This blog highlights news and views on markets, marketing, sustainability and political-economics of palm oil. Any views belong to the respective authors and do not represent that of any particular organization. I update this in my spare time. Since mid-2016, the more "comprehensive" news is available on customized request. Market news and big news continue to be updated. Thank you for reader interest that has generated over 130,000 page views in 2016.
Tuesday, February 25, 2014
Interview with Wilmar to be reported soon
Just to alert readers that yesterday afternoon, Khor Reports had an interview with Wilmar's Head of Sustainability, Mr Jeremy Goon, to find out more about the thinking behind it's new procurement policy and some of its implementation plans. We shall report on this soon.
Sunday, February 23, 2014
Wilmar policy - from recent media reports (update1)
We picked up on recent news articles that offer insights into implementation of Wilmar's new palm oil procurement policy. Articles from Mongabay (17 Feb 2014), Reuters (20 Feb 2014) and The Edge (24 Feb 2014) all cite statements from Wilmar and more. We highlight some interesting points below and include excerpts and links to the said news articles at the bottom.
Interesting points include:
(i) Wilmar on continued Sarawak purchases from previously developed areas & smallholders, Wilmar said. "It is not true that Wilmar will no longer buy palm oil from Sarawak.... Our Policy will not affect our purchase of oil from suppliers who had previously developed tracts of peatland, or from smallholders" (Mongabay, 17 Feb 2014).
(ii) Mongabay on Sarawak expansion headwinds, Where Sarawak may face headwinds however is in its plan to convert up to a million more hectares of forests and peatlands for palm oil production by 2020. These new areas, much of which fall under native customary rights (NCR), would potentially run afoul of Wilmar's environmental and human rights safeguards if they were logged for plantations (Mongabay, 17 Feb 2014).
(iii) Wilmar on likely impact on cost and premium for sustainability, "Adopting sustainable practices will result in slightly higher costs and also prevent some plantations from maximizing their land bank. On the other hand, without any effort to make the industry sustainable, green lobby groups will continue to damage the image of palm oil leading to lower usage of palm oil for food and biofuels, and eventually lower palm oil prices. Therefore the higher price commanded by developing palm oil sustainably will more than offset the cost..." Wilmar said (Mongabay, 17 Feb 2014).
(iv) Wilmar on a cut-off set at November 2005, Wilmar said it will help suppliers to meet its new rules, retaining supply links with growers who developed estates from tropical forests and peat swamps before November 2005 (Reuters, 20 Feb 2014). UPDATED - our check with Wilmar shows no such cut-off date. The relevant date on Wilmar's policy is 5 Dec 2013.
(v) Onimmediately* shifting away from development of peat, HCS and HCV areas, "Wilmar's policy document says "in addition to immediately shifting development activities from high carbon stock, high conservation value and peat areas upon announcement of this policy, we expect suppliers to be fully compliant with all provisions of this policy by Dec 31, 2015"... Wilmar also tells The Edge it has engaged suppliers and advised them not to conduct any new peatland clearance (The Edge, 24 Feb 2014). *to verify on implementation dates.
(vi) Wilmar on helping responsible development of smallholders and farmers (with technical and financial support), working with government agencies on local community projects, Wilmar, in it statement, said it will be helping smallholders and farmers developing their native customary land responsibly, irrespective of whether it is peatland or not. It would also reach out to various government agencies to work together to look into areas being proposed for oil palm cultivation for local communities... "We will be ready to offer assistance, in the form of technical and financial support, to those farmers to ensure sustainable development..."...(The Edge, 24 Feb 2014).
(vii) Mistry on investment research on increased productivity (reducing cost of sustainability in the long-term), "The feeling is that it will lead to more investment in research to increase productivity. So in the long run, if you take a 20-year view, sustainability should come at very little extra cost," said Mistry at Godrej Industries (Reuters, 20 Feb 2014).
.............................
Excerpts from Mongabay, 17 Feb 2014 (newslink: http://news.mongabay.com/2014/0217-wilmar-refutes-sarawak-misinformation.html#ymu225b3gUwT7L7Y.99):
"Sarawak State Land Development Minister Tan Sri Dr James Masing, the report asserted that Sarawak would lose up to 400 million Malaysian Ringgit ($121m) in sales tax revenue per year as a result of Wilmar's policy, which will soon exclude palm oil from new plantations established at the expense of rainforests and peatlands.... "If we are not allowed to plant in those two areas, then there will be no oil palm planted in Sarawak," Masing was quoted as saying. "We have no areas where there are no forest... if you want to plant oil palm where there is no forest, you will have to go to the Sahara Desert because there is no forest there."
"It is not true that Wilmar will no longer buy palm oil from Sarawak," Wilmar told mongabay.com via email.... "Our business is fully integrated and we are dependent on supply from many independent suppliers, it is, and was never our intention to exclude suppliers or to put a stop to expansion and growth of the industry, especially in the state of Sarawak, where we have been operating for many years," Wilmar said. "Our Policy will not affect our purchase of oil from suppliers who had previously developed tracts of peatland, or from smallholders."
Wilmar added that it was working with suppliers to help smallholder palm oil producers comply with its policy.... "We remain committed to supporting the growth and development of Sarawak and in all other areas we operate. With respect to smallholders, we also recognize that they are a critical part of the industry, and that they face unique situations. We will be developing a program in conjunction with various stakeholders to help local smallholders and farmers develop their native customary land responsibly."
Where Sarawak may face headwinds however is in its plan to convert up to a million more hectares of forests and peatlands for palm oil production by 2020. These new areas, much of which fall under native customary rights (NCR), would potentially run afoul of Wilmar's environmental and human rights safeguards if they were logged for plantations.
