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scientific press service - publisher: prof. dr. r. matissek lebensmittelchemisches institut der deutschen süsswarenindustrie, cologne
May 2011
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Palm oil under discussion The pros and cons of an agricultural raw material in sustainable food production
Dr. Juliane Reinecke, Warwick Business School, Coventry Oliver von Hagen, International Trade Center (UN/WTO), Genf Dr. Stephan Manning, College of Management and Marketing, University of Massachusetts, Boston
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Palm oil under discussion The pros and cons of an agricultural raw material in sustainable food production Summary Since 1980 the amount of palm oil sold on the market has increased more than ten-fold. A critical public discussion regarding the cultivation of palm oil – and above all in the developing countries of South-East Asia – has developed (in the western countries). Above all local Asian companies are pushing ahead with the exponential growth of the palm oil market. There are three decisive factors for the expansion of palm oil production: 1. Trans fats in food are also held responsible for the emergence of cardio-vascular diseases. Food manufacturers now increasingly use trans fat-free palm oil in western countries for certain products. 2. Consumption of and demand for palm oil are increasing with the rise in the world’s population. 3. Thanks to its technical properties and the fact that it may be used in a variety of ways, palm oil is an alternative to crude oil-based raw materials for many areas of industry. The consumption of palm oil as a biofuel and for energy generation is rising continually. Compared to other agricultural crops found in the tropics, oil palms provide the highest yield as a ratio of the required growing area. Furthermore, there are no genetically-modified variants in palm oil and palm kernel oil production. Palm oil is nevertheless the subject of criticism as the expansion in the areas cultivated with oil palms has been accompanied by the dramatic destruction of forest areas and the drastic decimation of many species. In addition, with the establishment of new palm oil farms indigenous peoples and small farming cooperatives are often robbed of their established habitats and natural resources. The Roundtable on Sustainable Palm Oil (RSPO) was formed in 2003 on the initiative of the WWF. The RSPO brings together the major palm oil producers in South-East Asia, representatives of companies along the entire supply chain, and stakeholders from the main consumer markets in Europe and the USA so as to elaborate sustainability solutions. Yet the Roundtable is also coming in for criticism. Western brand manufacturers may well be prepared to buy sustainable palm oil, but only account for a small proportion of global production. The majority of buyers from less environmentally-conscious threshold countries such as India and China, which are buying ever greater quantities of palm oil, also have to be motivated to participate in sustainability concepts.
Introduction For some years now an agricultural commodity has increasingly been at the focus of public interest and the intensifying debate between non-governmental organizations (NGOs), companies and the world of politics: Palm oil, its cultivation in what are usually developing countries, and the ecological, social and economic consequences for the local communities. The critical debate focuses above all on its cultivation in South-East Asia.
1. Product information palm oil Palm oil is extracted from the pulp of the fruit of the oil palm. The fruit are sterilized and then pressed. This leads to the production of raw palm oil. Due to the high carotene content the fruit and oil have a reddish color,
which is removed during refining. Pure, fresh palm oil has a characteristic smell of violets, a pleasant, sweetish taste, and a light, clear color. Oil that is used for biodiesel for example is generally unclear and colored as it undergoes fewer processing stages – a condition that intensifies as it ages. The melting point of palm oil is between 32 and 38°C. Palm kernel oil is extracted from the kernel of the oil palm. The kernels are dried, ground and then pressed. Palm kernel oil, just like coconut oil, is one of the lauric fatty acids, i.e. it contains a large proportion (as much as 80 percent) of saturated fats, of which as much as 50 percent is lauric acid.
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The raw oil is yellowish-brown in color; following refining it is nearly white with a slight hint of yellow. Palm kernel oil is a solid at room temperature. The melting point is between 23 and 30°C. It therefore melts quickly at body temperature, leaving behind a pleasant cooling effect on the tongue. Palm kernel oil is used to a large degree in the production of margarine, lending it a buttery taste and a more solid consistency. Moreover, due to its melting properties, it is not only used in numerous foods, but also for cocoa glazes, ice chocolate, cream coatings and chocolate fillings that have to melt quickly, toffees and caramel. Thanks to various processing stages, palm kernel oil can also be transformed into high-quality special fats for the sweets industry. In the following the expression “palm oil” is predominantly used on its own as with many sustainability initiatives it is also used as a generic expression for palm kernel oil.
