RSPO general assembly to be rescheduled

For lack of a quorum, the RSPO GA will be rescheduled. Thus, we'll have to wait a while yet on the resolutions proposed. Khor Reports previewed them here, http://khorreports-palmoil.blogspot.com/2011/11/preview-of-rspo-8th-general-assembly.html.

"It was proposed at the meeting of November 24th 2011 that a process of obtaining votes electronically from non-attending members might be adopted, and the majority of members present in Sabah were in favour of this proposal. However, the Executive Board has since sought legal advice on the matter and now confirms that this proposal is not constitutional...."

http://www.rspo.org/?q=content/statement-executive-board-rspo-8th-general-assembly-ga8

Preview of RSPO 8th General Assembly

We have been in Kota Kinabalu, Sabah, to attend the Roundtable for Sustainable Palm Oil's 9th Roundtable since Tuesday 22nd Nov. Today, the 8th General Assembly is being held. As such, we at Khor Reports thought to have a glance at what's coming up and point our readers to some pertinent links and information. Our comments in blue.


RSPO market updates on its website here, http://www.rspo.org/?q=node/2687. Do take a look for the latest figures. Looking forward, from about 5 million MT of certified product available, the submitted time-bound plans promise another 9 million MT. Thus, a total of 14 million MT will be available each year in a few years to come. On the buy-side, the just launched WWF Scorecard for palm oil buyers has found that 2015 demand for sustainable palm oil product is expected at 3.5 million MT each year. Depending on timing and new demand appearing, this suggests risk of some 11.5 million MT surplus supply. WWF did a study of buyers from Europe, Australia and Japan. RSPO is hoping to increase demand from key growing markets like China and India. It is also encouraging Dutch proposals that EU reduce import duties for sustainable palm oil vs non certified palm oil. EU by end 2014 will require labelling of all edible oils used on product packs i.e. the "vegetable oils" label will have to list out which oils were used. All these factors should help boost demand for sustainable products.

GreenPalm certificates pricing from its website here, http://www.greenpalm.org/. Price today is $1.59. It had fallen to US 50 cents and below in recent weeks. This compares to premium available from ISCC that ranges USD40-50, according to our contacts in the bio-fuels segment.

Resolution 6b: New Vision and Mission statements for the Roundtable on Sustainable Palm Oil; Executive Board of the Roundtable on Sustainable Palm Oil...... This is in answer to last year's MPOA / GAPKI resolution to review the "existing structure of the RSPO EB to reflect a better balance between the various stakeholders." The Executive Board / EB has reverted with a new Vision Statement for the RSPO which is: “RSPO will transform markets to make sustainable palm oil the norm”..... We are not sure precisely how the new Vision and Mission addresses the concern of MPOA / GAPKI that grower representation on the EB should be increased. Anyhow, GAPKI is no longer part of the RSPO. The Indonesian RSPO Growers Members now have a caucus, lead by Bapak Bambang Dwilaksono of First Resources, Bapak Edi Suhardi and Dr Gan Lian Tiong of Musim Mas, judging by the sign-offs on their resolutions. Indonesian grower interests have signed off on three resolutions, while Malaysian grower interests have only signed off on one. A MPOA representative was reported to suggest a halt in certification, but there has been no announcement or action by Malaysian companies on this suggestion.

Resolution 6c: Creation Of New Category Of Ordinary Membership For ‘Transnational Companies And Organisations’; Malaysian Palm Oil Association, FELDA, PT Musim Mas, Rabobank, HSBC Bank Malaysia Berhad, Unilever, and Growers from the Rest of the World...... This is also in answer to the MPOA / GAPKI resolution to review the "existing structure of the RSPO EB to reflect a better balance between the various stakeholders." The vertically integrated oil palm growers are seeking an additional seat on the EB. The big groups include Wilmar and Sime Darby.

