One of the casualties of NGO wars over palm oil may be RSPO as it and WWF gets pulled along by NGO demands for more. GAR has seen the outcome of TFT efforts on its behalf. Interestingly, the Nestle name altogether disappeared from its high carbon stock solution. In a bold and courageous move, GAR and its consultants brought in Greenpeace.
Growers will be disappointed that sustainability certification efforts become destabilised by demands on high carbon stocks as well as the risky RSPO HCV compensation fees proposals that may amount to added cost of USD70* per tonne or more for newer estates (we update for a higher cost estimate as we get feedback that social compensation may double environmental compensation fees).
B2B efforts may get a boost as companies tire of their sustainability efforts being damaged by NGO tussles. There are new supply chain demands too - focusing on third-party purchases. In this, Wilmar is widely regarded as the most vulnerable. Few businesses, including buyers, will want to deal with escalating uncertainty in sustainability certification. Look out for more buyer standalone protocols that start to offer alternatives to the RSPO and other NGO mediated schemes? Growers will then have to mull over the many sustainability schemes emerging.
Note: RSPO RT11 is just around the corner, and this event is often a trigger for new policy moves. In the last two weeks or so, our channel checks focused on Malaysia and Singapore-based palm oil players. We found significant shifts in thinking about certification efforts.
Please also check out our upcoming newsletter: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
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.
Sunday, November 10, 2013
RSPO Hot topics for Roundtable 11 at Medan, Indonesia
RSPO’s proposed Compensation Procedure is a bold gambit at changing plantation company behaviour by altering and controlling certain cost parameters. Financial analysts will be reaching for their spreadsheets for the first time on a sustainability issue. Don’t be surprised if the growers trot out some lawyers to review this. We conservatively estimate an initial payment of USD 500 mill from growers, mostly to NGOs for conservation.
RSPO’s Roundtable 11 will be in Medan, Indonesia, on 12-14 November 2013. It will focus on the revised Principles & Criteria (RSPO Standard 2013). The size of the RSPO membership, at over 1,300, may make it more unwieldy along with this format.
Key topics for RT11?
1. Certification of independent smallholders in Malaysia and Indonesia; fund & other support.
2. Executive Board joint-leadership?
3. Development of revised National Interpretations for Standard 2013.
4. Fire in oil palm plantations & reliable maps on landownership.
5. Potential demand for non-oil sustainable products (EFB, PK shell etc) and the need for a traceability mechanism (revision of the RSPO Supply Chain documents to come)
6. Members who need more challenging time bound plans for production and consumption.
7. China & India market development.
8. RSPO+ standard? Greenpeace advocates the Palm Oil Innovation Group.
Contact khorreports(at)gmail.com for a customized review of RSPO Resolutions
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
RSPO’s Roundtable 11 will be in Medan, Indonesia, on 12-14 November 2013. It will focus on the revised Principles & Criteria (RSPO Standard 2013). The size of the RSPO membership, at over 1,300, may make it more unwieldy along with this format.
Key topics for RT11?
1. Certification of independent smallholders in Malaysia and Indonesia; fund & other support.
2. Executive Board joint-leadership?
3. Development of revised National Interpretations for Standard 2013.
4. Fire in oil palm plantations & reliable maps on landownership.
5. Potential demand for non-oil sustainable products (EFB, PK shell etc) and the need for a traceability mechanism (revision of the RSPO Supply Chain documents to come)
6. Members who need more challenging time bound plans for production and consumption.
7. China & India market development.
8. RSPO+ standard? Greenpeace advocates the Palm Oil Innovation Group.
Contact khorreports(at)gmail.com for a customized review of RSPO Resolutions
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Editorial: Time for new strategies?
There’s a pricey proposal from the RSPO and increased supply-chain pressure. Key markets cool while producer biodiesel efforts slowly get into gear. Add on Indonesia’s shift to implement a landholding ceiling and Malaysia’s policy adjustments for sustainability. Top this all off with no clarity on a trajectory for haze smog alleviation. Overall, the palm oil sector faces unprecedented cost parameter and growth model challenges. Time to restrategize?
First, reconsider the role of palm oil in local energy use. Malaysia’s biogas directive is a good starting point. Set for 2014 launch, it requires every mill to set up a biogas facility for methane capture; presumably to improve the greenhouse gas (GHG) profile for Malaysian palm oil. Aside from implementation and technological risks, there are obvious suggestions to improve Malaysia’s feed-in tariff for biogas power and allow easier grid connection. Khor Reports suggests a feasibility study on microgrids for remote areas. In the semi-urban zone this might challenge an incumbent power utility and it would work less well in countries with subsidized power. However, could this help firmly establish the localized use of palm biogas, biomass and biodiesel? Many developing countries sorely need power in certain rural areas. They could encourage mills siting next to a mining facility or another energy hungry user. Economists might plan for processing clusters that could aid rural development.
