Monday, December 9, 2013

Unilever - Wilmar push for supply chain change


Wilmar the largest trader of palm oil in the world has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, has in recent years taken a lead in promoting the principle of sustainability in its materials sourcing. Unilever has helped lead the RSPO from its inception nearly 10 years ago. Its CEO recently received a special award: the 2013 World Wildlife Fund Duke of Edinburgh Conservation Medal for Unilever’s efforts to reduce environmental damage. Dutchman, "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported. 

Wilmar has long faced grumblings from the NGO sector for not practicing sustainable sourcing for its third-party purchases, which are overwhelmingly bigger than its own internal production area. With it's new promise, the giant trader now faces the challenge of rationalizing its supply-chain. The question is this: how will Wilmar achieve this without downsizing its business? In principle, traceability with high level promises is not easy to achieve for large traders with complex supply chains. Industry talk in recent weeks has been about the top 15-20 producers being asked to sign on to a new RSPO+++ manifesto, most probably using the TFT/Greenpeace principles; this being the new leader in palm oil sustainability ahead of the RSPO. If the key palm oil producers accede, one can assume that Wilmar will be "home and dry" without having to make much of a change in its business size and its costing. Wilmar's promises can be fulfilled by tough and possibly cost-raising action on the part of its suppliers. Thus, we should await future announcements from the palm oil industry players. In what manner will they all come out in support of Unilever-Wilmar's promises? 

For producers moving fast into such a high grade sustainability push, could this bring on the faster convergence of unit costing fro large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the rest of the palm oil industry (those ranking below the top #15-20), the supply-chain change they face may be significant. Industry policy makers should be concerned at how a traceable, no-peat, no deforestation palm oil supply chain will look like.

Khor Report thinks that this could mean that each palm oil mill in the region will need to be supply-chain risk categorized for the new Unilever-Wilmar protocol. This could segment SE Asia into different market production zones with resulting discount/premium regions. Could there be negative implications for the independent sector (i.e. non-integrated and non-large producer)? How will the new protocol be operationalized? Will a November 1995 baseline apply and will high carbon stock measurement be made to effect a palm oil mill sustainability risk categorization exercise? In this regard, the Golden Agri/Sinar Mas pilot done by TFT/Greenpeace will be instructive. What requirements will new regions such as Africa face?

The questions are only starting. We will need to better understand the Unilever-Wilmar protocol by way of what the large producers come up with in this potentially market shifting move in the palm oil supply-chain. Other commodities too are facing new pressures from an ascendant and increasingly well-funded green movement that is also playing a bigger consulting role (in a highly important and potentially self-funding and self-perpetuating shift). In relative terms, the corporate sector has been scrabbling for footing while the independent and smallholder sectors are adrift. What is notable in the palm oil industry is the new apparent side-lining of the WWF, often reckoned as a realistic NGO, while the TFT/Greenpeace duo may emerge as key supply-chain policy maker.

News source: http://www.bloomberg.com/news/2013-12-05/palm-oil-leader-wilmar-bans-deforestation-in-sustainability-push.html ; “We can produce palm oil in a way that protects forests, clean air and local communities, all while contributing to development and prosperity in palm oil growing regions,” Chief Executive Officer Kuok Khoon Hong said in the statement. “There is a strong and rapidly growing demand for traceable, deforestation-free palm oil, and we intend to meet it as a core element of our growth strategy.” 5 December 2013.

Friday, November 29, 2013

Choices available for sustainable palm oil credentials

At the recent PORAM Annual Forum, Khor Reports spoke on the topic of sustainability certification options.

The outlook for the certification for sustainable palm oil is getting a lot more complex. It appears that stakeholders are wrestling for control over the palm oil policy agenda, after it was so readily snapped up by the Roundtable on Sustainable Palm Oil (RSPO) and its key movers in the last few years.  The RSPO is the palm oil industry’s current super-standard and by some measures it is probably the most successful voluntary standard in agriculture product certification. However, the RSPO has some issues: a) its exclusive approach makes it de facto regressive as it set out to focus on the largest corporations, b) it has large gaps with policy in producer countries, c) its first-mover monopoly has been dissipating to the ISCC whose stronger commercial grounding is a contrast to the RSPO’s relatively disappointing low premium and supply glut; d) there are significant worries that the RSPO will be pressured to raise its standards by non-member NGOs; and e) it proposes large financial compensation charges on grower members – this could amount to USD billions and it might open them to national and international lawsuits. This is from the perspective of palm oil industry players. From the viewpoint of other NGOs, it is not doing enough. And here, we see the new combination of The Forest Trust and Greenpeace coming in to usurp the RSPO's prime position while relying on it i.e. launching RSPO+ efforts. TFT/Greenpeace worked to great effect in causing GAR/Sinar Mas to adopt strict standards including no planting on peat and using a 35 tonnes carbon per hectare ceiling for new land development in a pilot project. We can expect the TFT/Greenpeace program to be marketed to more companies, both buyers and plantations.

