Monday, March 31, 2014

US soybean sustainability issues and approach

Summary by Khor Reports, 24 March 2014 from presentation by Josiah McClellan; Director of Food Market Issues and Sustainability, United Soybean Board; March 16-18 2014 at National Institute of Oilseed Products (snapshot of key slides in image below).

Interesting to see US soybean industry facing similar issues as palm oil in certification:
  • increasing importance of ISCC
  • "certification fatigue"
  • competition between and within NGOs
  • the need for equivalence
  • problem of “moving targets”…

What's notable is US soybean’s research-based data-intensive approach which includes: a) measure of environmental impacts of US soybean production 1980-2011; b) measurement of efficiency and other performance measures by grower; c) survey for practice adoption intensity by state; d) use of sustainability-yield models and e) focus on industry-scalable approach, addressing key industry priorities and industry collaborative efforts. 


Khor Report comment:

There is increased need for research-data intensive approach for palm oil to tell its story. So far, NGO-led voluntary sustainability certification does little in terms of positive comparatives (e.g. palm oil vs soybean vs rapeseed); much to palm oil's frustration since it does well on many key comparative measures. Indeed, some supply-chain companies wonder if international campaigning has been so successful as to drive some markets toward "no palm oil" (some NGO ratings of "sustainable palm oil" products give the highest ratings for those containing NO palm oil). 

The increasingly popular ISCC (principally for biofuel but with a new food module) method is more comparative given that it's a multi-feedstock certification. Most NGO-led certification look only for internal changes and improvements i.e. no more use of peat and no more deforestation but independent data and impact studies have been notably lagging ten years into the palm oil sustainability movement. NGO-led certification has been critiqued for being relatively blind to national development goals and socio-political fissures in Southeast Asia. In this regard, the current phase of escalating sustainability compliance (silence on premiums implies cost to producers rather than shared benefit of premiums) will undoubtedly include national policy makers as they mediate and negotiate the detailed implementation of what is proposed by NGOs and dominant companies, especially for smallholders (Indonesia regulatory changes are significant in this sphere). At the same time, we hear of corporate interest in expanding resources for more rigorous studies to support palm oil marketing on various features. As such, the approach of competitor oils is pertinent and the US soybean story is worth looking at. The bottom-line? Data. Data. Data.

The difference in palm oil and soybean certification is also notable. Please read our blog posts on comparative differences between the WWF-Roundtables, RSPO and RTRS:
http://khorreports-palmoil.blogspot.com/2013/02/rtrs-moves-ahead.html
http://khorreports-palmoil.blogspot.com/2011/10/rspo-vs-soy-roundtable.html
 
 

Wednesday, March 26, 2014

Liberia says "no more land will be taken"

Is Liberia's president going cold on the palm oil industry? TrustLaw, Source: FERN - Fri, 21 Mar 2014;  http://www.trust.org/item/20140320153254-aep4f/?source=hppartner; Liberian President Ellen Johnson-Sirleaf speaks during an interview with Reuters in Brussels, Nov. 25, 2013. REUTERS/Francois Lenoir; ...Johnson Sirleaf’s decision appears to signal a dramatic change of heart for a leader who has signed 30 percent of Liberia’s land over to foreign investors - with 1.5 million acres allotted to palm oil companies - in a country where, as one NGO worker put it, ministers seem “drunk with the idea that international investment will bring economic recovery”.....The dispute with EPO, which began two years ago, was the latest clash between rural Liberians and companies rushing to acquire land to feed the growing global market for palm oil – a product found in around a third of products on supermarket shelves, according to one jaw-dropping estimate.....Widely reported complaints have been made against the Singapore-controlled Golden Veroleum (GVL), which holds a 350,000-hectare oil palm concession in south-western Liberia, and the Malaysian corporation Sime Darby, whose 311,187 hectare operation is in the north, and was recently the target of a suspected arson attack..... Allegations against EPO surfaced in 2012, when villagers living by the company’s Palm Bay Estate in Grand Bassa County accused the company of clearing their land and planting oil palm there without their consent. EPO insists all the land it has used has been legally acquired.
....Now, with the promise that no more land will be taken, the mood in Grand Bassa is one of elation. Whatever motivated the president’s decision – a political calculation driven by upcoming Senatorial elections, pressure from local and international NGOs, or maybe even the strength of the villagers’ case - any reversal of her position in a land where four fifths of the rural population endure hunger and malnutrition would mean trouble..... In November, the U.N.’s Panel of Experts on Liberia concluded that “large-scale palm oil development continues to pose significant challenges to peace and security in rural areas.” It’s a view echoed in the villages around EPO’s plantation.

