Palm oil: the burning question for our industry

Still the fires burn. In Sumatra slash and burn forest clearance is at a six-year high [ASEAN]. Neighbouring Borneo is burning too, sending a pall of smoke into the region’s skies and destroying the lands of its indigenous people and wildlife, contributing to the deaths of an estimated 6,000 orangutans a year.

Booming demand for a lucrative cash crop is fanning the flames, members of the Roundtable on Sustainable Palm Oil (RSPO) were told last month at its 10th annual summit in Singapore. The jungles are being cleared to make way for the world’s highest yielding vegetable oil crop, Elaeis Guineensis - source of palm oil, an ingredient that’s found in half of all grocery goods, from bread to body lotion.

Our industry is clearly accountable. Despite progress by the RSPO in developing a market for certified sustainable palm oil since 2008 - in the year to September, the body says annual capacity was up to 7.1 million tonnes (representing 14% of total global palm oil production) - a damning 49.8% of this has not found a market [RSPO, 9 m/e 30 September, 2012]

“Brands aren’t using the RSPO logo because they are afraid it will be seen as a mark of sin. It’s pathetic

Darrel Webber, RSPO secretary general”

“We need to do a lot better,” concedes RSPO secretary general Darrel Webber. “The moment of truth for us will be 2015 [the date many RSPO members have set for switching to 100% certified sustainable palm oil use]. If we don’t reach a tipping point in terms of uptake of certified sustainable palm oil use by then, the window of opportunity may close.”

So why is uptake slow? Who’s doing the most - and the least - to address the situation? And, with global demand for palm oil expected to double to 100 million tonnes by 2050, what can be done to secure a sustainable future for the industry… and orangutans?

Leaked figures from a report compiled by the RSPO show progress in the UK is reasonably encouraging. Several British supermarkets and manufacturers - led by Asda and United Biscuits respectively - have set industry-leading targets and, in some cases, hit them ahead of schedule.

Others are lagging far behind. Aldi and Lidl (a new RSPO member) have so far made no disclosures about their palm oil use and have set no target dates for when they will switch over to certified palm oil in their own label operations. Morrisons is also trailing its peers when it comes to using more certified oil. Just 27% of the 16,834 tonnes the retailer’s own label suppliers use is certified sustainable. Meanwhile Asda, Sainsbury’s and Tesco have switched to 100%, 96% and 77% sustainable oil respectively.

“As an RSPO member, Morrisons has been working with suppliers for some time on a stepped approach to use fully segregated palm oil from a certified system,” says a Morrisons spokesman. “This phased approach allows suppliers to manage the process and costs, change their suppliers where necessary and ensure they are compliant with the appropriate certification regime. We have made steady progress towards our well publicised target for full segregation by 2015.”

But progress isn’t quick enough, claim critics. There are ample supplies of segregated certified oil - kept apart from conventional oil at every step in the supply chain, and the only way a company can claim the oil in its products is untainted. Yet here in the UK, many are dragging their heels in adopting it, they say.

Even those that appear to be leading the pack come under fire. One soap manufacturer says several British supermarkets - including Asda, Tesco and Morrisons - have so far not switched to segregated palm oil in their own-label soap lines, despite supplies being available. A bar of soap can comprise up to 75% palm oil, making this a key area where progress can be made, says the manufacturer.

“These supermarkets are talking the talk but not walking the walk,” says the source. “There’s a clear disconnect between their CSR statements and what they’re doing in practice. They say they’ll use certified palm oil ‘wherever possible’ - the caveat is, if it doesn’t cost them more. It does: it’s about 2p a bar more. Even though segregated palm oil is available, they have decided not to use it because of the effect it will have on profits.”

The charge isn’t denied at the supermarkets. “There is an element of truth to that,” says a senior source at one of the big four. “We are more focused on food at the moment. It’s a case of manpower - it’s a complicated process and we are dealing with a whole pile of food manufacturers. Our strategy is to focus on food to start with and then swing around to using segregated palm oil in personal care later on.”

The same charge is also levelled at suppliers: while Associated British Foods achieved 100% segregated sustainable use in 2010 for its Jordans and Ryvita operations, and Allied Bakeries is also progressing, the volumes involved here are a drop in the ocean versus the 42,138 tonnes it uses across its retail and manufacturing operations. The RSPO’s leaked figures for 2012 suggest Associated British Foods (ABF) is still struggling, with just 21% of the palm oil it uses a year certified sustainable. An ABF source says this is down to supply chain complexity and the variety of markets and sectors the manufacturing and retail giant operates in.

