OFIC 2021 Virtual Conference: Day One

The Oil and Fats Congress 2021 (OFIC 2021) is having its annual conference, this time going virtual. The first day yesterday proved highly informative, and many interesting points made throughout:

1. The presentation by Professor Loh Teck Peng of Nanyang Technological University explored whether it was possible to create a fully green, biocompatible synthetic material. Research by Professor Loh’s team has shown that it is entirely possible to create an “aqueous media” using “practical and green chemical process” which generates less waste.

2. During the Sustainability and Climate Change Modules:

   1. Dr Gary Theseira, a senior research officer with the Forest Research Institute Malaysia (FRIM), recommended that sustainability policies should be approached from a more resource-based perspective. To that end, he emphasised the importance of a comprehensive census of resources to dispel the narrative that the palm oil industry is a land and labour hungry sector frequently associated with indirect land use change (ILUC).

   2. Dr Alain Rival of the French Agricultural Research Centre for International Development (CIRAD) pointed out that while oil palm plantations have the advantage of high oil yields and wide agronomic plasticity, it has poor climatic resilience; this is due to factors including large-scale monoculture and risky geographic concentration, i.e. 90% of global palm oil is concentrated around the Malacca Straits. It is thus prudent if research were to pay more attention to the climatic resilience of palm oil.

   3. Sime Darby Oils (SDO) Managing Director Mr Mohd Haris Mohd Arshad believes that evolving global opinions on sustainability points to several indications: (1) sustainability sourcing will be mainstream; (2) ultra transparent supply chains; (3) higher climate change urgency; (4) clearer expectations on human rights protection and remedies, including labour rights; (5) a shift from voluntary to regulatory-based compliance; and (6) increasing investor pressure on sustainability sourcing, e.g. BlackRock CEO’s annual letter to CEOs.

   4. Dr Denis Murphy of University of South Wales presented an interesting observation: the Covid-19 pandemic has increased demand in the personal care sector. This provides an opportunity for companies to address environmental concerns associated with palm oil consumption. There is also rising negative attention directed at the palm oil industry in general, this time most likely fuelled by more recent labour allegations against several palm oil companies.

China Dialogue: Sustainable Palm Oil and Affordability

China Dialogue has recently published an article exploring whether sustainable palm oil is only affordable to western buyers. Our 2019 report written in collaboration with Proforest and WWF Indonesia was cited in the article, specifically the fact that the premium paid for crude palm oil (CPO) is the lowest when Roundtable on Sustainable Palm Oil’s (RSPO) book and claim supply chain method is used. The article also cited that only in general, bigger companies will find it easier to obtain RSPO’s highest levels of supply chain certification compared to smaller ones, thus allowing the former to reap more benefits from the price premium.

China Dialogue also reached out to Segi Enam principal Khor Yu Leng for additional comments, who explained that many growers have opted for both RSPO and the International Sustainability & Carbon Certification (ISCC) certifications in order to better cater to market demands. She also expects that demand for palm oil from the EU would remain stable despite commitments to end biofuel use by 2030, stating that:

“The premium of certified sustainable palm oil will likely rise if new players, such as fast-moving consumer goods companies from Japan or China, start to buy certified palm oil and its derivatives. That will cause a shortage of certified palm oil rather than an oversupply, and the premium will go higher. That, in turn, could stimulate new supply.”

To read more (and you should! The article is pretty interesting and informative), head over to the following link: "Can only western buyers afford sustainable palm oil?"

Wilmar International: Suppliers and Deforestation

Various NGOs have investigated and challenged the inclusion of mill suppliers who deforest; and there is controversy over suspending or engaging with errant suppliers. Wilmar says to avoid suspension contributing to “a growing leakage market” or negatively impacting oil palm smallholders, post-suspension engagement is crucial... to assist suppliers in bringing their operations to compliance.” Its “Suspend then Engage” grievance approach took effect in January 2019.

For human rights complaints, a supplier must take steps “to address the grievance with regard to the development and implementation of the time bound action plan which includes corrective actions, remediation actions and actions to demonstrate systemic and group-wide change.”

Under its “Re-engagement Protocol”, Wilmar may resume sourcing from suppliers suspended for deforestation and/or peatland development if re-entry criteria (specifying minimum terms and conditions) are met. An example is the so-called GAMA Group, apparently consolidated under KPN Plantation (and associated with Martua Sitorus, a Wilmar founder). Its recovery plan interventions centers on "social recovery, specifically supporting the development of hutan desa (community social forestry) programmes in the area to support community empowerment and improving livelihoods. The recovery plans also consider landscape recovery where feasible, such as creating wildlife corridors."

According to ‘Wilmar’s Supplier Monitoring Programme’ of Sep 2018 (the latest report, accessed 10 Dec 2020):

1. Suppliers report their current compliance to Wilmar’s NDPE policy via Its online self-reporting system and there is follow-up verification for 10% of mills. The verification programme included satellite monitoring of 11 million hectares and 500 mills by Sep 2018.

2. “16 suppliers (were suspended) at a group level, as they failed to convincingly improve their policies and/or actions, supply chain exclusion at a group level has been imposed,” and for Indonesia a million tonnes worth of supply has been suspended while about 1.2 million tonnes was under ongoing engagement. The total under complaint (suspension and engagement status) was 3 million tonnes of supply (including Malaysia and rest of the world). This tonnage under complaint is about 12% of Wilmar’s 25 million annual tonnes of palm products handled in 2019.  The Indonesia complaints seen by Wilmar relate to about 5% of Indonesia’s palm oil production of about 43 million tonnes per year; and they likely appear as complaints for other Indonesia-based trader-processors too. 

Editor’s note: Interestingly, Wilmar exited from the High Carbon Stock Approach in April 2020, citing governance and financial issues. The company, however, insisted that it “firmly committed to the adoption and implementation of the HCSA toolkit”. Wilmar’s press statement on its exit can be read here.