Wilmar adds that while greener palm oil will be initially more costly to produce, it will pay off in the long-run.... "Adopting sustainable practices will result in slightly higher costs and also prevent some plantations from maximizing their land bank. On the other hand, without any effort to make the industry sustainable, green lobby groups will continue to damage the image of palm oil leading to lower usage of palm oil for food and biofuels, and eventually lower palm oil prices. Therefore the higher price commanded by developing palm oil sustainably will more than offset the cost. It is regrettable that, as yet, not more plantations and refineries have come forward to support these policies. It is only through sustainable operations, innovation, constructive dialogue and close cooperation between key players and stakeholders of the palm oil industry, including local and indigenous communities, can we truly transform the industry into a sustainable one."
Excerpts from "Palm planters, politicians test Wilmar's new green credentials," 20 Feb 2014(newslink: http://in.mobile.reuters.com/article/idINL3N0LC33U20140219?irpc=932):
Given Singapore-listed Wilmar's muscle - its refineries process nearly half the world's palm oil - it could also drive up prices of the oil, used in cooking oil to cosmetics and biofuels, especially in price-sensitive India and China... "That's the unfortunate consequence of any steps taken to make agriculture more sustainable. It's a cost we must learn to bear," said Dorab Mistry, head of edible oil trading at Indian conglomerate Godrej Industries, a big Wilmar customer.
"We need your support and urgent action to de-link your operations from deforestation," it wrote to suppliers in a Jan. 7 letter obtained by Reuters, referring to the practice of clearing rainforests to expand oil plantations, potentially speeding up climate change.... Producers who fail to comply with Wilmar's "No Deforestation, No Peat, No Exploitation" rules risk being cut off from more than 140 refineries that Wilmar and its associates operate globally.
Wilmar, which buys around 30,000 tonnes of palm oil every day - equivalent to a day's demand across the whole of India - faces opposition from within its own industry... Planters and politicians in Indonesia and Malaysia, which together account for almost all the world's 52 million tonnes of palm oil production, accuse Wilmar of siding with Western green groups to set up trade barriers.
Wilmar said it will help suppliers to meet its new rules, retaining supply links with growers who developed estates from tropical forests and peat swamps before November 2005, when a surge in palm oil prices spurred rapid plantation expansion.... "It's regrettable that, as yet, not more plantations and refineries have come forward to support these policies," Wilmar said in a statement to Reuters. "In spite of the objections ... we are heartened that there are suppliers, especially the younger generation of planters, who are keenly aware of the need for environmental protection and are supportive of our move."
Planters' dissatisfaction at Wilmar stems partly from the firm's dominance of markets in India and
China, which soaked up demand for palm oil when its use declined in Europe. The company has 82 refineries in those two markets, and extensive distribution networks, leaving little wiggle room for suppliers.... "Wilmar can create positive incentives to change by rewarding compliant producers with long-term contracts on favourable terms," said Gary Paoli, an analyst who tracks Wilmar with Indonesian environmental consultancy Daemeter Consulting.
Traders predict that slower land expansion and supply growth, as planters in Indonesia and Malaysia are more careful in choosing where to plant, will push up palm oil prices.... "The feeling is that it will lead to more investment in research to increase productivity. So in the long run, if you take a 20-year view, sustainability should come at very little extra cost," said Mistry at Godrej Industries.
Excerpts from "Wilmar's sustainability moves riles Sarawak" 24 February 2014, The Edge Malaysia:
Wilmar's policy document says "in addition to immediately shifting development activities from high carbon stock, high conservation value and peat areas upon announcement of this policy, we expect suppliers to be fully compliant with all provisions of this policy by Dec 31, 2015"... Wilmar also tells The Edge it has engaged suppliers and advised them not to conduct any new peatland clearance.
Wilmar, in it statement, said it will be helping smallholders and farmers developing their native customary land responsibly, irrespective of whether it is peatland or not. It would also reach out to various government agencies to work together to look into areas being proposed for oil palm cultivation for local communities... "We will be ready to offer assistance, in the form of technical and financial support, to those farmers to ensure sustainable development..."...
Interesting points include:
(i) Wilmar on continued Sarawak purchases from previously developed areas & smallholders, Wilmar said. "It is not true that Wilmar will no longer buy palm oil from Sarawak.... Our Policy will not affect our purchase of oil from suppliers who had previously developed tracts of peatland, or from smallholders" (Mongabay, 17 Feb 2014).
(ii) Mongabay on Sarawak expansion headwinds, Where Sarawak may face headwinds however is in its plan to convert up to a million more hectares of forests and peatlands for palm oil production by 2020. These new areas, much of which fall under native customary rights (NCR), would potentially run afoul of Wilmar's environmental and human rights safeguards if they were logged for plantations (Mongabay, 17 Feb 2014).
(iii) Wilmar on likely impact on cost and premium for sustainability, "Adopting sustainable practices will result in slightly higher costs and also prevent some plantations from maximizing their land bank. On the other hand, without any effort to make the industry sustainable, green lobby groups will continue to damage the image of palm oil leading to lower usage of palm oil for food and biofuels, and eventually lower palm oil prices. Therefore the higher price commanded by developing palm oil sustainably will more than offset the cost..." Wilmar said (Mongabay, 17 Feb 2014).
(v) On
(vi) Wilmar on helping responsible development of smallholders and farmers (with technical and financial support), working with government agencies on local community projects, Wilmar, in it statement, said it will be helping smallholders and farmers developing their native customary land responsibly, irrespective of whether it is peatland or not. It would also reach out to various government agencies to work together to look into areas being proposed for oil palm cultivation for local communities... "We will be ready to offer assistance, in the form of technical and financial support, to those farmers to ensure sustainable development..."...(The Edge, 24 Feb 2014).
