Upcoming talk: What next for palm oil certification?

With the expanding options available in certification of sustainable palm oil, we look at some of the rationales and issues.

Khor Reports will be presenting its views at Palm Oil Refiners’ Association Malaysia’s (PORAM) upcoming annual forum on 22 November 2013:
o #1 Are sustainability standards helping or hampering growth / market access?
o #2 Is the RSPO’s market position wobbling?
o #3 Who’s involved in setting trade policy & market access for palm oil?


We have also been interviewed by Indonesia industry magazines on this topic, specifically on the market chatter that the Malaysia Palm Oil Association (MPOA) taking a similar track to Indonesia’s GAPKI in walking out the RSPO. We have a client update on this, in a question & answer
format.

The state of palm oil sustainability certification is now in high flux. Please call us for more insights and intelligence.

Sample:

Q. RSPO doesn’t seem to be a full solution for palm oil companies trading with the EU and the USA, what do you think?
A. It ironic that the RSPO, which early on stated that it sought to help the palm oil industry to maintain market access has shifted. It turned to lobbying to limit market access for non-certified (i.e. non-RSPO members) to the big developed and developing markets. RSPO representatives have been sking big markets to put up tariff differentials against non-RSPO palm oil. This is unfortunate, as it  would hit smaller producers’ market access more than the big plantations. RSPO has been very focused on larger producers; putting into practice WWF’s strategy that tackling the biggest players will do the most to “transform the market” whereas working with individual consumers and small  producers is just not effective. As a development economist trained to care about improving circumstances for the less advantaged players and seeking “first-best” policy options, I have to question the rationale of the RSPO. Why is it designed to mainly support the biggest companies? Smallholder development has been a side-show so far. As a result of this skewed approach and its policy to promote trade barriers, the RSPO approach is de facto regressive i.e. disadvantageous to smaller palm oil producers and farmers who are not their core target members. Organizations like the International Trade Centre (set up by the WTO and the UN) ask whether private standards are “boom or bust” for producers; without terribly encouraging findings for producers.

Q. If both Indonesia and Malaysia stop participating in the RSPO, what would be the impact?
A. If you mean the withdrawal of big plantations from their RSPO membership, that would be quite a move that would startle the RSPO. They would have to fall back to national certifications such  as ISPO and MSPO or new private standards such as ISCC-Plus. They would have to ensure buyer acceptance of these certification schemes. What is interesting is that big buyers themselves are paving the way for alternatives to RSPO. It is well known that buyers are fast launching in-house sustainability protocols or standards that straddle multiple private certifications, one being the RSPO. After all, they do have to deal with the procurement of many products. What is also promising is the  role of multilateral organizations in capacity building in the palm oil sector. The World Bank was attacked by NGOs campaigning against palm oil, but they can be there to help. The United Nations Development Program (UNDP) is now assisting on a study of ISPO and RSPO. Notably, the UNDP has a Sustainable Palm Oil effort funded by some big global buyers. This should be a good thing for the promotion of ISPO, and a possible challenge to RSPO’s first-mover monopolistic position. The future will see further improvements of sustainability in palm oil. But I think that some of the overly narrow NGO approaches will be challenged by the expanding role of the multilaterals. They are likely to bring in a more holistic approach that is also caring of smallholder development and their market access. Khor Reports has always believed that sustainability schemes have to be cost-effective as well as inclusive of small players, to be internally as well as externally sustainable. Crucially, there also needs to be benchmarking against other schemes, such as that for soybean oil, a key competitor vegetable oil. Palm oil is a basic commodity. Being too adventuresome in allowing unpredictable cost escalation (even for a good thing like sustainability) will not serve the industry or global consumers well. There are many ways to do the right thing. The options are expanding.

NGO powerplays roil palm oil certificat​ion. Back to B2B?