2. Cultivation of oil palms – Development and significance Originally from the coastal regions of West and Central Africa, oil palms were increasingly exported to Asia and Central America from the beginning of the 20th century onwards [1]. Before products from the oil palm became attractive for private economy agriculture there, the plants served above all as garden decoration for an exclusive circle of individuals until the first half of the
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20th century. Above all it was English companies which maintained natural rubber, tea and coffee plantations in Asia in the 19th and early 20th centuries. In the 1960s they discovered the oil palm as a crop plant and an opportunity for diversification: The continual slump in natural rubber prices made agricultural alternatives an absolute necessity. In recent times it has been local Asian companies above all which have driven the exponential growth of the palm oil market [2]. Last year the ten leading plantation operations had a market capitalization of more than 79 billion US dollars with oil palms cultivated on their own land (some 2.3 million hectares), with their fruit used for the production of a total of 9.7 million tonnes of palm oil (as of: March 31, 2010; Bloomberg, 2010). In other regions of the world it is above all also private companies which have advanced oil palm cultivation, for example in Brazil [3], the world’s largest exporter of agricultural produce. Small farmers have also contributed significantly to the spread of the oil palm as a crop tree – either in the framework of development programs financed in part by the World Bank or as independent farmers. Their respective growing area ranges from just a few hectares to as much as 100 hectares. The Roundtable on Sustainable Palm Oil (RSPO) estimates that some 3.3 million small family farms worldwide live from oil
Cultivated area
14
million hectares
12 Other
10
Thailand
8
Malaysia
6
Indonesia
4
Columbia
2
Nigeria
0 Year 1980
Cote d’Ivoire
1990
2000
2009
Figure 1: Global land areas with oil palm cultivation (in millions of hectares); illustration based on Teoh, C.H.; National Finance Corporation (2010)
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palm cultivation. In Indonesia, Malaysia and Papua New Guinea more than 40 percent of the farmers are small farmers; in Thailand this figure is as high as 75 percent [2]. Three of every four people classified as poor live in rural areas, not in urban centers. The majority of them are dependent on agriculture. Palm oil plays a major role here, especially so as in many developing countries it is already a key part of daily nutrition and is also used for cooking, frying and deep frying. Palm oil is thus also a central pillar in rural development work in a number of tropical countries and is a guarantee for securing employment and income. In Malaysia the number of persons employed in the palm oil sector grew from more than 92,000 in 1980 to more than 570,000 in 2010 [2, 4]. It is estimated that a further 300,000 are employed in downstream palm oil operations in Malaysia. Around one million people are employed in Indonesia’s palm oil production. At present palm oil accounts for about one third of the global production of vegetable oils – with clear expansion potential in some regions, such as in the Sub-Saharan area [2].
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In 2002 the US government stated that there were probably no safe volumes for the intake of trans fats, and recommended that as few products as possible be consumed with a high trans fat content. It was Denmark in 2003 which first laid down maximum amounts for trans fats in food (a maximum of 2 percent of the total fat content). In the same year the highest health and food monitoring agency in the USA, the Food and Drug Administration (FDA), advocated that the content of trans fats in foods be labeled on packaging – a demand that ultimately became an obligation in the USA in 2006. This was followed by further statutory initiatives in various countries (see also WPD 1/2008) [6]. In 2003 food manufacturers increasingly began looking for possibilities to minimize the content of trans fats in products and for alternative fats. Palm oil became the fat of choice for many areas. It is excellently suited for frying and deep-frying purposes, and is ideal for the production of pastries and baked goods, margarine and confectionery.
3. Driving forces behind palm oil expansion
Increasing world population/Palm oil as most important fat in tropical countries Another reason for the rising consumption of and need for palm oil is the growth in the world’s population. Whereas in 1979 3.9 billion people lived on earth, by the time of the new millennium this figure was already 6 billion. According to Deutsche Stiftung Weltbevölkerung (DSW) in Germany, the earth welcomes 228,155 new residents each day. In 2050 we will have to share this planet with some 9.5 billion other people [7]. They all need feeding. According to the environmental protection organization World Wide Fund for Nature (WWF), in 2008/2009 the annual per capita consumption of vegetable oils within the European Union was 51.7 kilograms. In the USA the figure was 53.9 kilograms. The global average was 23.8 kilograms per year.
Ban on trans fats in foods – Palm oil as a substitute At the beginning of the new millennium a major campaign against trans fats in foods began in western countries. A high intake of trans fats was believed to be a factor responsible for the emergence of cardiovascular diseases. This followed extensive scientific studies in the 1990s which identified trans fats as the essential drivers behind the increase in LDL cholesterol.
In India (with a population of more than 1.2 billion) 14.8 kilograms of vegetable fats are consumed per person and year, of which some 5.5 kilograms are accounted for by palm oil and fat [5, 8]. In Germany consumption is about the same as the European average, whereby palm oil and fat make up around 15 kilograms per person and year. In this respect it
The biggest producers of palm oil and palm kernel oil today are Indonesia, Malaysia, Thailand, Nigeria and Columbia, whereby Indonesia and Malaysia together account for more than 80 percent of global palm oil production. Since 1980 the amount of this commodity sold on the market has increased nearly ten-fold, from some 4.8 million tonnes at that time to more than 45.1 million tones in 2009. In 2010 the global palm oil industry supplied some 46 million tonnes, whereby the growth was largely attained by Indonesia (ca. 22 million tonnes). For 2011 it is expected that the volume will rise to more than 49.1 million tonnes [5].
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should be noted that in Germany 60 percent of the imported oils are used for energy production (e.g. for bio-diesel and for thermal utilization in power stations). Only 40 percent is accounted for by the cosmetic, chemical and food industries. In total, therefore, India already uses more palm oil and fat than the European Union – and this trend is a rising one. Chris Wille, head of the agricultural division of Rainforest Alliance, is also of the opinion therefore that “we – all the environmental protectionists and socially-committed non-governmental organization representatives who want to minimize environmental damage and truly improve the economic and social position of agricultural workers in the palm oil sector – have to convince the really large palm-oil buying nations, as these are the most heavily populated countries with burgeoning economies, such as India, China and also Russia, and the major producers such as Indonesia to assume responsibility for sustainable agriculture.” New applications – Palm oil as bioenergy supplier and substitute for crude oil-based ingredients The third reason for the rising demand for palm oil lies in new applications: While at present some 80 percent of global palm oil production is used for foods – in contrast to Germany therefore – more and more sectors of industry are seeking alternatives to crude oil-based ingredients. Due to their technological properties and
manifold applicability palm oil and palm kernel oil are being used ever more frequently as suitable substitutes: Thus the use of palm oil for the manufacture of soap (its first use outside of foods), detergents, cosmetic and pharmaceutical products, as well as for other industrial and household applications, is constantly increasing. The consumption of palm oil as a biofuel for vehicles, for the operation of mechanical plants and for energy generation is also increasing continually [2]. The sharp rise in the consumption of palm oil in Germany in recent years is primarily due to the subsidizing of the use of vegetable oils for energy generation purposes (e.g. for combustion in cogeneration units).
