Observation on new power relationships in the palm oil supply chain - policy making

There appears to be some relative institutional weakness in policy making in business circles (many industry players acknowledge this) over sustainability policies that are increasingly affecting market access for commodities such as palm oil. Notably there is a regressive higher cost for smaller players to comply with rising certification standards. Relative shallow institutional depth results in asymmetry in bargaining power or effort in the de facto international trade agreement that voluntary sustainability / traceability deals represent. This is not unexpected – see the Brundtland Report. Also, the devolvement of power to NGOs may also not serve the interests of buyers in complex supply-chains such as palm oil, as some specialists observe a preference there for a level of simplicity (rather than complexity). This apparent problem is compounded by the fact that the NGO sector appears to be building new sources of income (direct and/or indirect) that are independent of corporate CSR giving, individual donations or government grants. Key observers note that NGOs have since the 2007 Global Financial Crisis (when traditional funding fell drastically) been developing as technical service providers to help resolve corporate problems – this is obvious in palm oil. This is a different and stronger power relationship for NGOs vis-à-vis their traditional corporate backers in consumption countries and even their new corporate clients and/or backers in commodity producing countries. Such NGO sector expansionism and the wider use of new technology such as social media, geo-data and remote sensing are likely to create greater issues of scrutiny for the palm oil sector.

Rubber news (update 1): Rubber tappers suffer on price fall, 50:50 split on volume at RM1.90 per kg; Sustainable Malaysia rubber (using German scientific methods) for new condom maker, GM rubber trees for proteins for pharma use, rubber glove sector outlook

22 February 2015: Rubber tappers suffer on price fall, 50:50 split on volume at RM1.90 per kg
As rubber prices fall, a dour Chinese New Year for some BY JAMILAH KAMARUDIN and WONG YU HAN Published: 19 February 2015 10:00 AM On earnings of RM75 a day, how did Lan Siew and his wife prepare for Chinese New Year? They did not. It is unlikely the rubber tapper from Jelebu, in Negri Sembilan, and his family will have meat for their celebrations, as they try to stretch every ringgit following the decline in commodity prices. In his 50s, Lan Siew told The Malaysian Insider on a recent visit to Simpang Pertang in Jelebu, that he had been tapping rubber for more than 10 years but is now hit hard by the  massive drop in the global price of rubber to below RM2 per kg.
“With the help of my wife, we share a daily income of RM150 that is split between us and the plantation owners. This means we get only RM75, each of us having earned RM37 for the day," he said. The income he earns from tapping rubber is based on the current price of RM1.90 per kg.
Lan Siew and his wife wake up at 5am daily, if it does not rain, and work until 10am tapping rubber in a plantation owned by his boss, who stays in a house that is just 300 metres from their own....  http://www.themalaysianinsider.com/malaysia/article/as-rubber-prices-fall-a-dour-chinese-new-year-for-some#sthash.WWtYwpBt.dpuf


11 February 2015: Sustainable Malaysia rubber (using German scientific methods) for new condom maker, GM rubber trees for proteins for pharma use, rubber glove sector outlook

The rubber in your rubbers: the condom company making sexy time sustainable by Leah Borromeo, Wednesday 11 February 2015 07.20 GMT; You should be able to buy a condom that doesn’t require chopping down native jungles, or paying its workers less than the living wage to produce it... “.... we worked together with a university in Germany [who are] experts on sustainable rubber production. We’ll go to Malaysia with German scientists and go through our plantations. Then we’ll test the soil and stay over there analysing stuff and make things better. This includes making sure the minimum wage is paid to workers and knowing what’s in the condoms.... Right now, we’re 10% sustainable. Our goal is to have an 80-90% sustainable product in five years...." http://www.theguardian.com/sustainable-business/2015/feb/11/rubber-condom-sex-einhorn

GM rubber trees like jumping with no safety net By SM Mohamed Idris 3:35PM Feb 11, 2015
Late last year, the Rubber Research Institute of Malaysia (RRIM) submitted an application seeking approval for conducting a ‘confined’ field trial of GM rubber trees in Penawar, Kota Tinggi, Johor....... The application was submitted to the Biosafety Department, Natural Resources and Environment Ministry, which regulates genetically modified organisms in Malaysia, under the Biosafety Act 2007. The Genetic Modification Advisory Committee is assessing the application.... The trees, known scientifically as Hevea brasiliensis, will be genetically modified to become ‘living factories’ producing specific proteins for pharmaceutical use. The purpose of the proposed field trial is to evaluate the expression of transgenes in the leaf and latex of the GM rubber trees at different stages of growth, under field conditions.... http://www.malaysiakini.com/letters/288966