In light of such trends, it is no surprise that there are clear signs that big grower and buyer members of the RSPO have been setting up various alternatives. Some may worry about a trajectory of excessive demands and so they seek to hedge their bets. Others may be seeking better alignment for multi-product supply-chains. Some want to show they can do more than RSPO e.g. Ferrero working with TFT/Greenpeace standards. Whatever the reason, key stakeholders have been actively pushing for new certification options which may better retain industry control. Will this dilute the impact of RSPO’s perilous promotion of trade restrictions? Thus, we see the introduction of state-initiated and supra-national facilitated schemes. These could gain market share if voluntary standards are impaired by poor alignment at the structural or policy level e.g. many voluntary conservation areas are untenable. Palm oil industry certification could be quickly moving toward the complexity seen in other sectors such as forestry and soy. How will NGOs react to such a shift? The palm oil industry will need to ensure good practices and maintain buyer acceptance. The grower segment and key supply-chain choke-points are under pressure, and they will need to put in additional resources for advocacy and negotiation on market access and more.

Bottom-line: Under sustainability, the supply-chain model has to be short and simple. Big and complex won't work well under traceability requirements.

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Wednesday, November 20, 2013

Over 1000tc/ha carbon stock in one oil palm cycle

In an analysis that is thorough in inclusion of carbon in all elements in palm oil from oil palm roots to fronds, cover crop, ffb and efb, and pome, AAR gives a one cycke carbon accumulation measure of over 1,000 tonnes carbon per hectare.

Khor Reports comment: This will be an eye opener in the contestation over palm oil sustainability. This is a vast difference to figures used by the TFT/Greenpeace schemes that use an old indicator of 35 based on an indeterminate number of old studies. Ngo-driven voluntary certification efforts are hampered by literature reviews of uncertain quality and citing often dated studies. The AAR study is a good scientific counterargument. It should generate a flurry of scientific studies to review uncertain measures and indicators used in many voluntary standards. What will happen to high carbon stock arguments? Some big players are said to be ready settle on 75+ tonnes carbon per ha. They might want to make more studies. AAR is a joint research unit of KL Kepong and Boustead.  

Saturday, November 16, 2013

Sustainability impacts supply-chain

Unilever said that it would only buy traceable palm oil by end 2014. One of the top buyers of palm oil, the Anglo-Dutch consumer goods manufacturer has been among those leading the charge in sustainable palm oil. It has worked closely with WWF and others in leading the Roundtable on Sustainable Palm Oil (RSPO). It is notable that "At the end of 2012, only around 5% of its palm oil was traceable and certified, a company spokesman said. Part of the problem is that the vast number of suppliers Unilever works with means the company struggles to keep tabs on where each batch of palm oil originates.... Unilever will cut its roster of suppliers to between 10 and 20 from well over 100 as it adopts traceable sourcing. Of those, "six or seven will do around 70% of volume," (Unilever) said... Another tactic Unilever is using to improve the sourcing of its palm oil is to control the process from the earliest stage. The company is already partway through building a $100 million palm-oil plant in Indonesia, and Mr. Engel said similar investments would be considered in the future" (Wall Street Journal, 12 Nov 2013).

