The Star Online > Bizweek Saturday November 20, 2004 Sustainable palm oil production BY ERROL OH THERE was a time when plantation companies only needed to focus on squeezing maximum yield out of their trees at the lowest costs, and on selling their output as homogenous goods at the highest prices. This is no longer good enough. The relevance of environmental and social aspects in the palm oil trade is rising. And the penalties for businesses that are stubbornly uncaring about how their operations affect the community and the environment are increasingly stiff. In recent years, the oil palm industry has come under attack several times over health, social and environmental issues. These include allegations that palm oil is bad for the heart, and that oil palm cultivation had led to deforestation, pollution and social conflicts, among other things. Industry players have often characterised these controversies as anti-palm oil smear campaigns, but it is clear that they cannot afford to ignore the fact that others are watching closely the practices of the industry. More importantly, palm oil production and consumption are growing fast in line with the swelling global demand for edible oils. According to the Roundtable on Sustainable Palm Oil (RSPO), from the 1990s to the present time, the area under palm oil cultivation has increased by about 43%, mostly in Malaysia and Indonesia, the world's largest producers of palm oil. The concern is that such expansion cannot go on for long if oil palm is grown purely to fatten the economic bottom line without taking into account the long-term needs of society and the environment. The key word here is sustainability. The argument is that there ought to be a globally acceptable definition of sustainable palm oil production and use, as well as a way to implement better management practices that comply with this definition. This is the principal idea behind the formation of the RSPO, an international not-for-profit association that describes itself as a “new global multi-stakeholder initiative on sustainable palm oil”. Membership is open to major players along the palm oil supply chain The main thing about RSPO is to get such as oil palm growers, palm oil processors and traders, consumer everybody to play by goods manufacturers, retailers, banks and investors, and related non- the same rules, says Teoh. governmental organisations (NGOs). Among the some 50 members are several listed Malaysian companies (such as the IOI group, Golden Hope Plantations Bhd, Kuala Lumpur Kepong Bhd, Kumpulan Guthrie Bhd and PPB Oil Palms Bhd) and multinational corporations (such as Cadbury Schweppes plc, Cargill BV, Unilever, The Body Shop International, HSBC Bank Malaysia Bhd and Rabobank). Says RSPO secretary-general Teoh Cheng Hai, “The main thing about RSPO is to get everybody to play by the same rules. And to do that, we must first supply a definition of sustainable palm oil.” During the first Roundtable Meeting on Sustainable Palm Oil in Kuala Lumpur in August last year, it was agreed that a set of criteria must be developed to establish a credible definition of sustainable palm oil production. The first phase of this development process (dubbed the Criteria Project) was completed when a discussion paper was released last March, setting out the framework for the drafting of the criteria. The next stage is to work out the final set of criteria. This is expected to take 12 months, during which interested parties are invited to provide comments. It is likely that some of the input that RSPO gets is liberally laced with scepticism and doubt. Asks a veteran planter: “Sure, meetings and a definition do serve a purpose, but how do you get all the various players to buy into the concept of sustainable palm oil?” For one thing, there are those in the industry who feel that there are other issues that are equally, if not more, important than sustainable production and use. For example, a recent newspaper article argues that sustainability is difficult to achieve when there are distortions in the global edible oils market caused by agricultural subsidies in developed economies such as the United States and the European Union. In contrast, the article says, Malaysia's palm oil industry is not only free of subsidy, but pays the Government a substantial amount in “numerous taxes, cesses, fees and levies”. What is perhaps telling is that the article is an opinion piece by Datuk Sabri Ahmad and M.R. Chandran, chairman and chief executive of the Malaysian Palm Oil Association (MPOA), an industry body and founding member of RSPO. While the authors maintain that MPOA members are committed to environmental protection and sustainable development, they warn that subsidy-related distortions in the agricultural commodities business undermine global trade, thus threatening what RSPO is working towards. “Ultimately, price will be the determinant in a commodity trade like (that of) edible oils. If, as those at the RSPO generally believe, the long- term prices for sustainable palm oil will be the same as normal supplies, the need for a level playing field becomes even more critical,” says Palm oil plantation Sabri and Chandran. However, it appears that the option of making sustainable palm oil a low priority is fading away. The producers are selling to a market that is progressively more sensitive to charges that oil palm cultivation harms the environment, biodiversity and the lives of people. Retailers and food producers, for example, want to assure consumers that they are not buying products that have contributed in some way to the ills of the planet. “The supply chain pressures are becoming more intense,” says RSPO's Teoh. “Sure, the efforts towards sustainability will cost more and involves more work, but there is a business case for doing this. The cost of not doing it could be higher.” How it all started WORLD Wide Fund for Nature (WWF) played a pivotal part in the establishment of RSPO. In 2001, the NGO assigned a Dutch consultant to explore the possibilities for a Roundtable on Sustainable Palm Oil. That resulted in an informal co-operation among Aarhus United UK Ltd (a producer of vegetable oils and speciality fats), Golden Hope Plantations Bhd, Swiss retailer Migros, Malaysian Palm Oil Association, British retailer Sainsbury’s and Unilever together with WWF in 2002. A preparatory meeting was held in London in September 2002. This was followed by a meeting in Gland, Switzerland three months later. These organisations made up the organising committee for the first Roundtable Meeting on Sustainable Palm Oil (held in KL in August 2003). The committee also paved the way for the formation of RSPO. About 200 participants from 16 countries attended the inaugural meeting, which led to the adoption of the Statement of Intent, a non-legally binding expression of support for the roundtable process. On April 8, RSPO was formally established under the Swiss Civil Code, with a governance structure that ensures fair representation of all stakeholders throughout the entire supply chain. The seat of the association is in Zurich, Switzerland, while the secretariat is currently based in Kuala Lumpur. According to RSPO’s website (www.sustainable-palmoil.org), the organisation was created to “promote the growth and use of sustainable palm oil through co-operation within the supply chain and open dialogue with its stakeholders”. Its tasks are to: Research and develop definitions and criteria for the sustainable production and use of palm oil; Undertake practical projects designed to facilitate implementation of sustainable best practices; Develop solutions to practical problems related to the adoption and verification of best practices for plantation establishment and management, procurement, trade and logistics; Acquire financial resources from private and public funds to finance projects under the auspices of the RSPO; and Communicate the roundtable’s work to all stakeholders and to a broader public.
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