One of the casualties of NGO wars over palm oil may be RSPO as it and WWF gets pulled along by NGO demands for more. GAR has seen the outcome of TFT efforts on its behalf. Interestingly, the Nestle name altogether disappeared from its high carbon stock solution. In a bold and  courageous move, GAR and its consultants brought in Greenpeace.

Growers will be disappointed that sustainability certification efforts become destabilised by demands on high carbon stocks as well as the risky RSPO HCV compensation fees proposals that may amount to added cost of USD70* per tonne or more for newer estates (we update for a higher cost estimate as we get feedback that social compensation may double environmental compensation fees).

B2B efforts may get a boost as companies tire of their sustainability efforts being damaged by NGO tussles. There are new supply chain demands too - focusing on third-party purchases. In this, Wilmar is widely regarded as the most vulnerable. Few businesses, including buyers, will want to deal with escalating uncertainty in sustainability certification. Look out for more buyer standalone protocols that start to offer alternatives to the RSPO and other NGO mediated schemes? Growers will then have to mull over the many sustainability schemes emerging.


Note: RSPO RT11 is just around the corner, and this event is often a trigger for new policy moves. In the last two weeks or so, our channel checks focused on Malaysia and Singapore-based palm oil players. We found significant shifts in thinking about certification efforts.


Please also check out our upcoming newsletter: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)

RSPO Hot topics for Roundtable 11 at Medan, Indonesia

RSPO’s proposed Compensation Procedure is a bold gambit at changing plantation company behaviour by altering and controlling certain cost parameters. Financial analysts will be reaching for their spreadsheets for the first time on a sustainability issue. Don’t be surprised if the growers trot out some lawyers to review this. We conservatively estimate an initial payment of USD 500 mill from growers, mostly to NGOs for conservation.

RSPO’s Roundtable 11 will be in Medan, Indonesia, on 12-14 November 2013. It will focus on the revised Principles & Criteria (RSPO Standard 2013). The size of the RSPO membership, at over 1,300, may make it more unwieldy along with this format.

Key topics for RT11?
1. Certification of independent smallholders in Malaysia and Indonesia; fund & other support.
2. Executive Board joint-leadership?
3. Development of revised National Interpretations for Standard 2013.
4. Fire in oil palm plantations & reliable maps on landownership.
5. Potential demand for non-oil sustainable products (EFB, PK shell etc) and the need for a traceability mechanism (revision of the RSPO Supply Chain documents to come)
6. Members who need more challenging time bound plans for production and consumption.
7. China & India market development.
8. RSPO+ standard? Greenpeace advocates the Palm Oil Innovation Group.

Contact khorreports(at)gmail.com for a customized review of RSPO Resolutions

Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)

Editorial: Time for new strategies?


There’s a pricey proposal from the RSPO and increased supply-chain pressure. Key markets cool while producer biodiesel efforts slowly get into gear. Add on Indonesia’s shift to implement a landholding ceiling and Malaysia’s policy adjustments for sustainability. Top this all off with no clarity on a trajectory for haze smog alleviation. Overall, the palm oil sector faces unprecedented cost parameter and growth model challenges. Time to restrategize?

First, reconsider the role of palm oil in local energy use. Malaysia’s biogas directive is a good starting point. Set for 2014 launch, it requires every mill to set up a biogas facility for methane capture; presumably to improve the greenhouse gas (GHG) profile for Malaysian palm oil. Aside from implementation and technological risks, there are obvious suggestions to improve Malaysia’s feed-in tariff for biogas power and allow easier grid connection. Khor Reports suggests a feasibility study on microgrids for remote areas. In the semi-urban zone this might challenge an incumbent power utility and it would work less well in countries with subsidized power. However, could this help firmly establish the localized use of palm biogas, biomass and biodiesel? Many developing countries sorely need power in certain rural areas. They could encourage mills siting next to a mining facility or another energy hungry user. Economists might plan for processing clusters that could aid rural development.