And it’s not the only one that’s struggling to make the transition: all the big volume palm oil players, including Unilever, Nestlé and Reckitt Benckiser are moving quite slowly.

Missed opportunities

But there are interim steps - purchasing Green Palm certificates to offset conventional oil use and using so-called mass balance oil, a combination of certified and uncertified oil - companies could be making now to support sustainable means of production in the meantime. And again, even industry leaders in the switchover to sustainable palm oil are missing opportunities.

For example, Unilever, the world’s biggest single user of palm oil, initially promised to use 100% sustainable oil by 2015, through a combination of Green Palm certificates and segregation. In April it had a change of heart, putting back its target to 2020, purportedly to make a more wholesale commitment to using 100% segregated oil. It also pledged to be offsetting all of its conventional oil use with Green Palm credits by the end of this year, a target Unilever says it is on course to hit.

However, a source at a leading palm oil producer says multinationals like Unilever could have hit these targets sooner, by buying available Green Palm credits. “It is laudable that Unilever has set a target of 100% segregated palm oil by 2020 and wants to be completely covered by Green Palm credits by the end of the year,” says the source. “But why haven’t they done this sooner? The credits are available, after all.”

And while Asda is making great progress - all of the 16,083 tonnes of palm oil Asda uses is sustainable (27.6% is segregated 4% is mass balance the remainder is offset with Green Palm credits), globally it’s another story: Walmart gets through 84,000 tonnes of palm oil a year and currently just 18% of that is certified sustainable, through a combination of Green Palm credits, mass balance and segregated.

The retail giant says it is on track to hit its target of 100% segregated palm oil use globally by 2015. But the same criticism levelled against Unilever can be made of Walmart: why is it not offsetting the conventional oil it needs as it works towards its goal? Julian Walker-Palin, Asda’s head of corporate sustainability, says the switchover to sustainable oil, which involves in-depth auditing, is a complex process.

“Readers have to look at this as a journey,” he says. “In essence we’re in our first year of this. Last year was all about analysing the situation and communicating to our buyers. Another thing Walmart has done is develop a directory that gives our suppliers the information they need to source sustainable palm oil. That’s unique to UK retailers.”

The developing world

If sustainable palm oil is still proving a tough sell in the west, it’s even tougher in the developing world. Growth in economies like China and India, the world’s two biggest palm oil markets, helped triple annual global production of palm oil to 46.7 million tonnes between 1995 and 2010 [MVO]. These markets - combined with growing demand from the biofuel industry - will continue to drive demand. Unless these markets switch to sustainable oil, the forests will continue to burn.

Under the circumstances, change sounds unlikely. “Many of the people in these countries still live on the poverty line - they are looking for the cheapest way of putting food on the table for their families,” says Jeremy Goon, head of sustainability at palm oil processor Wilmar International. “They are not going to pay a premium for sustainable oil. That’s just not going to happen.”

Not without the help of governments, says Jan Kees Vis, Unilever’s global director for sustainable sourcing and RSPO president. That means lobbying policymakers to lower trade tariffs for certified sustainable palm oil. “We’re doing exactly that,” says Vis. “In order to transform the markets you need help from the governments of India and China. We would only need to shave off a tiny proportion off the trade tariff to make certified palm oil economic in these markets.”

“If the industry doesn’t act it will be almost entirely responsible for the extinction of the orangutan”

Michelle Desilets, Orangutan Land Trust

The lobbying is taking place closer to home too, as the RSPO fights to make certified palm oil more attractive to more price-sensitive businesses, such as the discounters that have so far shown little commitment to the organisation’s cause. “In Europe it [tariff relaxation] would have to happen at an EU level,” adds Vis. “Individual members of the RSPO are talking to Brussels. There are also nominal commitments from the British government.”

But without better communication the RSPO’s efforts may fall on deaf ears. Currently public recognition of the issue is dismal, a YouGov survey carried out exclusively for The Grocer has revealed, with only 3% of UK consumers recognising the RSPO trademark, which was launched in 2010 with the aim of increasing demand for sustainable palm oil [see overleaf].