(vii) Mistry on investment research on increased productivity (reducing cost of sustainability in the long-term), "The feeling is that it will lead to more investment in research to increase productivity. So in the long run, if you take a 20-year view, sustainability should come at very little extra cost," said Mistry at Godrej Industries (Reuters, 20 Feb 2014).
.............................
Excerpts from Mongabay, 17 Feb 2014 (newslink: http://news.mongabay.com/2014/0217-wilmar-refutes-sarawak-misinformation.html#ymu225b3gUwT7L7Y.99):
"Sarawak State Land Development Minister Tan Sri Dr James Masing, the report asserted that Sarawak would lose up to 400 million Malaysian Ringgit ($121m) in sales tax revenue per year as a result of Wilmar's policy, which will soon exclude palm oil from new plantations established at the expense of rainforests and peatlands.... "If we are not allowed to plant in those two areas, then there will be no oil palm planted in Sarawak," Masing was quoted as saying. "We have no areas where there are no forest... if you want to plant oil palm where there is no forest, you will have to go to the Sahara Desert because there is no forest there."
"It is not true that Wilmar will no longer buy palm oil from Sarawak," Wilmar told mongabay.com via email.... "Our business is fully integrated and we are dependent on supply from many independent suppliers, it is, and was never our intention to exclude suppliers or to put a stop to expansion and growth of the industry, especially in the state of Sarawak, where we have been operating for many years," Wilmar said. "Our Policy will not affect our purchase of oil from suppliers who had previously developed tracts of peatland, or from smallholders."
Wilmar added that it was working with suppliers to help smallholder palm oil producers comply with its policy.... "We remain committed to supporting the growth and development of Sarawak and in all other areas we operate. With respect to smallholders, we also recognize that they are a critical part of the industry, and that they face unique situations. We will be developing a program in conjunction with various stakeholders to help local smallholders and farmers develop their native customary land responsibly."
Where Sarawak may face headwinds however is in its plan to convert up to a million more hectares of forests and peatlands for palm oil production by 2020. These new areas, much of which fall under native customary rights (NCR), would potentially run afoul of Wilmar's environmental and human rights safeguards if they were logged for plantations.
Wilmar adds that while greener palm oil will be initially more costly to produce, it will pay off in the long-run.... "Adopting sustainable practices will result in slightly higher costs and also prevent some plantations from maximizing their land bank. On the other hand, without any effort to make the industry sustainable, green lobby groups will continue to damage the image of palm oil leading to lower usage of palm oil for food and biofuels, and eventually lower palm oil prices. Therefore the higher price commanded by developing palm oil sustainably will more than offset the cost. It is regrettable that, as yet, not more plantations and refineries have come forward to support these policies. It is only through sustainable operations, innovation, constructive dialogue and close cooperation between key players and stakeholders of the palm oil industry, including local and indigenous communities, can we truly transform the industry into a sustainable one."
Excerpts from "Palm planters, politicians test Wilmar's new green credentials," 20 Feb 2014(newslink: http://in.mobile.reuters.com/article/idINL3N0LC33U20140219?irpc=932):
Given Singapore-listed Wilmar's muscle - its refineries process nearly half the world's palm oil - it could also drive up prices of the oil, used in cooking oil to cosmetics and biofuels, especially in price-sensitive India and China... "That's the unfortunate consequence of any steps taken to make agriculture more sustainable. It's a cost we must learn to bear," said Dorab Mistry, head of edible oil trading at Indian conglomerate Godrej Industries, a big Wilmar customer.
"We need your support and urgent action to de-link your operations from deforestation," it wrote to suppliers in a Jan. 7 letter obtained by Reuters, referring to the practice of clearing rainforests to expand oil plantations, potentially speeding up climate change.... Producers who fail to comply with Wilmar's "No Deforestation, No Peat, No Exploitation" rules risk being cut off from more than 140 refineries that Wilmar and its associates operate globally.
Wilmar, which buys around 30,000 tonnes of palm oil every day - equivalent to a day's demand across the whole of India - faces opposition from within its own industry... Planters and politicians in Indonesia and Malaysia, which together account for almost all the world's 52 million tonnes of palm oil production, accuse Wilmar of siding with Western green groups to set up trade barriers.
Wilmar said it will help suppliers to meet its new rules, retaining supply links with growers who developed estates from tropical forests and peat swamps before November 2005, when a surge in palm oil prices spurred rapid plantation expansion.... "It's regrettable that, as yet, not more plantations and refineries have come forward to support these policies," Wilmar said in a statement to Reuters. "In spite of the objections ... we are heartened that there are suppliers, especially the younger generation of planters, who are keenly aware of the need for environmental protection and are supportive of our move."
Planters' dissatisfaction at Wilmar stems partly from the firm's dominance of markets in India and
China, which soaked up demand for palm oil when its use declined in Europe. The company has 82 refineries in those two markets, and extensive distribution networks, leaving little wiggle room for suppliers.... "Wilmar can create positive incentives to change by rewarding compliant producers with long-term contracts on favourable terms," said Gary Paoli, an analyst who tracks Wilmar with Indonesian environmental consultancy Daemeter Consulting.
Traders predict that slower land expansion and supply growth, as planters in Indonesia and Malaysia are more careful in choosing where to plant, will push up palm oil prices.... "The feeling is that it will lead to more investment in research to increase productivity. So in the long run, if you take a 20-year view, sustainability should come at very little extra cost," said Mistry at Godrej Industries.
