Palm oil producers face sustainability dilemma

It doesn’t take long for someone to bring up headhunting when you’re in Sarawak. The Malaysian state on the island of Borneo used to be prime headhunting territory before the practice was eradicated in the first half of the 20th century, and many of the locals can’t resist a tongue-in-cheek reference or two to the region’s gruesome history, especially when showing around Western journalists.

The headhunters are long gone, but if they were around today there’s a good chance they’d have many of the world’s biggest fmcg and retail brands on their list of targets, alongside “naughty” NGOs and “unhelpful” consumer campaigners. The reason? Palm oil.

Brilliantly versatile and ferociously controversial, palm oil is one of the world’s most important raw materials. It’s used in an estimated 50% of all packaged food products and Sarawak is one of the last major frontiers for its cultivation, boasting swathes of undeveloped land and a government that says it wants to make the most of its natural resources.

But it believes it is facing a major stumbling block in its quest to use palm oil to propel its population towards higher living standards because Europe, one of the biggest and most lucrative markets for palm oil, is proving to be an increasingly difficult customer.

Costly and perplexing

Campaign groups are urging consumers to reduce consumption of products made with palm oil amid concerns over the environmental and social impact, while several EU countries, particularly France and Belgium, are increasingly seeing the emergence of products with specific ‘no palm oil’ labels. 

Even where European consumers aren’t directly told to boycott or cut back, the palm industry is under pressure to raise standards, with more and more major brands and retailers switching to certified sustainable palm oil and setting out sourcing policies to ensure the oil in their supply chains isn’t associated with deforestation and other damaging practices. 

These more demanding requirements on growers aren’t just costly, they are also perplexing, claim industry and government officials: because despite pressure from retailers, manufacturers, NGOs and consumers, roughly just half the world’s certified sustainable palm oil is currently finding a buyer. The other half has to be sold as conventional palm oil, which means growers miss out on the premium that makes their investment in more sustainable practices worthwhile.

“Those wanting sustainable palm oil should be buying it,” says Yusof Basiron, CEO of the Malaysian Palm Oil Council (MPOC). “We produce enough certified palm, but not enough people are buying it.”

The gap between supply and demand in certified sustainable palm oil, along with disagreements about some of the requirements set out by the Roundtable on Sustainable Palm Oil (RSPO) - the major palm oil certification body - have prompted the Malaysian government to come up with its own standard, the Malaysian Sustainable Palm Oil (MSPO) scheme, set to launch in early 2015. The MPOC hopes this will help encourage growers to adopt better practices but in a way that takes into account local circumstances. 

The development of peat soils is a key example: much of Sarawak is peatland and owned by smallholders, but RSPO and an increasing number of multinationals restrict peatland development because it is associated with high greenhouse gas emissions. That means many of Sarawak’s smallholders can’t become part of certified sustainable palm oil supply chains, argues the Sarawakian government, which is why peatland development is one area where the MSPO standard will differ from RSPO requirements. “We believe we must give people the opportunity to improve their livelihoods,” says Alfred Jabu Numpang, Sarawak’s deputy chief minister. “If palm oil from peat is not given access to the market, it’s a very big punishment for our people.” 

Development vs sustainability

Sarawak is not the only palm oil producer to face tensions between its desire to develop and demands from customers in the West for natural resources to be protected. Indonesia launched a national sustainability standard, the Indonesian Sustainable Palm Oil (ISPO) scheme, in 2012 to address similar issues.

Both national standards are being pitched as alternatives to RSPO, and Basiron says the MPOC is planning a major programme of “stakeholder engagement.” He is keen to stress the palm oil Malaysia produces is already “highly sustainable” - certification or no certification - and MSPO will essentially be “the same as RSPO but more attuned to local needs, and we won’t have to pay a foreign body to manage our industry.”

However, getting the fmcg sector on board is likely to be an uphill battle. Despite the MPOC’s assurances its standard will be independently audited, it will be hard for the Malaysian palm industry to avoid the impression of a conflict of interest - designing and policing a standard that suits its needs rather than those of the environment or the people and animals living in it.

The sector - and the bodies promoting it - doesn’t help its cause either when legitimate concerns about overly ambitious Western requirements occasionally tip over into conspiracy theories. “NGOs are being used to dominate and control trade - to protect the European rapeseed industry” is one frequently heard claim.

Crucially, the message from fmcg buyers is they are more inclined to support schemes like RSPO. “We welcome national standards like MSPO and ISPO since they provide legislative teeth to the sustainability efforts of the RSPO,” says Biswaranjan Sen, Unilever’s VP of chemicals procurement, who also acts as chair of the RSPO board of governors. “However, our initial understanding is that unless the standards are aligned with those of the internally accepted RSPO standards, which have been evolved through a robust mechanism of participation by growers/buyers/NGOs alike, we can at best accept them as a necessary but not sufficient condition.” Sarah Schaefer, global corporate sustainability director at Mars, meanwhile, describes RSPO as “the one standard that works with everyone.”