UN report here: http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2013_683.pdf

Also read: Sime Darby: Liberia fire and doubt on Olam interest...  http://khorreports-palmoil.blogspot.com/2014/03/sime-darby-liberia-fire-and-doubt-on.html

Friday, March 21, 2014

Sime Darby: Liberia fire and doubt on Olam

CIMB report on Sime Darby Bhd, "Fire destroys 200ha of estates," 20 March 2014: "We estimate that a fire, which has destroyed around 200ha of oil palm estates owned by Sime Darby in Liberia, may cost the group around RM3.6m in financial losses. This is negative although the earnings impact is insignificant. It could also possibly set back the progress of new planting in the near term. Sime Darby has invested RM300m-400m in its Liberian venture and planted 10,035ha of oil palm estates in the country..... The workers at the Bomi plantation said that the blaze was started by suspected arsonists and raged for two weeks before being brought under control... It is trying to work with the government to conduct an investigation....the cost of developing new oil palm estates in Liberia (RM18k per ha)... "

In the same report, CIMB notes, "We do not think the speculation that Sime Darby is keen on Olam is true and the group has also denied this."

Other news on Liberia (updated 26 March 2014):
Fire Destroys 200 Hectares at Sime Darby, Liberian Daily Observer, http://www.liberianobserver.com/news/fire-destroys-200-hectares-sime-darby
A fire has destroyed about 200 hectares of an oil palm plantation owned by Malaysian firm Sime Darby in the northwest of Liberia, Reuters reported, ... (includes comments form Liberia newspaper readers)

Wednesday, March 19, 2014

Olam was bid up on Africa market hopes?

Singapore Business Times on 18 March 2014 reported that "market talk revealed that there have been at least three separate parties interested in acquiring Olam during the same period, potentially pushing up its share price as well..... Sime Darby, one of the largest palm oil producers in the world, is said to be one of them. Two Japanese trading companies are also said to be interested in Olam due to its exposure to African markets...." newslink: http://www.businesstimes.com.sg/premium/companies/others/moodys-olam-bid-temasek-credit-negative-20140318

Khor Reports wrote about palm oil prospects in West Africa and two key Asia-based companies tackling the consumer market there - Indofood's Indomie and Olam.


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
Click here to read: http://khorreports-palmoil.blogspot.com/2013/11/khor-reports-palm-oil-novdec-2013-issue.html


Olam share price over 5 years (Bloomberg.com):



Other news on Temasek's Olam takeover offer :
Temasek Unit’s Offer for Olam Is Credit Negative, Moody’s Says; By Lisa Pham and Colin Keatinge Mar 17, 2014; http://www.bloomberg.com/news/2014-03-17/temasek-unit-s-offer-for-olam-is-credit-negative-moody-s-says.html; The offer by Temasek Holdings Pte’s unit to take over Olam International Ltd. (OLAM) is credit negative for the Singapore state-owned investment company, according to Moody’s Investors Service. The acquisition, which values one of the world’s top three coffee and rice traders at S$5.3 billion ($4.2 billion), will put pressure on Temasek’s “portfolio liquidity,” Moody’s, which rates the investment firm at Aaa, said in a March 17 report. Olam’s 2 percent dividend yield in 2013 is also lower than Temasek’s return of about 3 percent, it said. “Bringing a new company under the Singapore umbrella negatively pressures portfolio liquidity,” Alan Greene, a senior credit officer at Moody’s, said in the report, which estimates 65 percent of Temasek’s S$215 billion investments are in Singapore dollars.

http://www.bloomberg.com/news/2014-03-16/olam-buyout-caps-55-rally-as-short-seller-block-praises-change.html

http://www.bloomberg.com/news/2014-03-13/temasek-unit-offers-to-buy-olam-in-4-2-billion-cash-deal.html

Other recent news on Olam:
http://www.bloomberg.com/news/2013-11-13/olam-agrees-to-sell-australian-almond-orchards-for-a-200-million.html