Excerpts from "Wilmar's sustainability moves riles Sarawak" 24 February 2014, The Edge Malaysia:
Wilmar's policy document says "in addition to immediately shifting development activities from high carbon stock, high conservation value and peat areas upon announcement of this policy, we expect suppliers to be fully compliant with all provisions of this policy by Dec 31, 2015"... Wilmar also tells The Edge it has engaged suppliers and advised them not to conduct any new peatland clearance.
Wilmar, in it statement, said it will be helping smallholders and farmers developing their native customary land responsibly, irrespective of whether it is peatland or not. It would also reach out to various government agencies to work together to look into areas being proposed for oil palm cultivation for local communities... "We will be ready to offer assistance, in the form of technical and financial support, to those farmers to ensure sustainable development..."...
Friday, February 21, 2014
Khor Report's Palm Oil Jan/Feb 2014, Issue 6 (now on public release)
Click here to view full newsletter, pdf: https://tinyurl.com/nqaseng
Earlier, we had released some of the draft articles in this blog. Click on the links below in contents listing! Do check out our feature story on South Asia!
KHOR REPORTS' PALM OIL JAN/FEB 2014, ISSUE 6:
South Asia’s need, 11 million tonne predominance of imported palm oil
Feature: South Asia competition, tariff impacts & local India palm oil. Non-dairy ice cream.
Wilmar-Unilever supply-chain jolt, biodiesel stuttering start
Sustainability: TFT-Greenpeace principles lead
Science: remote-sensing & extreme transparency
Spreads narrow, PO exports to dip & demand shift?
Contents:
Editorial - New challenge for the supply chain
3 briefing Indonesia tepid tender. Malaysia Bangladesh worker deal. US transfats demise.
4 science Remote-sensing technology uses.
5 sustainability Wilmar’s strong pledges
6-7 feature South Asia. Non-dairy ice cream.
8 prices & data Key vegetable oils. Weather outlook. CPO technical view. Price charts.
Earlier, we had released some of the draft articles in this blog. Click on the links below in contents listing! Do check out our feature story on South Asia!
KHOR REPORTS' PALM OIL JAN/FEB 2014, ISSUE 6:
South Asia’s need, 11 million tonne predominance of imported palm oil
Feature: South Asia competition, tariff impacts & local India palm oil. Non-dairy ice cream.
Wilmar-Unilever supply-chain jolt, biodiesel stuttering start
Sustainability: TFT-Greenpeace principles lead
Science: remote-sensing & extreme transparency
Spreads narrow, PO exports to dip & demand shift?
Contents:
Editorial - New challenge for the supply chain
3 briefing Indonesia tepid tender. Malaysia Bangladesh worker deal. US transfats demise.
4 science Remote-sensing technology uses.
5 sustainability Wilmar’s strong pledges
6-7 feature South Asia. Non-dairy ice cream.
8 prices & data Key vegetable oils. Weather outlook. CPO technical view. Price charts.
Tuesday, February 18, 2014
Competition acts & antri-trust concerns on sustainability shift?
Khor Reports blog exclusive: Earlier, we reported on questions raised in Sarawak on the actions of dominant players seeking to affect market access. The palm oil industry is waiting for other large plantations to sign on to Wilmar's pledge or something similar. In the weeks surrounding November 2013, the big players were abuzz with talk of the Unilever Manifesto. It appears that Wilmar went bravely ahead with a high-end version on 5 December, while many palm oil players worried about implementation risks and sought a measured version; basically seeking time for more detailed studies. Announcements were awaited in January and early February, but the big plantations have been so far quiet. We hear from sources that issues behind a hold-up are due to a) NGO insistence on higher-end promises and also due to b) corporate lawyers having to check on anti-trust issues i.e. is this an economic cartel? Having the top 10-20 players all sitting down together and planning a big move that would impact the palm oil supply chain in Indonesia and Malaysia clearly raises legal antennae! Both countries have Competition Acts. Palm oil sustainability has entered a heightened phase, with the entry of new players, The Forest Trust (TFT; associated with Greenpeace via its program with Golden Agri / Sinar Mas) and Climate Advisers. It is following the strategy outlined by the WWF commodity "roundtables" programs to get big buyers, big processors/traders and big producers to sign on, in order to effect rapid change in commodity supply-chains.
4.15pm update: Got an alert from a reader that wording was changed on an earlier draft to get past the cartel problem. If so, the hold-up in Manifesto announcement could be due to other issues.
Since it's a long time since we studied "industrial economics 101" at university, we can look at the Wikipedia definition of a cartel (http://en.wikipedia.org/wiki/Cartel): "A cartel is aformal (explicit) "agreement" among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production.[1] Cartels usually occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to entry, most notably startup costs, are high) and the products being traded are usually commodities. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.... One can distinguish private cartels from public cartels. In the public cartel a government is involved to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal actions. Inversely, private cartels are subject to legal liability under the antitrust laws now found in nearly every nation of the world. Furthermore, the purpose of private cartels is to benefit only those individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as a whole....."
4.15pm update: Got an alert from a reader that wording was changed on an earlier draft to get past the cartel problem. If so, the hold-up in Manifesto announcement could be due to other issues.
Since it's a long time since we studied "industrial economics 101" at university, we can look at the Wikipedia definition of a cartel (http://en.wikipedia.org/wiki/Cartel): "A cartel is aformal (explicit) "agreement" among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production.[1] Cartels usually occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to entry, most notably startup costs, are high) and the products being traded are usually commodities. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.... One can distinguish private cartels from public cartels. In the public cartel a government is involved to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal actions. Inversely, private cartels are subject to legal liability under the antitrust laws now found in nearly every nation of the world. Furthermore, the purpose of private cartels is to benefit only those individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as a whole....."