Resolution 6d: Request for all RSPO Ordinary members to submit Time Bound Plans; The Zoological Society of London, WWF International, Conservation International,
Fauna and Flora International......This year, 66% of growers (Total no. members in category: 83), 43% of processors and traders (Total no. members in category: 146), 70% of consumer goods manufacturers (Total no. members in category: 105) and 76% of retailers (Total no. members in category: 25 members) have submitted annual progress reports to the RSPO1. Therefore, as many as 148 out of the 359 (41%) RSPO members in these categories did not submit a progress report.... This would require the members who are still in "wait and see" mode to have to act, and implement the RSPO P&Cs for their segment, across 100% of their production. RSPO is rather unusual in requiring 100% implementation. Other agricultural certification systems, like the Roundtable for Sustainable Soy, allow for partial certification (although for some key basic criteria, complete adherence is required).

Resolution 6e: Carry Forward of unsold certified sustainable palm products; Indonesian RSPO Growers Members......This reflects the grower's concern (and some frustration) at market offtake shortfalls for certified products. In recent months, this has stood at some 50%. A presentation by Kraft highlighted that this level of market off-take is quite "normal." In general, it would therefore seem that sustainability certification is generally more enthusiastically done by producers while buyers are more laid back about buying this. Perhaps the first group is keen to compete with each other for market access to the top buyers, and the buyers are more gradual and cautious, and keen to achieve sustainability with low or no premium? Whatever is the case, it looks like its a buyer's market in the food segment.

Resolution 6f: There is a need for a more balance representation in the RSPO Grievance Panel and a time-frame for closing of the complaints & grievances process.; Indonesian RSPO Growers Members......The composition of the core Grievance Panel is made up of the RSPO President (Unilever), environment (WWF Switzerland), social (Oxfam), producer (Malaysian Palm Oil Association) and the Affiliate Member (Dato’ Henry Barlow). Additional RSPO Ordinary or Affiliate Members may be called-upon to participate in the Grievance Panel as deemed appropriate by the core Grievance Panel......(The resolution proposes that ) The RSPO restructures the core members of Grievance Panel to include a representative from Indonesian Grower and that the RSPO reviews the grievance procedure to include a time-frame to close the case upon agreement by the alleged member to the recommended action of the Grievance Panel..... This likely reflects the rise of conflicts and frustration with the timing of dispute resolutions. Of late, social issues have become quite prominent, as evidenced by Oxfam's recent report on land grabbing (highlighting Sime Darby's Sanggau case) and several cases are also highlighted on the website of the Forest People's Programme (includes a complaint against Sime Darby in Liberia). A significant case is that of "IOI-Pelita," resulting in a halt to all certificate issuance to the IOI Group when they could not resolve the matter in 28 days. At the side-lines, we at Khor Reports hear that quite a few growers were busy in meetings with NGOs on various such cases. It would be good to have updates on the allegations and the cases, so as not cause unnecessary damage to reputations and to clarify the issues and how they were resolved (if found true).

Nominations for Executive Board elections for Category: Processors and Traders; Organisation : Olam International Ltd; Name of Nominee : Vasanth Subramaniam; Designation : Senior Vice President and Head of the Palm Business..... Olam is very fast-growing agricultural products supply-chain manager. It is moving aggressively upstream, into oil palm developments in Africa.

Self-nomination for candidate to the RSPO Executive Board, GA8 2011; Name of Organisation: Fauna & Flora International (FFI); Membership Category: Environment / Nature Conservation NGOs; Nominee: Darmawan Liswanto (Passport: Darmawan Lie); Designation: FFI Indonesia Country Programme Director......

RSPO Treasurer’s Report. Financial results for the year ended 30 June 2011. The RSPO group recorded a surplus of RM1,017,000 for the year ended 30 June 2011 (2010: RM2,253,000). Subscription income increased to RM3,975,000 from RM3,314,000 as membership numbers rose to 689 at 30 June 2011 (2010: 480). Income from sustainable palm oil trade rose to RM5,095,000 from RM2,822,000 the previous year, increasingly the main source of RSPO income. Operating costs increased as planned, to RM6,116,000 (2010: RM2,730,000)......

RSPO farmers and facilitators - who earns what?

We, at Khor Reports, recently attended a conference in Singapore that was largely concerned with deforestation in SE Asia. It was a well attended event, with representatives from the Norway and Indonesia governments, a video from the UN's forest secretariat and a strong presence from key environmental NGOs, a few with 100-year histories (information about the conference here: http://web1.iseas.edu.sg/?p=4977). The latter presented some information about their REDD+ projects. These seek to bring other incomes to local peoples, to give them an alternative to agriculture extensification i.e. cutting down trees and planting crops such as palm oil.

