PalmTrack—June 2022 Wrap Up

Here is a wrap up of the some of the issues PalmTrack covered in May 2022:

1. Neste Oyj is a leader in HVO-SAF products using 95% waste/residue input (bio)share—that's a bit different from co-processed HVO-SAF. We looked at recent news on its margins, deals, and Singapore expansion.

2. The shock of the Russia-Ukraine conflict added tremendous pressure to the already tight vegoil, grains and input markets. We listened in on a global fertilizer briefing, and it seems like markets have gotten used to and are indeed getting over the conflict impacts. We also took a look at what observers are saying about freight rates and port congestion, which are of relevance to agricultural inputs.

3. How quickly prices move and relative prices can reverse, with palm oil now cheaper than gas oil and making voluntary blending viable! We chatted with a trader to find out what’s been happening and what’s next in the violent price correction, and another on potential demand-side issues in energy demand and Chinese restocking. 

4. The US CBP conducted a virtual workshop on forced labour facilitated by MPOC on 8 June, which provided a guide as to how the agency generally enforces its anti-forced labour tools, as well as how it modifies and revokes imposed export bans. 

5. There were several updates in the palm industry in the week of 10 June, including Indonesia allowing exporters not on its list of companies approved for bulk cooking oil distribution to ship palm oil subject to a extra charge on top of the existing export tax and levy.

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Khor Reports’ PalmTrack is an independent research service that tracks palm tanker movements and reports trade of palm products (and shipments, upon request) for selected trade routes. It features a forward-looking market topic and sharp analysis every quarter, e.g. palm biofuels issues & opportunities for Jan–Mar 2022. Subscribe now!

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[Sample!] PalmTrack—US CBP Workshop on Forced Labour

Yesterday, the US CBP conducted a virtual workshop on forced labour facilitated by MPOC. The one hour-long workshop provided a useful guide as to how the agency generally enforces its anti-forced labour tools, as well as how it modifies and revokes imposed export bans. 

There are primarily three types of forced labour enforcement tools the US CBP exercises: Withhold Release Order (WRO), findings, and penalties. Note the difference in standard of proof for each tool—“reasonable suspicion” has a much lower bar than “probably cause”, the latter requiring that the US CBP “conclusively demonstrate that the merchandise is prohibited” due to elements of forced labour along the relevant supply chain.

As of 8 June 2022, the US CBP reports on its website that Malaysia has six WROs and one finding.

According to the US CBP, its forced labour enforcement process comprises a nine-step process, initiated whenever it receives a tip, whether from “internal channels” or received from external sources, e.g. civil society, “tips from researchers”, about exported merchandise produced using forced labour. 

Companies slapped with WROs and/or findings are allowed to submit requests for modifications to and/or revocations of their export bans. The US CBP uses on ILO indicators as a guide when considering these requests. 

In response to a question posed about how companies could provide evidence that its goods were not produced using forced labour, it was emphasised that companies are strongly encouraged to hire a reliable, independent auditor as an assessor, although the US CBP quickly clarified that it does not and will not dictate any specific requirements of said auditor. Interestingly, one of the speakers had expressed bewilderment that one Malaysian company had opted to use its “internal auditors” to challenge its export ban and hoped that the US CBP’s later rejection of the aforementioned company’s report assessment assessment emphasises its insistence for an independent audit.

research@segi-enam.com | 9 Jun 2022

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Khor Reports’ PalmTrack is an independent research service that tracks palm tanker movements and reports trade of palm products (and shipments, upon request) for selected trade routes. It features a forward-looking market topic and sharp analysis every quarter, e.g. palm biofuels issues & opportunities for Jan–Mar 2022. Subscribe now!

• Yearly
• Monthly

$380.00

Every year

$38.00

Every month

Subscribe to PalmTrack!

Subscribe to PalmTrack!

Sime Darby Implements Governance and Operational Changes

Sime Darby has announced in a press release “sweeping changes in governance and operations” in attempt to address forced labour allegations levelled against the company and USCBP findings that resolving the issue would require “significant financial investments” and restructures. Several reforms pledged by Sime Darby are of notable:

• Reimbursement of recruitment fees. Sime Darby will reimburse some 15,078 foreign workers with an aggregate sum of RM38.6 million. A sinking fund of RM43.5 million to reimburse 19,565 workers will also be set aside. All reimbursements will be paid in lump sum, and current foreign workers will be informed of and receive their monies on 17 February 2021.

• Ethical recruitment. Due diligence will be conducted regularly on recruitment agents to ensure that they are credible and fully licenced. Monitoring and training will be given to agents selected via open tender processes, and will undergo performance monitoring as well. Agents found to have violated Sime Darby’s zero recruitment fee policy will be prohibited from working with Sime Darby.