Update 20 March 2014: Nomura Research, Olam International (OLAM SP, Buy) - Temasek offer sets the floor  ( SGD2.22 / PT: SGD2.50 ) by  Tanuj Shori; Bineet Banka.  Raising price target — We still see long-term value in the business; we advise shareholders to hold on.  Action: Temasek offer sets the floor; in line with recent agri transactions.  In an unexpected move on March 14, Temasek’s (unlisted) subsidiary, Breedens Investments (unlisted) proposed an all-cash offer of SGD2.23/share for Olam. While the offer values Olam at ~14x CY14F P/E [~10% premium to peers Wilmar (WIL SP, Neutral) and Noble (NOBL SP, Buy)] and ~9x CY14F EV/EBITDA, it is in line with the recent major transactions in the global agri space (Fig. 11). We raise our TP to SGD2.50.

Saturday, March 8, 2014

Singapore's anti-haze bill to bite?

Singapore proposes a Transboundary Pollution Bill. It looks as though this bill has a good chance of going through. It has teeth by shifting the burden of proof to errant entities based in Singapore and beyond (including companies in Indonesia and Malaysia). These entities and members of their management teams (anyone who steps foot in Singapore territory) will be subject to criminal and civil liability. Further enhancements may add even more bite e.g. larger penalties and whistleblower rewards. The bill is in public consultation until 19 March 2014, and Singapore hopes to pass the Bill by mid-2014.  

Some industry experts note that the 2013 record SE Asia peat smog haze was a watershed in pushing forth stronger palm oil sustainability measures. Singapore's bill could add to this by enhancing the push for a tougher compliance regime for plantations and other entities. However, palm oil sustainability experts (including NGOs) have consistently found that the key cause of Sumatran peat fires affecting Singapore are now more likely to be small farmers and less likely to be large companies. The latter  have being changing their practices. Specialists tell us that in consultation with Singapore advisors that they have already pointed this out. On the use of historical remote sensing images and trends, they have pointed out the neer to discern the different fire patterns of recurring farmer land clearance versus mass fires (in the past) from large-scale plantation development.

In not directly addressing the bulk of the problem i.e. fires in non-plantation estate areas in key peat zones in Riau and Jambi (and even in the Peninsula), it is not clear how this bill will have a strong impact in alleviating the problem. However, the Singapore authorities may feel the need to implement such a bill as it seems the least they could do to address the pollution problem that afflicts its people. 

Khor Reports' contributor  Helena Varkkey is a specialist on the SE Asian smog haze air pollution problem and plantations. She has contributed an analysis of Singapore's draft bill to this blog. Below are excerpts from her review presented in an abridged, Q&A format.

Why is Singapore introducing this bill? Singapore’s Pollutant Standards Index hit the all time record high of 401. This event ignited a diplomatic row between Indonesia and Singapore, with Singapore’s Ministry of the Environment and Water Resources , Dr. Vivian Balakrishnan almost immediately accusing Indonesia of not caring about the welfare of its neighbours. It was also around this time that Dr. Balakrishnan first revealed plans to table a Transboundary Pollution Bill.... A draft version of the Bill has now been released, and the Ministry of the Environment and Water Resources is seeking the views of the public on this draft. The consultation period will last until 19 March 2014, before the bill is reviewed and tabled at Parliament. Dr Balakrishnan hopes to have the Bill passed within the first half of this year (2014).

Why is this approach unique? The Bill is unique for its application of extra-territoriality; it covers the operations of all Singapore and non-Singapore entities whose activities outside of Singapore contribute to haze pollution in the city-state.... It will also be the first of its kind in the region and the world, as there is currently no law in the world that allows a country to prosecute commercial entities in other countries for such offences.

Who may be caught? Currently, the only way to catch entities based overseas is if somebody in the entity’s management position comes to Singapore.

What are the legal implications? The Bill makes it a criminal offence when an entity engages in conduct, or authorizes any conduct which causes or contributes to haze in Singapore. A penalty of up to SGD300,000 can be imposed, and this may be increased up to SGD450,000 if the entity has deliberately ignored requests by authorities to take appropriate action to prevent, reduce, or control the pollution. An individual company officer can also be held personally responsible.... Affected parties may also bring civil suits against errant entities. The civil damages recoverable under the Bill will be determined by the courts of Singapore based on personal injury, physical damage, or economic loss. Civil action can also be taken against errant entities by industries (such as aviation, tourism and construction) if they can prove that they have suffered serious economic consequences.