4. No alternative to palm oil The World Bank currently estimates that some 7.6 billion people will occupy the earth as early as 2020, whereby the largest population growth will be observed in Asia. From the present stance this corresponds to a growth rate of 11.6 percent. In conjunction with this the International Finance Corporation (IFC), a subsidiary of the World Bank, expects to see the per capita demand for staple foods rise by 5 percent in the same period. Transferred to the need for vegetable oils this means an additional production requirement of around 27.9 million tonnes of vegetable oils in the year 2020. If this demand is to be met with palm oil alone, the cultivated area will have to be increased by 6.3 million hectares of additional land. This presupposes, however,
Cultivated areas 2010/2011 – 250.1 m ha 8,8 %
Production 2010/2011 – 150.5 m t
9,9 % Palm oil and palm kernel oil 36,4 %
12,9 %
13.4 %
15,0 % 3,2 % Palm oil 5,3 %
7,9 %
5,0 %
Soybean 41 % 3,8 %
2,7 %
1,0 % 0,6 %
Soya oil 27,5 %
2,2 %
3,3 %
Soybean
Cotton
Groundnut
Sunflower
Rapeseed
Soya oil
Cotton oil
Groundnut oil
Sunflower oil
Sesame seed
Palm oil
Coconut
Linseed
Castor oil
Rapeseed oil
Palm oil and palm kernel oil
Coconut oil
Others
Figure 2: Global tonnage of various agricultural commodities versus area required per raw material; Source Oil World 2010/2011
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that the productivity of the palm oil plantations will increase by 10 percent within the next 10 years. If this is not the case, the need for additional areas will be even greater. The situation would look even more precarious if the future shortfall in the need for vegetable fats had to be met through the cultivation of soybean. In this case an additional 42 million hectares of land would be needed – more than five times the area in the palm oil industry. Palm oil – one of the most efficient agricultural commodities Palm oil ranks among the most efficient commodities in tropical agriculture. Plantations with crop plants which produce fat such as soybean, cotton, groundnuts, sunflowers, rape seed, sesame, coconuts, linseed or seeds such as castor oil and palm oil cover some 250 million hectares of land worldwide. Palm oil accounts for 5.3 percent of this, soybean 41 percent and sunflowers as much as 10 percent. This is to be contrasted with the yields, which amount to a total of 150.5 million tonnes of raw materials: Palm oil and palm kernel oil from the oil palm supply an oil yield of 36.4 percent with a smaller area, while soybean only accounts for 27.5 percent – and yet requires a growing area eight times as large. Sunflowers only provide a yield of just less than 8 percent (see Illus. 2 and 3) [5, 8]. In addition to its efficiency, palm oil has another factor in its favor compared to soybean: The cultivation of oil palms and oil extraction takes place without any genetic engineering. There are no GMO derivatives in the palm oil sector. Those demanding foods without genetic
Soya oil 0.4t/ha
Rapeseed oil 0.6 t/ha
Palm oil 4t/ha (with best practice 8t/ha possible)
Degree of agricultural efficiency with palm oil
Figure 3: per hectare yields; Source Oil World 2010
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engineering and only with oils low in trans fats will not be able to avoid palm oil. And: Palm oil and palm kernel oil provide stable, structure-promoting products for food production and processing in a totally natural manner and without any chemical modifications.
5. Challenges with cultivation of oil palms Nevertheless palm oil has been at the focus of criticism for some time now. Why is this? In April 2010 the IFC studied the media aspect using a Google analysis. The search expression “palm oil” in conjunction with “deforestation” yielded 106,000 hits. In conjunction with “biodiversity loss” the search engine counted 23,700 hits. If one looks more closely, it may be seen that the debate on the pros and cons of palm oil is reduced, above all, to negative implications – to deforestation, reduction in biodiversity, climate change and social conflicts, therefore [2]. In this respect the discussion is divided into two camps: The pro-development side, which attaches great significance to the cultivation of the oil palm in feeding the world’s population, and the pro-conservationists, who regard the cultivation of the oil palm as a mistake from an ecological and social stance, and thus in the long term also from an economic perspective. Cultivation of oil palms displaces habitats of high conservation value – Forest destruction due to fires The fact is that the continuing expansion of palm oil growing areas has been taking place for 30 years already. According to the IFC, for many years this did not arouse the interest of the NGO community – until 1997 when large areas of forest in Indonesia, Papua New Guinea, Brazil, Columbia, and on the African continent went up in flames [9]. The Indonesian fires in particular enshrouded large swathes of South-East Asia in smoke and smog for a long time. The WWF examined the causes. It reached the conclusion that one of the main reasons for the extensive fires was the so-called practice of “cut and burn” in Indonesia, whose goal was the swift preparation of land for future oil palm cultivation. The Global Fire Monitoring Center (GFMC), which is based at the University of Freiburg in Germany, reached the conclusion that the Indonesian fires 1.) were all caused by humans, and 2.) the culpable parties were for the main part land speculators, or the fires served the
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Table 1: Estimated extent of fire-affected forests and other lands in Indonesia. Source: BAPPENAS (1999).
