We, at Khor Reports, recently attended a conference in Singapore that was largely concerned with deforestation in SE Asia. It was a well attended event, with representatives from the Norway and Indonesia governments, a video from the UN's forest secretariat and a strong presence from key environmental NGOs, a few with 100-year histories (information about the conference here: http://web1.iseas.edu.sg/?p=4977). The latter presented some information about their REDD+ projects. These seek to bring other incomes to local peoples, to give them an alternative to agriculture extensification i.e. cutting down trees and planting crops such as palm oil.
Market perversion, with 10-20% to local peoples / farmers
A crucial question from the audience was left unanswered in the public forum. A professor asked how much money actually goes to the local community and how much to bankers, consultants and other facilitators (I paraphrase). We all, should be concerned about how much in the $1 goes to the different parties involved in sustainability efforts.
So, let's take a look at the Roundtable for Sustainable Palm Oil's (RSPO) Certified Sustainable Palm Oil (CSPO) at GreenPalm (the book and claim system). At present, the price for CSPO certificates is US 25 cents (down from USD40 or so), and the brokerage fee is USD1.50 and the fee to the RSPO is USD1.00 (source:http://www.greenpalm.org/en/faqs/general#how-much-are-brokerage-fees). Thus, a buyer of 1 mt of this sustainable palm oil would pay a premium of USD2.75. In effect, 9% of the premium goes to the planter of palm oil and 91% goes to the facilitators (GreenPalm and the RSPO)#.
This is the opposite of what we would expect. We all would like to see the bulk being earned by the local peoples / farmers i.e. the 'doers'. In reality, the opposite is the case. Thus, it is a perversion of the so-called market (MS Word's thesaurus likens 'perversion' to the words parody, caricature, distortion, falsification, twisting, slanting...).
Is the current RSPO GreenPalm situation uncommon? Unfortunately, it seems to be consistent with the feedback that various sustainability efforts may only pay 10-20 cents in the dollar to the local doers / peoples. Perhaps a key problem is the collapse of voluntary market prices for many types of sustainability credits and certificates (and the outlook isn't good, given the economic troubles ailing the developed world). Other problems could be sub-optimal structuring of the projects and that too many parties are involved, with each seeking some upfront and fixed payment that is not tied to the price and performance of the traded certificate.
Good practices - 3 lessons from the NGO sector
We should ask this: what is good practice? Let's learn from the NGOs. They are often judged by the amount that they spend on their projects vs. what they spend on administration and fund raising. A common target threshold is some 85 cents in the dollar going to project or program work.
Take a look at Oxfam Hong Kong's 'Use of Donations' statement here, http://www.oxfam.org.hk/en/useofdonations.aspx. Another good practice for NGOs is the local sourcing of funding with low / no reliance on overseas HQ and government funding. This vastly improves a charity's autonomy. Along this vein, Khor Reports ventures to suggest more good practices: a wide breadth of funding, especially from individuals and less from corporates, and with 'limits' on single-source funding to avoid 'capture' by particular interests. Oxfam also says that for emergency efforts, "ALL donations – exactly 100% – go to assist people in need."
Thus, the palm oil sector could draw three (3) lessons for its sustainability programs: i) target no more than 15% on facilitation costs, ii) aim to localize and be autonomous, while avoiding capture by special interests and iii) for special worthy cases e.g. independent smallholders, zero facilitation costs.
Fix it
Thus, NGOs offer lessons in good practices. Clearly, NGOs should replicate such practices when designing and implementing projects affecting local peoples in developing countries. We hope to see that most of their programs deliver 85% benefits to the local peoples / farmers. These are the people nearer the bottom of the 99% that the Occupy Wall Street demonstrators are telling the 1% (the rich) not to forget. They say "the system is broke," and we at Khor Reports recognise in this statement, two meanings of the word "broke". So, let's not have socio-environmental efforts become another financial tool of (or captured by) rich interests. Let's fix it.
#In this, we have not even considered the direct and indirect costs of certification (the former estimated at USD6-12 per mt for corporate planters).
Market perversion, with 10-20% to local peoples / farmers
A crucial question from the audience was left unanswered in the public forum. A professor asked how much money actually goes to the local community and how much to bankers, consultants and other facilitators (I paraphrase). We all, should be concerned about how much in the $1 goes to the different parties involved in sustainability efforts.
So, let's take a look at the Roundtable for Sustainable Palm Oil's (RSPO) Certified Sustainable Palm Oil (CSPO) at GreenPalm (the book and claim system). At present, the price for CSPO certificates is US 25 cents (down from USD40 or so), and the brokerage fee is USD1.50 and the fee to the RSPO is USD1.00 (source:http://www.greenpalm.org/en/faqs/general#how-much-are-brokerage-fees). Thus, a buyer of 1 mt of this sustainable palm oil would pay a premium of USD2.75. In effect, 9% of the premium goes to the planter of palm oil and 91% goes to the facilitators (GreenPalm and the RSPO)#.
This is the opposite of what we would expect. We all would like to see the bulk being earned by the local peoples / farmers i.e. the 'doers'. In reality, the opposite is the case. Thus, it is a perversion of the so-called market (MS Word's thesaurus likens 'perversion' to the words parody, caricature, distortion, falsification, twisting, slanting...).
Is the current RSPO GreenPalm situation uncommon? Unfortunately, it seems to be consistent with the feedback that various sustainability efforts may only pay 10-20 cents in the dollar to the local doers / peoples. Perhaps a key problem is the collapse of voluntary market prices for many types of sustainability credits and certificates (and the outlook isn't good, given the economic troubles ailing the developed world). Other problems could be sub-optimal structuring of the projects and that too many parties are involved, with each seeking some upfront and fixed payment that is not tied to the price and performance of the traded certificate.
Good practices - 3 lessons from the NGO sector
We should ask this: what is good practice? Let's learn from the NGOs. They are often judged by the amount that they spend on their projects vs. what they spend on administration and fund raising. A common target threshold is some 85 cents in the dollar going to project or program work.
Take a look at Oxfam Hong Kong's 'Use of Donations' statement here, http://www.oxfam.org.hk/en/useofdonations.aspx. Another good practice for NGOs is the local sourcing of funding with low / no reliance on overseas HQ and government funding. This vastly improves a charity's autonomy. Along this vein, Khor Reports ventures to suggest more good practices: a wide breadth of funding, especially from individuals and less from corporates, and with 'limits' on single-source funding to avoid 'capture' by particular interests. Oxfam also says that for emergency efforts, "ALL donations – exactly 100% – go to assist people in need."
Thus, the palm oil sector could draw three (3) lessons for its sustainability programs: i) target no more than 15% on facilitation costs, ii) aim to localize and be autonomous, while avoiding capture by special interests and iii) for special worthy cases e.g. independent smallholders, zero facilitation costs.
Fix it
Thus, NGOs offer lessons in good practices. Clearly, NGOs should replicate such practices when designing and implementing projects affecting local peoples in developing countries. We hope to see that most of their programs deliver 85% benefits to the local peoples / farmers. These are the people nearer the bottom of the 99% that the Occupy Wall Street demonstrators are telling the 1% (the rich) not to forget. They say "the system is broke," and we at Khor Reports recognise in this statement, two meanings of the word "broke". So, let's not have socio-environmental efforts become another financial tool of (or captured by) rich interests. Let's fix it.
#In this, we have not even considered the direct and indirect costs of certification (the former estimated at USD6-12 per mt for corporate planters).