Indonesia biodiesel - Pertamina's 2nd tender
Khor Reports comment: In Indonesia biodiesel policy implementation, the likes of Wilmar and Musim Mas will be tussling with big buyers like PERTAMINA and PLN over pricing and policies. In Malaysia, the big biodiesel players will have to contend with PETRONAS. Malaysia's subsidized regime (being rolled back) raises questions over what happens in scenarios when prices are high; would the blend be pulled back to 3% in extreme circumstances as suggested by a speaker at the recent MPOC Kuching fourm? New policies, new players and new contestations.
17 February 2014, extracts from Platts article on 2nd Indonesia biodiesel tender: "Indonesia's Pertamina has secured around 2.4 million kiloliters, or 45% of the 5.4 million kl of biodiesel it sought in a tender for deliveries in 2014 and 2015, market sources said Monday, some citing e-mails they received from Pertamina. The state-owned oil and gas company is expected to re-issue a tender for the balance requirement for the two years, the sources said. Price and volume negotiations were conducted privately, with a few sources saying that Pertamina likely bought at a premium to Mean of Platts Singapore 0.25% sulfur gasoil assessments in the latest tender round, unlike the first round where it bought at a discount. The country's number one and two biodiesel producers in terms of volume, Wilmar and Musim Mas, were awarded significant volumes, some sources said, but this could not be confirmed............... Under the new decree on the biodiesel mandate, a copy of which was obtained by Platts, the proportion of biodiesel blending in gasoil was being gradually raised from September last year and will eventually reach 25% in the transport, industrial and commercial sectors by 2025, and 30% in the power sector by 2016." -- Esther Ng @Platts.com
Other newslink: http://www.thejakartapost.com/news/2014/02/17/pertamina-misses-biodiesel-tender-target.html
17 February 2014, extracts from Platts article on 2nd Indonesia biodiesel tender: "Indonesia's Pertamina has secured around 2.4 million kiloliters, or 45% of the 5.4 million kl of biodiesel it sought in a tender for deliveries in 2014 and 2015, market sources said Monday, some citing e-mails they received from Pertamina. The state-owned oil and gas company is expected to re-issue a tender for the balance requirement for the two years, the sources said. Price and volume negotiations were conducted privately, with a few sources saying that Pertamina likely bought at a premium to Mean of Platts Singapore 0.25% sulfur gasoil assessments in the latest tender round, unlike the first round where it bought at a discount. The country's number one and two biodiesel producers in terms of volume, Wilmar and Musim Mas, were awarded significant volumes, some sources said, but this could not be confirmed............... Under the new decree on the biodiesel mandate, a copy of which was obtained by Platts, the proportion of biodiesel blending in gasoil was being gradually raised from September last year and will eventually reach 25% in the transport, industrial and commercial sectors by 2025, and 30% in the power sector by 2016." -- Esther Ng @Platts.com
Other newslink: http://www.thejakartapost.com/news/2014/02/17/pertamina-misses-biodiesel-tender-target.html
Wilmar’s strong pledges - NGO reactions
On 5 Dec 2013, Wilmar introduced its ‘No Deforestation, No Peat, No Exploitation’ policy. This adds on many new criteria to the RSPO standard. Noteworthy additions include: (i) the non-use of peat of any depth; (ii) apparent agreement to the controversial 35 tonnes carbon per hectare ceiling (implied by the statement: “HCS will be protected. (Only) Young Scrub and Cleared/Open Land areas may be developed”); (iii) progressive greenhouse gas reductions (likely to affect palm oil waste management and the cultivation of existing peatlands); (iv) the restoration and enrichment of forest and peatlands (at what cost and on whose determination?); and on labour, Wilmar pledges on (v) no forced labour, (vi) a 60-hour work week with 1 day off (i.e. average maximum 10 hour work day inclusive of overtime), (vii) 3.8 square meters / 32 square feet of individual living space, and (viii) trade unions with collective bargaining.
These broad and strong new socio-environmental commitments will apply immediately to Wilmar’s own plantations (it has adhered to the RSPO standard, but it now needs to add numerous new criteria). Wilmar will also apply this to other companies who supply the palm oil, sugar, soy and other commodities that it trades. Thus, this pledge should have big impact, especially on palm oil where it is frequently said to control around half the world trade. Here, Wilmar can use the power of its dominant position.
Such a move by a dominant company has long been the strategic goal of NGOs pushing for strong palm oil sustainability. WWF targets 15 commodities with its “roundtables” voluntary standards program which targets the “big brands” to effect more rapid change[2]. Csrwire.com (15 Nov 2013) exaplains that “corporations can leverage their supply chain power to achieve systemic solutions to social and environmental challenges.” Power or size is a curious thing: big can be a strength as well as a risk.
Wilmar’s policy was launched just after its deal with Unilever, the #2 FMCG giant. Unilever also recently upgraded its own target to only use traceable palm oil by end 2014; together with a plan collapse its supplier roster from over 100 to under 20. Multinationals are under pressure to use “ethical” ingredients. NGO commentators note that “the commercial benefits to Wilmar of appearing to be an environmental leader are clear.” At the same time, they are watchful of how Wilmar will implement its policy.
"RSPO+9", new TFT / Climate Advisers-led policies for Wilmar include:
(i) non-use of peat land of any depth; (ii) likely 35 tonnes carbon per hectare ceiling for land development; (iii) progressive GHG reductions; (iv) restoration and enrichment of forest and peatlands (similar to RSPO HCV compensation?); (v) no forced labour, (vi) 60-hour work week with 1 day off inclusive of overtime, (vii) 3.8 square meters / 32 square feet of individual living space, (viii) trade unions and collective bargaining; (ix) grievance procedure where advisers and stakeholders have a say in banning suppliers Note: Summarised from Wilmar’s “No Deforestation, No Peat, No Exploitation Policy,”
Wilmar’s existing suppliers have until the end of 2015 to comply. Wilmar plans to semi-outsource key parts of its supplier management, notably: “Wilmar will cease to do business with any suppliers who our independent advisors (TFT and Climate Advisers) or other stakeholders find are in serious violation of this policy, and who do not take immediate remedial action to correct those violations.” It promises that a banned list of suppliers will be created.