How about on sustainability? Redd+ efforts are of interest to policy makers, despite Ecuador’s Yasuni alternative funding model finding insufficient takers. The opportunity cost may have long pointed to oil palm development instead of conservation. How can this be improved for viability? Peat lands are probably the prime areas for such efforts and new proposals at the RSPO could tilt the financial calculus. What about the RSPO? It has helped some large plantations maintain market access to the large global brands. Khor Reports has long been of the view that its exclusive / non-inclusive strategy has obvious limits. Its planners poorly recognize the fact that small farmers in developing countries just aren’t like those back home in Europe. How will even more exclusivity via the Palm Oil Innovation Group become of general relevance? Notably, the RSPO’s gold standard approach already has limited if no hope of addressing key problems, including the annual peat smog. Thus, we challenge sustainability experts to this task: get rid of the peat smog problem within three years. NGOs and corporate players from various sectors (not just palm oil) need to get “down and dirty” to effect change at the local and provincial levels. Help small growers and farmers. Do something about raising the water tables in fire prone areas? Governments could facilitate. The current voluntary, top-down (so called market-led) efforts, hardly seem fit for such purpose. What can sustainability do for the peat smog that hits annually? We need a new bottoms-up approach.
In this issue, we feature Asian palm oil and consumer good companies eyeing West Africa’s market prospects, with instant noodles as a key product. I eat more than the average 14 packs per year, helping global consumption exceed 100 billion packets in 2012. Some academics reckon it has helped alleviate global hunger. While interest of the EU and US in biofuels dips, Neste Oil’s renewable fuel business boosts its prospects. In sustainability, certification is expanding and NGO campaigning in the US is in the limelight. What are hot topics for the upcoming RSPO Roundtable? Its proposed Compensation Procedure bares its financial teeth, with retroactive charges and fees on non-RSPO. Khor Reports conservatively estimates an initial USD 500 mill paid by growers, most likely into NGO hands for conservation.
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Biodiesel: Neste’s renewables rise
Despite the apparent dipping interest of the EU and US in biofuels, Neste Oil’s renewable fuel business is boosting its prospects. The Finnish refiner, one of the top buyers of palm oil in the world, is bucking the malaise in the European refinery sector.
“Neste Oil is the best-performing major European energy stock (rising 78%, year-to-10 September)… after saying full-year earnings will exceed analyst estimates as renewable-fuel sales gain… particularly in the North American markets. As Neste’s NExBTL product meets (California’s) own standards, it could sell about 290,000 tonnes this year of the biodiesel there, or about 18% of total production... Neste is benefiting from increased demand for biodiesel. The EU (encourages) land-transport energy from renewable sources… The guidance upgrade was mainly due to low palm oil prices and high Renewable Identification Number prices in the US (bloomberg.com, 10 Sep 2013).
Neste Oil’s model focuses on serving local markets, ultra-modern technology and biofuels. Neste Oil targets mostly the Baltic markets (68% of its sales), Europe (20%) and the United States, Africa and Asia (12%). Neste's heavy focus on biofuels made from palm oil and animal fats turned profitable in the first quarter of 2013. It plans to increase annual renewables output by 15% to 2.3 mill tonnes by 2015. In the US, which buys 35% of Neste renewables, biofuels use was set to double by 2020, Neste said (reuters.com, 16 Sep 2013).
The company has two fossil fuel refineries, in Finland, and three renewable diesel refineries (Finland, Singapore and Rotterdam). All Neste Oil’s NExBTL diesel plants are ISCC-certified and have an EPA Certificate of Registration, for the EU and US markets respectively. Neste Oil has also “developed its own voluntary sustainability verification scheme applicable to any renewable raw material… (it) broadly mirrors the ISCC certification… (with) separate sections devoted to the certification of renewable raw materials, fuel refining, and logistics (company website, 21 Oct 2013). Neste Oil reports only buying CPO that is traceable with known origins, and with reportable and verifiable Greenhouse Gas emission values. It is committed to only using 100% certified palm oil by end of 2015 (company report, 25 Sep 2012).
