Happy New Year to all. Khor Report was away on our holiday and newsletter #6 is in its final preparation now. As a teaser, we offer you some articles while awaiting our Jan/Feb issue release.
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.
Wednesday, January 8, 2014
Monday, December 9, 2013
Unilever - Wilmar push for supply chain change
Wilmar the largest trader of palm oil in the world has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, has in recent years taken a lead in promoting the principle of sustainability in its materials sourcing. Unilever has helped lead the RSPO from its inception nearly 10 years ago. Its CEO recently received a special award: the 2013 World Wildlife Fund Duke of Edinburgh Conservation Medal for Unilever’s efforts to reduce environmental damage. Dutchman, "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported.
Wilmar has long faced grumblings from the NGO sector for not practicing sustainable sourcing for its third-party purchases, which are overwhelmingly bigger than its own internal production area. With it's new promise, the giant trader now faces the challenge of rationalizing its supply-chain. The question is this: how will Wilmar achieve this without downsizing its business? In principle, traceability with high level promises is not easy to achieve for large traders with complex supply chains. Industry talk in recent weeks has been about the top 15-20 producers being asked to sign on to a new RSPO+++ manifesto, most probably using the TFT/Greenpeace principles; this being the new leader in palm oil sustainability ahead of the RSPO. If the key palm oil producers accede, one can assume that Wilmar will be "home and dry" without having to make much of a change in its business size and its costing. Wilmar's promises can be fulfilled by tough and possibly cost-raising action on the part of its suppliers. Thus, we should await future announcements from the palm oil industry players. In what manner will they all come out in support of Unilever-Wilmar's promises?
For producers moving fast into such a high grade sustainability push, could this bring on the faster convergence of unit costing fro large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the rest of the palm oil industry (those ranking below the top #15-20), the supply-chain change they face may be significant. Industry policy makers should be concerned at how a traceable, no-peat, no deforestation palm oil supply chain will look like.
Khor Report thinks that this could mean that each palm oil mill in the region will need to be supply-chain risk categorized for the new Unilever-Wilmar protocol. This could segment SE Asia into different market production zones with resulting discount/premium regions. Could there be negative implications for the independent sector (i.e. non-integrated and non-large producer)? How will the new protocol be operationalized? Will a November 1995 baseline apply and will high carbon stock measurement be made to effect a palm oil mill sustainability risk categorization exercise? In this regard, the Golden Agri/Sinar Mas pilot done by TFT/Greenpeace will be instructive. What requirements will new regions such as Africa face?
The questions are only starting. We will need to better understand the Unilever-Wilmar protocol by way of what the large producers come up with in this potentially market shifting move in the palm oil supply-chain. Other commodities too are facing new pressures from an ascendant and increasingly well-funded green movement that is also playing a bigger consulting role (in a highly important and potentially self-funding and self-perpetuating shift). In relative terms, the corporate sector has been scrabbling for footing while the independent and smallholder sectors are adrift. What is notable in the palm oil industry is the new apparent side-lining of the WWF, often reckoned as a realistic NGO, while the TFT/Greenpeace duo may emerge as key supply-chain policy maker.
News source: http://www.bloomberg.com/news/
Friday, November 29, 2013
Choices available for sustainable palm oil credentials
At the recent PORAM Annual Forum, Khor Reports spoke on the topic of sustainability certification options.
The outlook for the certification for sustainable palm oil is getting a lot more complex. It appears that stakeholders are wrestling for control over the palm oil policy agenda, after it was so readily snapped up by the Roundtable on Sustainable Palm Oil (RSPO) and its key movers in the last few years. The RSPO is the palm oil industry’s current super-standard and by some measures it is probably the most successful voluntary standard in agriculture product certification. However, the RSPO has some issues: a) its exclusive approach makes it de facto regressive as it set out to focus on the largest corporations, b) it has large gaps with policy in producer countries, c) its first-mover monopoly has been dissipating to the ISCC whose stronger commercial grounding is a contrast to the RSPO’s relatively disappointing low premium and supply glut; d) there are significant worries that the RSPO will be pressured to raise its standards by non-member NGOs; and e) it proposes large financial compensation charges on grower members – this could amount to USD billions and it might open them to national and international lawsuits. This is from the perspective of palm oil industry players. From the viewpoint of other NGOs, it is not doing enough. And here, we see the new combination of The Forest Trust and Greenpeace coming in to usurp the RSPO's prime position while relying on it i.e. launching RSPO+ efforts. TFT/Greenpeace worked to great effect in causing GAR/Sinar Mas to adopt strict standards including no planting on peat and using a 35 tonnes carbon per hectare ceiling for new land development in a pilot project. We can expect the TFT/Greenpeace program to be marketed to more companies, both buyers and plantations.