Land use/ land cover of island Kalimantan Sumatra Java
Lowland forest
Peat and Swamp Forest
Dry scrub and grass
Timber plantations
Agriculture
Estate crops
Total (ha)
2 375 000
750 000
375 000
116 000
2 829 000
55 000
6 500 000
383 000
308 000
263 000
72 000
669 000
60 000
1 755 000
25 000
25 000
Sulawesi
200 000
Irian Jaya
300 000
400 000
100 000
Total (ha)
3 283 000
1 458 000
763 000
purpose of large-scale forest conversion to agriculture. Other fires were caused by the establishment of farms – as a result of land disputes, hunting or simple carelessness, for example. Alone in the years 1997 and 1998 some 10 million hectares of land in Indonesia fell victim to fires [10]. In 2000 the WWF and the International Union for Conservation of Nature (IUCN) wrote about Indonesia in their joint “Global Review on Forest Fires”: The latest technology – satellite images from space – revealed the devastating damage caused by mankind’s oldest tool – fire: The images show that the fires started in January 1997. In the course of the year – in September, October and November – the flames got out of control and raged in the provinces of Kalimantan and Sumatra. Experts assume that these escalating large-scale fires were also favored by the global climate phenomenon “El Nino”. The Indonesian government declared a state of emergency in September 1997. In November the country signed a rescue package with the World Bank with a volume of 43 billion US dollars; this had become necessary following the economic collapse of the country (as well as the financial crisis facing Asia at the same time). “Ironically the rescue package contained conditions. These forced Indonesia to increase the export of timber, palm oil and paper pulp – to promote those very industries which had caused the forest fires in the first instance,” state the authors [11]. The United Nations Food and Agriculture Organization (FAO) published alarming data in 2005: Accordingly, each year the world loses 13 million hectares of natural tropical forests. The transformation of forests in agricultural
50 000
188 000
100 000
199 000
1 000
400 000
97 000
3 000
900 000
3 844 000
119 000
9 655 000
areas is one of the biggest threats in this respect. In 2007 the United Nations Environment Programme (UNEP) noted that oil palm cultivation was the main reason for the destruction of rainforests in Malaysia and Indonesia. At the same time, the UNEP was worried about the regions in central and southern Africa, as well as the countries of Latin America, above all Columbia: Here too the expansion of oil palm plantations was increasingly posing an additional threat for high conservation value tropical forests and other eco-systems. In addition, the focus is increasingly turning to the peatlands and wetlands of South-East Asia, which form a significant carbon sink: So as to develop further areas for oil palm cultivation, companies began draining wetlands. Alongside the loss of biodiversity, a lowering of groundwater levels – equally dangerous in the medium term – or the salinization of soils, this development is accompanied by large volumes of CO2 emissions. This prompted Greenpeace to prepare the report “How the palm oil industry is cooking the climate”, which focuses on Indonesia [12]. Greenpeace moratorium in Indonesia – without government support As a consequence of the gathering debate, in 2009 Greenpeace ultimately called for a moratorium on deforestation and demanded the protection of high conservation value forests and areas such as peatlands in Indonesia that function as carbon stores. The moratorium presupposes that there is scarcely any development of new areas in Malaysia for oil palm cultivation (with the exception of the Malaysian part of
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Borneo). The country has nearly reached its capacity limit, as may be seen in the statistics from Oil World. Thus, Malaysia is no longer displaying any growth with its palm oil volumes. At the same time, however, there are vast areas of lowland tropical forests in Indonesia, into which Malaysian developers also wish to penetrate so as to convert rainforest into areas for the cultivation of oil palms. The moratorium foresees a complete ban on deforestation and conversion (peatlands, swamps) for as many as three years. In this period independent experts acknowledged by all the moratorium members are to conduct surveying and mapping which shows which areas are forests of high conservation value and land, such as peatlands, which stores carbon. Such areas are no longer to be destroyed and no longer to be converted for agricultural use. To this end, Greenpeace has acquired some major companies as coalition partners. Yet to actually be successful it requires the support of the Indonesian government. It refuses to cooperate, however: Indonesia considers the move by Greenpeace to be an intrusion in its internal affairs, and has demanded the recognition of its state sovereignty. Moreover, Indonesia fears that with a possible trading embargo it could be steamrollered by other regions of the world in which the expansion of agricultural areas is progressing apace. Agricultural development threatens biodiversity While the NGOs at the end of the 1990s and the beginning of the new millennium initially focused on deforestation and cut and burn, in the course of the commitment by various environmental groups other issues came to the fore: e.g. the decimation of the rich tropical fauna as a consequence of agricultural expansion, above all for palm oil. The orangutan became the symbol for animals forced out of their natural habitat – and to this day is still the icon for countless NGO campaigns. While environmental protection groups are keen to accuse industry of “green-washing”, pro-industry advocates in turn complain that conservationists are guilty of “black-washing” at times. Thus the Rainforest Action Network (RAN) forecast that orangutans would become extinct by 2011, according to the IFC. In fact there are probably more than 50,000 orangutans in Sumatra and Borneo, yet admittedly their population continues to decline. In reality a differentiated view has to be
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taken: The “Borneo Orangutan” was assessed by the International Union for Conservation of Nature (IUCN) – which maintains the official “Red List of Threatened Species” – as “critically endangered”, yet does not rate its status as “threatened with extinction” [13]. In contrast, the population of the “Sumatran orangutan” with just a mere 7,300 individuals is regarded as “threatened with extinction”. Yet other mammals are also endangered, including the “Sumatran tiger”, which is believed to have been reduced to just 400 animals living in the wild, as well as the “Sumatran rhinoceros” and the “Sumatran elephant”. For the expansion of the palm oil industry into the habitats of wild animals has led to serious conflicts between mankind and the animal world. Illegal hunting and the shooting of animals which wander onto farms further decimates the stock of species to a considerable degree. Numerous land conflicts Alongside a number of environmental issues, there are also diverse social issues to be resolved. The Forest Peoples Programme (FPP), Sawit Watch of Indonesia and Oxfam International, for example, have repeatedly placed the issue of land conflicts on the agenda; and in the opinion of the IFC these rank among the greatest problems. There are, for example, frequent disputes over the ownership of land. These occur between smallholders and local communities, between indigenous groups and large plantation operators, as well as with the national governments. In Indonesia alone, Sawit Watch documented more than 500 land-related conflicts. In Malaysia, there are more than 150 litigation cases on land disputes involving indigenous peoples, of which about 40 cases are related to palm oil [14].