“Use of the RSPO trademark would undoubtedly help raise awareness among consumers - we support its use in general because that means it can be independently verified, is underpinned by a robust supply chain accreditation and ultimately offers consumers the opportunity to make properly informed decisions about palm oil,” says a spokesman for New Britain Palm Oil, a vertically integrated supplier and the operator of the UK’s only segregated palm oil mill. “As your numbers suggest, the end consumer is hardly engaged in this process because palm oil is so commonly labelled as ‘vegetable oil’. That should change in 2014 as new labelling rules come in to effect. Perhaps greater use of the RSPO logo will be seen then.”

Few businesses are shouting about their reliance on palm oil either (just 13 companies have applied for a licence to use the RSPO trademark so far). And given the negative associations stirred up by campaigns like Greenpeace’s infamous 2010 ‘orangutan finger’ Kit Kat ads, it is hardly surprising.

Bloated middlemen

Some of these associations even extend to the RSPO itself. One senior figure from an RSPO member company claims the body has become bloated with consultants and advisors.

“The extra money generated is going into the hands of consultants - the real value doesn’t flow down to the producers at all,” says the source, pointing to the recent accreditation of four Thai palm-growing smallholders, the first of their kind to be certified ‘sustainable’. “The RSPO spent $3m on certifying those smallholders. The majority of that went on consultants.”

It’s a point manufacturers acknowledge too. “Only a small part of the [$25 premium certified palm oil carries] is going to the plantation,” says Edwin Reigman, R&D manager at FrieslandCampina. “Most of it - maybe 90% - is spent on logistics. In principle that’s a waste of money.”

“The moment of truth will be 2015: if we don’t reach a tipping point by then, the window of opportunity may close”

Darrel Webber, RSPO secretary general

And while many UK manufacturers are prepared to pay the premium, because it’s often absorbed by weekly fluctuations in market prices - others suggest the waste of time and money has led to a lack of engagement among growers, who currently represent just 15% of the RSPO’s 1,088 members. “How can we say we’re sustainable when the number is so low?” asks Simon Siburat, PPB Oil Palms’ group sustainability controller, adding that Sarawak - the Malaysian part of Borneo, on course to produce 3 million tonnes of crude palm oil this year - only has four grower members.

Webber rejects suggestions that a lack of financial incentive is preventing greater grower engagement, however, despite the fact only a quarter of the RSPO’s grower members are certified ‘sustainable’. He adds that it would be incorrect to portray palm growers as struggling, cash-strapped farmers.

“This is probably the only crop that smallholders can make any serious money from - you will hardly ever see a poor smallholder, relatively speaking,” he says. “The premium is the icing on the cake for them. The real benefits for the plantation guys come from better efficiency, better relations with their neighbours and fewer disruptions to production. The smart operators know that the premium is not the only issue.”

Better management of plantations, a subject on which the RSPO provides advice, can certainly pay dividends for growers. The difference between yields can vary wildly and while issues like soil type play a part here, better management is also a significant factor.

Trials have shown that yields of up to 12 tonnes a hectare are possible. The hope is that by increasing the productivity of existing plantations, the need for further forest clearances would be reduced. “Perhaps we should invest more in yield improvement if we have to expand production,” says Vis. “But if we have to expand into landscapes, why not expand into land that’s already been deforested?”

It’s a question that’s brought the RSPO to impasse as the body’s disparate stakeholders - growers, processors, manufacturers, retailers and NGOs - thrash out a new set of principles and criteria, which should have been agreed in October. The deadline has since been extended to next March.

Extinction

But previously deforested land is not necessarily empty, as RSPO member PT Sisirau was reminded earlier this year when it discovered seven orangutans living on scrubland on its 3,000-hectare plantation in Aceh Tamiang (see right). Workers subsequently removed the few remaining trees the primates were living in before they were rescued, says NGO Sumatran Orangutan Society, which is calling for the company to be suspended from the body.

Fellow NGO the Orangutan Land Trust is backing the calls. “Latest figures, which are eight years old, suggest there are 60,000 orangutans left in the wild,” says executive director Michelle Desilets. “Conversion of orangutan habitat is contributing to an estimated 3,000 deaths a year. Another 3,000 are attributed to orangutans being killed by humans brought into closer contact with them as plantations spread. If the palm oil industry doesn’t act it will be almost entirely responsible for the extinction of the orangutan.”

By extension, so will we all.