Rubber Glove Manufacturers Expect Better Earnings; KUALA LUMPUR, Feb 11 (Bernama) -- The Malaysian Rubber Glove Manufacturers Association (MARGMA) expects better earnings as long as crude oil prices remain low, an industry expert said today.... "Latex is the main raw material for rubber gloves and nitrile gloves are made from crude oil by-product," said Supermax Corp Bhd executive chairman/group managing director, Datuk Seri Stanley Thai Kim Sim.... "If oil prices continue to drop to US$40 from the current US$50 per barrel, it will allow rubber gloves to be competitively priced," he said during a question-and-answer session here today....  He said lower crude oil prices would also translate into lower logistics and transportation costs....  "In tandem with this, the rubber glove industry is projected to grow positively this year, at annual growth of eight to 10 per cent," he said....  Globally, Malaysia remained as the largest supplier of rubber gloves with an estimated global market share of 62 per cent and was projected to grow to 65 per cent in 2020, he said... http://www.bernama.com.my/bernama/v8/bu/newsbusiness.php?id=1108289

Attended MPOC forum (update 1a)

It was very useful to attend the MPOC forum yesterday. Thank you MPOC.

 

Useful highlights include:

 

- Biodiesel call for B20 and view on this implementation by both Malaysia and Indonesia could rebase palm oil price to over RM3,000 per tonne. Assertions on financial viability of biodiesel on its own under Euro 5 standard without subsidy. But on the no subsidy viability point we have heard other views from analysts and others.   

          *Post conference info: Ambank in its 16 February note says "Reuters reported that Malaysian biodiesel producers are seeking new incentives after their Indonesian peers were given subsidies. A source said that Malaysian biodiesel producers are looking for tax incentives. The source added that it is unlikely that Malaysian producers would be receiving the type of subsidies given in Indonesia as Malaysia is moving away from that. Presently, the pricing formula of biodiesel in Malaysia is linked to CPO price." Thus, analysts note the CPO+ price basis has been advantageous to Malaysia biodiesel and added support is sought (which is a contrast to the statements in the paragraph above?)

 

- Labour permits for G2G Bangladesh worker recruitment proceeding (and to look into improvements in the process) but the Ministry observes some slowness in companies finding and bringing in workers once given the permit.

 

- Update on 3 new refinery licenses granted for 1.6 million tonnes of capacity.

 

- Info cited of a real quote on smallholder RSPO certification costing from a service provider. About RM400,000 per site per year; for a site comprising 50 smallholders of 50 hectares each. We did ask, but the name of service provider is not disclosed at this point. We know a handful are active in this sector. The conclusion is that the current premia indicate break-even for such a smallholder (assumes 100 percent of certificates sold under mass balance); which means no incentive to certify unless with the financial support of a large company. Bottom line: companies with processing assets can garner more from RSPO certification; the premia gains are out of reach of smallholders.

 

You can download the presentations from here: http://www.mpoc.org.my/Reach_and_Remind_Friends_of_the_Industry_Seminar_2015_and_Dialogue_-_Download_Presentation.aspx

Rural socio-economic issues (update 4): Kotabaru regency in South Kalimantan distributes oil palm and rubber seeds and other inputs to assist farmers who own land not yet cultivated

We'll use this posting to highlight useful information and news on social issues and concerns about rural livelihoods. What's interesting on REDD+ is that local people were presumably unconvinced and insisted on being given 1 hectare of cash crops per family in the Indonesia-Australia landmark Central Kalimantan project.  Also to highlight news items on key agro-industrial crops grown by Southeast Asia smallholders. Rubber has seen a significant fall in price as large supply has come in (notably from the expansion of growing areas in large parts of Thailand including in the North East and also in other countries). Palm oil farmers have also been worried about prices (although likely at a less critical marginal cost). Rural politics is driving significant concern and various efforts to support farmers. Rural voters are an increasingly important voting bloc in several countries.

11 February 2014: Kotabaru regency in South Kalimantan distributes oil palm and rubber seeds and other inputs to assist farmers who own land not yet cultivated

Kotabaru distributes 22,400 oil palm and rubber seed Posted on February 10, 2015, Tuesday
KOTABARU, South Kalimantan: Regent Kotabaru, H Irhami Ridjani, distributes 22,400 trunks of palm oil and rubber seedlings to farmers, Antaranews reported. ... Head of Kotabaru Plantation Agency, Ibn Bhayangkara Foen, here on Monday detailing aid in the form of 19,600 seedlings of palm oil and 2,800 rubber seedlings.... “Regent also handed one handsprayer for every five hectares of plantation land, five liters of herbicides for each hectare, as well as 50 kg of fertilizer,” he explained.... The assistance given to farmers in the sub-district West Pulaulaut and East Pulaulaut who own land and have not been cultivated to become productive land... Regent H Irhami Ridjani expresses, delivery of oil palm and rubber seedlings to the community of West Pulaulaut and East Pulaulaut is the local government’s efforts to spur an increase in the welfare of society. http://www.theborneopost.com/2015/02/10/kotabaru-distributes-22400-oil-palm-and-rubber-seed/#ixzz3ROOOWsVr