• Structural changes. An ESG scorecard with “clear indicators” has been approved by the Board. A Social Welfare & Services department responsible for the implementation of policies concerning workers’ safety and welfare has also been established. Accordingly, 40 full time Site Safety & Sustainability Officers have been appointed to enforce these policies.

BFM: Moving Forward with Challenges in Migration Issues

The US State Department released its annual Trafficking in Persons (TIP) report earlier this month, and in it was a damning development: Malaysia was downgraded from Tier 2 Watch List to Tier 3. The downgrade essentially suggests that the country has failed to fulfil the minimum labour standards and is not putting significant effort to do so.

An important issue for sure, BFM invited Segi Enam principal Khor Yu Leng to discuss the matter: Moving Forward with Challenges in Migration Issues.

COVID-19 has complicated migration, with a pause being put on migrant labour flows, and concerns about how this could worsen the problem of human trafficking. First, we find out how the pandemic has affected migration trends in the region. Then, we discuss Malaysia's downgrade to Tier 3 in the US State Department’s Trafficking in Persons report, and how this affects businesses. And finally, we hear what it’s like for migrants here in our country.

Image Source: John Salvino, Unsplash; produced by: Loo Juosie, Kelvin Yee, Azlyna Mohd Noor; presented by: Lee Chwi Lynn, Sharmilla Ganesan

Forced Labour: Legislators Seek Tougher Action on Forced Labour

The heat on palm oil companies is turning up. In December 2020, the US House Ways and Means Committee asked the United States Customs and Border Protection whether it had considered a blanket ban on palm imports from Malaysia and Indonesia, citing the Associated Press investigative piece on widespread labour abuses, which include rape, child labour, and hazardous working environments, within the sector. While acknowledging the USCBP’s recent efforts in penalising companies suspected of using forced labour, the 25 legislators in a formal letter raised concerns about the limitations of imposing import bans in curbing forced labour problems as a whole, explaining that “these odious labor practices and their pervasive impact across supply chains highlight the need for an aggressive and effective enforcement strategy.”

It may be harder to allay lawmakers’ concern without clear data evidence from producer companies and countries about incidence rates and measured improvements. Segi Enam principal Khor Yu Leng pointed that while there is a Jakarta-based council set up to address the concerns linked to palm oil production, the council has yet to “show any muscle.” There is also an newly established ASEAN-EU ministerial-level Joint Working Group on Palm Oil, which seeks to address sustainability concerns associated with palm oil. With the first meeting just only held in late January 2021, its true effect on the industry remains to be seen.

Forced Labour: Customs Officials, Import Bans, and Labour Rights

Destination regulatory bans are beginning to move into the headlights as the hopefully effective measure in enforcing labour laws. The States, via its United States Customs and Border Protection (USCBP), remains as one of the countries with much tougher labour rules—other countries, including the UK, Australia, and particularly Canada appear to be catching up. Ana Hinojosa, a USCBP Office of Trade executive director reveals that slapping companies with withhold release orders (WRO) is meant to send an “unambiguous” message to the trade community, maintaining that “[c]onsumers have a right to know where the palm oil is coming from and the conditions under which that palm oil is produced and what products that particular palm oil is going into.”

So far, the US imports bans seem to have an effect. The Malaysian-based companies who were slapped with the ban have respond to these allegations. WRP and Top Glove, who were issued bans following allegations of labour abuse against their migrant workers (including debt bondage), are reimbursing recruitment fees incurred by their foreign labour force (the WRO issued against WRP was revoked four months later in March 2020). Sime Darby recently conducted an internal assessment and claimed that it did not reveal evidence of systemic forced labour issues in its operations; the company stated that it will also be engaging an independent assessor. FGV has similarly stated that it will be appointing a third-party auditor to assess its operations.

Forced Labour: The Role of NGOs in Labour Rights Enforcement

The past couple of years have been rough for several Malaysian-based companies, who were slapped with withhold release orders (WRO) on grounds of forced labour allegations, effectively prohibiting the importation of their products into the States. These orders, issued by the United States Customs and Border Protection (USCBP), came in light of rising social-related concerns along supply chains inadvertently uncovered by the Covid-19 pandemic.

NGOs have played a significant part in the issuance of these WROs, with some of the orders being made in response to concerns raised by such organisations. The WRO against FGV Holdings, for example, was issued in response to a joint complaint filed in 2019 by the Global Labor Justice–International Labor Rights Forum, Rainforest Action Network, and SumofUs pursuant to the US Tariff Act. A petition from Liberty Shared similarly resulted in the USCBP issuing an order, this time against Sime Darby—the anti-trafficking advocacy group would later file additional complaints of the same to the UK.

These instances are in line with the ongoing role of NGO as watchdogs against companies flouting labour and human rights. As NGOs continue to pressure customs officials to penalise these companies, it would, as described by Segi Enam principal Khor Yu Leng, pose a significant challenge for the palm oil and rubber gloves sectors, both of which Malaysia happens to be the world leader.