Comment: Khor Reports' view on the consolidation of the supply-chain with increased leverage for retailers and buyers is panning out. Shorter and simpler supply-chains are the order of the day. Large complex supply-chains are now facing NGO criticisms, notably on third-party purchases from non-certified sources. We have noticed that the palm oil industry at large has been relatively uncaring of happenings at the RSPO (i.e. its something for the big players and only for the European market). However, smaller producers and smallholders in developing countries should now sit up and look out. Could they be increasingly side-lined in a palm oil supply chain that will increasingly favour larger producers, those with simpler supply-chains and those in regions with a comparative advantage in sustainability? This will solidify market tiers with discount/premiums for what is a basic agri-commodity product of bulk usage. This is unusual as certification was typically not for bulk but for niche usage e.g. FSC, Fair Trade and organic. The trajectory of sustainability in palm oil continues to surprise with the speed of its evolution and the speed of the relative decline of the negotiating power of producers. Relative to soybean oil, palm oil producers face tougher and more costly standards. Might this accelerate the convergence of unit costs? Palm oil producers have enjoyed relatively high profit margins over a long period of time. Is this set to normalize? Perhaps many also don't really mind if the speed of expansion slows. This might be supportive of prices?

UPDATE on 18 Nov 2013: Khor Reports has discussed the regressive unfairness of the structure of voluntary standards such as the RSPO. Now it looks like a big NGO-buyer processor effort could result in more serious impact on the entire palm oil supply chain. Industry leaders are starting to express worries of the unfairness of current proposals on smaller producers and farmers who supply the bulk of SE Asia palm oil. Indonesia players also point out that the push could result in a politically untenable situation for 2014. if large swathes of smaller producers end up as "ineligible suppliers" within a short time frame; assuming enough big players sign on (it may not take many). The impact on the supply-chain of the current proposals among dominant players could be significant with uncertain and unintended outcomes on spatial supply-chain & logistics, lost crop & dropping FFA quality etc. NGO pressure is particularly strong on a key part of the supply-chain. This bears watching. Have the dominant players fully assessed the potential impacts and outcomes?

Tuesday, November 12, 2013

Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (now available)

Click here to view full newsletter, pdf:   http://tinyurl.com/mbhthpb

Earlier, we had released some of the draft articles in this blog. Click on the links below!

KHOR REPORTS' PALM OIL NOV/DEC 2013, ISSUE 5: Feeding Africa, Asian companies eye West Africa consumers with palm oil, instant noodles and more
Feature: Indomie, Unilever & Olam in W Africa. Instant noodles & global hunger
Indonesia’s landholding ceiling, Felda Global deals & more
Biofuel policy cooling and boost, Neste Oil’s renewables
Sustainability: more certification, snacks & supply chain
Preview: RSPO hot topics

Contents:
Editorial - unprecedented policy challenges, time to restrategize?
Indonesia ceiling on landholdings.
Felda deals & more.
Biofuels policies falter but Indonesia boosts.
Neste Oil’s renewables.
More certification.
RAN on snackfoods & supply chain.
RSPO preview.
Feature:  West Africa. Instant noodles.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.


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

Monday, November 11, 2013

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.

Sunday, November 10, 2013

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)

Biofuels policies: EU & US cool while Indonesia boosts

In early September, the European Union (EU) fixed a 6% limit on the use of crop-based biofuels in ground transport; cutting back the previous requirement that at least 10% of energy for road and rail transport should come from renewable sources by 2020. This caps the potential for increased demand. In the longer-term, analysts say that this may reduce the EU’s imports of biodiesel. The USDA’s outlook for EU biodiesel consumption is +1.1% from 11.9 bill liters in 2013F to 12bil liters in 2014F, with imports forecast +5.9% from 1.7bil to 1.8bil liters respectively.   USDA estimates EU biodiesel refining capacity at 24.5 bill liters in 2011, with utilization only at 45% (AmResearch, 19 Sep 2013). The EU states agreed to impose punitive duties on biodiesel imported from Argentina and Indonesia; provisional tariffs were in place in May and by end November, duties of EUR217-246 / USD296-336 and EUR122-179/USD166-245 per tonne apply respectively. Both will challenge the duties (reuters.com, 23 Oct 2013).

“The negative development in EU is expected to be mitigated by positive developments in Indonesia. Recall that Indonesia raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014.  In line with this development, Biofuels Digest reported that PERTAMINA will hold a tender this week to buy 6.6 bill litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6 bill litres annually from 25 different producers” (AmResearch, 19 Sep 2013). 