 But isn't it hard to bring a case against a company? Presumptions allow the court to assume that a fact is correct until prove otherwise. Since proving what happens abroad is difficult, evidential presumptions relating to causation (linking open burning elsewhere and wind direction with the presence of haze in Singapore) and culpability (based on ownership and occupation of land) have been inserted, and help to give teeth to this Bill. Among others, it importantly allows for reliance on satellite imagery, meteorological information, and maps as evidence... This has been a long-standing problem between the firms and authorities, and this shift in the burden of proof could potentially resolve this issue once and for all.... Once these companies are brought to court, building a case against these companies would be an equally challenging proposition. One lawyer explained that with criminal liability, it would be difficult to prove causation or contribution of conduct to haze pollution in Singapore.... With civil cases, a claimant would have to show on a balance of probability that his personal injury, disease, mental or physical incapacity of death is a consequence of the defendant’s conduct. This may prove difficult as firstly, there may be a time lag between the haze and the personal injury. Secondly, haze may be only one among several other contributing factors to the injury.

Does this have to go through foreign government channels? Academicians have also pointed out that the Bill would surpass the diplomatic need of going through government channels when faced with wrongdoing. Professor Simon Tay of the Singapore Institute of International Affairs said that since the proposed law allows individual lawsuits against companies, it will be able to bypass any ‘friction’ that might occur of the matter has to go through governments.... (But others say that )Efforts on the Singaporean side must be matched by equally strong measures from the Indonesian government, for errant companies to be brought forward to face the music.

How will bank financing be affected? With the new law, banks would become more careful when approving loans to companies since these financial institutions would not want to expose themselves to more risks of civil or criminal liability. There are already some banks who evaluate loans based on sustainability and reputational risk, but these remain the minority.

What suggestions are being made to add teeth to the proposed bill? Legal experts recommend that a thorough exploration of the nature of the liability arising from the acts of independent contractors used by firms to clear land. They suggest that ‘strict liability’ clause should be applied, wherein the harm caused (the impact on public health and economic liabilities) justifies a non-delegable duty of care.... Other commentators also suggest increasing the severity of the punishments suggested, as the current proposed fines are too low to cause any real damage to the multi-billion dollar companies that operate in Indonesia. Suggestions include a demotion in the status of companies, compulsory reforestation projects, compensations to the victims of haze, seizing any assets the entities may have in Singapore, and even prohibitions from doing business in Singapore. Nanyang Business School professor Ivan Png further suggested that penalties be proportional to the land area a defendant owns.... To address the issue of the difficulty of compiling evidence, professor Ang Peng Hwa at the Nanyang Technological University proposed that NGOs like Greenpeace should be encouraged to work closely with authorities, including providing the authorities with what evidence they have compiled from their own investigations. Professor Png also also suggested that the law include an incentive for whistleblowers to provide evidence.

Is there support for this bill?  In general, it can be seen that major companies are paying attention to the new developments in relation to the proposed Bill, and can be expected to take the necessary steps should the Bill come into force.... As a whole, the Bill shows that Singapore is willing to take action where it can. Public views so far has been generally supportive, and environmentalists and observers have lauded the proposed legislation as a good step forward in tacking the haze menace.

View Helena Varkkey's full briefing here: http://khorreports-palmoil.blogspot.com/2014/03/singapores-transboundary-pollution-bill.html

Singapore’s Transboundary Pollution Bill – Prospects and Challenges by Helena Muhamad Varkkey

Last June saw Singapore battling with its most severe episode of haze yet. During that period Singapore’s Pollutant Standards Index hit the all time record high of 401. This event ignited a diplomatic row between Indonesia and Singapore, with Singapore’s Ministry of the Environment and Water Resources , Dr. Vivian Balakrishnan almost immediately accusing Indonesia of not caring about the welfare of its neighbours. It was also around this time that Dr. Balakrishnan first revealed plans to table a Transboundary Pollution Bill that would provide for criminal and civil liability for any Singaporean or non-Singaporean entity causing or contributing to transboundary haze pollution in Singapore.

The Draft Bill
A draft version of the Bill has now been released, and the Ministry of the Environment and Water Resources is seeking the views of the public on this draft. The consultation period will last until 19 March 2014, before the bill is reviewed and tabled at Parliament. Dr Balakrishnan hopes to have the Bill passed within the first half of this year.