Market perversion, with 10-20% to local peoples / farmers

A crucial question from the audience was left unanswered in the public forum. A professor asked how much money actually goes to the local community and how much to bankers, consultants and other facilitators (I paraphrase). We all, should be concerned about how much in the $1 goes to the different parties involved in sustainability efforts.

So, let's take a look at the Roundtable for Sustainable Palm Oil's (RSPO) Certified Sustainable Palm Oil (CSPO) at GreenPalm (the book and claim system). At present, the price for CSPO certificates is US 25 cents (down from USD40 or so), and the brokerage fee is USD1.50 and the fee to the RSPO is USD1.00 (source:http://www.greenpalm.org/en/faqs/general#how-much-are-brokerage-fees). Thus, a buyer of 1 mt of this sustainable palm oil would pay a premium of USD2.75. In effect, 9% of the premium goes to the planter of palm oil and 91% goes to the facilitators (GreenPalm and the RSPO)#.

This is the opposite of what we would expect. We all would like to see the bulk being earned by the local peoples / farmers i.e. the 'doers'. In reality, the opposite is the case. Thus, it is a perversion of the so-called market (MS Word's thesaurus likens 'perversion' to the words parody, caricature, distortion, falsification, twisting, slanting...).

Is the current RSPO GreenPalm situation uncommon? Unfortunately, it seems to be consistent with the feedback that various sustainability efforts may only pay 10-20 cents in the dollar to the local doers / peoples. Perhaps a key problem is the collapse of voluntary market prices for many types of sustainability credits and certificates (and the outlook isn't good, given the economic troubles ailing the developed world). Other problems could be sub-optimal structuring of the projects and that too many parties are involved, with each seeking some upfront and fixed payment that is not tied to the price and performance of the traded certificate.


Good practices - 3 lessons from the NGO sector

We should ask this: what is good practice? Let's learn from the NGOs. They are often judged by the amount that they spend on their projects vs. what they spend on administration and fund raising. A common target threshold is some 85 cents in the dollar going to project or program work.

Take a look at Oxfam Hong Kong's 'Use of Donations' statement here, http://www.oxfam.org.hk/en/useofdonations.aspx. Another good practice for NGOs is the local sourcing of funding with low / no reliance on overseas HQ and government funding. This vastly improves a charity's autonomy. Along this vein, Khor Reports ventures to suggest more good practices: a wide breadth of funding, especially from individuals and less from corporates, and with 'limits' on single-source funding to avoid 'capture' by particular interests. Oxfam also says that for emergency efforts, "ALL donations – exactly 100% – go to assist people in need."

Thus, the palm oil sector could draw three (3) lessons for its sustainability programs: i) target no more than 15% on facilitation costs, ii) aim to localize and be autonomous, while avoiding capture by special interests and iii) for special worthy cases e.g. independent smallholders, zero facilitation costs.

Fix it

Thus, NGOs offer lessons in good practices. Clearly, NGOs should replicate such practices when designing and implementing projects affecting local peoples in developing countries. We hope to see that most of their programs deliver 85% benefits to the local peoples / farmers. These are the people nearer the bottom of the 99% that the Occupy Wall Street demonstrators are telling the 1% (the rich) not to forget. They say "the system is broke," and we at Khor Reports recognise in this statement, two meanings of the word "broke". So, let's not have socio-environmental efforts become another financial tool of (or captured by) rich interests. Let's fix it.


#In this, we have not even considered the direct and indirect costs of certification (the former estimated at USD6-12 per mt for corporate planters).

Palm oil on fast-track vs. others

The Star reports, October 11, 2011, "Demand for certified sustainable palm oil surges 70%":
RSPO president Jan Kees Vis said in a statement that “the current number sparks hopes that a breakthrough is near.”“Historically, there has always been a delay in market take-up versus production increase, as buyers of large companies have to commit as long as a year in advance to buy raw materials,” he said. “They will only sign on to what they are sure they can actually purchase from the market in the future,” he added. Secretary-general Darrel Webber also noted that “a significant number of retailers, consumer goods manufacturers, processors and traders have committed to 100% CSPO by 2015.”..........