In light of such trends, it is no surprise that there are clear signs that big grower and buyer members of the RSPO have been setting up various alternatives. Some may worry about a trajectory of excessive demands and so they seek to hedge their bets. Others may be seeking better alignment for multi-product supply-chains. Some want to show they can do more than RSPO e.g. Ferrero working with TFT/Greenpeace standards. Whatever the reason, key stakeholders have been actively pushing for new certification options which may better retain industry control. Will this dilute the impact of RSPO’s perilous promotion of trade restrictions? Thus, we see the introduction of state-initiated and supra-national facilitated schemes. These could gain market share if voluntary standards are impaired by poor alignment at the structural or policy level e.g. many voluntary conservation areas are untenable. Palm oil industry certification could be quickly moving toward the complexity seen in other sectors such as forestry and soy. How will NGOs react to such a shift? The palm oil industry will need to ensure good practices and maintain buyer acceptance. The grower segment and key supply-chain choke-points are under pressure, and they will need to put in additional resources for advocacy and negotiation on market access and more.
Bottom-line: Under sustainability, the supply-chain model has to be short and simple. Big and complex won't work well under traceability requirements.
The outlook for the certification for sustainable palm oil is getting a lot more complex. It appears that stakeholders are wrestling for control over the palm oil policy agenda, after it was so readily snapped up by the Roundtable on Sustainable Palm Oil (RSPO) and its key movers in the last few years. The RSPO is the palm oil industry’s current super-standard and by some measures it is probably the most successful voluntary standard in agriculture product certification. However, the RSPO has some issues: a) its exclusive approach makes it de facto regressive as it set out to focus on the largest corporations, b) it has large gaps with policy in producer countries, c) its first-mover monopoly has been dissipating to the ISCC whose stronger commercial grounding is a contrast to the RSPO’s relatively disappointing low premium and supply glut; d) there are significant worries that the RSPO will be pressured to raise its standards by non-member NGOs; and e) it proposes large financial compensation charges on grower members – this could amount to USD billions and it might open them to national and international lawsuits. This is from the perspective of palm oil industry players. From the viewpoint of other NGOs, it is not doing enough. And here, we see the new combination of The Forest Trust and Greenpeace coming in to usurp the RSPO's prime position while relying on it i.e. launching RSPO+ efforts. TFT/Greenpeace worked to great effect in causing GAR/Sinar Mas to adopt strict standards including no planting on peat and using a 35 tonnes carbon per hectare ceiling for new land development in a pilot project. We can expect the TFT/Greenpeace program to be marketed to more companies, both buyers and plantations.
In light of such trends, it is no surprise that there are clear signs that big grower and buyer members of the RSPO have been setting up various alternatives. Some may worry about a trajectory of excessive demands and so they seek to hedge their bets. Others may be seeking better alignment for multi-product supply-chains. Some want to show they can do more than RSPO e.g. Ferrero working with TFT/Greenpeace standards. Whatever the reason, key stakeholders have been actively pushing for new certification options which may better retain industry control. Will this dilute the impact of RSPO’s perilous promotion of trade restrictions? Thus, we see the introduction of state-initiated and supra-national facilitated schemes. These could gain market share if voluntary standards are impaired by poor alignment at the structural or policy level e.g. many voluntary conservation areas are untenable. Palm oil industry certification could be quickly moving toward the complexity seen in other sectors such as forestry and soy. How will NGOs react to such a shift? The palm oil industry will need to ensure good practices and maintain buyer acceptance. The grower segment and key supply-chain choke-points are under pressure, and they will need to put in additional resources for advocacy and negotiation on market access and more.
Bottom-line: Under sustainability, the supply-chain model has to be short and simple. Big and complex won't work well under traceability requirements.
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Wednesday, November 20, 2013
Over 1000tc/ha carbon stock in one oil palm cycle
In an analysis that is thorough in inclusion of carbon in all elements in palm oil from oil palm roots to fronds, cover crop, ffb and efb, and pome, AAR gives a one cycke carbon accumulation measure of over 1,000 tonnes carbon per hectare.