6. Roundtable on Sustainable Palm Oil – The solution? In 2003 the WWF took the initiative, and together with companies from the palm oil sector, major food companies, banks and representatives of civil society established the Roundtable on Sustainable Palm Oil (RSPO). In the meantime this sustainability initiative encompasses more than 430 ordinary members and over 130 affiliate members (as of: March 31, 2011) [15], who account for more than some 50 percent of global palm oil production. In addition, the most important buyers
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and processors of palm oil are represented in the RSPO. The RSPO focuses on the active involvement of all the relevant stakeholders along the entire palm oil supply chain. It regards itself as a democratic platform oriented to holistic solutions. The demand for sustainable palm oil cultivation and consumption through cooperation in the procurement chain and open dialog are the declared goals of all the participants according to the WWF. The measures also cover the laying down of a generally accepted definition of sustainability in the context of palm oil, the development of a framework for national practices, and the creation of a framework for the exchange of information and findings on best practice. In addition, it is to be examined how a sustainability label and uniform standards can be implemented. One of the biggest challenges facing the RSPO is, in the view of the WWF, that of reconciling the diverging interests of its members. The integration of sustainability criteria in production will in all probability increase costs at least in the short term. This will, says the environmental conservation organization, have an immediate negative impact on the producers in SouthEast Asia, because these, in contrast to European
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crop farmers, do not receive state subsidies. In all probability it would be smallholders who are primarily and most seriously affected. For the growing regions it is imperative, therefore, that products from the oil palm remain competitive despite the integration of sustainability aspects. For the buyers it is important that the criteria are practicable and economically feasible. In the meantime, the RSPO has approved a host of criteria which prescribe compliance with minimum social and ecological standards. Work commenced on a certification system for environmentally-compatible oil palm cultivation as long ago as 2004. Following a twoyear test phase, the first consignment of RSPO-certified palm oil was shipped to Europe in November 2008. In November 2010 640,000 hectares of land had been certified in Indonesia and Malaysia, with the effect that 3.2 million tonnes of palm oil could be produced from sustainable cultivation (7 percent of total global production). While only a small proportion of the certified oil was sold in the first trading year, sales are rising in the meantime. In the past 12 months just less than 2 million tonnes have been produced, of which 58 percent has been sold as certified (see Illus. 4).
t/quarter 1,000,000 Volume and sales of RSPO-certified palm oil from sustainable production Q3 2008 – Q4 2010
Volume
750,000
500,000
Sales
250,000
0
08-3
08-4
09-1
09-2
Figure 4; Source Roundtable on Sustainable Palm Oil (RSPO) (2011)
09-3
09-4
10-1
10-2
10-3
10-4
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Numerous companies, and even a whole country such as the Netherlands, have undertaken to procure all their palm oil from certified sustainable sources by the year 2015. Other companies have followed this example and have begun to examine the sustainability of their palm oil sources. In order to enhance transparency, in 2009 the WWF began with the publication of the “Palm Oil Buyers’ Scorecard”, in which the palm oil procurement conduct of 59 European companies is assessed [16]. The fact that sales of sustainably produced palm oil and palm kernel oil have so far been much lower than the volume available on the market is not a surprise: Western food manufacturers require raw materials which can be reliably traced back to their source. Such seamlessly traceable palm oil and palm kernel oil from sustainable production is currently only available on the market in comparatively small amounts. Moreover, food manufacturers increasingly have to convert their logistics and production to parallel processes which facilitate the strict physical separation of raw materials and ingredients. A highly complex task if raw materials with differing certifications – including bio, Rainforest Alliance Certified, RSPO Identity Preserved, nut-free and kosher raw materials – are to be processed, and at the same time conventional manufacturing is to be performed. Such a conversion requires time. What does the RSPO certificate stand for? The general criteria and principles for certification are: • Commitment to transparency and freedom of information • Compliance with local, national and ratified international laws • Consideration of any possible negative impact before new planting and the expansion of plantations Environmental standards • Process optimization with a view to soil, water and waste management (recycling and proper waste disposal), no use of pesticides as a prophylactic measure (in addition: no banned substances) • No certification of plantations created after November 2005 on areas which were originally primary forests or in forests of high conservation value • No use of fire to clear forest areas • Preservation of natural resources and biodiversity
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Social standards • Working conditions must at least meet the local minimum and customary industry standards • Minimum wage to cover the basic needs and the creation of disposable income • Health protection/occupational safety • Freedom to form labor unions, no child labor, assistance of children only on family farms under the supervision of adults and without any impairment of school education • No discrimination, protection of women’s rights, fairer dealings with small farmers • Observation of the rights of the local population and suitable compensation if local farmers have to leave their land as they are not the land owners RSPO supply chain models The RSPO has approved four supply chain models. Each individual batch of palm oil can be treated using one of these four supply chains: I. Identity Preserved (IP): Strict physical separation of oil palm products and their derivatives from the plantation onwards via the mill to the end user, no blending in the oil mill, thus the most complex scheme in terms of organization and costs, as it demands total segregation of all batches with no blending of materials of different origin along the entire supply chain to the end product. The benefit: A high degree of credibility. The drawbacks: Cost-intensive and complex as additional infrastructure is necessary (e.g. extra warehousing). This means that smaller producers are possibly disadvantaged (see also Illus. 5). II. Segregation – Chain of custody This means the strict physical separation of oil palm products from sustainable plantations (RSPO) and those from non-sustainable (non-RSPO) production along the entire procurement chain downstream of the oil mill. Benefits and drawbacks: As above but to a lesser degree (see also Illus. 6). III. Mass balance This does not entail a physical but a proportional separation. RSPO-certified palm oil is mixed in with non-certified palm oil and monitored administratively.
