainability and corporate communications at GAR, agrees. “GAR believes that multistakeholder collaboration is the only way to achieving solutions to sustainable palm oil,” he said at the April palm oil conference.

GAR has a forest conservation policy developed in collaboration with The Forest Trust . It aims to ensure it has a no deforestation footprint. The firm has committed to zero palm oil development on peat and High Conservation Value forest land. GAR also promises no development on high carbon stock forest land, free prior and informed consent from communities and compliance with all local and national laws. In recent years the company has implemented a social and community engagement policy and a yield improvement policy in collaboration with The Forest Trust and others.

“Conserved high carbon stock forest can revert back to its natural ecological state,” Heng says. “GAR is prepared to take a lead.”

But in terms of wider impact, GAR is limited by the actions of other stakeholders and companies. Nestle UK’s Batato agrees, saying: “It’s about transformation of the business models of suppliers, and bigger companies can lead the way.”

The key difference between RSPO certification and GAR’s work with Nestlé and The Forest Trust is the closeness of collaboration between the three players in monitoring progress and agreeing both cutting-edge policies and the incentives needed on all sides to make it sustainable.

RSPO focuses heavily on having plantations certified to its detailed principles and criteria, and does not yet encompass some of the issues that GAR’s work with The Forest Trust and Nestlé tackles, such as a commitment not to develop peat lands.

According to Greenpeace: “Indonesia’s peatlands represent just 0.1% of the Earth's land mass, but contribute a staggering 4% of global emissions”. While Indonesian law prevents the development of peat lands more than 3m deep, the law is widely flouted by companies in the country. The RSPO’s Webber says peatlands are a complex issue, and that in some cases degraded peatlands are best protected by planting oil palm.

The GAR/Forest Trust/Nestle collaboration works, according to The Forest Trust ’s executive director, Scott Poynton, by utilising networks of local grassroots NGOs – which were once allied against GAR – to provide early warning of when policy is not being properly put into practice.

“Because GAR is listening and responsive, trust is building,” he says. Peter Heng agrees. “Face to face interactions are so important,” he says.

Not the only progressive model

The GAR/Forest Trust collaboration on sustainability beyond RSPO is one of the first large scale palm oil partnerships utilised by a large company. There are, however, other industry examples of progressive and capacity-building programmes.

Nestlé is keen to emphasise its small business training and partnering programme in Malaysia. Nestlé’s Magdi Batato recently worked in Malaysia and says the company has trained more than 1,000 very small Malaysian companies in better sustainability management. Following training, some of these have become suppliers to Nestlé.

Another company offering full palm oil traceability is New Britain Oils, albeit via vertical supply chain integration, a very different model. The company has had a policy of not planting on primary forest since 1985 and says it does not plant on peatlands.

Andy Worrall, general manager at New Britain Oils, believes that, ultimately, transparency in the full supply chain for palm oil will be essential, and must be part of competitive advantage for sustainably-minded companies in the industry.

“It must be good for business,” he says. Worrall believes, though, that “critical trigger points” in the market for traceable palm oil need to be reached to drive sustainable change.

While it is clear that RSPO has made great strides, with its certified palm oil representing 10.2% of global palm oil production, or 6m tonnes a year, in the four years since certification began, NGOs such as Greenpeace are worried that RSPO’s broad embrace of member consensus means it is not moving fast enough.

The scale challenge

The long-term challenge for collaborative partnerships may well be scale beyond certification. There are not many experienced forestry NGOs such as The Forest Trust that can work on the ground across sizeable land areas. If a dozen other companies the size of GAR suddenly wanted to emulate its model, these firms might struggle to find both the NGO capacity and the big brand buyer support they would need to make it happen.

Greenpeace’s senior forestry campaigner, Andy Tait, is keen to stress that he is by no means anti-RSPO and sees it as part of the solution to the scale problem. “The easiest way to deliver this [scale] would be [through] the RSPO. If we want to transform the palm oil industry, I think it’s critical that the RSPO responds to the challenge of stronger standards and mainstreaming traceability. If it doesn’t, things will get complicated with a likely proliferation of alternative approaches,” he says.

Rob McWilliam, a senior manager at The Forest Trust , says the model his organisation has developed with GAR and benchmarked with Greenpeace is scalable. Companies should simply make use of the work already done by Nestlé and “add to their leverage” he says.

“They all use the same suppliers anyway,” McWilliam says. Scaling the GAR/Forest Trust/Nestlé model is a matter of “aligning the sourcing guidelines and asking for traceability first. It means investment and serious commitment from the brands. It means really involving the sourcing departments.”

And, McWilliam insists, it can be done. After all, big business meets challenges like this regularly in other areas, so why not in palm oil?

The outlook for genuinely sustainable, traceable palm oil is becoming more positive. RSPO’s Darrel Webber points to what has been achieved since 2008.