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Biofuels policies: EU & US cool while Indonesia boosts
In early September, the European Union (EU) fixed a 6% limit on the use of crop-based biofuels in ground transport; cutting back the previous requirement that at least 10% of energy for road and rail transport should come from renewable sources by 2020. This caps the potential for increased demand. In the longer-term, analysts say that this may reduce the EU’s imports of biodiesel. The USDA’s outlook for EU biodiesel consumption is +1.1% from 11.9 bill liters in 2013F to 12bil liters in 2014F, with imports forecast +5.9% from 1.7bil to 1.8bil liters respectively. USDA estimates EU biodiesel refining capacity at 24.5 bill liters in 2011, with utilization only at 45% (AmResearch, 19 Sep 2013). The EU states agreed to impose punitive duties on biodiesel imported from Argentina and Indonesia; provisional tariffs were in place in May and by end November, duties of EUR217-246 / USD296-336 and EUR122-179/USD166-245 per tonne apply respectively. Both will challenge the duties (reuters.com, 23 Oct 2013).
“The negative development in EU is expected to be mitigated by positive developments in Indonesia. Recall that Indonesia raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014. In line with this development, Biofuels Digest reported that PERTAMINA will hold a tender this week to buy 6.6 bill litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6 bill litres annually from 25 different producers” (AmResearch, 19 Sep 2013).
Reuters reports (11 Oct 2013): “In a leaked proposal that would significantly scale back biofuel blending requirements next year, the U.S. Environmental Protection Agency (EPA) says the blend wall - the 10% threshold of ethanol-mixed gasoline that is at the crux of the lobbying war - is an "important reality." The agency's rationale for a cut in the volume of ethanol that must be blended echoes an argument the oil industry has been making for months: the U.S. fuel chain cannot absorb more ethanol. Few retailers are able to sell ethanol blends beyond the 10% maximum, or willing to take the legal risk that comes with it, they argue. The words will cut deep for proponents of biofuels. They have argued for years that the blend wall is largely a fiction constructed by an oil industry that doesn't want to cede any more share of a shrinking U.S. gasoline market.” The volume of corn-based ethanol will be reduced by 800 mill gallons to about 13 bill gallons versus the law’s required 14.4 bill gallons for 2014F. The EPA proposal has to be approved by the White House Office of Management and Budget. This would not be positive for biofuels and it could result in excess supplies of corn; the USDA expected about 33.8% of US corn to be used for ethanol in 2013F/2014F (AmResearch, 14 Oct 2013).
Could this presage a lower blending of soybean oil in US biodiesel? Could there be a similar “blend wall” in biodiesel to impinge on higher blend rates in palm producing countries? Their political-economic situations are likely different enough from the US for a strong implementation push. In which case, a question remains: when will the legal risks of higher blends by covered?
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
“The negative development in EU is expected to be mitigated by positive developments in Indonesia. Recall that Indonesia raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014. In line with this development, Biofuels Digest reported that PERTAMINA will hold a tender this week to buy 6.6 bill litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6 bill litres annually from 25 different producers” (AmResearch, 19 Sep 2013).
Reuters reports (11 Oct 2013): “In a leaked proposal that would significantly scale back biofuel blending requirements next year, the U.S. Environmental Protection Agency (EPA) says the blend wall - the 10% threshold of ethanol-mixed gasoline that is at the crux of the lobbying war - is an "important reality." The agency's rationale for a cut in the volume of ethanol that must be blended echoes an argument the oil industry has been making for months: the U.S. fuel chain cannot absorb more ethanol. Few retailers are able to sell ethanol blends beyond the 10% maximum, or willing to take the legal risk that comes with it, they argue. The words will cut deep for proponents of biofuels. They have argued for years that the blend wall is largely a fiction constructed by an oil industry that doesn't want to cede any more share of a shrinking U.S. gasoline market.” The volume of corn-based ethanol will be reduced by 800 mill gallons to about 13 bill gallons versus the law’s required 14.4 bill gallons for 2014F. The EPA proposal has to be approved by the White House Office of Management and Budget. This would not be positive for biofuels and it could result in excess supplies of corn; the USDA expected about 33.8% of US corn to be used for ethanol in 2013F/2014F (AmResearch, 14 Oct 2013).
Could this presage a lower blending of soybean oil in US biodiesel? Could there be a similar “blend wall” in biodiesel to impinge on higher blend rates in palm producing countries? Their political-economic situations are likely different enough from the US for a strong implementation push. In which case, a question remains: when will the legal risks of higher blends by covered?
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Palm oil sustainability certification: more and more
UPDATE on 12 Nov 2013: Unilever is expected to set its new commitment. Currently: 100% traceable by 2020.