Reuters reports (11 Oct 2013): “In a leaked proposal that would significantly scale back biofuel blending requirements next year, the U.S. Environmental Protection Agency (EPA) says the blend wall - the 10% threshold of ethanol-mixed gasoline that is at the crux of the lobbying war - is an "important reality." The agency's rationale for a cut in the volume of ethanol that must be blended echoes an argument the oil industry has been making for months: the U.S. fuel chain cannot absorb more ethanol. Few retailers are able to sell ethanol blends beyond the 10% maximum, or willing to take the legal risk that comes with it, they argue. The words will cut deep for proponents of biofuels. They have argued for years that the blend wall is largely a fiction constructed by an oil industry that doesn't want to cede any more share of a shrinking U.S. gasoline market.” The volume of corn-based ethanol will be reduced by 800 mill gallons to about 13 bill gallons versus the law’s required 14.4 bill gallons for 2014F. The EPA proposal has to be approved by the White House Office of Management and Budget.  This would not be positive for biofuels and it could result in excess supplies of corn; the USDA expected about 33.8% of US corn to be used for ethanol in 2013F/2014F (AmResearch, 14 Oct 2013).

Could this presage a lower blending of soybean oil in US biodiesel? Could there be a similar “blend wall” in biodiesel to impinge on higher blend rates in palm producing countries? Their political-economic situations are likely different enough from the US for a strong implementation push. In which case, a question remains: when will the legal risks of higher blends by covered?

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

Palm oil sustainability certification: more and more

UPDATE on 12 Nov 2013: Unilever is expected to set its new commitment. Currently: 100% traceable by 2020.

Indonesia Sustainable Palm Oil (ISPO) has an ambitious target for end-2014 certification by its palm oil companies. Earlier, the Agriculture Ministry spoke of sanctions including revoking the licenses of palm oil companies if they do not attain ISPO, which is mandatory. This aims to enhance practices with better implementation of Indonesia legal and regulatory requirements. “Certain ISPO standards are less strict than CSPO standards, and the cost of certification per hectare is lower. The ISPO was created after the Indonesian Palm Oil Association (Gapki) exited the RSPO in 2011, after a series of conflicts linked to environmental standards.” In March, ISPO certificates were handed over to to 10 palm oil companies for their certified estates. These included Musim Mas, Sari Aditya Loka 1, Swadaya Andika, Laguna Mandiri, Ivo Mas Tunggal, Hindoli, Gunung Sejahtera Dua Indah, Gunung Sejahtera Ibu Pertiwi and Perkebunan Nusantara V (Investor Daily in jakartaglobe.com, 11 Mar 2013).

The Roundtable on Sustainable Palm Oil (RSPO), a voluntary scheme, consisting of various stakeholders from growers, NGOs and financiers has enjoyed high visibility. However, it is the ISCC which has likely gained stronger commercial traction. Unlike the RSPO, it offers a decent premium to its users. It certifies for the EU biofuels market. Notably, one of the biggest palm oil buyers in the world, Neste Oil, reports only about 20% of its certified product being covered by RSPO certificate, while the ISCC is its mainstay. Recently, ISCC launched a certification for food, ISCC-Plus. RSPO NGO members brushed aside their worries over the food vs. fuel debate and allowed the introduction of a certification for biofuel users, RSPO-RED. How will RSPO and ISCC duke it out for market share, now that they are on the same turf?

Is a RSPO+ standard in the offing? This could be triggered by the successful campaign by Greenpeace against Golden Agri / Sinar Mas. The NGO was at hand when the plantation giant studied some of its land concessions considered as degraded. NGOs prefer this land type for palm oil expansion. The findings were quite negative for land development as the carbon ceiling measure operationalized the definition of usable land to immature scrub land. Greenpeace successfully pushed for the 35 tonnes carbon per ha ceiling on the Indonesian group’s pilot. Working on this project was The Forest Trust (TFT, a facilitator to the timber trade). Nestle set to investigate its palm oil supply-chain but it is no longer named in the project. Instead TFT and GAR bravely brought in Greenpeace. RSPO says it welcomes the Greenpeace-led Palm Oil Innovation Group (POIG, launched Jun 2013), which has lured in just a handful of its grower members including Golden Agri / Sinar Mas. The WWF (founder and key mover of the RSPO) has come out to criticize its own creation and jumped onboard with POIG. So, what’s next in the small world of voluntary palm oil certification? Keep an eye on WWF – Greenpeace moves while Unilever is expected to set its new commitment.

