Environment

Palm oil supply chain still lacks traceability

Delegates at the recent Roundtable on Sustainable Palm Oil (RSPO) gathering in the Malaysian capital Kuala Lumpur grappled with the thorny issue of traceability and admitted that tracking palm oil supplies back to the original plantations  remains a formidable challenge.

There is now significant traceability to mill level, but very few companies have tracked their supplies any further back. Much has been said about full traceability being achieved by 2015, but the RSPO does not have a fixed stated deadline and discussions continue about what traceability actually is.

The sustainable sourcing director for Unilever, Cherie Tan, said that 58 percent of the palm oil in Unilever’s supply chain was now traceable to known mills. “We have visibility of over 1,800 crude palm oil mills, which we estimate represents more than two-thirds of all mills in the global palm oil industry.”

Unilever’s end ambition, Tan says, is to trace certified palm oil back to plantations, but the complex and largely opaque nature of the supply chain made this very difficult.

Traceability, Tan emphasises, does not equal sustainability, “but it represents a starting point to understand where our palm oil originates from and this is an important prerequisite for positive change”. Verification, she believes, is an important step, but it should not replace certification, and it has to be transparent.

Tan says that, by the end of 2014, all of the palm oil directly sourced for Unilever’s foods business in Europe will be traceable to certified plantations. “While we have made good progress, we recognise that we need to do more to reach 100 percent traceability.”

P1090650Cherie Tan

Unilever is one of the world’s biggest palm oil buyers, purchasing 1.5 million tonnes of palm oil and derivatives annually. It has set a 2020 deadline for sourcing 100 percent sustainable palm oil from certified, traceable sources..

The company states that 100 percent of its palm oil was sustainable as of 2012, but this is largely because of the controversial GreenPalm system under which companies can buy and sell certificates that are awarded for sustainable production.

Companies buying the certificates can state that they have supported the sustainable production of palm oil, but there is no guarantee that all of their palm oil comes from sustainable sources. There are those who say the GreenPalm system is a disgrace and should be done away with, but others say the certificates are helping to increase the amount of sustainable oil on the market.

Risk of a new greenwash

Marcello Brito from Agropalma in Brazil fears that the lack of traceability beyond processing mills is creating a new “greenwashing situation”. What is the point of having traceability back to the mills, he asks, if virtually all of the problems happen beforehand.

Agropalma is a founding member of the Palm Oil Innovation Group (POIG), which was set up in June 2013 and describes its focus as “environmental responsibility, partnerships with communities, and corporate and product integrity”. It says the RSPO principles and standards are inadequate.

Brito called on sustainability managers and directors from purchasing companies to really communicate with their procurement staff about traceability and sustainability “and how we can build on changing this market in the real world”.

FoodReg is a specialist provider of traceability systems. Its founder and international director, Robert Madge, agrees that traceability can be greenwashing. “If you think that traceability is an end goal and you claim that traceability equals sustainability, that’s greenwashing. It is just a stepping stone towards sustainability.

“Unless you know where your product comes from, you cannot claim its physical level of sustainability. It’s at the plantations, of course, where all the sustainability issues arise and where the data has to come from.”

 P1090654Robert Madge

FoodReg has close to 2,000 mills on its KnownSources platform, and ten percent of them are certified, Madge says. (The RSPO has certified 263 palm oil mills.)

Mapping tools

Elizabeth Baer is the global commodities manager for the World Resources Institute’s Global Forest Watch online mapping platform, a comprehensive tool that maps everything about forests from their composition and how they are changing to where fires are occurring.

C-_Users_james.anderson_Documents_Forests-GFW_Satellite-Imagrey_Delivery-1-from-Asa_for-blog_WV02_July24_2014_100.371870_2Fire in fields; Sumatra, Indonesia; November 5, 2014. Photo credit: Global Forest Watch and Digital Globe.

The Global Forest Watch platform, Baer says, is the best data set in the world about forests. “It’s when you bring that together with traceability that it becomes really powerful.”

Traceability, Baer says is the first step towards sustainability. “When we bring traceability together with transparency about forests and the supply chain, we can begin to evaluate where the biggest risks are happening; where we see tree cover loss; where we see fires burning; where peat is being lost.

“We can then prioritise areas that need to be followed up on the ground; areas where we should engage suppliers to improve their practices and move them along on the pathway to certification.”

Traceability on its own is no replacement for certification, Baer says.

Tan would agree, but says that RSPO members have to work to ensure there is better traceability. “If we were to buy a tonne of GreenPalm certificates or a tonne of segregated palm oil, suppliers don’t feel obliged to reveal exactly where the certified plantations or the mills are.