NGOs seem interested to see how Wilmar’s new policy will affect the Ganda Group, a palm oil company closely connected to Wilmar (reports by Friends of the Earth, 2007 and Greenpeace, 22 Oct 2013). Awasmifee.potager.org (11 Dec 2013) writes that “Wilmar has a special relationship with Ganda Group, which is owned by Ganda Sitorus, the younger brother of Wilmar founder Martua Sitorus. In recent years the Ganda Group has taken over plantations which do not meet Wilmar’s previous ethical commitments to the RSPO and IFC… (e.g. Wilmar) sold its subsidiary PT Asiatic Persada to the Ganda Group.”
It appears that Wilmar is in the position of pushing rather strongly with pledges that may prove challenging to implement. Judging from the tone of NGO reactions, their scrutiny of Wilmar’s moves could remain pretty tight. Can it hit its KPIs and timelines? Will enough NGOs regard Wilmar’s move as satisfactory or will some NGOs see opportunity to bargain for more? Such shifts can attract more change-makers seeking tipping points across several tropical and other commodities.
Along with TFT and Climate Advisers, Greenpeace now sits atop palm oil sustainability (by virtue of its ground-breaking move with TFT at Golden Agri/Sinar Mas on the new high carbon stock criteria). Greenpeace views the move as “Wilmar (caving) to public pressure.” it promises that it “will be closely monitoring how Wilmar will put these words into action…” and asks “will it now immediately stop buying from companies such as the Ganda Group” (5 Dec 2013). Rainforest Action Network calls this “only the beginning” (ran.org, 5 Dec 2013).
How will other dominant players react (see page 2)? While it looks like they may need to rely on the same imaginative independent advisers (TFT and Climate Advisers lead Wilmar), it is possible that at the industry level there is need to hedge risk via some “home grown” national, regional or multilateral programs. If there is perceived or actual weakness in negotiation strategies and tactics - industry and companies can become “soft targets.” Indeed, some professionals worry that marketing is making the call rather than science. If so, we would not be surprised to see stringent interpretation and implementation of Wilmar’s pledges and/or even more criteria added in years to come. But only time will tell.
[2] Jason Clay explains WWF’s 15 commodity-big brands strategy in this video: http://www.ted.com/talks/jason_clay_how_big_brands_can_save_biodiversity.html
This is an article from Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014.
These broad and strong new socio-environmental commitments will apply immediately to Wilmar’s own plantations (it has adhered to the RSPO standard, but it now needs to add numerous new criteria). Wilmar will also apply this to other companies who supply the palm oil, sugar, soy and other commodities that it trades. Thus, this pledge should have big impact, especially on palm oil where it is frequently said to control around half the world trade. Here, Wilmar can use the power of its dominant position.
Such a move by a dominant company has long been the strategic goal of NGOs pushing for strong palm oil sustainability. WWF targets 15 commodities with its “roundtables” voluntary standards program which targets the “big brands” to effect more rapid change[2]. Csrwire.com (15 Nov 2013) exaplains that “corporations can leverage their supply chain power to achieve systemic solutions to social and environmental challenges.” Power or size is a curious thing: big can be a strength as well as a risk.
Wilmar’s policy was launched just after its deal with Unilever, the #2 FMCG giant. Unilever also recently upgraded its own target to only use traceable palm oil by end 2014; together with a plan collapse its supplier roster from over 100 to under 20. Multinationals are under pressure to use “ethical” ingredients. NGO commentators note that “the commercial benefits to Wilmar of appearing to be an environmental leader are clear.” At the same time, they are watchful of how Wilmar will implement its policy.
"RSPO+9", new TFT / Climate Advisers-led policies for Wilmar include:
(i) non-use of peat land of any depth; (ii) likely 35 tonnes carbon per hectare ceiling for land development; (iii) progressive GHG reductions; (iv) restoration and enrichment of forest and peatlands (similar to RSPO HCV compensation?); (v) no forced labour, (vi) 60-hour work week with 1 day off inclusive of overtime, (vii) 3.8 square meters / 32 square feet of individual living space, (viii) trade unions and collective bargaining; (ix) grievance procedure where advisers and stakeholders have a say in banning suppliers Note: Summarised from Wilmar’s “No Deforestation, No Peat, No Exploitation Policy,”
Wilmar’s existing suppliers have until the end of 2015 to comply. Wilmar plans to semi-outsource key parts of its supplier management, notably: “Wilmar will cease to do business with any suppliers who our independent advisors (TFT and Climate Advisers) or other stakeholders find are in serious violation of this policy, and who do not take immediate remedial action to correct those violations.” It promises that a banned list of suppliers will be created.
NGOs seem interested to see how Wilmar’s new policy will affect the Ganda Group, a palm oil company closely connected to Wilmar (reports by Friends of the Earth, 2007 and Greenpeace, 22 Oct 2013). Awasmifee.potager.org (11 Dec 2013) writes that “Wilmar has a special relationship with Ganda Group, which is owned by Ganda Sitorus, the younger brother of Wilmar founder Martua Sitorus. In recent years the Ganda Group has taken over plantations which do not meet Wilmar’s previous ethical commitments to the RSPO and IFC… (e.g. Wilmar) sold its subsidiary PT Asiatic Persada to the Ganda Group.”
