Great haze II - the karmic winds of change? [report]

•        The Southeast Asian haze is an annual, seasonal phenomenon that is now in its 17th year. The first event in 1997 can be dubbed “Great Haze I”, during which Singapore’s PSI measure peaked at 226. The 2013 enviro-pollution season can be regarded as “Great Haze II” with PSI reaching just over 400.
•        In the previous haze episodes, NGO analysis placed responsibility (direct and indirect) at 65-80% on various types of corporate plantations and with 20% of responsibility on small farmers. The first 2-year Indonesia-Norway moratorium on deforestation and peat land development might have had an unintended consequence. Well-connected owners are thought to have received a slew of concessions to beat the moratorium deadline. They have been clearing the land. Now, Indonesian authorities say they think that 32 company concessions are on fire. Eight thought to be involved in starting fires have been identified and their names will be released in the coming days.
•        While the gloomy view is that little real action will be taken, we think that the mood is different from the approach taken back in the late 1990s – early 2000s. Will Singapore continue to leave it to the Indonesian authorities to solely deal with any Singapore-invested plantations found with open fires in their concessions? Or will these karmic winds that inflict the haze upon Singapore, bring a change in policy?

Please access our analysis here: http://tinyurl.com/mnzuc6h

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.

WWF vs Greenpeace?

WWF says that using CSPO (RSPO) is no longer good enough: "WWF has encouraged responsible producers to add their own criteria to those required by the RSPO, including immediate public reporting of GHG emissions, exclusion of peat soils for new oil palm developments, an end to the use of certain pesticides, and only buying fresh fruit bunches from known sources...." source: http://www.foodnavigator.com/Financial-Industry/Using-certified-sustainable-palm-oil-no-longer-good-enough-says-WWF

Khor Reports comment: 

While endorsing the RSPO's latest revised standard or its principles & criteria, the key founder of the RSPO ups the ante on growers to do more. WWF seems to find that the RSPO has not done enough. It asks for a category of "responsible producers" to step-up to a new "WWF RSPO plus" standard that offers immediate (instead of 2017) compliance with GHG emission public reporting (presumably with a carbon threshold or ceiling for new land development), ban on any peatland usage, tightening on pesticides use and excluding "unknown" sources for FFB. This is an interesting move by the pro-business environmental NGO giant. 

Earlier, we witnessed an amazing and atypical "yes" vote by palm oil growers in support of future tightening measures. They were especially concerned about the GHG emission reporting (and implied carbon threshold / ceiling). The grower's yes vote was quite at odds with industry concerns and even with the MPOA reportedly mulling a pullout from RSPO sometime later this year. Perhaps we need more time to understand the industry's tactics; and see how the grower's trade negotiation grand strategy plays out.  

It is likely that the usually business-friendly WWF feels pressured to do more; given sourcing facilitator The Forest Trust (TFT) and Greenpeace's successful move with Golden Agri / Sinar Mas to implement a 35 tonnes carbon per hectare new land development ceiling. This is quite expansion-unfriendly, as the carbon threshold or ceiling will stop the palm oil giant from even clearing "mature scrub land." Yes, we are well beyond talking about primary or even secondary forests; the new issue is about allowing degraded scrub land to grow back into degraded forest and then secondary forest etc. Palm oil growers might want to consider setting up reforestation or reafforestation units.

Based on some studies in Kalimantan, this could result in reducing usable area for a nucleus plantation down to 40% (excluding 20% for plasma smallholders) from a previous 60-65% usability i.e. a 20%-age point drop in plantable area? We have been long of the view that the Nestle-TFT-GAR/Sinar Mas deal would set a serious precedent. The appearance of Greenpeace in the GAR/Sinar Mas degraded land concession study was an eye-opener. 

Now, it seems that the big international pressure groups are duking it out over who is in the driver's seat, for setting sustainability standards for the global palm oil industry.

 

While RSPO growers will no doubt be scrambling to iron out the crucial definitions (e.g. "low carbon stock area") to be used in the new national interpretation of the 2013 RSPO P&Cs, they will have to mull over WWF's call for more. Look out for global buyers endorsing the pressure group's call for the new "WWF RSPO plus" standard that is significantly shy of a carbon threshold/ceiling? Or might some join Nestle to push even further for the low carbon ceiling of the "TFT-Greenpeace RSPO plus" version?

Let's step back a bit. We looked up the issue in the academic sector and this contestation and scramble over sustainability standards may be termed "global environmental politics." This is nothing less than an international trade negotiation that is centred on a commodity. In putting together free trade agreements, we see trade bureaucrats from different countries engaging in complex and detailed negotiations. In this case, we have representatives from international pressure groups and representatives from some plantation companies as trade negotiators.

Khor Reports' Palm Oil #2 newsletter: Carbon thresholds, biodiesel & more

KHOR REPORTS' PALM OIL MAY/JUN 2013, ISSUE 2: The Carbon Conundrum: Carbon thresholds on deforestation & peat? Palm producers push for biodiesel mandates. Natural: Red palm oil and the organic frontier. Fat standards & fat targets.Chocolate campaigns & Norway’s realignment.

