Observation on new power relationships in the palm oil supply chain - policy making

There appears to be some relative institutional weakness in policy making in business circles (many industry players acknowledge this) over sustainability policies that are increasingly affecting market access for commodities such as palm oil. Notably there is a regressive higher cost for smaller players to comply with rising certification standards. Relative shallow institutional depth results in asymmetry in bargaining power or effort in the de facto international trade agreement that voluntary sustainability / traceability deals represent. This is not unexpected – see the Brundtland Report. Also, the devolvement of power to NGOs may also not serve the interests of buyers in complex supply-chains such as palm oil, as some specialists observe a preference there for a level of simplicity (rather than complexity). This apparent problem is compounded by the fact that the NGO sector appears to be building new sources of income (direct and/or indirect) that are independent of corporate CSR giving, individual donations or government grants. Key observers note that NGOs have since the 2007 Global Financial Crisis (when traditional funding fell drastically) been developing as technical service providers to help resolve corporate problems – this is obvious in palm oil. This is a different and stronger power relationship for NGOs vis-à-vis their traditional corporate backers in consumption countries and even their new corporate clients and/or backers in commodity producing countries. Such NGO sector expansionism and the wider use of new technology such as social media, geo-data and remote sensing are likely to create greater issues of scrutiny for the palm oil sector.

Nielsen survey finds sustainability boost sales, sustainable consumption ranks #12

Khor Reports: An interesting ranking of CSR topics of "extreme concerns" in this Nielsen retail survey, where clean water and sanitation come up tops, and environment and biodiversity come #3 and #11 and "increasing the focus of sourcing products we consume sustainably" comes in #12 and benefiting local communities #20. The top ranking CSR topics are mostly traditional development concerns including child mortality, maternal health, disease, and disaster relief. Various commodities are shifting toward sustainable supply-chains, so it's interesting to see the ranking of their core targets relative to other concerns.

What's also interesting is Nielsen's recommendation to use KPIs and quantify program outcomes. There is seems to be a rising dissatisfaction from both growers and buyers that sustainability programs are of uncertain macro benefit. Many industry specialists think that commodity sustainability programs are part of the non-tariff barrier trend and used for commercial advantage[1] by various industry players. One buy-side industry sustainability expert I spoke to very recently said this: "imagine if we took all that money spent on (palm oil sustainability) certification, supply-chain mapping and so forth and just spent it on the ground (on traditional CSR programs)...."

[1] Note Nielsen's research finding of "average annual sales increase of 2 percent for products with sustainability claims on the packaging and a rise of 5 percent for products that promoted sustainability actions through marketing programs. A review of 14 other brands without sustainability claims or marketing shows a sales rise of only 1 percent.."

Consumers Believe They're Eager to Pay More for Do-Gooder Products  By Venessa Wong      June 20, 2014; http://www.businessweek.com/articles/2014-06-20/consumers-believe-theyre-eager-to-pay-more-for-do-gooder-products

Even the most earnest social-responsibility efforts are often tied deeply to corporate marketing goals, a long-standing link that appears to be growing stronger. Research by Nielsen (NLSN) has found that consumers are attracted to such initiatives and are even willing to pay additional money to satisfy do-gooder instincts. For companies, it seems that doing good is an increasingly viable sales strategy.
In Nielsen’s online survey of 30,000 consumers in 60 countries, 55 percent of respondents said they would pay more for products and services from companies committed to positive social and environmental impact. The age group most likely to say they’d pay a premium: millennials.... “Precision marketing and knowing your consumers intimately will yield the greatest results,” wrote Amy Fenton, Nielsen’s global leader of public development and sustainability.... Labels are a marketer’s best friend, as food companies discovered when consumers said they would pay a premium for claims such as “locally sourced” and “certified organic.” ...consumers’ top concern: The world’s premium-paying consumers cared most about access to clean water, Nielsen found, followed by access to sanitation and environmental sustainability.....

The Nielsen research found, in a retail analysis, that sales of products marketed as socially responsible grew more quickly than those of comparable products: “The results from a March 2014 year-over-year analysis show an average annual sales increase of 2 percent for products with sustainability claims on the packaging and a rise of 5 percent for products that promoted sustainability actions through marketing programs. A review of 14 other brands without sustainability claims or marketing shows a sales rise of only 1 percent.”

To capitalize on sustainability initiatives, Nielsen offers companies this road map:
1. Vision: Be clear, practical, and global.
2. Endorsement: Get adoption and action from senior leadership.
3. Strategy: Focus on outward messaging and consistent cause messaging.
4. Accountability: Use key performance indicators, internally and externally.
5. Measurement: Quantify program outcomes and return on investment consistently across markets.

A new era in Malaysia plantation CSR?

There was apparently a few seconds of "stunned silence" at Genting Plantation's recent earnings call. The group announced a RM35 million charity contribution to Yayasan Gemilang 1 Malaysia. This amount was almost half of its 1Q2013 core net profit; comprising a RM31 million contribution from its plantation arm and RM4 million from its property arm. Such a large donation is remarkable and noteworthy. The foundation is said to be involved in efforts to eradicate poverty and promote education, arts and sports.

There were few other details on the nature of the foundation that received such a large contribution. A google for "Yayasan Gemilang 1 Malaysia" finds no significant results (other than 3 news items related to Genting Plantation's announcement), not even a website (see image below). No doubt more information will emerge, especially if other Malaysian plantation groups or corporates in other sectors made similar substantive donations.

Our preliminary and unverified queries find that Yayasan Gemilang 1 Malaysia is not directly linked to 1MDB, the Malaysian sovereign wealth fund that has the "1 Malaysia" moniker. 1MDB also has its own foundation that does charity work. It would be interesting to know if the personages involved in Yayasan Gemilang 1 Malaysia are in any way related to those at 1MDB though?

"1 Malaysia" is part of a campaign coined by consultants and used by the Najib administration to promote racial togetherness in Malaysia. It has been used to brand a series of health clinics and shops linked to socio-economic programs of PM Najib. We are not sure if the Registrar of Societies or Registrar of Companies would permit just any body to register an entity using the "1 Malaysia" branding.