7 January 2014: Thailand seeks more domestic uses of rubber in construction

Stadium floor bid to 'help lift rubber prices' Cabinet backs plan to boost local demand Published: 7 Jan 2015 at 06.00 http://www.bangkokpost.com/news/general/454803/stadium-floor-bid-to-help-lift-rubber-prices.

9 December 2014: Indonesia smallholders want price floor support, cut fertilizers, seek to sell up?

Indonesia’s Palm Revolution Runs Off Track for Smallholders By Michael Taylor on 06:09 pm Nov 25, 2014, Jakarta; "A prolonged fall in the price of palm oil is hitting Indonesia’s legions of smallholder farmers, forcing cutbacks that will reduce output in coming years and raising the prospect of a bout of sell-outs to major producers....Smallholder farmers account for about 40 percent of output from Indonesia’s vast plantations that cover an area the size of South Korea. A drop in smallholder output could shave total production by around 5 percent from next year, say analysts....
Up to 1 million smallholders in the world’s top palm oil producer have enjoyed a near uninterrupted decade of boom years, fueling a rural consumer binge on new motorbikes and mobile phones.
But with prices near five-year lows some cash-strapped farmers are being forced to cut back on fertilizers, pesticides and replanting. They are calling on the government to give a sector vilified by green groups for forest destruction the type of price floor support enjoyed by rice and sugar.... “Farmers can’t increase productivity because they don’t have money,” said Mansuetus Darto, secretariat at the Indonesian Oil Palm Smallholders Union, which has 40,000 members in Sumatra and Kalimantan. “Bottom-line is — they have become poor.” But independent farmers say changes to the industry have made them more vulnerable to price falls than major players like Sinar Mas Agro Resources and Technology, Astra Agro Lestari and Wilmar International. Palm giants have integrated their businesses to include plantations and refineries, leaving smaller producers battling to sell their crops when the market is oversupplied.... “Many Indonesian planters are struggling to make ends meet as prices have already been disappointing in the past few years,” said a planter who declined to be named, pointing also to higher borrowing and logistics costs for smallholders.... In some areas on the island of Sumatra, farmers are being forced to cut the use of fertilizers and pesticides, said Carlo Nainggolan of Sawit Watch, a group which aims to protect people from exploitation by large palm firms. However, any reduction in fertilizer usage will hinder palm yields from mid 2015, pushing smallholders backwards as big firms boost yields and acreage. “If prices fall further, I would guess that we might be looking at a loss of 1.5 million tons of CPO (crude palm oil) in late 2015 and into 2016 compared with where it would have been,” said LMC International analyst James Fry....
The last time prices were near current levels was in 2008, when an eight-month plunge led to a spike in farmer suicides. Many debt-ridden smallholders were unable to pay workers and either left palm fruit rotting on the trees or sold their land... Smallholders would again look at selling their plantations, said RHB’s Tai, but the pool of likely buyers would be smaller due to uncertainties around foreign ownership and possible limits on expansion.... Smallholders want the government to support the industry with import curbs and price floors, but the month-old government of President Joko Widodo is struggling with other priorities such as cutting fuel subsidies and reducing red-tape.
“The days of easy profits with 35 percent margins for oil palm plantation companies are over,” said Howard Sargeant, director of plantations at Samuel International. “Many will have to become more cost efficient or go out of business.” http://www.reuters.com/article/2014/11/25/indonesia-palmoil-smallholders-idUSL3N0TF1YG20141125



8 December 2014: Rubber farmers in Thailand - US$1.75 billion in support and demand on prices

More buying, loans to appease rubber planters Published: 8 Dec 2014 by Patsara Jikkham and Online Reporters; "The government has announced four more short-term measures to arrest plummeting rubber prices ahead of a planned protest by farmers on Tuesday. Deputy Agriculture and Cooperatives Minister Amnuay Patise The government has announced four more short-term measures to arrest plummeting rubber prices ahead of a planned protest by farmers on Tuesday. Deputy Agriculture and Cooperatives Minister Amnuay Patise said on Monday the new measures would bring the total number of solutions to help farmers to 16, costing 58 billion baht in total....
First, a cash subsidy of 1,000 baht per household with no more than 15 rai will continue... Second, the existing rubber buffer fund, with outstanding amount of 20 billion baht, will buy rubber products worth 6 billion baht at a time for exports and price support. To date, only 200 million baht... Third, credit worth 100,000 baht will be extended so each planter can invest in a side-line job without having to turn to loan sharks.... Fourth, the 1999 Rubber Control Act will be used to make sure all stakeholders are being treated fairly. Product standards will also be upgraded and cooperation with neighbouring countries sought...." http://www.bangkokpost.com/news/general/448139/more-buying-loans-to-appease-rubber-planters.