Khor Reports comment: This will be an eye opener in the contestation over palm oil sustainability. This is a vast difference to figures used by the TFT/Greenpeace schemes that use an old indicator of 35 based on an indeterminate number of old studies. Ngo-driven voluntary certification efforts are hampered by literature reviews of uncertain quality and citing often dated studies. The AAR study is a good scientific counterargument. It should generate a flurry of scientific studies to review uncertain measures and indicators used in many voluntary standards. What will happen to high carbon stock arguments? Some big players are said to be ready settle on 75+ tonnes carbon per ha. They might want to make more studies. AAR is a joint research unit of KL Kepong and Boustead.
Khor Reports comment: This will be an eye opener in the contestation over palm oil sustainability. This is a vast difference to figures used by the TFT/Greenpeace schemes that use an old indicator of 35 based on an indeterminate number of old studies. Ngo-driven voluntary certification efforts are hampered by literature reviews of uncertain quality and citing often dated studies. The AAR study is a good scientific counterargument. It should generate a flurry of scientific studies to review uncertain measures and indicators used in many voluntary standards. What will happen to high carbon stock arguments? Some big players are said to be ready settle on 75+ tonnes carbon per ha. They might want to make more studies. AAR is a joint research unit of KL Kepong and Boustead.
Saturday, November 16, 2013
Sustainability impacts supply-chain
Unilever said that it would only buy traceable palm oil by end 2014. One of the top buyers of palm oil, the Anglo-Dutch consumer goods manufacturer has been among those leading the charge in sustainable palm oil. It has worked closely with WWF and others in leading the Roundtable on Sustainable Palm Oil (RSPO). It is notable that "At the end of 2012, only around 5% of its palm oil was traceable and certified, a company spokesman said. Part of the problem is that the vast number of suppliers Unilever works with means the company struggles to keep tabs on where each batch of palm oil originates.... Unilever will cut its roster of suppliers to between 10 and 20 from well over 100 as it adopts traceable sourcing. Of those, "six or seven will do around 70% of volume," (Unilever) said... Another tactic Unilever is using to improve the sourcing of its palm oil is to control the process from the earliest stage. The company is already partway through building a $100 million palm-oil plant in Indonesia, and Mr. Engel said similar investments would be considered in the future" (Wall Street Journal, 12 Nov 2013).
Comment: Khor Reports' view on the consolidation of the supply-chain with increased leverage for retailers and buyers is panning out. Shorter and simpler supply-chains are the order of the day. Large complex supply-chains are now facing NGO criticisms, notably on third-party purchases from non-certified sources. We have noticed that the palm oil industry at large has been relatively uncaring of happenings at the RSPO (i.e. its something for the big players and only for the European market). However, smaller producers and smallholders in developing countries should now sit up and look out. Could they be increasingly side-lined in a palm oil supply chain that will increasingly favour larger producers, those with simpler supply-chains and those in regions with a comparative advantage in sustainability? This will solidify market tiers with discount/premiums for what is a basic agri-commodity product of bulk usage. This is unusual as certification was typically not for bulk but for niche usage e.g. FSC, Fair Trade and organic. The trajectory of sustainability in palm oil continues to surprise with the speed of its evolution and the speed of the relative decline of the negotiating power of producers. Relative to soybean oil, palm oil producers face tougher and more costly standards. Might this accelerate the convergence of unit costs? Palm oil producers have enjoyed relatively high profit margins over a long period of time. Is this set to normalize? Perhaps many also don't really mind if the speed of expansion slows. This might be supportive of prices?
UPDATE on 18 Nov 2013: Khor Reports has discussed the regressive unfairness of the structure of voluntary standards such as the RSPO. Now it looks like a big NGO-buyer processor effort could result in more serious impact on the entire palm oil supply chain. Industry leaders are starting to express worries of the unfairness of current proposals on smaller producers and farmers who supply the bulk of SE Asia palm oil. Indonesia players also point out that the push could result in a politically untenable situation for 2014. if large swathes of smaller producers end up as "ineligible suppliers" within a short time frame; assuming enough big players sign on (it may not take many). The impact on the supply-chain of the current proposals among dominant players could be significant with uncertain and unintended outcomes on spatial supply-chain & logistics, lost crop & dropping FFA quality etc. NGO pressure is particularly strong on a key part of the supply-chain. This bears watching. Have the dominant players fully assessed the potential impacts and outcomes?