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RSPO CERTIFIED PlantaTIONS 100 ton
100 ton
100 ton
100 ton
MILLER
TRANSPORTER
REFINER
END USER
X
X
X
X
MILLER
TRANSPORTER
REFINER
END USER
CONVENTIONAL PLANTATIONS
Figure 5: Diagram of the supply chain model “Identity Preserved (IP)”; Source: Roundtable on Sustainable Palm Oil (RSPO) (2008)
The precise proportion of RSPO palm oil is stated. With this model the volume of RSPO oil which reaches the end user reflects the amount of RSPO crude palm oil produced by RSPO plantations. In the medium term, with this model it is possible to switch to the segregation model. The drawback of this approach: There is no direct
traceability; transparency may be called into question (see also Illus. 7). IV. Book and claim Here certificates are booked and symbolically claimed. There is no attempt to trace the RSPO crude palm oil
RSPO CERTIFIED PlantaTIONS 200 ton MILLER 200 ton
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Figure 6: Diagram of the supply chain model “Mass balance”; Source: Roundtable on Sustainable Palm Oil (RSPO) (2008)
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RSPO CERTIFIED PlantaTIONS 100 ton MILLER CONVENTIONAL PLANTATIONS
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Figure 7: Diagram of the supply chain model Darstellung “Mass balance”; Source: Roundtable on Sustainable Palm Oil (RSPO) (2008)
to ensuring that the RSPO monitors the use of claims and labels so as to guarantee that these are not misleading and exclusively contain details that can actually be verified. Furthermore, the WWF recommends that the method is practicable, the producers are encouraged to supply RSPO oil, and the method is geared to the palm oil trade being dominated in the future by producers whose oil meets the RSPO criteria [17, 18].
along the entire supply chain from the plantation to the end user. Instead a tradable certificate is used for producers who are RSPO-certified which may then be sold to the buyer using the oil for his products. This model is currently preferred by the processing industry because it may be implemented quickly. From the stance of the WWF this model is only suited as a transitional measure. For the first three models (IP, segregation and mass balance) traceability from the certified plantation to the end user is necessary (see also Illus. 8).
Criticism of the RSPO The Roundtable has been criticized for a number of reasons. Even if premium brands are prepared to buy sustainable palm oil, they still only procure a small
Companies can opt for any one of the models, and also combine these with one another. The WWF is committed
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Figure 8: Diagram of the supply chain model “Book and claim”; Source: Roundtable on Sustainable Palm Oil (RSPO) (2008)
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proportion of total global production – which, in turn, is something they can hardly be reproached for. Traders with low prices and tight profit margins are only prepared to buy sustainable palm oil to a limited degree. Moreover, the majority of buyers come from less environmentally-conscious threshold countries such as China and India, whose participation is necessary if the Roundtable intends to be successful on a global level. Furthermore, it became apparent last year that some RSPO-certified palm oil farmers continue to destroy ecologically valuable habitats. It transpired, for example, that various palm oil groups sold products from their conventional plantations as sustainably produced, yet at the same time continued to clear forests and in some cases were even driving indigenous groups from their land so as to establish new plantations. Bio palm oil also under suspicion This, however, is neither a specifically Asian problem nor exclusively one facing the RSPO. In the case of bio palm oil cultivation there has been a conflict over the possible expulsion of farmers from their lands. In March 2010 “Report Mainz”, a current affairs program on Germany’s ARD television channel, reported that the Columbian bio palm oil producer Daabon had driven smallholders from their land: “Last year Daabon – with the assistance of special police units – cleared the cocoa and maize plantations of 123 families and drove the people out of their settlement. Daabon established new large-scale plantations on these fields for the industrial production
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of bio palm oil.” [19] The human rights agencies have brought the case before the highest court of justice in Columbia (Corte Constitucional). In February (2010) the Office of the High Commissioner for Human Rights (OHCHR) also began examining the expulsion of farmers from Las Pavas. This, however, may not detract from the fact that the credibility of the RSPO as a multi-stakeholder initiative is jeopardized by the difficulties of implementing the sustainability criteria. As sustainably-produced and nonsustainably produced oil both have the same physical characteristics, it is difficult to furnish clear proof of sustainability. Some critics are of the opinion that the Roundtable lacks a clear overview of the overall situation, that the compliance yardstick is too low, and that the initiative is under-financed. They also maintain that the RSPO is having difficulty in effectively tackling a number of major problems, for instance the integration of smallholders. The additional costs for the certification of smallholders are estimated to be at least 20 percent of the production costs, a sum regarded as prohibitive for the smallholders [20]. A further problem is formed by the lack of norms for the greenhouse gas emissions of the palm oil plantations. This, however, is not a problem exclusive to the RSPO. For a number of years already experts have been discussing which mathematical models can be used