It appears that Wilmar is in the position of pushing rather strongly with pledges that may prove challenging to implement. Judging from the tone of NGO reactions, their scrutiny of Wilmar’s moves could remain pretty tight. Can it hit its KPIs and timelines? Will enough NGOs regard Wilmar’s move as satisfactory or will some NGOs see opportunity to bargain for more? Such shifts can attract more change-makers seeking tipping points across several tropical and other commodities.
Along with TFT and Climate Advisers, Greenpeace now sits atop palm oil sustainability (by virtue of its ground-breaking move with TFT at Golden Agri/Sinar Mas on the new high carbon stock criteria). Greenpeace views the move as “Wilmar (caving) to public pressure.” it promises that it “will be closely monitoring how Wilmar will put these words into action…” and asks “will it now immediately stop buying from companies such as the Ganda Group” (5 Dec 2013). Rainforest Action Network calls this “only the beginning” (ran.org, 5 Dec 2013).
How will other dominant players react (see page 2)? While it looks like they may need to rely on the same imaginative independent advisers (TFT and Climate Advisers lead Wilmar), it is possible that at the industry level there is need to hedge risk via some “home grown” national, regional or multilateral programs. If there is perceived or actual weakness in negotiation strategies and tactics - industry and companies can become “soft targets.” Indeed, some professionals worry that marketing is making the call rather than science. If so, we would not be surprised to see stringent interpretation and implementation of Wilmar’s pledges and/or even more criteria added in years to come. But only time will tell.
[2] Jason Clay explains WWF’s 15 commodity-big brands strategy in this video: http://www.ted.com/talks/jason_clay_how_big_brands_can_save_biodiversity.html
This is an article from Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014.
Peatlands in Malaysia and Indonesia - map and info sources
Khor Reports: The TFT-CA-Wilmar new policy is generating big questions on the palm oil supply chain impacts in peatland zones. For convenience of Khor Reports readers, we have collated below some useful resources on the topic. A slew of reports are emerging from equity analysts as several listed plantation companies are highlighted as impacted in Sarawak, Malaysia; The Edge Malaysia reports http://www.theedgemalaysia.
source: APFP website, accessed 18 Feb 2014
ASEAN Peatland Forests Project (APFP)
Overview Map of Peatlands in Southeast Asia (SEA); http://www.peat-portal.net/index.cfm?&menuid=62; Peatland hectarage: Malaysia 2.6 million, Indonesia 20.7 million (map above)
Malaysia, http://www.peat-portal.net/index.cfm?&menuid=81&parentid=67
Indonesia, http://www.peat-portal.net/index.cfm?&menuid=125&parentid=68
"Two decades of destruction in Southeast Asia’s peat swamp forests," by Jukka Miettinen*, Chenghua Shi, and Soo Chin Liew in Front Ecol Environ 2012; 10(3): 124–128, doi:10.1890/100236 (published online 14 Apr 2011).
source: Miettinen et al., 2012
note: 1 sq km = 100 hectares
note: 1 sq km = 100 hectares
Wetlands International: different options available to palm oil; http://www.wetlands.org/WatchRead/Currentpublications/tabid/56/mod/1570/articleType/ArticleView/articleId/3553/Poster-Palm-oil-and-Peat.aspx
Wetlands International: Central Kalimantan Peatland Project; Action Duration: Dec 2005 Until Nov 2008; Donor: Ministry of Foreign Affairs, Netherlands; with video on peat restoration project; http://www.wetlands.org/Whatwedo/Actions/tabid/2661/mod/601/articleType/ArticleView/articleId/7/Central-Kalimantan-Peatland-Project.aspx
Greenpeace: Indonesia's Forest and Peatlands; Legally protected areas, proposed moratorium areas, and forests and peatlands at risk, http://www.greenpeace.org/international/en/publications/reports/Indonesias-Forests-and-Peatlands/
Greenpeace: Indonesia's Forest and Peatlands Map Source, http://www.greenpeace.org/international/en/publications/reports/Indonesias-Forest-and-Peatlands-Map-Source/
Source: Greenpeace website, accessed 18 Feb 2014
Friday, February 14, 2014
Malaysia - Sarawak palm oil concerns
Khor Reports blog exclusive: Sarawak palm oil has expressed concerns about the new TFT-Wilmar procurement policy which states that come 2016, it will only buy from planters who commit to no development on peat of any depth. Sarawak has several peat zones and several plantations have some land bank on peat. Malaysia palm oil watchers are looking out this month for other plantations to sign up to more rigorous pledges than RSPO; either signing on with TFT-Wilmar or proposing something similar.
Khor Reports attended at MPOC's forum at Kuching, Sarawak on Monday 10 February 2014 where we listened to the speeches and spoke to knowledgeable people on the side-lines:
1) A keynote address by the Deputy Chief Minister, Alfred Jabu, expressed strong concern over new policies affecting the Sarawak palm oil sector: a barrage of new policies from developed countries is said to be tantamount to stifling (state) government programs on peatland abodes and native-customary right (NCR) areas with secondary forests. Jabu pointed out that Sarawak still has a good percentage of tree cover and that it has a right to economic development, just as other developed countries have substantially deforested to do likewise in the past. Palm oil development has been used as part of the state's poverty alleviation and high income generating project. Sarawak has 46% of its population or 1.15million people in rural areas. In peatland abodes there are 236,000 people and in NCR areas there are some 380,000 people. So, a "selfish boycott" would impact these people. Jabu said that it is time to "question the NGO lobby... some key criticisms are flawed.. well-meaning sentimentality can impact those working their way out of poverty." He worried that "commercial rivalries and jealousies are fertile ground for NGOs to create havoc from far away." Thus, Sarawak authorizes are engaging with Europe-based think tanks and policy makers to bring them the facts of the situation. He also pointed to the good work of SALCRA, which has paid dividends of some RM635 million to 22,000 landowners (time period not indicated). SALCRA has a policy of zero-burning and it has been asked to expand these activities in oil palm development.
