There appears to be some relative institutional weakness in policy making in business circles (many industry players acknowledge this) over sustainability policies that are increasingly affecting market access for commodities such as palm oil. Notably there is a regressive higher cost for smaller players to comply with rising certification standards. Relative shallow institutional depth results in asymmetry in bargaining power or effort in the de facto international trade agreement that voluntary sustainability / traceability deals represent. This is not unexpected – see the Brundtland Report. Also, the devolvement of power to NGOs may also not serve the interests of buyers in complex supply-chains such as palm oil, as some specialists observe a preference there for a level of simplicity (rather than complexity). This apparent problem is compounded by the fact that the NGO sector appears to be building new sources of income (direct and/or indirect) that are independent of corporate CSR giving, individual donations or government grants. Key observers note that NGOs have since the 2007 Global Financial Crisis (when traditional funding fell drastically) been developing as technical service providers to help resolve corporate problems – this is obvious in palm oil. This is a different and stronger power relationship for NGOs vis-à-vis their traditional corporate backers in consumption countries and even their new corporate clients and/or backers in commodity producing countries. Such NGO sector expansionism and the wider use of new technology such as social media, geo-data and remote sensing are likely to create greater issues of scrutiny for the palm oil sector.
Editorial: New challenge for the supply chain
From Khor Reports's Palm Oil Newsletter #6 Jan/Feb 2014
Editorial: New challenge for the supply chain
Wilmar, the largest trader of palm oil in the world, has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, had weeks earlier promised to accelerate its sustainability push. Unilever has taken a lead in promoting the principle of sustainability in its materials sourcing via a top role at the RSPO from its inception nearly 10 years ago. For Unilever’s efforts to reduce environmental damage, Dutchman "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported 3 Dec 2013. Wilmar has faced NGO grumblings for not practicing sustainable sourcing for its third-party purchases (which is many times bigger than its own internal production) and over its sale of troubled assets. With its new promise, the giant trader is challenged to rationalize its supply chain. How will Wilmar achieve this without downsizing its business? In general, traceability with high level promises is tougher for large traders with complex supply chains. Industry talk in recent weeks has centered on top producers being asked to sign on to a new RSPO++ manifesto (characterized by multiple additional criteria), building on TFT-Greenpeace principles (they have become de facto new leaders of palm oil sustainability, seizing power from the WWF-driven RSPO). If the key palm oil producers accede, it could be business-as-usual for Wilmar but its cost structure may shift. Its promises can be fulfilled by tough action by its trade partners. Thus, we await information from other industry players on the manner of their support of Wilmar-Unilever.
Questions of impact abound. Could this bring on faster unit cost convergence for large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the industry at large, policy makers should be concerned with: a) how a traceable, no-peat, no deforestation, GHG-reducing palm oil supply chain will look like; b) who will be the winners and the losers; and c) how the transition will be effected, and with what effort to mitigate the impact on the losers. Politics may even be a factor given the size of the smallholder sector, rural development programs and promises. How will the new TFT-Greenpeace-driven principles be operationalized? Khor Report thinks that each palm oil mill will need to be supply-chain risk categorized. Could this segment different production zones with discounting factors? Will a November 1995 baseline apply and will high carbon stock measurement become essential? In this regard, the Golden Agri/Sinar Mas pilot done by TFT-Greenpeace is important. What requirements will Africa face even as it remains a net importer for years and has great hopes for rural development?
Various tropical and other commodities face pressures from an ascendant and increasingly well-funded international green movement. The key to its penetration is in promoting new global voluntary standards that have strong staying power. In taking on technical consulting roles NGOs can become self-funding and perpetuating in these sectors. In relative terms, the corporate sector has been scrabbling for footing amidst this structural change, while the independent and smallholder sectors are adrift with little voice. The largest plantation companies (especially those with European assets and market exposure) have been moving ahead. The swing from WWF to TFT-Greenpeace leadership in sustainability is happening just as developed markets think twice about biofuels policies and bumper oilseed crops are anticipated. The falling price ceiling of vegetable oil substitutes is crushing the palm oil price discount differential while big growers (i) face a new cost component at newly acquired estates via the RSPO compensation procedure (in “staged implementation” with a launch target of Nov 2014) and (ii) plan how to step up to the TFT-Wilmar demands. This new cost and opportunity cost intensive phase of the sustainability push proves its strategic importance on the entire palm oil supply-chain, if ever there were any doubt.
Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue (delayed in publication process)
Editorial: New challenge for the supply chain
Wilmar, the largest trader of palm oil in the world, has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, had weeks earlier promised to accelerate its sustainability push. Unilever has taken a lead in promoting the principle of sustainability in its materials sourcing via a top role at the RSPO from its inception nearly 10 years ago. For Unilever’s efforts to reduce environmental damage, Dutchman "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported 3 Dec 2013. Wilmar has faced NGO grumblings for not practicing sustainable sourcing for its third-party purchases (which is many times bigger than its own internal production) and over its sale of troubled assets. With its new promise, the giant trader is challenged to rationalize its supply chain. How will Wilmar achieve this without downsizing its business? In general, traceability with high level promises is tougher for large traders with complex supply chains. Industry talk in recent weeks has centered on top producers being asked to sign on to a new RSPO++ manifesto (characterized by multiple additional criteria), building on TFT-Greenpeace principles (they have become de facto new leaders of palm oil sustainability, seizing power from the WWF-driven RSPO). If the key palm oil producers accede, it could be business-as-usual for Wilmar but its cost structure may shift. Its promises can be fulfilled by tough action by its trade partners. Thus, we await information from other industry players on the manner of their support of Wilmar-Unilever.
Questions of impact abound. Could this bring on faster unit cost convergence for large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the industry at large, policy makers should be concerned with: a) how a traceable, no-peat, no deforestation, GHG-reducing palm oil supply chain will look like; b) who will be the winners and the losers; and c) how the transition will be effected, and with what effort to mitigate the impact on the losers. Politics may even be a factor given the size of the smallholder sector, rural development programs and promises. How will the new TFT-Greenpeace-driven principles be operationalized? Khor Report thinks that each palm oil mill will need to be supply-chain risk categorized. Could this segment different production zones with discounting factors? Will a November 1995 baseline apply and will high carbon stock measurement become essential? In this regard, the Golden Agri/Sinar Mas pilot done by TFT-Greenpeace is important. What requirements will Africa face even as it remains a net importer for years and has great hopes for rural development?
Various tropical and other commodities face pressures from an ascendant and increasingly well-funded international green movement. The key to its penetration is in promoting new global voluntary standards that have strong staying power. In taking on technical consulting roles NGOs can become self-funding and perpetuating in these sectors. In relative terms, the corporate sector has been scrabbling for footing amidst this structural change, while the independent and smallholder sectors are adrift with little voice. The largest plantation companies (especially those with European assets and market exposure) have been moving ahead. The swing from WWF to TFT-Greenpeace leadership in sustainability is happening just as developed markets think twice about biofuels policies and bumper oilseed crops are anticipated. The falling price ceiling of vegetable oil substitutes is crushing the palm oil price discount differential while big growers (i) face a new cost component at newly acquired estates via the RSPO compensation procedure (in “staged implementation” with a launch target of Nov 2014) and (ii) plan how to step up to the TFT-Wilmar demands. This new cost and opportunity cost intensive phase of the sustainability push proves its strategic importance on the entire palm oil supply-chain, if ever there were any doubt.
Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue (delayed in publication process)