Europe shaped the first phase of palm oil sustainability, when it was a dominant market for Asia’s production and challenged the plantation sector to delink from deforestation. Now the European Union takes less than 10 per cent of Asia’s production and Indonesia, India and China are the leading buyers.
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Asian consumers may not demand sustainability explicitly, but Asian producer governments want a fair deal for their farmers, who are also their voters, and many companies refining or buying palm oil in the region have commitments to zero deforestation.
Demand for palm oil is still growing in Asia, and this growth can only come from growing smallholder productivity. At the same time, palm production is at risk from climate disruption. In the last year, yields in the Malaysian palm oil sector fell by 20 per cent, especially from flooding following extreme weather. The future resilience of the palm oil industry requires companies and policymakers to support climate adaptation at the landscape level, where farmer prosperity and forest protection can come together and secure new sustainable supply. There are four ways that we see this happening:
Investing in traceability
The palm oil sector has long recognised the value of traceability. The Indonesian government has called for support to develop a data clearinghouse: a national database to collect information on producers of palm oil and other forest risk commodities. In Malaysia, there is interest in a national traceability system for the same reasons. Both are expected to link to national palm oil standards (MSPO and ISPO) which are likely to become the market standard for Asian buyers.
Building on existing NDPE commitments
As of 2020, nearly all large companies in the global palm oil supply chain have committed to No Deforestation, No Peat, No Exploitation (NDPE). These large companies include growers, traders, consumer goods companies and financial institutions. However, according to CDP’s most recent survey, among 75 per cent of reporting companies in Indonesia that have NDPE policies only 28 per cent follow good practice.
NDPE functions best when the entire industry follows its commitments. NDPE policy and practice needs to be strengthened, particularly for companies buying palm oil in areas with significant natural forest cover and where smallholders are the main growers.
Landscape leadership on palm oil sustainability
In Aceh Tamiang in nothern Sumatra, Indonesia, a multistakeholder landscape approach has effectively ended deforestation in the regency and inspired the whole province to follow suit, with much demand from international brands to extend the model to other districts in the province. In Sabah, Malaysia, Sawit Kinabalu has achieved impressive results on forest conservation, community development, agroforestry system and sustainable palm oil production support.
Replanting
Few small farmers can access loans to cover the upfront costs of replanting old trees with new higher yield varieties. Lenders ask for formalised land titles, so when local authorities help farmers register as landowners, it leads to higher incomes for farmers and boosts palm supply.
IDH is working with 19 companies and over 100,000 farmers in Indonesia and Malaysia to support these four approaches, in coordination with the governments of Malaysia and Indonesia. In the coming years, the partnerships plan to map, protect and restore forests, help adapt farming practices to climate change, and improve productivity, pricing, farm diversification, value distribution, and access to finance.
While the driving forces behind the next phase of palm oil sustainability are still taking shape, two things are for sure. First, it will be Asia-led and come about in collaboration between smallholder farmers, regional buyers and producer governments. And second, it will have more focus on smallholders on the farms of Southeast Asia, on increasing their yields within existing farm boundaries, and offering dignified livelihoods for themselves and their families.
Tran Quynh Chi is the regional director of Asian landscapes for the Netherlands-headquartered sustainable trade non-profit IDH. She is based in Hanoi.