2) Khor Reports was also interested to ascertain if there were any socio-political risks. We spoke to a socio-political analyst who explained that the peatland zone (coastal) is inhabit by ethnic groups who are mostly followers of Islam. The interior mineral soils of NCR areas are mostly inhabited by Dayaks, most of whom are Christians. As always, Malaysian politics has an ethnic-religious dimension. Malaysia is a plural society where big business-economic changes can trigger socio-political concerns.
3) A question was also raised during the Q&A on the competition act; what if there are unfair trade practices by dominant players? It is apparent that the Malaysia industry and policy makers have looked into the act and its market access impact clause. In a separate conversation with an industry group, we also found that some new projects have been designed so that collaboration by several commercial companies do not fall on the wrong side of the act.
The palm oil supply chain is facing significant changes as its dominant players shift to meet buyer's requests on sustainability. We are entering a phase of heightened supply-chain change. Regulatory and socio-political questions are starting to be asked. These bear watching.
...............................
Updated at 4pm for news: Wilmar "will no longer buy palm oil from firms planting in cleared forest and peat swamp from next year out of environmental concerns. Sarawak Land Development Minster Tan Sri James Masing said Singapore-based Wilmar International Ltd conveyed its decision to the state in December. “Since most of the state's oil palm are grown in cleared forests and peat swamp, (that means) they won't be buying from us....Wilmar said from next year, it would buy CPO from oil palm grown in “areas with high carbon content” and from oil palm planted in forests before 2005. Masing said Wilmar buys 45% of Sarawak's crude palm oil (CPO) and refined it at its 10-year-old Bintulu refinery... “It's pure economics and Wilmar is being used by the sunflower and soya bean producers to bully Sarawak.” (Masing said)" newslink http://www.themalaysianinsider.com/malaysia/article/singapore-based-refinery-will-no-longer-buy-sarawaks-palm-oil-says-masing.
Updated 5.20pm for Bernama newslink: http://www.bernama.com/bernama/v7/bu/newsbusiness.php?id=1014477
Khor Reports attended at MPOC's forum at Kuching, Sarawak on Monday 10 February 2014 where we listened to the speeches and spoke to knowledgeable people on the side-lines:
1) A keynote address by the Deputy Chief Minister, Alfred Jabu, expressed strong concern over new policies affecting the Sarawak palm oil sector: a barrage of new policies from developed countries is said to be tantamount to stifling (state) government programs on peatland abodes and native-customary right (NCR) areas with secondary forests. Jabu pointed out that Sarawak still has a good percentage of tree cover and that it has a right to economic development, just as other developed countries have substantially deforested to do likewise in the past. Palm oil development has been used as part of the state's poverty alleviation and high income generating project. Sarawak has 46% of its population or 1.15million people in rural areas. In peatland abodes there are 236,000 people and in NCR areas there are some 380,000 people. So, a "selfish boycott" would impact these people. Jabu said that it is time to "question the NGO lobby... some key criticisms are flawed.. well-meaning sentimentality can impact those working their way out of poverty." He worried that "commercial rivalries and jealousies are fertile ground for NGOs to create havoc from far away." Thus, Sarawak authorizes are engaging with Europe-based think tanks and policy makers to bring them the facts of the situation. He also pointed to the good work of SALCRA, which has paid dividends of some RM635 million to 22,000 landowners (time period not indicated). SALCRA has a policy of zero-burning and it has been asked to expand these activities in oil palm development.
2) Khor Reports was also interested to ascertain if there were any socio-political risks. We spoke to a socio-political analyst who explained that the peatland zone (coastal) is inhabit by ethnic groups who are mostly followers of Islam. The interior mineral soils of NCR areas are mostly inhabited by Dayaks, most of whom are Christians. As always, Malaysian politics has an ethnic-religious dimension. Malaysia is a plural society where big business-economic changes can trigger socio-political concerns.
3) A question was also raised during the Q&A on the competition act; what if there are unfair trade practices by dominant players? It is apparent that the Malaysia industry and policy makers have looked into the act and its market access impact clause. In a separate conversation with an industry group, we also found that some new projects have been designed so that collaboration by several commercial companies do not fall on the wrong side of the act.
The palm oil supply chain is facing significant changes as its dominant players shift to meet buyer's requests on sustainability. We are entering a phase of heightened supply-chain change. Regulatory and socio-political questions are starting to be asked. These bear watching.
...............................
Updated at 4pm for news: Wilmar "will no longer buy palm oil from firms planting in cleared forest and peat swamp from next year out of environmental concerns. Sarawak Land Development Minster Tan Sri James Masing said Singapore-based Wilmar International Ltd conveyed its decision to the state in December. “Since most of the state's oil palm are grown in cleared forests and peat swamp, (that means) they won't be buying from us....Wilmar said from next year, it would buy CPO from oil palm grown in “areas with high carbon content” and from oil palm planted in forests before 2005. Masing said Wilmar buys 45% of Sarawak's crude palm oil (CPO) and refined it at its 10-year-old Bintulu refinery... “It's pure economics and Wilmar is being used by the sunflower and soya bean producers to bully Sarawak.” (Masing said)" newslink http://www.themalaysianinsider.com/malaysia/article/singapore-based-refinery-will-no-longer-buy-sarawaks-palm-oil-says-masing.
Updated 5.20pm for Bernama newslink: http://www.bernama.com/bernama/v7/bu/newsbusiness.php?id=1014477
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