Indonesia Sustainable Palm Oil (ISPO) has an ambitious target for end-2014 certification by its palm oil companies. Earlier, the Agriculture Ministry spoke of sanctions including revoking the licenses of palm oil companies if they do not attain ISPO, which is mandatory. This aims to enhance practices with better implementation of Indonesia legal and regulatory requirements. “Certain ISPO standards are less strict than CSPO standards, and the cost of certification per hectare is lower. The ISPO was created after the Indonesian Palm Oil Association (Gapki) exited the RSPO in 2011, after a series of conflicts linked to environmental standards.” In March, ISPO certificates were handed over to to 10 palm oil companies for their certified estates. These included Musim Mas, Sari Aditya Loka 1, Swadaya Andika, Laguna Mandiri, Ivo Mas Tunggal, Hindoli, Gunung Sejahtera Dua Indah, Gunung Sejahtera Ibu Pertiwi and Perkebunan Nusantara V (Investor Daily in jakartaglobe.com, 11 Mar 2013).
The Roundtable on Sustainable Palm Oil (RSPO), a voluntary scheme, consisting of various stakeholders from growers, NGOs and financiers has enjoyed high visibility. However, it is the ISCC which has likely gained stronger commercial traction. Unlike the RSPO, it offers a decent premium to its users. It certifies for the EU biofuels market. Notably, one of the biggest palm oil buyers in the world, Neste Oil, reports only about 20% of its certified product being covered by RSPO certificate, while the ISCC is its mainstay. Recently, ISCC launched a certification for food, ISCC-Plus. RSPO NGO members brushed aside their worries over the food vs. fuel debate and allowed the introduction of a certification for biofuel users, RSPO-RED. How will RSPO and ISCC duke it out for market share, now that they are on the same turf?
Is a RSPO+ standard in the offing? This could be triggered by the successful campaign by Greenpeace against Golden Agri / Sinar Mas. The NGO was at hand when the plantation giant studied some of its land concessions considered as degraded. NGOs prefer this land type for palm oil expansion. The findings were quite negative for land development as the carbon ceiling measure operationalized the definition of usable land to immature scrub land. Greenpeace successfully pushed for the 35 tonnes carbon per ha ceiling on the Indonesian group’s pilot. Working on this project was The Forest Trust (TFT, a facilitator to the timber trade). Nestle set to investigate its palm oil supply-chain but it is no longer named in the project. Instead TFT and GAR bravely brought in Greenpeace. RSPO says it welcomes the Greenpeace-led Palm Oil Innovation Group (POIG, launched Jun 2013), which has lured in just a handful of its grower members including Golden Agri / Sinar Mas. The WWF (founder and key mover of the RSPO) has come out to criticize its own creation and jumped onboard with POIG. So, what’s next in the small world of voluntary palm oil certification? Keep an eye on WWF – Greenpeace moves while Unilever is expected to set its new commitment.
Malaysia Sustainable Palm Oil (MSPO), a certification standard developed by the Malaysia Palm Oil Board was launched mid-year. We hear that the logistics of the certification process is being established. Might there be an announcement on this during 4Q2013 with an eye to certificate issuance in 1Q2014? This is voluntary, but a mandatory scheme is being considered. The creation of national eco-certifications such as ISPO and MSPO should be no surprise. It is standard practice in various agricultural crops that national schemes sit alongside global and regional voluntary schemes.
Few governments and national industries are so fully trusting as to outsource policy making to voluntary multistakeholder bodies. These often become de facto dominated by a few NGOs and companies. With the proliferation of eco-certification available for palm oil buyers, the question is how well each scheme is marketed and how buyer acceptance evolves. In the timber sector, recent data shows that 2/3 market share has gone to national certification and 1/3 to voluntary stakeholder schemes.
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Indonesia Sustainable Palm Oil (ISPO) has an ambitious target for end-2014 certification by its palm oil companies. Earlier, the Agriculture Ministry spoke of sanctions including revoking the licenses of palm oil companies if they do not attain ISPO, which is mandatory. This aims to enhance practices with better implementation of Indonesia legal and regulatory requirements. “Certain ISPO standards are less strict than CSPO standards, and the cost of certification per hectare is lower. The ISPO was created after the Indonesian Palm Oil Association (Gapki) exited the RSPO in 2011, after a series of conflicts linked to environmental standards.” In March, ISPO certificates were handed over to to 10 palm oil companies for their certified estates. These included Musim Mas, Sari Aditya Loka 1, Swadaya Andika, Laguna Mandiri, Ivo Mas Tunggal, Hindoli, Gunung Sejahtera Dua Indah, Gunung Sejahtera Ibu Pertiwi and Perkebunan Nusantara V (Investor Daily in jakartaglobe.com, 11 Mar 2013).