Reconciliation of interests with sustainable palm oil cultivation: A major challenge
ENGOs
Social NGOs
BENGOs
Workers/ Unions
Communities
Grower > Miller > Shipper > Processor > Shipper > Manufacturer > Retailer
Media
Banks/ Investors
Govt. Agencies
Regional Organisations
Global Organisations
Figure 9: The palm oil supply chain and participating stakeholders; illustration based on Teoh, C.H.; National Finance Corporation (2010)
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to reliably determine greenhouse gas emissions and compensation. There are as yet no acknowledged methods – neither for a raw material nor for a region. A further bone of contention is the fact that the Roundtable is dominated by palm oil traders, who have an innate economic interest in the expansion of palm oil production: 95 percent of the RSPO members are protagonists from industry, trade and the financial sector, and only 5 percent are NGOs with a social or ecological commitment. And this although, in addition to the WWF as the initiator, various national environmental protection and social groups, as well as Oxfam International as one of the leading global social NGOs, are members of the board of the RSPO. In the view of the authors, however, the question has to be raised as to whether such a quantitative view is productive and commensurate. Ultimately it is to be the various participants along the supply chain who actively work on a development towards sustainably produced palm oil, and less so the NGOs. In addition, in the “International Declaration against ‘Greenwashing’ of Palm Oil by the Roundtable”, which was signed in 2008 by more than 250 social and environmental organizations, the Roundtable was accused of such green-washing. These allegations have been supported at official level. In 2009 the UK Advertising Standards Agency officially banned a newspaper advertisement by the Malaysian Palm Oil Council (MPOC) as it was deemed to mislead the general public. The advert claimed that palm oil was the “green answer” to sustainably and efficiently meeting the bulk of the rising global demand for oil [21]. On the other hand, experts repeatedly stress that although the RSPO undoubtedly has its weaknesses which require correction, there is currently no other comparable forum worldwide, and nor will there be one in the foreseeable future. The RSPO brings together all the major and important palm oil producers of SouthEast Asia with the key corporate representatives along the entire supply chain, as well as the other stakeholders from the main consumer markets in Europe and the USA, to form a democratic roundtable in order to jointly elaborate sustainability solutions.
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An alternative to RSPO was recently developed by the Rainforest Alliance, an independent non-governmental organization and environmental conservation organization, and its partners in the Sustainable Agriculture Network (SAN). Their certification for palm oil is based on the established Sustainable Agriculture Network (SAN) standard. The SAN standard has been used since 1995 for the promotion of sustainable agriculture in the tropics, with well-known products such as bananas, coffee and cocoa among those which bear the „Rainforest Alliance Certified“ seal. The Rainforest Alliance supported the RSPO from the very outset, collaborating on the development of the criteria for sustainable palm oil production. For example, November 2005 was defined as the so-called „cut-off date“. After this date no primary forest clearing may have been conducted if a plantation is to be considered at all for sustainability certification. This is an important criterion for measuring how efficient a standard is in stemming the cutting down of tropical forests. The SAN standard, however, demands additional measures to protect eco-systems, such as the reparation of habitats that have already been destroyed. The „cut-off date“ also covers habitats per se worthy of ecological protection. The protection of workers has also been integrated to a greater degree. The SAN is also investigating better traceability systems. Companies (brands) that want Rainforest Alliance Certified palm oil demand more traceability than the „book and claim“ system now commonly used. The Rainforest Alliance will insist on at least „mass balance“ if the oil cannot be traced through full segregation. At present, however, not one single palm oil farm fulfils the high demands of the standard. This standard will not be able to counter the opinions of the many determined critics who fundamentally reject the cultivation of the oil palm and who are skeptical towards the idea of a sustainability seal for this raw material. Nevertheless, the Rainforest Alliance certification will contribute to a new dynamism that can favor the further development of the current RSPO criteria and certification practices – and which also offers companies an additional, more challenging option to meet their promise of buying sustainable palm oil.