The Bill is unique for its application of extra-territoriality; it covers the operations of all Singapore and non-Singapore entities whose activities outside of Singapore contribute to haze pollution in the city-state. The Bill would be the first of its kind for Singapore, as Singapore usually only punishes action overseas only for severe crimes, such as corrupt acts or illegal sex with minors. It will also be the first of its kind in the region and the world, as there is currently no law in the world that allows a country to prosecute commercial entities in other countries for such offences. Currently, the only way to catch entities based overseas is if somebody in the entity’s management position comes to Singapore.
The Bill makes it a criminal offence when an entity engages in conduct, or authorizes any conduct which causes or contributes to haze in Singapore. A penalty of up to SGD300,000 can be imposed, and this may be increased up to SGD450,000 if the entity has deliberately ignored requests by authorities to take appropriate action to prevent, reduce, or control the pollution. An individual company officer can also be held personally responsible.

Affected parties may also bring civil suits against errant entities. The civil damages recoverable under the Bill will be determined by the courts of Singapore based on personal injury, physical damage, or economic loss. Civil action can also be taken against errant entities by industries (such as aviation, tourism and construction) if they can prove that they have suffered serious economic consequences.
Presumptions allow the court to assume that a fact is correct until prove otherwise. Since proving what happens abroad is difficult, evidential presumptions relating to causation (linking open burning elsewhere and wind direction with the presence of haze in Singapore) and culpability (based on ownership and occupation of land) have been inserted, and help to give teeth to this Bill. Among others, it importantly allows for reliance on satellite imagery, meteorological information, and maps as evidence.

The presumptions put the burden of proof on entities to provide a rebuttal through their own land maps. Hence, a company can defend itself by proving the fires were caused by natural disaster or by parties not under its direction. Showing that the concession maps used by the authorities are wrong can also rebut the presumption.

Prospects
With companies having to prove that they are not liable for the haze, they should feel more pressure to be transparent and responsible. Hence, this new Bill should  incentivize companies to be more forthcoming about their landholding and practices, especially with regards to sharing their internal land maps and concession maps with authorities. This has been a long-standing problem between the firms and authorities, and this shift in the burden of proof could potentially resolve this issue once and for all.  

Academicians have also pointed out that the Bill would surpass the diplomatic need of going through government channels when faced with wrongdoing. Professor Simon Tay of the Singapore Institute of International Affairs said that since the proposed law allows individual lawsuits against companies, it will be able to bypass any ‘friction’ that might occur of the matter has to go through governments. As governments have usually resorted to diplomatic consultations with home countries when foreign companies were suspected of burning, most of these cases were resolved diplomatically and not legally. Environmental Law professor Laode M. Syarif from Hasannudin University added that the new law will also be able to address criticisms that Singapore is lenient towards suspected companies that are headquartered in Singapore but operate in Indonesia. It could also stop Indonesians from using the excuse that Singapore-linked companies get away with environmental destruction in Indonesia.
Prof. Tay also foresees potential positive developments among financial lending practices if this Bill is put into place. With the new law, banks would become more careful when approving loans to companies since these financial institutions would not want to expose themselves to more risks of civil or criminal liability. There are already some banks who evaluate loans based on sustainability and reputational risk, but these remain the minority.

Challenges

However, identifying errant companies may be problematic. One Singaporean Member of Parliament pointed out that the National Environment Agency would need to work closely with their counterparts in Indonesia to build a case against these companies, and questioned if the authorities would be able to work well together effectively. Indonesia has thus far shown a weak track record; clearing land through burning is prohibited in Indonesia but authorities have so far only successfully prosecuted a handful of companies for starting such fires. Enforcement of land clearing laws is weak in Indonesia due to lack of skilled ground staff to assess remote areas. Furthermore, corruption is rife in Indonesia, and companies have been able to continue to burning large tracts of forests every year, clearing it for planting trees for palm oil or paper production. Efforts on the Singaporean side must be matched by equally strong measures from the Indonesian government, for errant companies to be brought forward to face the music.
Once these companies are brought to court, building a case against these companies would be an equally challenging proposition. One lawyer explained that with criminal liability, it would be difficult to prove causation or contribution of conduct to haze pollution in Singapore. The prosecution would have to prove beyond reasonable doubt  that haze pollution at least partially came from that fire. That would entail considering how thick the smoke was and whether the smoke from that fire actually travelled to Singapore.
 