The Roundtable on Sustainable Palm Oil (RSPO), a voluntary scheme, consisting of various stakeholders from growers, NGOs and financiers has enjoyed high visibility. However, it is the ISCC which has likely gained stronger commercial traction. Unlike the RSPO, it offers a decent premium to its users. It certifies for the EU biofuels market. Notably, one of the biggest palm oil buyers in the world, Neste Oil, reports only about 20% of its certified product being covered by RSPO certificate, while the ISCC is its mainstay. Recently, ISCC launched a certification for food, ISCC-Plus. RSPO NGO members brushed aside their worries over the food vs. fuel debate and allowed the introduction of a certification for biofuel users, RSPO-RED. How will RSPO and ISCC duke it out for market share, now that they are on the same turf?
Is a RSPO+ standard in the offing? This could be triggered by the successful campaign by Greenpeace against Golden Agri / Sinar Mas. The NGO was at hand when the plantation giant studied some of its land concessions considered as degraded. NGOs prefer this land type for palm oil expansion. The findings were quite negative for land development as the carbon ceiling measure operationalized the definition of usable land to immature scrub land. Greenpeace successfully pushed for the 35 tonnes carbon per ha ceiling on the Indonesian group’s pilot. Working on this project was The Forest Trust (TFT, a facilitator to the timber trade). Nestle set to investigate its palm oil supply-chain but it is no longer named in the project. Instead TFT and GAR bravely brought in Greenpeace. RSPO says it welcomes the Greenpeace-led Palm Oil Innovation Group (POIG, launched Jun 2013), which has lured in just a handful of its grower members including Golden Agri / Sinar Mas. The WWF (founder and key mover of the RSPO) has come out to criticize its own creation and jumped onboard with POIG. So, what’s next in the small world of voluntary palm oil certification? Keep an eye on WWF – Greenpeace moves while Unilever is expected to set its new commitment.
Malaysia Sustainable Palm Oil (MSPO), a certification standard developed by the Malaysia Palm Oil Board was launched mid-year. We hear that the logistics of the certification process is being established. Might there be an announcement on this during 4Q2013 with an eye to certificate issuance in 1Q2014? This is voluntary, but a mandatory scheme is being considered. The creation of national eco-certifications such as ISPO and MSPO should be no surprise. It is standard practice in various agricultural crops that national schemes sit alongside global and regional voluntary schemes.
Few governments and national industries are so fully trusting as to outsource policy making to voluntary multistakeholder bodies. These often become de facto dominated by a few NGOs and companies. With the proliferation of eco-certification available for palm oil buyers, the question is how well each scheme is marketed and how buyer acceptance evolves. In the timber sector, recent data shows that 2/3 market share has gone to national certification and 1/3 to voluntary stakeholder schemes.
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Monday, October 7, 2013
Khor Reports' Palm Oil #4 newsletter: Indonesia's boom, plantations earnings crunch, price expectations for 2H2013 & more
KHOR REPORTS' PALM OIL SEP/OCT 2013, ISSUE 4: Malaysia biogas, India refinery woes, Liberia investor hiccup. Green performance chemicals. Sustainability: after haze, RSPO+, labour worries.
Supplement: EU withdraws GSP privileges, Malaysia mulls TPP standard, Indonesia’s farmer protection law, Pakistan FTA
View our newsletter here:
http://tinyurl.com/okjgecf
Contents:
Malaysia biogas directive.
India refinery angst.
Liberia investor hiccup.
Green performance chemicals.
CSPKO premium jumps.
After haze.
RSPO & RSPO+.
More migrant worker rights?
Feature: Indonesia’s boom. Plantations earnings crunch.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.
Supplement – trade briefing
EU withdraws GSP benefits.
TPP new stds for Malaysia?
Indonesia farmer protection law.
Indonesia-Pakistan FTA
Supplement: EU withdraws GSP privileges, Malaysia mulls TPP standard, Indonesia’s farmer protection law, Pakistan FTA
View our newsletter here:
http://tinyurl.com/okjgecf
Contents:
Malaysia biogas directive.
India refinery angst.
Liberia investor hiccup.
Green performance chemicals.
CSPKO premium jumps.
After haze.
RSPO & RSPO+.
More migrant worker rights?
Feature: Indonesia’s boom. Plantations earnings crunch.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.
Supplement – trade briefing
EU withdraws GSP benefits.
TPP new stds for Malaysia?
Indonesia farmer protection law.
Indonesia-Pakistan FTA
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