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Plantation firms in a fix
Published on: Monday, January 04, 2016

Kuala Lumpur: Plantation firms are in dilemma on whether the newly-formed Council for Palm Oil Producing Countries (CPOPC) will benefit them or should they ditch the Roundtable for Sustainable Palm Oil (RSPO) standards and adopt new ones.

The new council is supposed to supersede current RSPO standards, but most large international buyers of crude palm oil (CPO) and its products choose RSPO as a benchmark.

"We have not been briefed on what is required from us by the new council, but whatever the government decides it will do as part of the council should not affect us adversely. Maybe any new requirements will be in addition to RSPO compliance," said a senior executive of publicly-listed plantations company.

Local palm oil producers are also hesitant to move away from RSPO standards, which have opened up global avenues.

Recently, after several months of negotiations, the governments of Malaysia and Indonesia, the world's two largest exporters of CPO, signed a charter to set up the council aimed at regulating production.

"We welcome any additional standards that will improve on the ones we currently apply, but at the same time we are already implementing measures that go beyond RSPO standards. We want to ensure our customers know that they are buying from an ethical supplier. Being RSPO members gives us access to a larger market.

"If the new council requires us to implement new standards in addition to the ones we already have, of course we will comply. But bear in mind that RSPO membership means global acceptance," says the senior executive.

Around 20pc of the CPO available on the global market is RSPO-certified across a total of 2.7 million hectares. Most of this is sold in developed markets, where the demand for sustainable resource is such that a premium is paid for RSPO-certified CPO. Combined, Malaysia and Indonesia make up 85pc of global palm oil production. About 35 of what volume comes from Malaysia.

Malaysia has 128 RSPO members, including big volume exporters like Sime Darby Bhd, Kuala Lumpur Kepong Bhd, Felda and IOI Group Bhd, all of which have held RSPO membership since 2004.

The RSPO was set up in 2004 after a series of meetings between palm oil companies and environmental group World Wide Fund for Nature. RSPO's main offices are based in Kuala Lumpur.

Felda Global ventures Holdings Bhd (FGV), Felda's listed plantation arm, is a founding member of the RSPO. FGV was among the first agriculture companies to obtain will certification in 2010, and the first bunches certification, according to the company's website.

An analyst with a bank-backed research house says if exporters are expected to obtain additional certification of side-step RSPO standards, the impact for buyers will be negligible in the long run.

"There might be a backlash at first, especially from environmental NGOs (non-governmental organisation), but in the end, suppliers have the bargaining power. Malaysia and Indonesia supply 85pc of the world's palm oil, and Europe cannot afford to stop imports, or even reduce them drastically," says the analyst.

From a buyer's perspective, it is business as usual, at least until he council officially announces its standards.

Clariant sustainability manager for industrial and consumer specialities Martina Neitke says the chemicals company will make room for any new certifications it may need.

"We are watching (the development of CPOPC), and we will be part of it when required, but at the same time we already have our internal standards in place. In many other industries, you often see a time where certifications come up and they mushroom. For us, RSPO remains a globally-organised certification. There will always be new approaches to old standards, but Clariant is looking beyond certifications, even RSPO," says Beitke.

The Swiss chemical company uses 54,000 tonne of palm oil annually. It aims to source mass-balance-certified palm oil by next year and segregated oil by 2020; it has implemented its own sustainability concept for its products under the EcoTain label.

If the big players are already RSPO-certified, what is the point in coming with a new form of certification? For people outside the industry, the many forms of certification can be confusing. In March, Malaysia began implementing Sustainable Palm Oil (MSPO) certification standards. MSPO certification is on a voluntary basis, but those with existing RSPO certification can also concurrently hold MSPO certification.

Should the council come up with its own certification, there would be four such certifications, including Indonesia's own ISPO. It will be difficult for all these certifying bodies to co-exist without stepping on one another's toes.

The reason for setting up the MSPO was to ensure that smallholders' interests are safeguarded, according to the Malaysian Palm Oil Board (MPOB). Coincidentally, the CPOPC has also given the same reason.

"These new certifications are all voluntary, (but) we will still apply for them. Honestly, it will not make a difference to our practices because we (have) already implement more than what is required by RSPO," says the senior executive of the plantation company.

The move to set up CPOPC comes after major palm oil firms, including Golden Agri-Resources and Wilmar International, signed the Indonesian Palm Oil Pledge following pressure from international groups to adopt better practices. The organisation will function much like how Opec (Organisation of Petroleum Exporting Countries) works for the oil industry.

Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas and Indonesia's Coordinating Minister signed on behalf of their governments.

As the founding members of the council, both countries would contribute US$5mil (RM21.5mil) each to finance the initial operations. The council's membership would be extended to other palm oil cultivating countries such as Brazil, Colombia, Thailand, Ghana and the Philippines later. The analyst says, however, that the new council is set up entirely in Indonesia's favour.

"CPOPC doesn't address the very important issue of having a set levy for exports for both Malaysia and Indonesia. We know that Indonesia has a higher export levy for CPO because large Malaysian companies have plantations there. It is all about keeping the competition in check. Indonesia will always look to protect its market share," she says.

In July, the Indonesia government implemented a new tax levy of US$50 per tonne on exports of CPO, and US$30 per tonne on exports of CPO, and US$30 per tonne of processed palm oil products, regardless of the current price of CPO.

Indonesia has also been under international pressure over the last few years over the have issues. The new council will replace a "no deforestation" pledge signed at last year's climate change summit if favour of its own standards proposed by Malaysia and Indonesia.

"Indonesia and Malaysia also agreed to harmonise the standards of the Indonesian Sustainable Palm Oil (ISPO) and Malaysia Sustainable Palm Oil (MSPO). On top of the harmonisation, we will include the argument for socio-economic development for smallholders," Uggah told the press recently.

The scope of the council includes promoting consultation on the development of the oil palm-cultivating countries; and developing framework of principles for sustainable palm oil.

It also includes promoting cooperation and investment in developing sustainable and environmentally-friendly oil palm industry zones; addressing impediments to palm oil trade; cooperating in research and developments and training; as well as undertaking activities and functions as may be deemed desirable in the interest of the palm oil industry.

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