With civil cases, a claimant would have to show on a balance of probability that his personal injury, disease, mental or physical incapacity of death is a consequence of the defendant’s conduct. This may prove difficult as firstly, there may be a time lag between the haze and the personal injury. Secondly, haze may be only one among several other contributing factors to the injury. Also, the defendant’s conduct may have only resulted in one or a few fires relative to the total number of hotspots at the time. How would the court attribute the proportion of the defendant’s responsibility?

Of course, culprits may exploit any loophole to demand if the haze is indeed caused by them. For example, associate professor Burton Ong of the national University of Singapore suggests that entities might claim that they had no control over sub-contractors who start the  fires. This is a common reason given by companies when confronted by authorities.

Suggestions
Legal experts recommend that a thorough exploration of the nature of the liability arising from the acts of independent contractors used by firms to clear land. They suggest that ‘strict liability’ clause should be applied, wherein the harm caused (the impact on public health and economic liabilities)justifies a non-delegable duty of care. Hence, in such cases companies can no longer claim that they are not responsible for the actions of their contractors.

Other commentators also suggest increasing the severity of the punishments suggested, as the current proposed fines are too low to cause any real damage to the multi-billion dollar companies that operate in Indonesia. Suggestions include a demotion in the status of companies, compulsory reforestation projects, compensations to the victims of haze, seizing any assets the entities may have in Singapore, and even prohibitions from doing business in Singapore. Nanyang Business School professor Ivan Png further suggested that penalties be proportional to the land area a defendant owns.

To address the issue of the difficulty of compiling evidence, professor Ang Peng Hwa at the Nanyang Technological University proposed that NGOs like Greenpeace should be encouraged to work closely with authorities, including providing the authorities with what evidence they have compiled from their own investigations. Professor Png also also suggested that the law include an incentive for whistleblowers to provide evidence.

Outlook
It is hoped that this Bill will send a strong signal of deterrence to potentially errant companies, especially considering the damage that could be inflicted upon the company of it was publicly exposed that it conducts itself in such an irresponsible behaviour. In relation to the bill, a spokesperson for First-Resources, a Singapore-listed company, said it will support any move to hold those directly responsible for contributing to the haze. Golden Agri Resources reaffirmed their view that businesses must act responsibly, however Asia Pacific Resources International (APRIL) declined to comment on the bill until it has had time to review it. In general, it can be seen that major companies are paying attention to the new developments in relation to the proposed Bill, and can be expected to take the necessary steps should the Bill come into force.

As a whole, the Bill shows that Singapore is willing to take action where it can. Public views so far has been generally supportive, and environmentalists and observers have lauded the proposed legislation as a good step forward in tacking the haze menace. If passed, the Bill will definitely be an interesting test case to explore the effective reach of extra-territoriality in transboundary pollution issues.  Furthermore, if passed, the Bill would indirectly put pressure on Indonesia to step up its own efforts to resolve the haze problem.

References
Newspaper articles, official government websites and commentaries by various stakeholder organizations and think tanks.

 
About the contributor

Helena Varkkey, PhD Sydney
Senior Lecturer, Department of International and Strategic Studies, University of Malaya. Deputy Editor, Malaysian Journal of International Relations. Research focus: transboundary pollution in Southeast Asia, particularly pertaining to the role of patronage in agribusiness, especially the oil palm industry, and its link to forest fires and haze in the region. Website: http://malaya.academia.edu/HelenaVarkkey

Thursday, March 6, 2014

TFT rattles NGO sector?

No doubt the wider palm oil sector is curious about the key independent adviser for Wilmar and other companies' new policies.

Thank you to readers of Khor Reports for sharing this weblink for an in depth article and profile on TFT; http://www.eenews.net/stories/1059995365; "DEFORESTATION: Meet the 'go-to man' for companies that get in trouble with environmental groups"

Excerpts:

Poynton, 49, has built a reputation as the go-to man for large corporations to take deforestation out of their portfolio of issues. Whether it's a concession to pressure from environmental groups, a recognition of consumer demand for sustainable products or the threat of divestment, companies have been lining up to work with TFT.