View our newsletter here: http://tinyurl.com/cyyc3ek

Contents:
Indonesia's 100,000 ha ceiling? 
East Malaysia factors. 
Frontiers grow organic.
EU transfat and Australia SAFA cuts target. 
Natural claims for red palm oil.
US & UK choc campaigns.
Norway repositions. 
Ferrero fights back.
The carbon conundrum: deforestation & peat, Indonesia’s
moratorium and detecting deforestation.
Malaysia producers push for biodiesel.
Key vegetable oils. 
Weather outlook. 
CPO technical view. 
Price charts.

Deforestation detection, RSPO GHG and trade clashes

Khor Reports comments and views: 


DEFORESTATION DETECTION

All the pieces are falling in place for the global monitoring of deforestation, with the year-end launch of a platform promising near-real time satellite data combined with submitted from-the-ground data. Global Forest Watch 2.0 is an initiative of NGO World Resources Institute, Google, University of Maryland and the UN Environment Program. 

NGOs started using satellite imagery to good effect, to identify open burning incidents in plantation concessions, notably in Sumatra, Indonesia. The plantations generally attributed it to third-party burning on their land (not their doing nor by their contractors) and pledged to try to better police the situation. Open burning in peat land areas has been a key source of the annual haze in Southeast Asia. A series of academic studies of satellite imagery have also shed light on deforestation rates in the region, including peat swamp forest deforestation. It has highlighted interesting regional trends, including those in Sarawak and Kalimantan. 

Satellite imagery studies for high carbon stocks has also been done by Golden-Agri Resources with the aid of sourcing facilitator TFT and a key NGO, Greenpeace. Importantly, this included the ground-truthing of carbon stocks measures of canopies viewed from satellites. In a nasty surprise for the palm oil industry, it found pretty high carbon stocks in what has been loosely called "degraded areas." Bottom-line: even large areas of degraded scrub lands should not be planted.

Also notable in recent writings by international research organisations and in marketing of end products is the wider reference to "deforestation-free commodities." Deforestation detection is likely to be a negative for oil palm extensification (land development) by plantations in higher carbon stock areas. The logical move would be for NGOs to highlight their expansion moves to buyers in developed markets, who are most conscious of sustainability and leery of socio-environmental issues. 


RSPO GHG WILL CHALLENGE GROWERS

In a tough revision of its certification standard for growers, the RSPO will require measurement of GHG emissions from operations and new plantings. Some time will be given to develop these tools, and public reporting will only start 31 Dec 2016. Nevertheless, the implications are obvious and significant for plantations. The new P&Cs will require changes in carbon stocks to be measured against a baseline of land use in November 2005 (dig out those satellite images and peat land maps!). This could generate a list of the biggest net destroyers of carbon stocks in a recent ten year period; such retroactive reporting will also catch those who were less than fulsome in their new planting procedures reporting. Current RSPO grower members, should prepare for potential bad publicity surrounding such retrospective analysis of their land developments.

RSPO defines low carbon stock areas "as those with (above and below ground) carbon stores, that would be lost by conversion to oil palm, smaller than that which would be sequestered within an oil palm crop and other set-aside areas within the management unit over the period of one rotation." 

This is likely to mean: 

     a) low or no peat land development (negating or superseding* Principle 7.4  which allows for non-extensive planting on peat?);
 
     b) usage of the 35 tonnes carbon per hectare ceiling** (the often cited measure of carbon sequestered in oil palm; which Golden Agri has accepted for its pilot scheme) which would supersede* Principle 7.3 on non-usage of primary forest from November 2005); and 

     c) much higher set-asides (i.e. areas not to be developed).

*Why not just rewrite Principles 7.3 and 7.4 if they are set to be superseded by a new measure in Principle 7.8? 

** "The time averaged carbon stock in an oil palm plantation appears to be in the order of 35 tonnes carbon/ha, calculated over... 25-30 years... by various authors using different approaches... " (source: Greenhouse Gas Emissions from Palm Oil Production, Literature review and proposals from the RSPO Working Group on Greenhouse Gases, Final report, 9 October 2009) 

RSPO's new P&C is set to be ratified soon. All RSPO ordinary members will be able to vote on the revised P&C at an Extraordinary General Assembly on 25 April 2013 (Thursday week, in about 10 days time) in Kuala Lumpur, Malaysia. Oil palm growers represent 15.4% of RSPO members. If the other member categories vote by bloc, it is likely that oil palm growers views may be isolated. If palm oil processors vote as a bloc with oil palm growers, these two categories represent 52.4% of members.

Note: These statistics should represent ordinary members, eligible to vote at the EGM.

Source: RSPO website, accessed 5.30pm 14 April 2013

 

TRADE CLASHES
 
On deforestation-free palm oil concerns in end markets, Khor Reports notes that the Ferrero Group has for years been carefully sourcing palm oil from Peninsula Malaysia, a long human use area i.e. plantations there developed many decades ago. However, it faced a negative marketing blitz in the so-called Nutella Wars in France last year. It is interesting to note that it has lodged a complaint against its fellow RSPO members, Groupe Casino and Systeme U on 2 April 2013. In one, Ferrero says that "The complaint is made on ground that the Groupe Casino is undermining the objectives of the RSPO, as enshrined in the RSPO Vision and Mission, and breaching the RSPO Code of Conduct..." It has lodged a similar complaint against Systeme U. 

