Backers Aren't Buyers for Environment-Friendly Palm Oil
Wall Street Journal:15 July 2009: Shie-Lynn Lim
KUALA LUMPUR -- European consumer groups and nongovernmental organizations have said they want environmentally friendly palm oil. Malaysian producers of palm oil that have made the switch are discovering that it is still a hard sell.
The price premium for palm oil certified as produced through sustainable plantation practices has been shrinking since the first eco-friendly palm oil was shipped to European markets last November, and producers say it may need to disappear if they are to regain business in the key European Union market.
Producers say the difficulty in selling higher-priced sustainable palm oils highlights the double standards of those who criticize the industry but buy the cheaper, uncertified oil that they say is harming the environment.
"We [plantation firms] have complied with the strictest criteria on sustainability. The multinational companies, which also are end-users of palm oil, should not preach wine and drink water," said Carl Bek-Nielsen, vice chairman of United Plantations Bhd., the first Malaysian company certified as a sustainable producer.
Palm oil is a vegetable oil used in products ranging from margarine and cosmetics to feedstock for biofuel. It competes with soybean oil. Premiums for sustainable palm oil have shrunk to between $10 and $15 a ton, from $45 to $50 a ton before the global financial crisis took a toll on European economies late last year and demand waned, said Roy Lim, group plantations director of Kuala Lumpur Kepong Bhd., Malaysia's third-largest listed palm-oil producer by stock-market value. Noncertified palm oil currently sells for about $565 a ton, he said, already down more than 50% from last year's peak.
Consumer-goods companies like Unilever PLC, Nestlé SA and Kraft Foods Inc. repeatedly have said they would seek to buy palm oil produced with minimal harm to the environment. All support the goals and efforts of the Roundtable for Sustainable Palm Oil, formed by World Wildlife Fund and Unilever, which is adopting stringent and sustainable practices for palm-oil cultivation.
Although the combined annual production capacity of RSPO-certified producers in Malaysia, Indonesia and Papua New Guinea exceeded 1.57 million tons of certified palm oil and palm-kernel oil at the end of May, only 15,000 tons of certified oil has been sold since certification started late last year.
"At the moment, demand for certified palm oil is only 1% of the [produced] volume, so this has been disappointing for the growers and we feel the food companies should keep their end of the promise," said Lee Yeow Chor, executive director of Malaysia's second-largest palm oil producer, IOI Corp. Bhd.
IOI, KLK and United Plantations say they are committed to producing sustainable palm oil, even if the price premium disappears.
Nestlé remains committed to sustainable sourcing and only buys products derived from crude palm oil from reputable manufacturers, spokeswoman Nina Backes said.
Kraft spokesman Richard D. Buino said that while the company supports the RSPO's efforts, "it is clear more work is needed to consolidate standards, enforce principles, verify traceability along the supply chain and ensure competitive pricing to bring certified palm oil to market. We're monitoring the RSPO process and actively engaging our suppliers to monitor their certification efforts to find viable options for sourcing sustainable palm oil."
Neither Nestlé nor Kraft directly addressed purchases of Malaysia's certified palm oil.
Officials from Unilever, which purchases between 1.3 million and 1.5 million tons of palm oil annually, couldn't be reached for comments. The Anglo-Dutch consumer-goods giant announced in 2008 that it was committed to completely switch to certified palm oil by 2015.
In the longer term, sustainability certification could be the trump card for palm-oil producers as the European Commission pushes ahead with sustainability standards on palm oil.
The European Union has set a target of reducing greenhouse-gas emissions by 20% by 2020 and of using 10% renewable energy in the transportation sector.
Emission targets set for renewable energy affects palm oil because the commodity also is used as a feedstock for biodiesel.
"Certified palm oil may take market share from other edible oils in the E.U., especially those that don't comply or meet stringent sustainability criteria," said an analyst with a Malaysian brokerage firm.