How about on sustainability? Redd+ efforts are of interest to policy makers, despite Ecuador’s Yasuni alternative funding model finding insufficient takers. The opportunity cost may have long pointed to oil palm development instead of conservation. How can this be improved for viability? Peat lands are probably the prime areas for such efforts and new proposals at the RSPO could tilt the financial calculus. What about the RSPO? It has helped some large plantations maintain market access to the large global brands. Khor Reports has long been of the view that its exclusive / non-inclusive strategy has obvious limits. Its planners poorly recognize the fact that small farmers in developing countries just aren’t like those back home in Europe. How will even more exclusivity via the Palm Oil Innovation Group become of general relevance? Notably, the RSPO’s gold standard approach already has limited if no hope of addressing key problems, including the annual peat smog. Thus, we challenge sustainability experts to this task: get rid of the peat smog problem within three years. NGOs and corporate players from various sectors (not just palm oil) need to get “down and dirty” to effect change at the local and provincial levels. Help small growers and farmers. Do something about raising the water tables in fire prone areas? Governments could facilitate. The current voluntary, top-down (so called market-led) efforts, hardly seem fit for such purpose. What can sustainability do for the peat smog that hits annually? We need a new bottoms-up approach.

In this issue, we feature Asian palm oil and consumer good companies eyeing West Africa’s market prospects, with instant noodles as a key product. I eat more than the average 14 packs per year, helping global consumption exceed 100 billion packets in 2012. Some academics reckon it has helped alleviate global hunger. While interest of the EU and US in biofuels dips, Neste Oil’s renewable fuel business boosts its prospects. In sustainability, certification is expanding and NGO campaigning in the US is in the limelight. What are hot topics for the upcoming RSPO Roundtable? Its proposed Compensation Procedure bares its financial teeth, with retroactive charges and fees on non-RSPO. Khor Reports conservatively estimates an initial USD 500 mill paid by growers, most likely into NGO hands for conservation.


Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)

Biodiesel: Neste’s renewables rise


Despite the apparent dipping interest of the EU and US in biofuels, Neste Oil’s renewable fuel business is boosting its prospects. The Finnish refiner, one of the top buyers of palm oil in the world, is bucking the malaise in the European refinery sector.

“Neste Oil is the best-performing major European energy stock (rising 78%, year-to-10 September)… after saying full-year earnings will exceed analyst estimates as renewable-fuel sales gain… particularly in the North American markets. As Neste’s NExBTL product meets (California’s) own standards, it could sell about 290,000 tonnes this year of the biodiesel there, or about 18% of total production... Neste is benefiting from increased demand for biodiesel. The EU (encourages) land-transport energy from renewable sources… The guidance upgrade was mainly due to low palm oil prices and high Renewable Identification Number prices in the US (bloomberg.com, 10 Sep 2013).
Neste Oil’s model focuses on serving local markets, ultra-modern technology and biofuels. Neste Oil targets mostly the Baltic markets (68% of its sales), Europe (20%) and the United States, Africa and Asia (12%). Neste's heavy focus on biofuels made from palm oil and animal fats turned profitable in the first quarter of 2013. It plans to increase annual renewables output by 15% to 2.3 mill tonnes by 2015. In the US, which buys 35% of Neste renewables, biofuels use was set to double by 2020, Neste said (reuters.com, 16 Sep 2013).

The company has two fossil fuel refineries, in Finland, and three renewable diesel refineries (Finland, Singapore and Rotterdam). All Neste Oil’s NExBTL diesel plants are ISCC-certified and have an EPA Certificate of Registration, for the EU and US markets respectively. Neste Oil has also “developed its own voluntary sustainability verification scheme applicable to any renewable raw material… (it) broadly mirrors the ISCC certification… (with) separate sections devoted to the certification of renewable raw materials, fuel refining, and logistics (company website, 21 Oct 2013). Neste Oil reports only buying CPO that is traceable with known origins, and with reportable and verifiable Greenhouse Gas emission values. It is committed to only using 100% certified palm oil by end of 2015 (company report, 25 Sep 2012).

Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)