Asia a safer bet for palm oil firms
Reuters Business Times 18 Dec 09;
(KUALA LUMPUR) Palm oil firms may accelerate their shift to Asian markets after Unilever said it would no longer sign contracts with an Indonesian planter accused of felling forests.
Environmental campaigners such as Greenpeace may have turned up the heat on palm oil in Europe, but for Asian shoppers access to affordable food and consumer products often outweighs commitments to save forests and slow climate change.
Unilever's decision could even make it more difficult for buyers and planters to work together in the main industry body aimed at improving palm's green credentials, the Roundtable on Sustainable Palm Oil (RSPO), which is chaired by the consumer goods group.
'In the long term, palm oil companies have to strike a balance between sustainable agriculture and also ensuring food supplies for the world,' Thomas Mielke, head of industry newsletter Oilworld, said. 'But for the moment, the Asian markets are a better bet as there are not so many barriers.'
Fast-growing markets China, India and Pakistan, where the vegetable oil is mainly used in cooking oil, detergents and biscuits, are expected to take up nearly half of this year's projected palm oil sales of US$45 billion, traders and plantation officials said, up from 25 per cent a decade ago.
Europe, on the other hand, accounts for 14 per cent, down from a fifth in 1999 on concerns that extra world demand will push planters to fell carbon-rich forests and plant high-yielding oil palms.
Unilever last week cancelled a yearly US$33 million deal with Indonesia's top palm oil producer PT Smart, saying it could not ignore a Greenpeace report that the planter destroyed peatland forests in the world's third largest island of Borneo.
PT Smart has said the report was inaccurate and wants the consumer goods giant to inspect its palm oil operations for itself.
Whatever the merits of the case, planters fear other consumer goods firms such as Nestle and Procter & Gamble will find it difficult not to follow in the footsteps of Unilever, which uses palm oil for products such as Dove soap and Ben & Jerry ice cream.
'These companies have operations and influence around the world even though they are the strongest in Europe,' said a senior official with a listed Malaysian planter, who could not be named as he is not authorised to speak to the media. 'But there are the Asian versions of the Nestles and Unilevers who need to meet demand, so our hope lies there.'
Along with PT Smart, Malaysian firms such as Sime Darby and IOI Corp as well as Singapore-based Wilmar supply Unilever and much of the European market.
Unilever said it commissioned an independent audit this year on all these firms, following Greenpeace's report in 2008 that showed evidence of the planters illegally draining peatlands and harming endangered orang-utans. So far, only PT Smart's contract was cancelled after the audit findings showed that some of the firms had yet to establish environmentally sound practices to plant oil palms and extract the vegetable oil.
But the company was aggressively selling to India, the world's top vegetable oils buyer this year. Other planters have long established bases in China, India and Pakistan.
'They have been big on India for the past few months,' said a regional vegetable oil trader who deals with the subcontinent and Europe. 'You cannot always rely on Europe demand, because there is some barrier or green activist standing in the way.'
While Europe's share of palm oil purchases may be shrinking, it will continue to import what is the cheapest vegetable oil in the world. For example, Finnish refiner Neste Oil has set up plants in Asia and Europe that use palm oil as a biofuel feedstock.
'There may be issues about palm oil's environmental impact but it will not be so easy to replace palm oil, especially when its yields are much bigger than soyoil and rapeseed oil,' said M R Chandran, an independent industry analyst in Malaysia.
Unilever's proposal to scrap the contract may worsen the split in the industry-driven RSPO, which has a scheme to certify the vegetable oil with pledges to preserve the environment.
Unilever chairs the grouping of planters and consumer goods firms, which have been at loggerheads with one another after WWF published a buyers scorecard showing European firms shunned more expensive eco-friendly palm oil.
'This is just an explosion of sentiment. And it does undo the good work that the RSPO has done so far with trying to make palm oil companies accountable,' said a planter member of the RSPO board, who declined to be named due to the sensitivity of the issue.
'Unilever does have its rights as a buyer. But now green groups have more ammunition, especially since its our own chairman who halted ties with Sinar Mas, which is also a member of the RSPO.'
Green groups remain sceptical about RSPO's effectiveness, as commitments are voluntary and an internal tribunal to judge complaints of environment destruction by planters has little influence.
Unilever's move might break that impasse, analysts say, and embolden other companies to scrap contracts that may slow deforestation in Indonesia, now the world's top palm producer and third largest carbon emitter due to peatland destruction.
'Instead of planting 30,000 hectares of land with palm oil annually, plantations companies may now only develop 10,000 to 20,000 hectares,' AmResearch analyst Gan Huey Ling said in a note to clients. 'Whether they like it or not, palm oil producers which export their products would have to ensure that their oil palm estates comply with RSPO guidelines.' - Reuters
