According to Euromonitor International, “the cost of moving towards traceable and sustainable palm oil is marginal compared to the long-term effects of negative publicity.” For example, “in 2013, consumer groups turned on Kellogg’s, after media reports claimed that its supply partner… had provided it with illegally grown palm oil from Indonesia.”. According to a Euromonitor food analyst, if deforestation and environmental concerns led “just 1% of Kellogg’s consumers… to stop buying its products, company sales could fall by US$200 million”. While there had been no immediate threat of a consumer boycott, Kellogg’s subsequently announced “its intention to source sustainable and traceable palm oil.”
Euromonitor maintains that “pressure from environmental groups and ‘green’ consumers [has] forced global food manufacturers to tighten their ethical policies on palm oil amid mounting concerns over deforestation and sustainability.” It notes that “most major brands, including Nestlé, Pepsico, Danone and Unilever, have set themselves ‘sustainable targets’ to source 100% of their palm oil” through the Roundtable on Sustainable Palm Oil (RSPO – see Agritrade ‘ Executive Brief Update 2013: Oil crops sector’, 20 December 2013 for more information). Euromonitor notes that Kellogg’s “has set its own target and will only accept palm oil that has full traceability”.
Euromonitor observes that “of the estimated 50 million tonnes of palm oil harvested, only 15% is certified by RSPO”, and that “illegal plantations are a huge problem… as a result of poor local monitoring systems, making traceability difficult”. Based on its analysis, Euromonitor maintains that companies that are slow to move to sustainably sourced palm oil could face problems in securing supplies.
In many processed food products, the volume of palm oil used is relatively small, ranging from 1% in bread to 2% in ready meals, 4% in chocolate and 14% in biscuits. In this context, potentially facing a consumer backlash for non-sustainable sourcing is increasingly seen as an unnecessary risk.
Reflecting these concerns, in April 2014, RSPO reported a 49% increase in the “physical uptake of CSPO” (certified sustainable palm oil) from 340,668 tonnes to 506,586 tonnes, in the first quarter (Q1) of 2014 compared to the equivalent period in 2013. Sales of “physical CSPO” take place under three systems of certification: Identity Preserved (IP), Segregated (SG) and Mass Balance (MB) supply chains.
In addition, sales of GreenPalm certificates expanded by 54% from 555,906 tonnes to 853,338 tonnes in Q1 2014, compared to Q1 in 2013. GreenPalm, a certification programme for sustainably produced palm oil, uses a “book and claim” system, and directly provides financial support to sustainable palm oil production.
Commenting in RSPO’s statement on its Q1 results, the UTZ Certified Executive Director said that “transparency, disclosure, clarity and efficiency in the physical trading of CSPO and its fractions along the supply chain are increasingly important for all stakeholders.”
According to the RSPO Technical Director, a growing number of companies are making a commitment to acquire all the palm oil they need from RSPO-certified sources, many of them establishing a deadline of 2015 for meeting their commitment.
Among the ACP countries, Papua New Guinea, the Solomon Islands and Côte d’Ivoire all have palm oil production certified as sustainable by RSPO.
Meanwhile, 27 Swedish food companies and organisations have signed up to the Swedish Soy Dialogue, an initiative that aims to ensure that “100% of the soy used for the production of foodstuffs sold in Sweden is socially and environmentally sustainable by 2015”. An interim target of 60% sustainable sourcing has been set for the end of 2014.
It is noteworthy that the 62.75% of the sustainable palm oil sourced in the first quarter of 2014 used the “book and claim” certification system. This allows manufacturers to offset their use of palm oil, palm kernel oil (PKO) and palm kernel expeller (PKE) by buying GreenPalm certificates from growers, representing an equivalent volume that has been produced in line with RSPO principles and criteria. However, this system of certification is increasingly being criticised by environmental NGOs for allowing non-sustainable producers to profit from a rising market.
Given the sensitivity of consumer product manufacturers to pressure from final consumers on ethical grounds, it seems likely that pressure will increase over time to supply fully segregated palm oil, so that only palm oil physically certified as sustainable finds its way into the supply chains of companies committed to 100% sustainable sourcing.
This suggests that ACP palm oil exporters will need to increasingly invest in fully traceable, segregated, certified palm oil production, processing, transport, storage and delivery to end consumers. Indeed, with new environmental concerns arising linked to the by-products of palm oil processing (see Agritrade article ‘ Calls for more action on palm oil sustainability’, 11 April 2014), additional investments may well be needed in waste water management as sustainability requirements are deepened.
This raises public policy issues across a range of areas, from dialogue with the EU on sustainability labelling requirements, through support for cost-effective sustainability certification under smallholder production systems, to public policy on sales of co-generated electricity arising from investments in capturing methane produced during processing.