"We come with a health warning: It is unpleasant and difficult to work with TFT, because we will change you, and change is fundamentally difficult and stressful and full of tension," said Poynton, 49. "But if you're ready to go on the journey, the destination will be a good one."

Founded in 1999, TFT works with companies to first create a policy that would wean them off business-as-usual practices that lead to forest clearing and then make sure they stick to the task. In 11 years, membership has grown from six to 80, including companies like chocolate maker Ferrero and Crate & Barrel.

Poynton doesn't mince words when talking about his work. He is gregarious, a quick speaker, peppering his talk with anecdotes, jokes and jabs at his critics. He is relentlessly passionate about the natural world, but pessimistic about government-centered action to stop deforestation, like REDD+, a U.N.-backed mechanism that seeks to pay countries to keep forests standing....

But there are apparently some questions from other NGOs...

.....The World Wildlife Fund, one of the largest and more business-friendly environmental groups, is one of the groups suspicious of TFT's ability to act as an independent third party.... World Wildlife Fund has also called into question Poynton's impartiality, playing the role of both a paid contractor and an enforcer of the policy.... "We consider them a second-party entity; that's different from hiring an independent third-party auditor," said Walker.....

An article from Yale University's Environment360 website suggested that TFT and Greenpeace had concocted a "good cop-bad cop" routine: Greenpeace shames the company, and TFT comes to offer corporate comfort.... "This is a lot of power in the hands of one organization -- and one man," wrote journalist Fred Pearce....

Yale Environment's 27 Jan 2014 report weblink: http://e360.yale.edu/feature/monitoring_corporate_behavior_greening_or_merely_greenwash/2732/';
"Monitoring Corporate Behavior: Greening or Merely Greenwash? Companies with bad environmental records are increasingly turning to a little-known nonprofit called TFT to make sure they meet commitments to improve their practices. It remains to be seen if this is just a PR move or a turning point for corporate conduct...." 

At the sidelines of POC 2014: (2) on certification and smallholders

Khor Reports was at POC 2014 to find out about some hot issues discussed on the side-lines. Here are some topics that we think might be of broader industry interest in the near and medium-term:

(2) On sustainability certification and smallholders

Sustainability was a frequently mentioned topic in and out of the hall. We heard that many groups attended briefings by Wilmar. On 5 December 2013, Wilmar announced its new “No Deforestation, No Peat, No Exploitation Policy” for suppliers (with a 31 December 2015 implementation date) via a press release on its company website. No surprise that there will be heaps of implementation queries on this big change to palm oil procurement (Khor Reports' interviewed Wilmar last week, and we are awaiting clearance on some quotes for our report on this). In the expanding market pressure (someone pointed out that one might want to differentiate "market pressure" from "market demand") for sustainability, short and simple supply-chains are the order of the day.

In this regard, the expansion of sustainability requirements point to two major new tiers of sustainability procurement programs over and above that of RSPO (and this excludes the various one-on-one B2B deals that won't be of a public nature). However, we don't think that RSPO will sit still either. The situation in palm sustainability will take time to reach a new steady-state, as announced and non-announced major programs have jolted the prior RSPO-led situation (in which ISCC was also steadily impinging).

Moreover, the big market share that the large "B2NGO2B" deals are representing are raising the antennae of the authorities. This is largely because this looks most likely now to impinge on and thus require NGO-led compliance certification by smallholders and small estates. Thus, we were not surprised to hear some buzz that smallholder associations are trying to figure out what this means for them and how they might want to step up to pressure for certification. In Malaysia, the smallholder centric organizations include Felda, Felcra, NASH and state-level bodies.

On this same topic, Khor Reports' spoke to sources in Indonesia last week. We were told that the authorities there are well prepared to discuss with international NGOs (currently clamouring and strongly  competing among themselves over smallholder certification) what they propose. We understand that they will need to pay attention to new Indonesia enactments made in 2013. Thus, the Indonesia authorities stand ready to intervene if necessary on supply-chain impacts from NGO and B2B programs, if they fail to sufficiently regard the required principles in their dealings with smallholders and farmers: "impartiality," economic benefit and others. Indonesia has two major smallholder associations, one for plasma and one for independent smallholders.