Khor Reports comment:
a) The increase in market off-take to 70% from its recent plateau at 50% will surely be welcomed by producers of CSPO. Perhaps buyers have been reacting to the recent flap at RSPO: the withdrawal of GAPKI and the call associated with MPOA for a 3-year moratorium on certification (but with no corporate reactions yet).
b) Sometime ago, Unilever said that they accounted for some 50% of CSPO purchases. As the lead product manufacturer in RSPO, perhaps Unilever stepped up its buying recently? This company is one of the key drivers of the agriculture sustainability sourcing via the WWF-driven 'roundtables schemes'.
c) Let's take a quick look at Unilever's commitments on sourcing sustainable inputs. The graphic below shows that palm oil is on the fast-track with a 'by 2015' target, while other competing oils will be sustainably sourced only by 2020. Moreover, news reports say that Unilever seeks to replace palm oil in its Dove soap and lotions within a few years. In this regard, palm oil has been selected as the oil most in urgent need of sustainable requirements (and some replacement).
d) The palm oil fast-track by buyers has only been exceeded by the fast-track that growers have taken in providing RSPO CSPO to the market. With the recent sharp rise in CSPO, it appears that palm oil is some 7-9 years ahead of its competitor oils - soybean oil, rapeseed oil and sunflower oil.
e) This assumes that many manufacturers also use Unilever's timeframe and that the other oil growers take a more moderate approach e.g. the more business-friendly RTRS / soy roundtable allows for partial certification while RSPO requires rapid or 'challenging' timeframe for 100% certification.

MPOA calls for halt to new RSPO certification?

“We want to see the current RSPO certified palm oil production of 5.1 million tonnes be fully taken up by Western buyers,” said MPOA vice-chairman Boon Weng Siew. Of the total RSPO-certified palm production, MPOA claimed that only 40% was taken up while the CSPO premium had plunged to only 30 US cents compared with US$50 per tonne in 2008.... Bek-Nielsen...said the world palm oil producers must unite and stressed that “We should not certify any new production units unless demand matches the supply of CSPO. It is time for the end-users to live up to their rethorics.”... An industry member of MPOA said the association might seek for a three-year moratorium to stop Malaysian planters from pursuing their on-going RSPO certification at the RSPO 9th Annual Meeting Roundtable in Sabah next month....“We will strongly push for this agenda,” he said. This is in view of the pledges given by Western food and consumer goods to use only CSPO in their operations by 2015.... reports The Star, 6 Oct 2011, "Malaysian Palm Oil Association won’t quit Roundtable on Sustainable Palm Oil," http://biz.thestar.com.my/news/story.asp?file=/2011/10/6/business/9638574&sec=business.

Khor Reports comment: Hot on the heels of last week's pullout from RSPO by GAPKI, Malaysia's key producer association affirms its membership, but calls for a halt to new certification. There has been a small glut in RSPO CSPO or certified sustainable palm oil, as the enthusiasm of producers for this sustainable product has not yet been met by sufficient buyer interest. Last year, we at Khor Reports speculated in our newsletter #2 that producers might seek to clear the overhang, but we had no idea then what might be the mechanism (download our report and refer to page 6, Option E: https://sites.google.com/site/khorreports2011/palmoil_strat_analysis/khorreport002-palm_oil-rspo_growers-100826.pdf?attredirects=0&d=1). It will be interesting to look out for corporate reactions to the recent moves by GAPKI and MPOA.

For more background, please refer to other postings in this blog, and Khor Yu Leng's article in Lipid Technology, "The oil palm industry bows to NGO campaigns," May 2011, http://onlinelibrary.wiley.com/doi/10.1002/lite.201100106/abstract.

Khor Yu Leng was interviewed for today's The Edge Daily: "Independent agribusiness analyst Khor Yu Leng, who has tracked sustainability certification practises, says oil palm players cannot be blamed for wanting a more level playing field with other types of vegetable oil producers. “RTRS, the standard for sustainable soybean, is more business friendly versus the RSPO, despite their being sister organizations,” she said. She thinks the palm players will move towards having more than one type of certification, to meet different market needs."