Non-governmental organisations have put more pressure on Southeast Asia’s palm oil industry to become environmentally friendly by convincing consumers to shun suppliers that cut forests to expand estates.
The impact of the green campaign on the industry will be a key issue for the Roundtable on Sustainable Palm Oil — an industry driven body tasked with certifying the vegetable oil as eco-friendly — when it meets in Indonesia on Nov. 8-11.
Here are some questions and answers on the issue:
What have green groups achieved so far?
A strong green lobby has convinced EU lawmakers to impose rules preventing palm-biofuels from top producers Indonesia and Malaysia from entering the market, a move seen by palm oil firms as an informal trade barrier in favour of EU oilseed producers.
The focus has since shifted to consumer products in a big way since 2009, which is harder for palm oil firms to ignore.
Indonesia’s SMART had to clear itself of allegations of forest clearing with an audit after buyers like Unilever and Nestle scrapped supply ties with company following Greenpeace claims of environmental damage.
What has happened to the European demand for palm oil?
Overall, EU actions against palm’s conversion into biofuels keeps the bloc well behind top buyers India and China and encourage these two Asian giants to consume more and lift the market.
So if green campaigners want to make an impact, they need to persuade price-sensitive India and China to limit their use of palm oil, the world’s cheapest cooking oil, and become more environmentally conscious.
Will NGA action affect palm oil futures and cash markets?
It is not the case for benchmark Malaysian futures as Asian demand patterns, the soy crop progress in the Americas and weather concerns drive the market. But it’s a different story for the physical market, especially Indonesian crude palm oil.
Under NGO pressure, Malaysia’s No. 2 palm oil firm and trader IOI stopped sourcing from SMART’s parent Golden Agri in July and had to pay more for Indonesian cargoes from other suppliers, a move that pushed prices up by 10 percent.
If more traders single out SMART and Golden Agri, they risk dealing with tighter supply and much higher prices as both firms make up a third of Indonesian output.
How about the industry’s expansion plans?
The industry says the rate of oil palm estate expansion in Indonesia has slowed to 250,000 hectares per annum from 600,000 hectares at the height of the palm oil price boom in 2007-2008 thanks to greater scrutiny by consumers and NGOs.
But the impact to supply will not be felt in the next five to six years as many foreign and local planters in Indonesia have not used up their huge landbanks.
Any future land expansions may come in the form of acquisitions in the sector as soaring palm oil prices provide strong cash backing.
The world’s No. 1 planter Wilmar took that route. In August, it bought a 20 percent share in Kencana Agri that has planted only a fifth of its landbank.
Wilmar told Reuters in a recent interview that there was sufficient non-forest, degraded land to accommodate the growth of the plantation business despite Indonesia’s proposed two year ban on forest clearing.