Comment: Khor Reports' view on the consolidation of the supply-chain with increased leverage for retailers and buyers is panning out. Shorter and simpler supply-chains are the order of the day. Large complex supply-chains are now facing NGO criticisms, notably on third-party purchases from non-certified sources. We have noticed that the palm oil industry at large has been relatively uncaring of happenings at the RSPO (i.e. its something for the big players and only for the European market). However, smaller producers and smallholders in developing countries should now sit up and look out. Could they be increasingly side-lined in a palm oil supply chain that will increasingly favour larger producers, those with simpler supply-chains and those in regions with a comparative advantage in sustainability? This will solidify market tiers with discount/premiums for what is a basic agri-commodity product of bulk usage. This is unusual as certification was typically not for bulk but for niche usage e.g. FSC, Fair Trade and organic. The trajectory of sustainability in palm oil continues to surprise with the speed of its evolution and the speed of the relative decline of the negotiating power of producers. Relative to soybean oil, palm oil producers face tougher and more costly standards. Might this accelerate the convergence of unit costs? Palm oil producers have enjoyed relatively high profit margins over a long period of time. Is this set to normalize? Perhaps many also don't really mind if the speed of expansion slows. This might be supportive of prices?
UPDATE on 18 Nov 2013: Khor Reports has discussed the regressive unfairness of the structure of voluntary standards such as the RSPO. Now it looks like a big NGO-buyer processor effort could result in more serious impact on the entire palm oil supply chain. Industry leaders are starting to express worries of the unfairness of current proposals on smaller producers and farmers who supply the bulk of SE Asia palm oil. Indonesia players also point out that the push could result in a politically untenable situation for 2014. if large swathes of smaller producers end up as "ineligible suppliers" within a short time frame; assuming enough big players sign on (it may not take many). The impact on the supply-chain of the current proposals among dominant players could be significant with uncertain and unintended outcomes on spatial supply-chain & logistics, lost crop & dropping FFA quality etc. NGO pressure is particularly strong on a key part of the supply-chain. This bears watching. Have the dominant players fully assessed the potential impacts and outcomes?
Tuesday, November 12, 2013
Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (now available)
Click here to view full newsletter, pdf: http://tinyurl.com/mbhthpb
Earlier, we had released some of the draft articles in this blog. Click on the links below!
KHOR REPORTS' PALM OIL NOV/DEC 2013, ISSUE 5: Feeding Africa, Asian companies eye West Africa consumers with palm oil, instant noodles and more
Feature: Indomie, Unilever & Olam in W Africa. Instant noodles & global hunger
Indonesia’s landholding ceiling, Felda Global deals & more
Biofuel policy cooling and boost, Neste Oil’s renewables
Sustainability: more certification, snacks & supply chain
Preview: RSPO hot topics
Contents:
Editorial - unprecedented policy challenges, time to restrategize?
Indonesia ceiling on landholdings.
Felda deals & more.
Biofuels policies falter but Indonesia boosts.
Neste Oil’s renewables.
More certification.
RAN on snackfoods & supply chain.
RSPO preview.
Feature: West Africa. Instant noodles.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
Earlier, we had released some of the draft articles in this blog. Click on the links below!
KHOR REPORTS' PALM OIL NOV/DEC 2013, ISSUE 5: Feeding Africa, Asian companies eye West Africa consumers with palm oil, instant noodles and more
Feature: Indomie, Unilever & Olam in W Africa. Instant noodles & global hunger
Indonesia’s landholding ceiling, Felda Global deals & more
Biofuel policy cooling and boost, Neste Oil’s renewables
Sustainability: more certification, snacks & supply chain
Preview: RSPO hot topics
Contents:
Editorial - unprecedented policy challenges, time to restrategize?
Indonesia ceiling on landholdings.
Felda deals & more.
Biofuels policies falter but Indonesia boosts.
Neste Oil’s renewables.
More certification.
RAN on snackfoods & supply chain.
RSPO preview.
Feature: West Africa. Instant noodles.
Key vegetable oils.
Weather outlook.
CPO technical view.
Price charts.
Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)
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