Many larger growers in Malaysia also back RSPO. While supporting initiatives like MSPO, which “force the bar higher” for all, “the message has to be RSPO is the way forward,” says Carl Bek-Nielsen, CEO of United Plantations, which grows oil palm across 58,000ha of land on peninsular Malaysia. 

But he is also alarmed by the disconnect between the amounts of RSPO-certified oil produced and sold. “Right now there is a mountain of certified palm oil and the demand is not there,” he says. “That’s a terrible message to growers who’ve been asked to jump through all these hoops. It makes it seem consumers and brands want all these standards but aren’t prepared to pay.”

Driving demand

The need to drive demand, then, is obvious, but it’s less clear precisely whose job this should be. Bek-Nielsen believes it should be “firmly down to the multinationals,” while others argue consumers themselves need to send a signal by refusing to buy products made with uncertified palm oil. 

Unilever, the world’s largest buyer of palm oil products, says it is taking its responsibility to build demand seriously but stresses it can’t act alone. “It’s a complex issue,” says Sen. “There is a need for NGOs, government and companies to play a role. The whole industry needs to move together.”

Sen takes issue more generally with the assertion there is a huge gap between supply and demand of certified sustainable palm oil. While not all of it may end up being sold as RSPO oil, that’s not to say it doesn’t get sold as certified, he says. “It’s a myth that certified palm isn’t being sold. Some of it is being sold under a different certification scheme, as sustainable biofuel. The number of fuel certifications needs to be factored in.”

Interpretations around precisely how much certified oil gets sold may vary, but RSPO Europe outreach director Danielle Morley is clear that work needs to be done to drive demand. “Demand is increasing, and we take the job of building demand very seriously,” she says. “It’s a globally traded commodity and sometimes the right product is not available in the right place at the right time for the right price. But we are increasingly turning our attention to increasing uptake.”

This involves supporting corporates and national governments in their sustainable palm oil commitments (the UK government, for example, has committed to sourcing 100% sustainable palm oil in central government food and catering by the end of this year) but also raising awareness among consumers.

New labelling regs

Industry experts have long argued it is unrealistic to expect shoppers to specifically look out for certified palm oil because although palm oil is used in a huge range of products, it is often present only in small quantities and rarely a named ingredient on labels. That makes it difficult to raise awareness.

But new EU labelling rules that came in as part of the Information to Consumers Regulations package in December could soon change dynamics. Under the new rules, manufacturers will no longer be allowed to use the generic descriptor ‘vegetable oil’ and instead have to spell out exactly what oil they use. That means shoppers will soon start seeing ‘palm oil’ on far more product labels. 

“It’s a really good opportunity to raise more consumer awareness and get people to ask questions about certification,” says Morley, though she believes the onus is on big brands to take advantage of that opportunity. “We do have a consumer-facing identity, but we are fundamentally a B2B organisation,” she says. “We will never have the reach our members do.”

Frustration

Those members, however, currently show limited enthusiasm for putting the RSPO logo on their products. “I’m not sure consumers would recognise it,” says Schaefer at Mars. Inder Poonaji, head of sustainability at Nestlé UK & Ireland, says the company will be keeping a close eye on shopper attitudes but won’t change its approach to on-pack logos for now. “We are not planning to have additional communications about how we source our palm oil on our packs, but consumers will be able to find information on our website about our responsible sourcing approach.”

But, of course, awareness won’t be built unless the logo is used on more packs. “It’s a chicken and egg situation,” says Morley. However, progress is being made behind the scenes. The Food and Drink Federation has published new palm oil sourcing guidance for the industry and says it has seen greater uptake in physical supplies of certified sustainable palm oil in 2014 as a result of revised individual company commitments as well as the labelling changes.

Back in Malaysia, growers certainly hope the new labelling rules - and continued commitments from big retailers and fmcg brands towards sustainable palm oil (see box, left) - will help close that gap between supply and demand of certified products. 

However, increased demand for certified palm is going to be of little immediate use for those not captured by certified supply chains. At present, just 18% of global palm is certified, and that includes few smallholders. “There’s a lot of good work needed to get smallholders better integrated into the big supply chains,” says Boris Saraber, director of The Forest Trust, which works with many major brands on palm oil sustainability issues. “If you are a smallholder in Sarawak and you have peat and you want to develop your land - which you have every right to do - then what is going to happen to make you part of sustainability and certification efforts?”

It’s going to be a huge task, but the noises coming from some of fmcg’s biggest players are encouraging. “We are working hard towards understanding what incentives might work for small farmers,” says Len Sauers, VP for global sustainability at Procter & Gamble. “It would be easy to say we just won’t buy from smallholders, but we don’t think that’s appropriate.”

Tension between local development needs and global sustainability agendas will continue to loom large in Borneo for some time. But concerted efforts to work with growers of all sizes should ensure brands, retailers, NGOs and consumers are less likely to be on (metaphorical) headhunting lists in future.

Sourcing certified sustainable plam oil

Sources: RSPO, Sustainable Palm Oil Platform, Industry