Khor Reports is intrigued to hear that some new large NGOs on smallholder certification reckon that smallholders need to take out a loan to participate in their programs. In general, the recent promotional material from NGO-led sustainability programs for smallholders lay key emphasis on the good agricultural practices that they offer (yield gains); and in at least one presentation they mention that cost of certification includes periodic payments of USD10,000 per group of smallholders (source: presentation at PIPOC on Thai smallholder sustainability certification).

The direct or indirect participation of government authorities, especially via farmer and smallholder regulations (at least for Indonesia) will add a new dimension within the B2NGO2B situation. This is in addition to direct efforts on national certification via ISPO (mandatory) for Indonesia and MSPO (voluntary) for Malaysia. We also heard that those representing Malaysia smallholders are also thinking of options and economic cost-benefits. Don't be surprised if the authorities contest the right of sustainability programs to claim credit for gains from good agricultural practices (programs for these have existed prior to the sustainability era and often available to smallholders and farmers at zero or near zero cost), and also step up their own programs. The availability of premium relative to cost will also likely be a question, especially for the less advantaged smallholders. What is an appropriate cost ratio to target? In the NGO world, one of the benchmarks is admin cost percentage per dollar donated; for example, Oxfam UK reports 9% spent on support costs per GBP1 received /donated; https://www.oxfam.org.uk/donate/).

Bottom-line: As the B2NGO2B sustainability programs expand in depth (more policies) and breadth (dominant market shares), the space to watch is emerging requirements and the economic cost-benefit of different programs for smallholders, farmers, small & mid-sized estates, and independent mills etc. In the assessment of different options, an impartial and hard-nosed analysis would be important. It is not uncommon in the sphere of agri-product eco-certification that some key early promises made on marketability / market take-up have disappointed those who gone to the effort and cost of certification. For the "other half" of the market, consideration of real market take-up, cost-effectiveness and some stability in policy evolution are of increased importance as many do not have the deep pockets of the "big boys."

At the sidelines of POC 2014: (1) on new Indonesia regulations (update)

Khor Reports was at POC 2014 to find out about some big issues discussed on the side-lines  Here are some topics that we think might be of broader industry interest in the near and medium-term:

(1) Indonesia's new regulations affecting agriculture and palm oil.

The number one producer of palm oil in the world has been making some speedy and decisive changes in policy in the last few years. A key example was the deployment of the new biodiesel policy. We heard from sources that this happened within a short time frame in September 2013; at a time when the Rupiah faced great pressure on the back of worries over the country's current account deficit. Several speakers at POC 2014 talked about how this game-changing policy is having repercussions by significantly shifting product spreads and more.  

The advancing proposal for a 30% foreign equity ownership limit (news: http://www.investor.co.id/agribusiness/deadlock-pembahasan-30-saham-asing-di-perkebunan/75538 on revision of Law No. 18 Year 2004 on Plantations) in Indonesia was talked about. Could this happen before the end of the current Presidential term this year?

Is there a precedent for this? Khor Reports looked at the Indonesian Horticulture Law. USDA [1] reports that "the bill restricts levels of foreign ownership in horticulture related businesses to a maximum of 30 percent. Currently the bill does not specify any timeframe that will be provided to foreign investors to scale back their respective levels of ownership. However, the Head of Commission IV stated in the House of Representatives that any foreign investors with more than 30 percent ownership in any Indonesian horticultural enterprise would be provided with a four year grace period to adjust their level of ownership for compliance with the new horticultural bill."

[1] Date:11/5/2010, GAIN Report Number: ID1031, Report Highlights: Indonesia’s House of Representatives passes a new Horticulture Bill on October 26, 2010.

Bottomline: If this comes about, and read together with the 100,000 hectare land ceiling on additional palm oil areas, this seems to point to foreign-owned plantations in Indonesia seeking public-listing of their Indonesia operations.

Please also read Khor Reports' Palm Oil Newsletter #5 which covers the hectarage ceiling topic (snippet below, here): http://khorreports-palmoil.blogspot.com/search?q=newsletter+5

 

Updated 9pm, 6 March 2014 for Indonesia newslinks above and here:

http://nasional.kontan.co.id/news/asing-semakin-mendominasi-ekonomi-indonesia; "...the oil palm plantation sector where about 40 percent of the 8.9 million hectares of oil palm plantation controlled by foreigners..."

http://nasional.kontan.co.id/news/asing-dibatasi-bermain-di-hortikultura-1