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28-04-2014, 09:51 AM
PUBLISHED APRIL 28, 2014
Sustainability: new ball game for palm oil firms
But higher bar set by Wilmar, Golden Agri won't have big immediate impact: analysts
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT
In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers - PHOTO: REUTERS
application/pdf iCONNo palming off
[SINGAPORE] The palm oil industry has reached a tipping point.
In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers.
About half of all fresh fruit bunches bought by Wilmar come from third parties, while the amount for upstream palm oil player Golden Agri is much lower, at 7 per cent.
The two palm oil groups' resolve to set a new sustainability standard in the industry has prompted others like First Resources to look into doing the same.
"Although our third-party purchases are small, we will be reviewing our procurement policies with the aim of incorporating our sustainability values into our supply chain," said a First Resources spokesman.
The pressure from non- governmental organisations (NGOs) such as Greenpeace has been mounting for a decade, but the catalyst for these recent developments was the changing tide of sentiment among consumer goods firms.
A month before Wilmar's announcement last December, Unilever - the world's largest user of palm oil at 1.5 million tonnes a year, or 3 per cent of global production - committed to buying only palm oil that can be traced to known sources by the end of this year.
The Anglo-Dutch group uses palm oil in products such as its Dove shampoo and Flora margarine.
Unilever's decision follows similar commitments by Ferrero, Nestle, Kellogg and L'Oreal to buy certified palm oil, or oil that comes from plantations managed and certified according to certain sustainability criteria.
Since then, the tide has swept along more palm oil buyers. M&M maker Mars and Colgate-Palmolive late last month announced their plans to use only certified palm oil by the end of next year; Procter & Gamble, which was recently the target of a global Greenpeace campaign, committed on April 8 to ensuring no deforestation in its palm oil supply chain.
Europe, the third-largest import market for palm oil after India and China, has led the demand for sustainability in the palm oil sector. In France, food companies have started using "palm oil-free" labels as a badge of honour.
Concern is growing that the palm oil industry will suffer if it remains deaf to these demands from its customers.
Said Wilmar CEO Kuok Khoon Hong at its results briefing in February: "If this clash continues, maybe the EU governments will stop using palm oil for biofuels under pressure from all their consumers. You can see some very big companies already saying that they don't use palm oil. It's a selling point (for them)."
"If they stop using palm oil for biofuel, if all the big consumers there stop using palm oil, crude palm oil (price) may drop by US$200-300 a tonne. What's the point of planting another 15,000 hectares (then)?" he asked.
Wilmar has therefore decided to take the lead in the industry. "We're hoping for other companies, other plantations to join us, to try to make the whole industry sustainable."
But these changes will not come without cost, say analysts.
While the impact on the profitability of palm oil firms would not be significant in the short term, "(it) could slow down their ability to grow due to the more stringent policies that they have adopted", said CIMB analyst Ivy Ng.
A Wilmar spokeswoman conceded that its business will be affected in the short term. "We recognise that this is something we have to do, both for the business and the environment. We believe the long-term benefits will outweigh the challenges facing us in the short term," she said.
Committing to sustainability, however, is only a first step, said Greenpeace head of forest campaign Bustar Maitar. "The next step - and a big one - after that is to actually implement the policy itself."
This will be important in gaining the trust of the market, said Scott Poynton, executive director of Forest Trust, a Swiss non-profit organisation. "There's still a lot of cynicism and mistrust about these companies. If they can prove that they are not just greenwashing, they will start winning confidence back from the broad market and the NGO community."
Challenges abound for palm oil firms. For one thing, the definitions of peat land and high carbon forest are hazy. Standards are also always moving higher.
In view of this, Carey Wong, an analyst at OCBC, says a continual raising of the bar may bode well for the industry ultimately.
"We believe it is a good thing - it raises the standard for the whole industry and makes them appear on a par with practices in the Western world," he said.
Customers who are more discerning are also willing to pay more, he added. "So that could still be a 'win-win' for the companies that are RSPO-certified, for example." RSPO, or the Roundtable on Sustainable Palm Oil, is an industry body that promotes the use of sustainable palm oil products.
And there may be no two ways about it - those who refuse to adapt will be left behind. Said Mr Poynton: "In time, the buyers will desert them. The change is coming. Their resistance will ultimately be undermined."