Surat Thani rubber growers to rally Published:  8 Dec 2014; Rubber planters from four districts of Surat Thani province plan a major rally in front of the city hall on Tuesday to press the government to raise rubber prices to at least 80 baht per kilogramme for rubber sheet... The announcement was made by on Sunday Pairote Rerkdee, a rubber farmer and lawyer of Ban Song in Surat Thani's Wiang Sa district who is coordinator of the  "United Front of Rubber Planters of Ban Song and Allies in Surat Thani".... Mr Pairote said at least 200 planters from Phra Saeng, Wiang Sa, Khiansa and part of Phun Phin districts would gather in front of the provincial hall tomorrow from 9am.... The united front on Sunday also issued a second open letter to Prime Minister Gen Prayut Chan-o-cha, leader of the National Council for Peace and Order (NCPO), calling for government intervention by providing subsidies to raise the price paid for rubber.... The planters demanded at least 30 baht per kilogramme for rubber scraps, 70 baht for latex and 80 baht for rubber sheets. Mr Pairote said growers and rubber tappers were really in trouble and sincerely needed help without any political agenda. If the demand was not met, rubber planters from other districts would join the gathering, which would be escalated to a higher level, he said...." http://www.bangkokpost.com/news/politics/448105/surat-thani-rubber-growers-to-rally

politics Rubber bill passes hurdle Published: 12 Dec 2014 at 08.02 | Viewed: 682 | Comments: 0 Newspaper section: News Writer: Aekarach Sattaburuth -+ A bill to revamp...
http://www.bangkokpost.com/news/general/449121/rubber-bill-passes-hurdle.



4 December 2014: Central Kalimantan REDD+ project had to offer "dowry" to develop 1 hectare of cash crops per family

REDD+ on the ground: For one initiative in Indonesia, politics in the peatlands; 3 Dec 2014 BY Kate Evans; BOGOR, Indonesia—It’s a cautionary tale.... The experience of a highly politicized carbon emissions reduction initiative in Indonesia’s Central Kalimantan province is a lesson in the importance of such projects communicating with the outside world, according to a new study by the Center for International Forestry Research (CIFOR).... Thousands of kilometers of canals were carved into the peatlands to drain them for what was to be the “million-hectare rice project.”...This is where KFCP was established in 2010, on 120,000 hectares between the Kapuas and Mentangai rivers....The Kalimantan Forests and Climate Partnership (KFCP)—a joint initiative of the Australian and Indonesian governments—aimed to demonstrate an effective, equitable approach to reducing emissions from deforestation and forest degradation (REDD+) in Indonesia’s largest expanse of degraded peatlands.... “In each village, it was a huge long process of negotiation,” Atmadja said. “It wasn’t just KFCP telling people what to do and then they did it—it never happens like that—communities would just reject them if they did that.”..... “Those things don’t get expressed in carbon reduced. But they are necessary for building the capacity of this community so that when REDD+ comes, people are used to this kind of negotiation.” One thing local people fought for was support for rubber cultivation and agroforestry for each household—something KFCP did not plan to provide... “KFCP wanted to improve livelihoods, but giving each household money and seedlings to plant one hectare of their own land with rubber, fruit trees or vegetables was really out of the original scope,” Atmadja said. “But local people wanted it,” she said. “And in some villages they were saying, ‘Look, this is what you call a dowry. If you don’t pay it, we don’t get married.’ ”In the end, KFCP adjusted their plans to accommodate them, Atmadja said..... This has cost implications. KFCP had a huge budget compared with many REDD+ initiatives, so was in a position to pay—but the price of local buy-in has implications for the long-term sustainability of such initiatives. Providing a “dowry” requires that proponents allow enough time for negotiation, Atmadja says, and they need significant start-up funding as well as ongoing funding—something that, in the absence of a global agreement on REDD+, is hard to secure.“KFCP’s budget was huge: $37 million for four years. … The economics may not work for other REDD+ initiatives,” she said...." http://blog.cifor.org/25554/for-redd-initiative-in-central-kalimantan-politics-in-the-peatlands#.VH_ryp2wpD8