In a resounding vote of approval by its members last week, the world’s leading certifier of sustainable palm oil adopted new standards.
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Around 96 per cent of the group’s palm oil growers, buyers, investors and non-governmental organisations (NGOs) endorsed the revised rules, which have been criticised by some environmental groups for weakening forest protection.
The Roundtable on Sustainable Palm Oil (RSPO)’s new guidelines came a day before the European Parliament voted in favour of a one-year delay of the European Union Deforestation Regulation (EUDR) – a law that requires palm oil exporters to prove that their goods entering the EU are not grown on land deforested after December 2020 or in illegal areas. EUDR has called into question the relevance of RSPO’s voluntary certification scheme.
Under the regulation, which requires full physical traceability of the palm oil supply chain, RSPO credits which represent a tonne of fresh fruit bunches (FFBs) – the raw material for palm oil – produced by certified smallholders will not be recognised.
Similar to how carbon offsets work, RSPO credits are purchased by consumer goods brands to compensate for uncertified palm oil used in their products, allowing smallholders who do not operate close enough to certified mills to process their FFBs in a timely manner to get a premium for improving their agricultural practices.
Many independent smallholder groups, including nearly all in Indonesia, currently contribute to over a fifth of Europe’s sustainable palm oil imports via RSPO credits.
The increased compliance requirements of EUDR has led RSPO to update its standards “to strengthen smallholder inclusion in physical supply chains” for “better access to certification and new markets,” read its press release.
“RSPO-certified smallholder members are basically meeting all the requirements under the EUDR. The problem is that the supply chains aren’t there, so many smallholders supply to Europe right now, but under the credits mechanism,” Joseph D’Cruz, chief executive officer of RSPO told Eco-Business.
“EUDR insists that you track physical supply,” he said. “What we’re doing now with our members is working as quickly as possible to make sure that those smallholders have access to mills that are RSPO-certified so they can enter the physical supply chain.”
“With an extra year, a lot of our members will be making efforts to make sure that happens,” said D’Cruz.
Impact of RSPO credit price slump
As of 2023, over 40,000 independent smallholders globally have become RSPO-certified, up from 11,268 in 2022. Downstream RSPO members have also bought 261,792 credits worth US$7 million in 2023 – up from US$1.53 million in 2022 – from 85 certified groups.
However, the decline in credit prices in the last few months has sparked fears of financial strain among the RSPO-certified independent smallholders Eco-Business spoke to.
“Without support from buyers, RSPO and the government, I am 100 per cent sure that the independent smallholders will collapse because the EUDR is affecting the price of the credits in PalmTrace [RSPO’s marketplace and traceability system],” said Syarif Hidaya of Perkumpulan Pekebun Swadaya Mitra Hindoli (PPSMH), an Indonesian smallholder group which supplies FFBs to American agribusiness giant Cargill-owned Hindoli.
“Even now, when we submit our credits onto PalmTrace, it takes a very long time until someone buys them.”
Hidaya told Eco-Business that sustainable palm oil credits are now being sold at around US$2 per tonne, a big drop from the US$40 per tonne they were sold for previously.
“There’s a lot of supply, but no demand,” he said. “More smallholders are joining the RSPO, but there are no large buyers to buy the credits.”
Prices of Certified Sustainable Palm Oil (CSPO) credits traded on RSPO’s PalmTrace marketplace as of September 2024, where the trades averaged at US$2.22. Prices reached a high of US$35.27 in October 2021. Source: RSPO
Hidaya said he was unable to specify how much it cost to get 209 of his group’s farmers certified in 2022, as the cost was subsidised by RSPO.
But he shared that to get the remaining 491 independent smallholders in the group certified, it would take over Rp 300 million (US$19,000) for mapping. He added that all the data collection required for certification is carried out by PPSMH’s dedicated team of 10 employees.
Parichat Arisa Seangtan, group manager of Thai smallholder group Khao Tor Oil Palm Grower Community Enterprise, which comprises nearly 100 farmers, said that without external support, getting RSPO-certified would not be cost-effective for smaller groups.
“To be frank, as of now, we still need support from other agencies for the cost and resources required for the RSPO certification, which should be divided among the farmers,” said Seangtan. “So at least in the very beginning, we cannot say that certification will be 100 per cent sustainable without external support.”
The group’s main support comes from development organisation German Agency for International Cooperation (GIZ) and Thailand’s Department of Agriculture and Department of Agricultural Extension.
Seangtan estimates that it would roughly cost 360,000 baht (US$10,400) for recertification, which is done once every five years. However, this does not include training, data collection and talking with stakeholders, which she said is “a very time-consuming process”.
“We need to be able to have a person available to do this full time. It cannot just be a farmer that only does this on some days,” she said.
She adds that unlike some smallholder groups supported by mills or other companies, her group has to entirely foot the RSPO membership fee of €250 (US$264). “It’s up to us to see whether we have produced enough credits and if it is the right time to sell them, so that we would have enough money for our membership next year,” said Seangtan.
Many independent smallholders are still banking on the credit price slump being temporary, even while starting discussions about restructuring existing financial plans.
“Our strategy is to hold down the transactions. We hope that in maybe a couple weeks or months, prices will increase and then we can start to transact again,” said Juliono, chairman of Karya Serumpun Association, a smallholder group based in Riau, Indonesia, which supplies credits to Unilever.
The British packaged goods company is one of the largest buyers of independent smallholder RSPO credits, but it is unclear whether it will continue to be incentivised to purchase credits with the imminent rollout of EUDR.
Barring an increase in demand for credits, some groups continue to see potential benefits from obtaining RSPO certification.
Syamsul Rifai, secretary of Indonesian smallholder group Tunas Karya Mandiri Association, which became RSPO-certified last December and also supplies credits to Unilever, said that he has seen an increase in the quality and quantity of palm oil produced since they started following the suggestions from RSPO.
”The reduced price is not impacting any of our spirits, because the main goal for RSPO certification is for smallholders farmers to implement good agriculture practices,” said Rifai.
Karya Serumpun Association’s Juliono shared similar sentiments that joining RSPO is “not only to get a premium price”. Still, he is hoping for a “magic moment” soon, where the price of credits increases again.
Eco-Business’ access to the Roundtable Conference on Sustainable Palm Oil 2024, as well as the sponsored trip to Bangkok was facilitated by RSPO.
