Why choose RSPO?

By Chan Quan Min

In this fourth and final part of this week’s issue, KiniBiz brings up some views and opinions from key personalities in the palm oil industry. While there is a clear divide on the need for the RSPO, there appears to be some agreement on certain points, namely that the RSPO has over-promised on the actual market demand for sustainable palm oil.

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Certification, particularly when it involves an internationally traded commodity, inevitably raises questions of anti-competitive behaviour. At its worst, a certification scheme can take the form of a trade cartel, effectively locking up buyers and suppliers to the exclusion of all others.

But when managed well, certification can result in the adoption of higher quality standards industry-wide, its much touted intended purpose.

Action by Wilmar International Ltd last year to compel its suppliers to adhere to its own stringent ‘no deforestation, no peat, no exploitation’ sustainability pledge led the Sarawak Oil Palm Plantation Owners Association (Soppoa) to call for an investigation into possible anti-competitive behaviour.

More details of Wilmar’s landmark green pledge and a closely related vertical partnership with Unilever can be found in part three of this week’s issue.

Wilmar’s insistence that it would only purchase sustainable (according to its own rules) palm oil by end-2015 clearly offended its suppliers. Soppoa urged the Sarawak state and federal governments to investigate Wilmar under the Malaysian Competition Act 2010 for possible abuse of dominant market position. Reports suggest Wilmar’s Sarawak processing plants buy half of Sarawak’s crude palm oil (CPO) production.

“There is a likelihood that Wilmar’s policy may trigger other RSPO members to adopt similar policies and further restrict market accessibility for Sarawak palm oil,” Soppoa secretary Peter Ho told The Star.

The anti-competitive allegations may indeed hold water. Sources revealed to KiniBiz plantation companies either having implemented policies such as Wilmar’s or considering them have engaged lawyers in anticipation of such allegations.

Soppoa was not alone in their opposition to Wilmar’s policy change. Sarawak Land Development Minister James Jemut Masing estimated the state government could lose up to RM400 million in sales tax revenue annually from Wilmar’s policy change.

Not all growers feel undermined by RSPO

Despite unequal representation and a lack of clout in decision-making in the Roundtable on Sustainable Palm Oil (RSPO), as discussed in detail in the first three parts of this week’s issue, some growers are happy to back the sustainable palm oil certification body.

United Plantations is the poster child for the Malaysian palm oil industry. Perhaps the best-run plantation operation in the region on socio-ecological indicators, the Malaysian Palm Oil Council (MPOC) chose United Plantations as the sole oil palm plantation to host a visit from a group of French journalists.

The French journalists in question were in Malaysia last year in October at the behest of the MPOC presumably in an attempt to reverse negative opinion on palm oil widespread in France. In recent years, French politicians have taken aim at palm oil, calling for discriminatory tax and labelling legislation on food products such as the controversial Nutella tax.

United Plantations, a family-run operation, claims to be the world’s first producer of RSPO certified sustainable palm oil back in August 2008. However, this did not convince environmental activist group Greenpeace.

In a statement dated Nov 15, 2008, Greenpeace dismissed RSPO certification as “little more than greenwash” and accused United Plantations of somehow getting “certified despite gross violations of RSPO standards.”

United Plantations quickly countered the Greenpeace allegations and got back to work in promoting sustainable farming practices in line with RSPO standards. The company’s executive director Martin Bek-Nielsen last year told The Star he was optimistic about industry being capable to supply segregated sustainable palm oil in “three to four years.”

“However, it all boils down to whether the manufacturers are willing to pay… They always say the supply chain is not ready, and that getting it ready could cost millions. But at the end of the day, if it’s sustainable palm oil they are interested in, they will have to bite the bullet,” Bek-Nielsen added.

In emailed responses, Bek-Nielsen reaffirmed United Plantation’s commitment to the voluntary RSPO standard as “an integral part of our way of doing business (which) has enabled us to be recognised as a company committed to sustainability.”

From certification, he said the immediate “tangible benefit” is that United Plantation’s “end products are sold to certain niche customers globally that are willing to pay a premium for sustainability and traceability.