Malaysia Sustainable Palm Oil (MSPO), a certification standard developed by the Malaysia Palm Oil Board was launched mid-year. We hear that the logistics of the certification process is being established. Might there be an announcement on this during 4Q2013 with an eye to certificate issuance in 1Q2014? This is voluntary, but a mandatory scheme is being considered. The creation of national eco-certifications such as ISPO and MSPO should be no surprise. It is standard practice in various agricultural crops that national schemes sit alongside global and regional voluntary schemes.
Few governments and national industries are so fully trusting as to outsource policy making to voluntary multistakeholder bodies. These often become de facto dominated by a few NGOs and companies. With the proliferation of eco-certification available for palm oil buyers, the question is how well each scheme is marketed and how buyer acceptance evolves. In the timber sector, recent data shows that 2/3 market share has gone to national certification and 1/3 to voluntary stakeholder schemes.


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

Monday, October 7, 2013

Khor Reports' Palm Oil #4 newsletter: Indonesia's boom, plantations earnings crunch, price expectations for 2H2013 & more

KHOR REPORTS' PALM OIL SEP/OCT 2013, ISSUE 4: Malaysia biogas, India refinery woes, Liberia investor hiccup. Green performance chemicals. Sustainability: after haze, RSPO+, labour worries.
Supplement: EU withdraws GSP privileges, Malaysia mulls TPP standard, Indonesia’s farmer protection law, Pakistan FTA

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

Contents:
Malaysia biogas directive.
India refinery angst.
Liberia investor hiccup.
Green performance chemicals.
CSPKO premium jumps.
After haze.
RSPO & RSPO+.
More migrant worker rights?
Feature: Indonesia’s boom. Plantations earnings crunch.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.
Supplement – trade briefing 
     EU withdraws GSP benefits. 
     TPP new stds for Malaysia?
     Indonesia farmer protection law.
     Indonesia-Pakistan FTA

Thursday, July 11, 2013

Europe: biofuels from crops to be capped

In a negative long term move for palm bio-diesel, MEPs have voted for a 5.5% cap and ILUC factors for bio-fuels to be set for EU Renewable Energy Directive. The next step is in September.

Furthermore, an influential research papers by a Princeton academic points out that bio-fuels are taking away food from people. This gives fodder for anti-biofuels campaigners to point out that (many) biofuels are bad for the environment and also bad for people.

It looks like several big biofuels markets will be getting more wary of biofuels. It may be up to producer countries to use more of their own product.


News sources:

"MEPs in the influential Environment Committee (ENVI) voted 43-21, with one abstention, to set a cap for fuels made from food crops at 5.5% and include emissions arising from indirect land use change (ILUC) factors such as clearing of forests, wetlands, or grasslands in the Renewable Energy Directive and the Fuel Quality Directive when calculating official emissions impacts. The Commission had already proposed a five 5% cap, but the EU Industry, Research and Energy Committee (ITRE) said last month this should be raised to 6.5% and recommended ILUC factors not be included until the methodology for measuring indirect emissions is more reliable.... The package will now be put to a plenary session of Parliament in September."

News source: Biofuels from food crops to be capped following MEPs' vote; Influential Environment Committee backs cap on crop-based fuels and moves to include indirect emissions in EU directives; weblink:
http://www.guardian.co.uk/environment/2013/jul/11/biofuels-food-crops-capped-meps-vote

"According to new research by Tim Searchinger, a Princeton University research scholar and acknowledged biofuels expert, a tragic equation is buried in existing modelling data used by the EU to establish the effects of indirect land use change (ILUC) – the increased CO2 emissions that displaced agricultural activity may create... When agricultural land that had been used to grow food is given over to growing biofuels, someone somewhere will go hungry - unless previously uncultivated land is taken to grow the displaced food, or yields from existing crops increase commensurately.
But “there is extremely little evidence that you will get additional yield gains,” Searchinger said over the phone from New Jersey yesterday (9 July), “and without that you get two bad responses: You have some land expansion, and people eat less.”.. Searchinger’s reading of one key report produced for the EU by the International Food Policy Research Institute (IFPRI) found that of every 100 calories from wheat or maize diverted to food tanks by bioethanol production, 25 calories were not replaced... “If you step back, take the broader view and see that people are going to have to produce 60% more food by 2050 [to feed a growing world population] that we’re not going to be able to feed entirely from yield gain, biofuels will just compound that problem.”
News source: MEPs to vote on biofuels as study points to hunger, deforestation; 10 July 2013; weblink: http://www.euractiv.com/energy/new-research-biofuels-automatica-news-529200

Liberia palm oil project shareholder in default?

