Unilever - Wilmar push for supply chain change

Wilmar the largest trader of palm oil in the world has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, has in recent years taken a lead in promoting the principle of sustainability in its materials sourcing. Unilever has helped lead the RSPO from its inception nearly 10 years ago. Its CEO recently received a special award: the 2013 World Wildlife Fund Duke of Edinburgh Conservation Medal for Unilever’s efforts to reduce environmental damage. Dutchman, "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported. 

Wilmar has long faced grumblings from the NGO sector for not practicing sustainable sourcing for its third-party purchases, which are overwhelmingly bigger than its own internal production area. With it's new promise, the giant trader now faces the challenge of rationalizing its supply-chain. The question is this: how will Wilmar achieve this without downsizing its business? In principle, traceability with high level promises is not easy to achieve for large traders with complex supply chains. Industry talk in recent weeks has been about the top 15-20 producers being asked to sign on to a new RSPO+++ manifesto, most probably using the TFT/Greenpeace principles; this being the new leader in palm oil sustainability ahead of the RSPO. If the key palm oil producers accede, one can assume that Wilmar will be "home and dry" without having to make much of a change in its business size and its costing. Wilmar's promises can be fulfilled by tough and possibly cost-raising action on the part of its suppliers. Thus, we should await future announcements from the palm oil industry players. In what manner will they all come out in support of Unilever-Wilmar's promises? 

For producers moving fast into such a high grade sustainability push, could this bring on the faster convergence of unit costing fro large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the rest of the palm oil industry (those ranking below the top #15-20), the supply-chain change they face may be significant. Industry policy makers should be concerned at how a traceable, no-peat, no deforestation palm oil supply chain will look like.

Khor Report thinks that this could mean that each palm oil mill in the region will need to be supply-chain risk categorized for the new Unilever-Wilmar protocol. This could segment SE Asia into different market production zones with resulting discount/premium regions. Could there be negative implications for the independent sector (i.e. non-integrated and non-large producer)? How will the new protocol be operationalized? Will a November 1995 baseline apply and will high carbon stock measurement be made to effect a palm oil mill sustainability risk categorization exercise? In this regard, the Golden Agri/Sinar Mas pilot done by TFT/Greenpeace will be instructive. What requirements will new regions such as Africa face?

The questions are only starting. We will need to better understand the Unilever-Wilmar protocol by way of what the large producers come up with in this potentially market shifting move in the palm oil supply-chain. Other commodities too are facing new pressures from an ascendant and increasingly well-funded green movement that is also playing a bigger consulting role (in a highly important and potentially self-funding and self-perpetuating shift). In relative terms, the corporate sector has been scrabbling for footing while the independent and smallholder sectors are adrift. What is notable in the palm oil industry is the new apparent side-lining of the WWF, often reckoned as a realistic NGO, while the TFT/Greenpeace duo may emerge as key supply-chain policy maker.

News source: http://www.bloomberg.com/news/2013-12-05/palm-oil-leader-wilmar-bans-deforestation-in-sustainability-push.html ; “We can produce palm oil in a way that protects forests, clean air and local communities, all while contributing to development and prosperity in palm oil growing regions,” Chief Executive Officer Kuok Khoon Hong said in the statement. “There is a strong and rapidly growing demand for traceable, deforestation-free palm oil, and we intend to meet it as a core element of our growth strategy.” 5 December 2013.