Greening of palm oil sector a long slog

Bruce Gale, Straits Times 11 Dec 09;

GOING green doesn't pay. That's the grim conclusion some short-sighted players in Indonesia's palm oil industry could be forgiven for coming to these days.

Seeking to improve their environmental performance in response to harsh criticism from environmentalists, key stakeholders in the global palm oil industry teamed up with the World Wildlife Fund (WWF) in 2004. The idea was to establish a certification system designed to encourage environmentally friendly palm oil cultivation practices.

But the system administered by the Roundtable on Sustainable Palm Oil (RSPO) is struggling to get off the ground. In fact, it may be some time before the green certification becomes a commercially viable strategy.

Indonesia is the world's largest palm oil producer. The product is a major ingredient in soaps, cosmetics and biofuels, as well as in cooking oil and food such as biscuits, crackers, instant noodles and chocolate.

The slightly higher price of certified palm oil has already discouraged international buyers. RSPO figures show that only 23 per cent of the certified palm oil produced in the 12-month period from October last year has so far been sold. Currently, only about 5 per cent of global palm oil production is RSPO-certified, although the figure is rising.

Given such circumstances, why should Indonesia's oil palm producers go to the expense of obtaining certification?

Efforts to promote the certification system have also met with strong resistance from those who might otherwise be expected to support it.

When the first batch of RSPO-certified palm oil arrived in Europe in November last year, for example, the Malaysian company involved was accused by some environmental organisations of not actually meeting RSPO requirements.

More recently, environmental groups have focused on the RSPO certification process, arguing that it is riddled with loopholes. Just last month, an open letter signed by more than 80 organisations from 31 countries accused the RSPO and the WWF of 'greenwashing'.

The term refers to attempts by companies, industries and governments to improve their image by using branding, mislabelling or public relations campaigns to suggest that they are more concerned about the environment than is actually the case.

In order to gain RSPO certification, plantation companies have to undergo inspection to ensure that they do not clear natural forest, damage designated conservation areas or illegally clear old crops by burning. They must also respect the rights of affected communities.

Organisations such as Greenpeace, however, maintain that the certification process does not adequately address these and other ecological issues.

Environmentalists argue that oil palm plantations contain up to 80 per cent less biodiversity than forests and are a significant source of greenhouse gas emissions when established on peatlands and in tropical rainforests.

Early last month, the RSPO rejected a proposal to include greenhouse gas emissions in its criteria for sustainability - a decision that reflects the varied interests represented in the multi-stakeholder grouping. The RSPO consists of over 400 members, including producers, refiners, processors, retailers, traders and environmental NGOs.

Several European governments have nevertheless backed the certification system. On Nov 23, British Energy Minister Joan Ruddock championed the RSPO even while acknowledging the limitations of its certification system. 'This is a body that we very much want to support,' she said.

Currently, only three plantation companies operating in Indonesia have been certified. They are London Sumatra, a subsidiary of the Indofood Group; Hindoli, a subsidiary of US-based Cargill; and a subsidiary of Musim Mas, an Indonesian conglomerate specialising in vegetable oil refining and soap manufacturing.

Indonesia's foot dragging on environmental issues could become a significant competitive handicap if Western public opinion forces major changes in global buying patterns.

In an effort to raise global demand for certified palm oil, the WWF released a report in late October grading Western companies on the 'greenness' of their palm oil purchases. Since then, several major Western manufacturers and retail chains have announced overhauls of their sourcing policies.

Certified palm oil production could also change the economics of the industry.

Speaking to The Straits Times last week, CSR Asia managing director Rikke Netterstrom agreed that the reluctance of international buyers to purchase certified palm oil was 'a bad message to be sending'.

But she also pointed out that companies that have gained RSPO certification were beginning to enjoy decreased labour turnover, reduced pesticide costs, higher yields and better management, all of which would eventually be translated into lower prices.

CSR Asia is a Kuala Lumpur-based consultancy specialising in corporate social responsibility issues.

In an e-mail response to queries from The Straits Times last week, RSPO's Sarala Aikanathan put it well: 'Time and patience pay.'