On 8 July 2013, Equatorial Palm Oil (EPO) issued a default notice to Biopalm Energy Limited, part of the Siva Group. The company said: “EPO has, however, advised Biopalm that any dilution of shareholding that results from raising equity in EPO, due to Biopalm's failure to honour its Commitment, should, in EPO's view, result in a corresponding increase in EPO's share in LPD, which is, at present, held 50/50 by EPO and Biopalm as well as an award for damages for loss due to Biopalm's failure to honour its commitments under the Investment Agreement.”

Biopalm was earlier reported to have effective 63.3% stake in the Liberia palm plantation assets via a 50% JV and 13.5% stake in EPO. However, a report in Feb 2012 indicates it has a 26.71% stake in EPO, indicating an increase.

The Liberia plantation concession area is some 170,000 ha. Liberia is the centre of the largest scale oil palm FDI projects in Africa so far. Projects have been held up by land disputes. The other key players are Sime Darby and Golden Veroleum / Golden Agri.


*Please contact Khor Reports if you would like to get a copy of our info briefing on this matter, including profile of Siva Group, and various info collated on Equatorial Palm Oil.


News source:

Equatorial Palm Oil issues default notice to partner
8 July 2013 | 11:23am StockMarketWire.com
The board of Equatorial Palm Oil (PAL:AIM) has issued a written notice to its joint venture partner, Biopalm Energy Limited (a wholly owned subsidiary of Indian conglomerate, the Siva Group) setting out that Biopalm is in material breach of its obligations under the investment agreement signed between the parties on 10 December 2010. Biopalm is required under the Investment Agreement to arrange and/or contribute, either directly or through any member of its group, any external funding required by the joint venture company, Liberian Palm Developments Limited (up to a maximum of US$30,000,000). Notwithstanding Biopalm's obligations to fund LPD up to the Commitment amount, EPO intends to continue to fund LPD and its assets in the Republic of Liberia. EPO has, however, advised Biopalm that any dilution of shareholding that results from raising equity in EPO, due to Biopalm's failure to honour its Commitment, should, in EPO's view, result in a corresponding increase in EPO's share in LPD, which is, at present, held 50/50 by EPO and Biopalm as well as an award for damages for loss due to Biopalm's failure to honour its commitments under the Investment Agreement. EPO continues to negotiate and work with Biopalm regarding the Commitment with a view to an amicable solution being reached, but has reserved all rights to take action against Biopalm under the Investment Agreement. EPO shall make further announcements regarding the above, and its continued discussions with Biopalm, in due course. Story provided by StockMarketWire.com - See more at: http://www.stockmarketwire.com/article/4628151/Equatorial-Palm-Oil-issues-default-notice-to-partner.html#sthash.cjyWmQnf.dpuf

Friday, July 5, 2013

EU due to vote 10 July to limit food crops in biofuels

"EU continues to debate a plan cap the percentage of biofuels made from food crops, with a final vote due to occur on 10 July...Most of the environmental impacts cited in the EEA report are a result of deforestation, draining of peatlands and other land clearance for biofuels, together known as indirect land use change (ILUC)."

News articles include:
Biofuel crop mix 'not favourable for environment'.  A report by the European Environment Agency found benefits vary significantly depending on the source of crops
http://www.guardian.co.uk/environment/2013/jul/03/biofuel-crop-mix-environment

EU votes on crucial cap on biofuels made from food crops. Campaigners fear lobbying by industry and farmers' unions will weaken plans to limit role of food crops in biofuels production
http://www.guardian.co.uk/global-development/2013/jun/19/eu-votes-biofuels-food-crops

Sustainable palm oil: how successful is RSPO certification? The industry's certification body champions the multi-stakeholder approach, but it needs to move faster. Oliver Balch interviews the organisation's secretary general
http://www.guardian.co.uk/sustainable-business/sustainable-palm-oil-successful-rspo-certification

Tuesday, July 2, 2013

Khor Reports' Palm Oil #3 newsletter: Trade tussles, corporate outlook, prices & more

KHOR REPORTS' PALM OIL JUL/AUG 2013, ISSUE 3: Trade tussles. Corporate: Who’s got the best prices & growth prospects? EU biodiesel: certification, anti‐dumping & ILUC. Nigeria worries about duty evaders. Better info on saturated fats & Vitamin E tocotrienols. Frontier expansion: Nigeria, Mindanao & more. Price outlook muted, eyes on China & crude oil.


