Supply chain strategy | Opinion

Will ‘crop apartheid’ affect palm oil sustainability?

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No point in dumping problems on another commodity

Despite a potential ban in EU biofuels, and increasing concern around corporate 2020 commitments on deforestation, are there any alternatives to palm oil that could deliver at scale? Not in the foreseeable future

The European parliament’s decision to vote in favour of a ban on the use of palm oil in biofuels manufacturing by 2021 has predictably caused outrage across southeast Asia. Malaysia’s minister of international trade and industry, Mustapa Mohamed, went so far as to describe the move as “crop apartheid” and a “potential violation of World Trade Organisation rules”.

For the ban to come into force, it would need to be agreed by other EU bodies and member states, but, clearly, palm oil-producing nations are worried about future trade. In 2016, 15.2% of Malaysia’s total palm oil exports entered the EU market. The biofuels ban is likely to have a negative impact on the livelihood of the country’s more than 650,000 oil palm smallholders. The picture in neighbouring Indonesia is similar, where smallholder farmers account for 40% of palm oil production.

Whether or not EU lawmakers are discriminating unfairly against the palm oil sector, the ban reflects that, despite some hard work, the palm oil sector has not yet shaken its links to deforestation, social unrest and adverse land use.

Tough commitments

In late 2017, new analysis by Greenpeace suggested that most suppliers to big brands are still unable to guarantee that their palm oil is free from forest destruction. While most companies, including the 400 members of the Consumer Goods Forum, have made strong commitments to reduce deforestation impacts by 2020, just two of the traders that the Greenpeace research assessed were planning to meet that deadline.

The vast majority, Greenpeace says, have no deadlines in place at all, leaving brands exposed and at risk of being attacked for sourcing palm oil from plantations created at the expense of valuable forest. Most traders did not have maps of their suppliers’ plantations, making it impossible to find out whether they were clearing forests or not.

“Brands need to step up and make traders cut off growers that won’t change their dirty practices,” says Bagus Kusuma, a forest campaigner with Greenpeace Southeast Asia.

Blunt instrument

The irony is the palm oil industry has, of course, made some significant steps moving towards more sustainable supply chains. Would a change in EU policy set back these efforts?

Golden Agri-Resources’ VP of corporate communications and sustainability Anita Neville says the EU’s purchasing and policy signals have helped drive industry improvements. “Now it is telling palm oil farmers and the businesses striving for improvement that nothing will be good enough.” Yes, the EU is right to pursue policy initiatives to halt deforestation, but it also needs to find a less blunt instrument to divert commodities and products linked to deforestation to other less discerning and stringent markets, Neville adds.

She argues that the EU’s decision will have most negative effects on smallholders “not just because of the loss of sustainability premiums a market like the EU offers but also because it will likely shut down investment in change”.

Replacing palm?

More broadly, despite Global Canopy’s recent Forest 500 report suggesting palm oil has the greatest private sector commitment to sustainability, compared to other risk commodities, might brands be slowly turning their back on palm oil in search of alternatives that are less high profile and contentious?

Finding replacement oils – such as rapeseed or sunflower – will not be easy given the amount needed and the current extra cost involved (both oils are currently trading at around €200 a tonne more than palm oil). There is also the significant risk of simply moving the impacts of palm oil to other commodities grown potentially less sustainably elsewhere.

There are examples of innovation developing entirely new oil sources. Unilever has an agreement with TerraVia to make use of its renewable algae oils in a range of personal care products. The current five-year deal between the two entities runs to 2021 and represents total revenues of more than $200m. But the innovation’s impact is merely a drop in the ocean given Unilever’s brands currently use as much as 8% of global palm oil production on their own.

So, for now, despite the uncertainties around 2020 commitments, it does look like palm oil is here to stay.

A spokesperson for Nestlé told Innovation Forum that for specific product types in a limited number of countries, the business has invested in alternatives to palm oil where there is clear consumer demand to offer a choice. “However, we don’t anticipate these measures having a significant impact on the overall volume of palm oil we use.”

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