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“Forum for sustainable palm oil” – Kick-off meeting in Berlin on May 18, 2011 Together with the WWF and Germany’s Gesellschaft für Internationale Zusammenarbeit (GIZ) various companies have initiated the establishment of a “Forum for sustainable palm oil”. The objective of the forum, which has yet to be founded, is that of further developing and supplementing the standards defined by the RSPO. All organizations and companies, in particular companies from the consumer goods industry, as well as environmental, consumer and development organizations in Germany, Austria and Switzerland, interested in sustainable palm oil/palm kernel oil are invited to join the initiating partners [22]. Conclusion Palm oil and palm kernel oil are an excellent example of the far-reaching complex problems in connection with tropical raw materials. The involvement of protagonists from industry and society in the control of the valueadded chain can further the implementation of ecological and social guidelines and directives. Within just a few years the Roundtable has gathered an impressive and broad coalition of industries and national governments, united by their acknowledgement of the sustainability problem in palm oil production. The Roundtable, however, also clearly shows the challenges of a market-based control mechanism. At operational level the Roundtable faces challenges with respect to the credibility of RSPO certification and the ability to motivate less environmentally-conscious markets to participate and not only well-known brand manufacturers. On a more fundamental level the debate has a broad scope: While the Roundtable regards itself as a compromise between sustainability and economic interests, critics question the practicability of sustainable oil palm cultivation given the ongoing deforestation and social conflicts. On the one hand, efficient agricultural solutions are required in view of the ever rapid world population growth and the need to feed 9.5 billion people in the future. At the same time, the global demand for
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alternatives to crude oil-based ingredients per se is on the increase. It is a fact: The oil palm cultivation is by far the most efficient crop plant compared to other tropical crop plants that supply oil. It provides the highest yield as a proportion of the required growing area. Moreover, palm oil does not require genetic engineering. The challenge for responsible cultivation of the oil palm will be that of building on the existing dynamism in the long term and further developing RSPO certification in a consistent manner – and using meaningful alternatives such as the certification system of Rainforest Alliance as a starting point for the continuation of the critical debate on sustainability. Given the complexity of global commodity production chains, independent and critical organizations such as NGOs play an important role in the monitoring of implementation, the identification of weaknesses, and the provision of information for consumers, governments and multinational buyers on the local impact of certification. In this respect the potential of the RSPO should be recognized and utilized as an opportunity. No other democratic body has so far succeeded in bringing together all the participants and protagonists in the palm oil supply chain under one roof and obligating them to adhere to a standard, albeit if this standard needs to and can be improved. This is something that requires the participation of national governments in the cultivating countries. Without their involvement there can never be sustainable solutions. This is forgotten all too often.
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Address for correspondence
Dr. Juliane Reinecke Warwick Business School University of Warwick Coventry, CV4 7AL, UK Tel: +44 2476 524962 E-Mail:
[email protected]
Oliver von Hagen (M.A.) International Trade Center (UN/WTO) Genf, Schweiz Tel: +41 22 730 0519 Fax: +41 22 730 0577 E-Mail:
[email protected]
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Dr. Stephan Manning University of Massachusetts Boston College of Management 100 Morrissey Boulevard Cambridge, MA 02125, USA Tel: +1 617 287 7734 Fax: +1 617 287 7877 E-Mail:
[email protected]
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[10] Integrated Forest Fire Management (IFFM) Project (2002): Fire Situation in Indonesia. IFFN No. 26: 37-45. Available under: http://www.fire.uni-freiburg.de/iffn/country/id/ id_35.htm (last downloaded: January 2011) [11] Rowell A., Moore P. F. (2000): Global Review of Forest Fires. A WWF/IUCN Report. Available under: http://www.iucn.org/about/work/programmes/ forest/fp_our_work/fp_our_work_oaw/fp_our_ work_ff/fp_forest_fires_resources/?692/GlobalReview-of-Forest-Fires (last downloaded: March 2011) [12] Greenpeace International (2007): How the palm oil industry is cooking the climate – full report. Available under: http://www.greenpeace.org/international/en/ publications/reports/cooking-the-climate-full/ (last downloaded: January 2011) [13] The IUCN Red List of Threatened Species: Pongopygmaeus (Bornean Orangutan). Available under: http://www.iucnredlist.org/apps/redlist/details/ 17975/0/ (last downloaded: January 2011) [14] Colchester M., Pang W. A., Chuo W. M., Jalong T. (2007): Land is Life: Land Rights & Oil Palm Development in Sarawak. Forest Peoples Programme/ Perkumpulan SawitWatch. Available under: http://www.forestpeoples.org/sites/fpp/files/ publication/2010/08/sarawaklandislifenov07eng. pdf (last downloaded: March 2011) [15] Roundtable on Sustainable Palm Oil (RSPO) (2011): www.rspo.org [16] WWF International/Forest Conversion Programme (2009): WWF Palm Oil Buyers Scorecard 2009. Available under: http://wwf.panda.org/what_we_do/footprint/ agriculture/palm_oil/solutions/responsible_ purchasing/palmoil_scorecard/ (last downloaded: March 2011)
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[17] WWF Deutschland, Pressestelle Berlin (2008): Nachhaltiges Palmöl. Hintergrundinformation. (Sustainable Palm Oil. Background Informaiton) [18] Roundtable on Sustainable Palm Oil (RSPO) (2008): Promoting the Growth and Use of Sustainable Palm Oil. Powerpoint Presentation. Available under: http://www.rspo.org/files/resource_centre/ RSPO_Presentation_Extended.ppt (last downloaded: March 2011) [19] SWR/ARD “Report Mainz” (2010): Vertreibung für Bio-Palmöl. Deutsche Naturkosthersteller in der Kritik. [Expulsion for palm oil. German bio food manufacturers under criticism.] Available under: http://www.swr.de/report/presse/-/id=1197424/ nid=1197424/did=6158012/e1gsi7/index.html (last downloaded: March 2011) [20] Cramer J. (2007): Testing framework for sustainable biomass. Final report from the project group “Sustainable production of biomass”. Commissioned by the Energy Transition’s Interdepartmental Programme Management (IPM) [21] Advertising Standards Authority ASA, United Kingdom (2009): ASA Adjudication on Malaysia Palm Oil Council. Available under: http://www.asa.org.uk/ASA-action/Adjudications/ 2009/9/Malaysia-Palm-Oil-Council/TF_ADJ_46897. aspx (last downloaded: March 2011) [22] IKU GmbH (2011): Mitteilung “Mit Palmöl auf Nach¬haltigkeitskurs”. [Announcement “On course for sustainability with palm oil] Available under: http://www.ikugmbh.com/aktuelles/2011/mit_ palmoel_auf_nachhaltigkeitskurs.html (last downloaded: April 2011)