View our newsletter here:

http://tinyurl.com/qzeqfgt
(**kindly note this was updated on 10 July 2013, including pg. 7 on average selling prices; earlier version was 2 July 2013).

Contents:
Indonesia’s four land bank issues.
Malaysia’s new minister. 
Saturated fats targeted in standards setting.
Vitamin E tocotrienols.
EU biodiesel certificates.
Indonesia’s new customary forests.
SE Asia’s peat fire season – 20% in OP concessions?
Feature: Trade tussles: EU anti‐dumping duties, new sustainability rules, Argentina’s WTO move, TPPA & GM concerns; Nigeria’s palm protectionism.
Corporate outlook.
Nigeria investors & recent frontier plans. 
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts - including Oil World's latest price view

Sunday, June 23, 2013

Great Haze II: PSI measures for Malaysia and Singapore

Malaysia and Singapore offer lagging indicators for their air pollutant index reporting.
 
Malaysia air pollutant index

This can be found at this website: http://www.doe.gov.my/apims/

It reports Muar, Johor, 7am measure of an astonishing reading of 746 while southern Johor has readings ranging about 120-140. KL has readings just above 100 and Klang at 188.Note that these are 24-hour averaged figures.


The high reading for Muar is consistent with the information that the super dense haze zone has moved northward from Singapore, where it was positioned a few days ago:




Singapore PSI readings

These can be found here: http://www.nea.gov.sg/psi/. However, the shift to 3-hourly average and then 24-hourly average reporting smooths out the results and turns this into a historical record. This makes the Singapore report less useful for members of the public who might want to avoid going out when the current actual PSI is particularly high.



Consistent with the shift northwards of the super dense smog haze zone, readings in Singapore have moderate and are now below 100.




Best practice note: Available 24-hour, 7 day a week; PM10 and PM2.5; real-time current PSI readings; forecast to provide alert of pollution episodes; and several historical ranges of indicators using 24-hour averaged statistical summaries.

Great Haze II - burning concessions identified by Greenpeace

This study by Greenpeace presents hots spots for 11-21 June mapped onto palm oil concession. Just palm oil concessions? According to WRI study, these account for 20% of hot spots. There are other types of concessions afire and about half of fires are outside of concession areas. Anyhow, in the coming weeks, the Haze Blame Game will unfold.


Great haze II - the blame game starts

It’ll be interesting to see which companies get investigated and possibly blamed for contributing to SE Asia's second great haze. The recently announced Indonesia list of names being investigated coincides with WRI's report which uses NASA data on fires overlaid on plantation concession maps (yellow highlighted names).

Foreign-owned and foreign-based Indonesian companies seem to be the focus of the first set of names announced. More companies will be named in days to come, presumably to include the locally based Indonesian names.

The Indonesian government had identified 8 Malaysian and 2 Singaporean based companies behind the forest burning in Sumatera.  They are under investigation.

Malaysia-owned:
  1. PT Langgam Inti Hiberida [KLAU RIVER ENT SDN BHD]
  2. PT Bumi Rakksa Sejati, 
  3. PT Tunggal Mitra Plantation [SIME DARBY]
  4. PT Udaya Loh Dinawi,
  5. PT Adei Plantation [KLK]
  6. PT Jatim Jaya Perkasa [*NOT OWNED BY WILMAR - updated 23 June 2013]
  7. PT Multi Gambut Industri,
  8. PT Mustika Agro Lestari

Singapore-based:
  1. Asia Pulp & Paper 
  2. APRIL         

WRI's analysis with NASA fire data is worth looking at. Weblink: http://insights.wri.org/news/2013/06/peering-through-haze-what-data-can-tell-us-about-fires-indonesia.

WRI's analysis of NASA fire alert data during the recent period, finds that 48% of the fires were outside of concession areas, 27% in timber plantations, 20% in oil palm areas, 4% in protected areas and 1% in logging areas. The high proportion (nearly half) outside of concession areas differs from NGO assessments of an earlier SE Asian haze episode which only attributed 20% of "blame" on smallholder farmers. Does this imply that plantation practices have improved?





WRI provides a top 15-17 list with ranking of concession companies by the number of fire alerts in their areas. The oil palm list and the timber plantation lists are as follows:






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

Friday, May 31, 2013

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.



Friday, May 17, 2013

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.

Tuesday, May 7, 2013

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.

Sunday, April 14, 2013

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:


; 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.