Palm oil sustainability has been morphing into palm-oil free in some areas. This unfortunate linkage has to be addressed. At the same time, negative health claims still abound. Strategic consultancy, Hill & Knowlton (whose clients include big brands and big banks) has been a key player in global opinion-making on palm oil acceptance recently, just as it was in yesteryear. It had roles in the clash of US soybean interests and Malaysia palm oil over 20 years ago; which ended with 1992 US non-discriminatory legislation which outlawed "no palm oil, no cholesterol" labels and the 1993 US military lifting on its ban on palm oil usage.  


We reckon that the deforestation / high carbon stocks challenge will be heating up, and it will need to be watched. With some serious challenges faced upstream and downstream, many industry players consider this a period of edible oil trade wars.


Announcements & news:

"Global Forest Watch 2.0 will enable users to track deforestation over time, including forest clearing that has occurred within the past 30 days. It will also allow users to submit georeferenced photographic evidence of forest destruction, supporting efforts by journalists and concerned citizens to report on deforestation." source: http://news.mongabay.com/2013/0409-global-forest-watch.html?goback=.gde_2007470_member_231012851

"The Groupe Casino: has initiated a campaign aimed at denigrating palm oil in general as well as products containing palm oil (the tag line of such campaign being "L'huile de palme c'est nul" which can be translated as "Palm oil is rubbish"); is fueling the negative perception of palm oil in France and other parts of the world; has launched a number of palm oil free products under its own brands and promotes them through denigrating statements about palm oil in general as well as through disparaging comparisons with competing products containing palm oil (including Ferrero Group's Nutella), refers to palm oil in a general way without making any distinction between sustainable palm oil promoted by the RSPO and non sustainable palm oil; fails to promote the use of sustainable palm oil; hasn't been willing to resolve the matter despite direct contacts made by the Ferrero Group." source: http://www.rspo.org/en/status_of_complaint&cpid=27 

"The RSPO has revised an existing Criterion on monitoring and reporting GHG emissions from existing operations and developed a new Criterion on minimising net GHG emissions from new planting developments. However, it is recognised that these significant emissions cannot be monitored completely or measured accurately with current knowledge and methodologies. Therefore, growers and millers commit to an implementation period for promoting best practices in reporting to the RSPO and after December 31st 2016 to public reporting against both of these Criteria. During the implementation period the RSPO will further develop and improve the RSPO carbon assessment and reporting tools. Growers and millers make this commitment with the support of all other stakeholder groups of the RSPO. These revisions demonstrate the RSPO’s commitment to developing credible requirements relating to GHG emissions." 

Notably in Principle 5.6: "during the implementation period, growers will start to assess, monitor and report emissions arising from changes in carbon stocks within their operations, using the land use in November 2005 as the baseline. The implementation period for Indicator 5.6.3 is the same implementation period for Criterion 7.8." 

And in Principle 7.8: "Growers are strongly encouraged to establish new plantings on mineral soils, in low carbon stock areas, and cultivated areas, which the current users are willing to develop into oil palm. Millers are encouraged to adopt low-emission management practices (e.g. better management of palm oil mill effluent (POME), efficient boilers etc.) in new developments... Public reporting is desirable, but remains voluntary until the end of the implementation period. During the implementation period until December 31st 2016...Thereafter growers and millers will ensure that new plantation developments are designed to minimise net GHG emissions and commit to reporting publicly on this."

In Annex 2: "Definition of Low carbon stock areas: As per the recommendation of the RSPO GHG WG2 the total carbon emissions (above and below ground) from new developments should ideally not be greater than the carbon which can be sequestered in the period of one rotation over the whole new development (i.e. the average of oil palm, riparian areas, forest set-aside etc.). To help achieve this the expansion of plantations should be on low carbon stock areas (i.e. mineral soils, areas with low biomass etc.) or on land which is in current intensive agricultural or plantation use where the current users agree to its conversion to oil palm. An agreed methodology for assessing and reporting carbon stocks and sources of emissions as well as default figures for estimates of both are being developed by the RSPO. As guidance to growers low carbon stock areas are defined as those with (above and below ground) carbon stores, that would be lost by conversion to oil palm, smaller than that which would be sequestered within an oil palm crop and other set-aside areas within the management unit over the period of one rotation."




More background on the palm oil sustainability movement (upstream impacts) here:

ISEAS Perspectives: Struggle for sustainability in palm oil industry shows results By Khor Yu Leng ; Just published by ISEAS Perspectives, my paper on the shift of the Malaysia and Indonesia palm oil sectors to sustainability efforts. One group of transnational NGOs, led by the WWF, has pressured large corporate growers as well as multi-national consumer brands to accept Europe-centric voluntary certification standards. Thus, since about 2003, the net impact of various NGO pressures has helped to rein in the speed and prospects for oil palm expansion in Indonesia and Malaysia by large corporate growers. The authorities in Indonesia and Malaysia have reacted by creating their own certification schemes.