Sustainability: new ball game for palm oil firms
But higher bar set by Wilmar, Golden Agri won't have big immediate impact: analysts
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT
In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers - PHOTO: REUTERS
application/pdf iCONNo palming off
[SINGAPORE] The palm oil industry has reached a tipping point.
In the last five months, two palm oil giants who together trade about half the global supply - Wilmar International and Golden Agri Resources - have declared that their sustainability policies would apply not just to their own plantations, but also to those of their suppliers.
About half of all fresh fruit bunches bought by Wilmar come from third parties, while the amount for upstream palm oil player Golden Agri is much lower, at 7 per cent.
The two palm oil groups' resolve to set a new sustainability standard in the industry has prompted others like First Resources to look into doing the same.
"Although our third-party purchases are small, we will be reviewing our procurement policies with the aim of incorporating our sustainability values into our supply chain," said a First Resources spokesman.
The pressure from non- governmental organisations (NGOs) such as Greenpeace has been mounting for a decade, but the catalyst for these recent developments was the changing tide of sentiment among consumer goods firms.
A month before Wilmar's announcement last December, Unilever - the world's largest user of palm oil at 1.5 million tonnes a year, or 3 per cent of global production - committed to buying only palm oil that can be traced to known sources by the end of this year.
The Anglo-Dutch group uses palm oil in products such as its Dove shampoo and Flora margarine.
Unilever's decision follows similar commitments by Ferrero, Nestle, Kellogg and L'Oreal to buy certified palm oil, or oil that comes from plantations managed and certified according to certain sustainability criteria.
Since then, the tide has swept along more palm oil buyers. M&M maker Mars and Colgate-Palmolive late last month announced their plans to use only certified palm oil by the end of next year; Procter & Gamble, which was recently the target of a global Greenpeace campaign, committed on April 8 to ensuring no deforestation in its palm oil supply chain.
Europe, the third-largest import market for palm oil after India and China, has led the demand for sustainability in the palm oil sector. In France, food companies have started using "palm oil-free" labels as a badge of honour.
Concern is growing that the palm oil industry will suffer if it remains deaf to these demands from its customers.
Said Wilmar CEO Kuok Khoon Hong at its results briefing in February: "If this clash continues, maybe the EU governments will stop using palm oil for biofuels under pressure from all their consumers. You can see some very big companies already saying that they don't use palm oil. It's a selling point (for them)."
"If they stop using palm oil for biofuel, if all the big consumers there stop using palm oil, crude palm oil (price) may drop by US$200-300 a tonne. What's the point of planting another 15,000 hectares (then)?" he asked.
Wilmar has therefore decided to take the lead in the industry. "We're hoping for other companies, other plantations to join us, to try to make the whole industry sustainable."
But these changes will not come without cost, say analysts.
While the impact on the profitability of palm oil firms would not be significant in the short term, "(it) could slow down their ability to grow due to the more stringent policies that they have adopted", said CIMB analyst Ivy Ng.
A Wilmar spokeswoman conceded that its business will be affected in the short term. "We recognise that this is something we have to do, both for the business and the environment. We believe the long-term benefits will outweigh the challenges facing us in the short term," she said.
Committing to sustainability, however, is only a first step, said Greenpeace head of forest campaign Bustar Maitar. "The next step - and a big one - after that is to actually implement the policy itself."
This will be important in gaining the trust of the market, said Scott Poynton, executive director of Forest Trust, a Swiss non-profit organisation. "There's still a lot of cynicism and mistrust about these companies. If they can prove that they are not just greenwashing, they will start winning confidence back from the broad market and the NGO community."
Challenges abound for palm oil firms. For one thing, the definitions of peat land and high carbon forest are hazy. Standards are also always moving higher.
In view of this, Carey Wong, an analyst at OCBC, says a continual raising of the bar may bode well for the industry ultimately.
"We believe it is a good thing - it raises the standard for the whole industry and makes them appear on a par with practices in the Western world," he said.
Customers who are more discerning are also willing to pay more, he added. "So that could still be a 'win-win' for the companies that are RSPO-certified, for example." RSPO, or the Roundtable on Sustainable Palm Oil, is an industry body that promotes the use of sustainable palm oil products.
And there may be no two ways about it - those who refuse to adapt will be left behind. Said Mr Poynton: "In time, the buyers will desert them. The change is coming. Their resistance will ultimately be undermined."