“Apart from the above there are also a number of intangible benefits in the form of greater commitment to transparency and responsibility and thereby enhanced environmental and social aspects which is not only about benefits to the bottom line,” he added.

Two sides of the same coin

MR Chandran, an advisor to the RSPO and former head of plantations of the Franco-Belgian multinational Socfin, joins United Plantations as a staunch supporter of the RSPO. According to Chandran, the RSPO sends the strongest message to the world that plantation companies are committed to “turning sustainability from prattle to practice.”

“As an industry, we now have two choices. The first is that we accept that the world, our customers, have the right to insist on sustainably produced palm oil, to the ultimate benefit of both producers and consumers.

“The alternative is ostrich like, which is to hide our heads in the sand, refuse to change our production standards and be shunned and attacked worldwide for our intransigence,” Chandran wrote in an op-ed this month.

Chandran’s views are quite opposite to that of Yusof Basiron, the CEO of the MPOC and on occasion a vocal critic of the RSPO. The MPOC is an organisation largely representing growers’ interests.

Yusof reportedly backs the long-delayed competing national standard, Malaysian Sustainable Palm Oil (MSPO) to RSPO but does not discount the need for some plantation companies to maintain RSPO certification.”

“RSPO has its place,” said Yusof as quoted by The Star. But it is only “about fighting the negative perception toward palm oil as a whole.”

In news reports, Yusof has always been certain to point out the lukewarm market demand for certified sustainable palm oil. Last year RSPO members managed to sell only 52% of all certified sustainable palm oil production.

Yusof ‘s views on the RSPO have mellowed over the years. In a 2007 interview with The Edge, Yusof was far more critical of the RSPO, claiming the RSPO is a “condition” imposed by certain parties to certify practices Malaysian planters have long been observing.

A look at Yusof’s active Twitter account revealed a great deal about his geo-political views. “The no deforestation policy imposed on developing countries by (environmental) NGOs is renewing the colonial maxim of: do as I tell you to do, not as I do,” he tweeted earlier this week.

Market demand or market pressure?

Without a doubt, RSPO’s grower members were drawn to the certification scheme a decade ago, as Bek-Nielsen hinted, with the enticement of significant price premiums. This did not turn out to be true, with the price premium based on actively traded GreenPalm certificates languishing at 0.3%.

“Initial RSPO premiums per (metric) tonne were supposed to be US$40 (RM132) to US$50 (RM165)… today, however, the premium has dropped to just US$4 (RM13),” Bek-Nielsen told The Star.

Despite the low premium for certified sustainable palm oil, some growers have stuck with the voluntary scheme. Like United Plantations, they tend to come with a long history of exemplary management, meaning they often do not have to lift a finger to be certified.

Years ago, Malaysia’s bigger and better-funded plantation players may have seen sustainable palm oil certification as tool to differentiate their product from lower cost rivals in Indonesia. Unfortunately they were not able to anticipate how underwhelming market demand for sustainable palm oil was compared to market pressure.

Environmental NGOs may find no problem in mounting awareness campaigns to raise the ‘pressure’ on oil palm growers. Certifying bodies then use this ‘pressure’ to convince oil palm growers to convert to sustainable production. But as they say, the proof of the pudding is in the eating.

“Lack of environmental comprehension by policy makers has created a political vacuum for militant activists to operate since 1995 unhindered in Asia. I concur with the… perspective that corporations are smothered based on corporate fears and green-mail by the NGOs,” a researcher shared with KiniBiz.

Market demand should never be conflated with market pressure, warned independent researcher Khor Yu Leng when asked what was the main cause for the poor demand for sustainable palm oil.

At the end of the day, the lukewarm response to certified palm oil as shown by the narrow premium and lack of market demand, may spell the death knell of the RSPO and not necessarily a decline in grower support.

It looks like the RSPO and the growers who actively support it have overestimated the willingness of users to pay a significant premium for certified palm oil, not even enough to cover the costs of certification.

Sad but true that the millions who rue the destruction of forests to plant palm oil can’t cough up a little bit more to encourage more plantations to be be environmentally friendly and sustainable in other ways too.

Yesterday: Competition heats up in palm oil certification