Road to sustainable palm oil fraught with challenges

Many of Asia’s major palm oil players have reaffirmed their commitment to improve sustainability standards in the palm oil industry. But key players also say there are many obstacles ahead – and some are expanding into Africa to take advantage of what could prove a much more lucrative market.

Greening industry operations was the focus of a recent annual convention for the Roundtable on Sustainable Palm Oil (RSPO), a grouping of palm oil producers, distributors and environmental groups.

Many of the projects on display highlighted the conservation efforts of the corporations.

Certifying small-holders

Last month, RSPO president Jan Kees Vis announced that the group had certified 25,000 small-scale palm oil growers in Indonesia, Malaysia and Papua New Guinea – locations where smallholders cultivate around 40 percent of the land devoted to oil palm.

He said it made economic sense for the RSPO to bear the costs of certification since many big plantation companies process palm products from smallholders who are unable to pay the high price of an environmental assessment.

The palm oil industry has faced increasing pressure from environmental groups and US and European consumers to comply with sustainable certification standards. Certifying smallholders will likely move more plantations to sustainability more quickly.

Industry seeking room for growth

In tandem with these efforts, a number of key Asian corporations have struck out with conservation efforts of their own. Some are seeking certification for forest conservation projects that will allow them to generate carbon credits which they can then sell for profit and channel the money back to the local community.

Additionally, the World Resources Institute, a Washington-based environmental think-tank, said it was working with an unnamed planter on a land swap deal that would allow it to preserve forests standing on its concession in return for developing 12,000 hectares of degraded land.

Interest in land swap deals in Indonesia has increased ahead of an upcoming ban on forest clearing. Indonesia, home to the world’s third-largest tropical rainforest, is set to implement a two-year ban on forest clearing in return for $1 billion in aid to help develop projects under the Reducing Emissions from Deforestation and land Degradation programme, or REDD. The freeze is part of the government’s pledge to reduce Indonesia’s carbon emissions by 26 percent by 2020.

But palm oil majors, such as Sinar Mas, have criticized the government for restricting their growth, which they say could harm revenues. The ban could also raise land prices, reducing the market share of big companies like PT Astra Agro Lestari. Small companies, meanwhile, could face acquisition threats from bigger players hoping to expand through takeovers.

World Growth, a non-governmental group that argues on behalf of logging and plantation companies, says the moratorium will harm local communities that benefit from the jobs and income provided by the industry.

In July, the head of the Indonesian Palm Oil Association told the Wall Street Journal, “We fear that the government regulation will practically stop all possible expansion of oil palm. We have to fight to make sure this moratorium resolves into something that is in accordance with our interests.”

Last month, an Agriculture Ministry official in charge of plantations tried to ease concerns by saying that the proposed ban on forest clearing would have little short-term impact on production because plantings in previous years would still yield high output for the next three years.

Looking elsewhere for expansion

Some companies are unwilling to take their chances with a shortfall. An arm of palm oil giant Sinar Mas said in September it was moving operations to Liberia as part of a $1.6 billion deal inked with that country’s government.

Malaysia’s Sime Darby has also invested heavily in the West African nation.

Liberia is hoping that the development of a significant palm oil industry can help it emerge from more than a decade of civil war. Industry players say they have chosen Liberia because the potential for growth is greater.

“The pipeline is longer, so it gives you the security to move forward,” said Puvan Selvanathan, chief sustainability officer for Sime Darby.

He says Malaysia’s potential has been tapped, with little room left for expansion. But environmental groups say the companies are merely taking advantage of undeveloped or lax regulations on forestry.

If sustainability is what companies care about, efficiency, not expansion, is what makes the most sense for palm oil, said Bustar Maitar, a forest campaigner for Greenpeace. His group has slammed palm oil production in Indonesia for its destruction of rainforests, and its campaign against the Sinar Mas group has led major buyers Unilever and Nestle to sever contracts with the company.

Greenpeace believes companies should be doing their best to mitigate environmental impacts by expanding only onto degraded land – not new concessions overseas.

Indonesia is the world’s largest producer of palm oil, which is found in products ranging from shampoo to biscuits. The government says companies that want to expand can move onto degraded land, but it has yet to define what degraded land means or where it can be found. Competing legal and social claims for land use are also a problem, since communities must agree to allow a palm oil firm to take over degraded lands in their areas. Environmental monitoring groups say human rights violations top the list of issues facing palm oil plantations.

Mr Selvanathan says Sime Darby has invested in Liberia for decades – proof that the company is not merely upping its production there to take advantage of loose regulations. He says its investment is strategic, since Liberia provides closer access to the United States and European markets.

The Liberian government is currently drafting regulations that would apply to the palm oil industry, said Assistant Agricultural Minister Chea Garley Sr. He is working with Flora and Fauna International and Liberia’s Oil Palm Association (OPAL) to inject sustainability measures into new legislation from the outset.

Because it is still early days, the government has a unique opportunity to adopt sustainable development from the beginning, said Tupin Morgan, managing director of leading agricultural corporation Agro Inc. and a member of OPAL.

“There’s still quite a lot of work that needs to be done on protection and forestry measures,” he said. He believes it is better to start in undeveloped circumstances than to try passing green legislation once things have been set in concrete.

The Liberian delegation attended the RSPO convention in Jakarta. Mr Morgan said the gathering helped build resources and knowledge, and many see the grouping as key to promoting the industry’s sustainable development.

RSPO certification has its problems

But RSPO certification also has its share of challenges. The 21 plantation companies that have gained RSPO certification represent an annual production of 3.2 million tonnes, a fraction of the 21 million tonnes Indonesia produced in 2009. And not all of it is finding a market – only 60 percent of the sustainable palm oil produced this year has been sold, according to RSPO data.

Critics use that figure as proof that if companies do not care about selling sustainable goods, it will not matter much how many producers jump on the green palm oil bandwagon. Recently, there has been some tension between green groups that claim the RSPO is a way of distracting the public from the environmental damage committed by palm oil companies, and palm oil businesses that say forest campaigners judge them unfairly.

For palm oil to be certified as sustainable, it has to meet certain criteria, including assurances that native forest has not been cleared and that community feedback was included in a project’s development.

But RSPO standards often conflict with national land-use laws. In Indonesia, for instance, if a company is granted a concession to develop palm oil and it chooses instead to use a portion for conservation, the government can take back the land and offer it to a company that will develop it.

The problems are clearly complex, but those at the RSPO conference said that regardless of the impetus – be it fear of public scrutiny or a desire to do good, – at least awareness of sustainability in the palm oil industry is growing.

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