More than 6m tonnes of Certified Sustainable Palm Oil has been produced since 2008. Major brands such as Nestlé, Unilever and others are pushing other palm oil suppliers hard, through channels such as the Consumer Goods Forum, as they strive to reach their traceability and deforestation targets.

If other big brands can begin to take a similar approach, progress may accelerate quickly enough to save what remains of the world’s tropical forests from destruction. At least, that is, as far as a more sustainable palm oil industry can have an impact.

Trouble at mill: Green Palm travails

Green Palm certificates have not seen widespread corporate take-up, despite the actions of leading companies such as Unilever, Nestlé, Shell and BP.

According to well-placed industry sources, back in 2009 and 2010, there was a great tension with farmers in Malaysia and Indonesia who were also members of the Roundtable on Sustainable Palm Oil (RSPO).

Companies in Europe said they wanted sustainable palm oil, so farmers agreed to major changes as long as they were paid extra for all the adaptations needed to comply with the RSPO’s principles. Once they were ready and audits passed, the Green Palm certificates started to be issued at a price of about $30/tonne.

But to the farmers’ surprise very few were bought. This may have been as a result of the financial crisis in the EU. As one expert puts it: “With palm oil at $800/tonne nobody wanted to pay an extra cent for a sustainable product that does not get recognised by customers at the store.”

Sources say that after a fractious 2010 annual RSPO meeting, where disagreements about sales volumes and EU company commitment risked bringing down the scheme entirely, other EU companies began to commit to buy Green Palm certificates and the system stabilised.

But Green Palm’s future is by no means guaranteed. One expert believes that all the Green Palm commitments make a total of about 10m tonnes. That’s about 20%of total production. However, only about 5m tonnes worth of Green Palm certificates are available. This means the price should be relatively high. It isn’t and only 2.8m tonnes worth have been bought.In late May, a Green Palm certificate could be bought for $2.19.

One cited reason for EU company reticence in buying the certificates they had demanded is internal disagreements within companies. While sustainability and procurement professionals understood the value of paying a small premium to move the industry forward, finance and marketing departments may have blocked early moves.

Four reasons companies don’t buy RSPO certified palm oil

RSPO certified oil continues to be bought below produced volumes for a number of reasons.

1. Downstream buyers are not buying the oil, as it can be significantly more expensive than conventional oil.

2. The crude palm oil in itself is not necessarily much more expensive (sometimes $20/tonne). But because companies mostly use refined oil, or fractions, and the premium weighs on those fractions, this amplifies the premium sometimes up to $300/tonne.

3. Segregating the RSPO oil from the plantation to the final user is extremely costly. As a commodity, palm oil works on a critical mass basis. When you try to segregate and create artificial flows it is like swimming against the stream and the added costs are prohibitive. This applies particularly in China and India.

4. Businesses such as Cargill, Nestle and Unilever have committed to sourcing RSPO certified sustainable palm oil by 2015. As a result, change to the status quo is unlikely until 2014. For the time being businesses are snapping up Green Palm certificates, which do not require them to pay the full cost of certified oil or change their supply chain to buy the physical trade of RSPO certified oils.

Source: The Forest Trust

Controlling members

Some RSPO member companies are highly committed to sustainable palm oil and many of these are implementing serious sustainability plans.

But other members are accused of being more interested in simply looking good and continuing the expansion of palm oil onto forested land. Unless a grievance is lodged by activists, some experts argue, a company can simply carry on its practices.

“It is difficult for RSPO as an organisation to control its members,” says one commentator. The challenge for RSPO is one encountered by industry or issue-based business groups on all sorts of sustainability challenges. On one hand they need more members to gain critical mass and move markets, yet on the other they need to maintain credibility. Both Greenpeace and The Forest Trust voice sympathy to RSPO’s plight, but maintain it must move faster towards greater rigour.

Darrel Webber, head of the RSPO, says that the organisation isholding “a review of our Principles & Criteria as required after 5 years of implementing certification on the ground”.

Webber points out that when it comes to accusations of non-compliance by member organizations, “RSPO has a structured grievance process in place that has taken the necessary actions and sanctions. The RSPO emphasizes the importance of organizations in upholding their commitment as a member. Despite the challenges, significant progress and commitment has been made in addressing some of these issues.”

The RSPO: Key numbers

RSPO represents over 850 member organizations from more than 50 countries. Certification according to RSPO global standards been granted to 30 plantation companies and 146 palm oil mills covering an area of over 1.2 million ha with over 6million metric tonnes of CSPO in annual production capacity. Total production of RSPO CSPO (Certified Sustainable Palm Oil) today is over 10% of global palm oil production. The RSPO trademark is also addressed at educating and informing consumers of their ethical purchase choices – to date, the trademark has been licensed to almost 60 companies in over 13 countries.

Source: RSPO statement

Online only:

Podcast with RSPO boss Darrel Webber:

Darrel Webber spoke with Toby Webb in 2011 in an exclusive podcast on palm oil and the RSPO. To listen to it click here