“This is an issue that does need to be addressed so that we can work through the RSPO to ensure that we can create more transparent supply chains and work towards ensuring that those supply chains can then become certified.”

One concern raised by delegates was the lack of manageable data about the social risks and impacts associated with oil palm cultivation.

Elizabeth Baer says there are no social risk or impact indicators on Global Forest Watch. “There is a wealth of data and information out there about social risks and impacts, but there hasn’t really been a concerted effort yet to consolidate all of the information and bring it into an easily accessible and manageable form.”

Tan added: “We need to work with social NGOs to ensure that there is a mechanism like Global Forest Watch that can help put some environmental risk parameters together and track them in a live manner.”

Unilever is working with the Rainforest Alliance to develop a methodology and a tool for collecting information about social risk. “We are working on putting together a ‘social risk heat map’ and hope to pilot it at the end of this year,” Tan said.

Smallholders have been invisible in supply chains in the past, Tan says, but, with technology such as satellite imagery, a proper sustainability road map is now achievable.

Madge says any new deployment of a technological solution creates cost and the larger companies are more able to support that cost than smallholders. “There are a lot of technical challenges in getting traceability between smallholders and mills.

“This does require the intervention of organisations who are willing to put money and effort behind supporting those smallholders and small independent operators to ensure that they can also participate.”

Brito said Agropalma had just finalised an audit of smallholders and it was one of the most difficult things they ever did in the company. “It was three years of really, really hard work and it was only 247 families. I wonder what it is like for those who are dealing with 20,000 or 30,000 families.”

Achieving full traceability, Tan says, is a huge challenge because palm oil passes through so many hands and processes. “Palm kernel oil is particularly difficult to trace back to CPSO mills because it can travel such long distances.”

Certification and sustainability need to be scaled up at a jurisdictional level, Tan adds. “This is an opportunity to bring in new actors. What is the role of government in this? What is the role of the Tropical Forest Alliance or donors in trying to pool resources? How do you take this beyond certification to look at the protection of forested landscapes to ensure that the quality of some of these High Carbon Value areas is strengthened?”

The IOI group

The sustainability director of the Netherlands-based company IOI Loders Croklaan, Ben Vreeburg, says four of its five refineries across Europe, the United States, and Asia are now traceable to the mills. (Its Rotterdam refinery is the exception.)

Traceability can only be built, Vreeburg says, by the collective effort of the actors in the supply chain, and is just a means to a goal; “a milestone in transforming the palm oil industry into sustainable businesses”. The value, Vreeburg says, is in sustainable practices and certification, not in traceability by itself.

“Receiving 100 percent traceable oil is no guarantee that the oil was produced in compliance with sustainable practices as defined in the many sourcing policies that have recently been announced by many companies.”

There have been a raft of sustainability commitments from multinational companies over the past year. More than 20 global food companies have now made no-deforestation pledges and the big traders Wilmar International and Golden Agri-Resources (GAR) have both made commitments that are far stronger than the standards established by the RSPO.

P1090661Ben Vreeburg

In Vreeburg’s view, RSPO verification and certification is preferable to building individual supply chain verification programmes based on traceability and additional criteria. He favours one verification and certification platform rather than several standards, and sees the RSPO as the best option.

“Individual verification programmes lead to multiple visits to mills and plantations and I do not believe that is in the interest of the industry.”

Many processors and customers are demanding additional sustainability criteria that go beyond the RSPO’s current principles and criteria, Vreeburg says, and the roundtable should facilitate the introduction of such criteria.

Committing to sustainability

IOI Loders Croklaan, which trades 10 to 15 percent of the world’s palm oil, recently announced its own new sustainability pledge. It says it is committed to the following:

• accelerating the journey to no-deforestation through the conservation of High Carbon Stock (HCS) forests and the protection of peat areas, regardless of depth;
• building traceable and transparent supply chains;
• respecting the rights of employees in the palm oil industry, indigenous peoples, and local communities; and
• increasing the focus on driving beneficial economic change and to ensure a positive social impact on people and communities.

The oil traded by IOI Loders Croklaan is primarily produced by its parent company, the IOI Group in Malaysia, which is one of the founding members of the RSPO, but has come in for heavy criticism for the conditions on its plantations.

The Finnish business watchdog Finnwatch released a report in September this year in which it alleged that the IOI group had forced and slave labour contracts on their RSPO-certified plantations in Malaysia.

More than 80 per cent of the workers at IOI plantations are migrant workers from countries such as Indonesia, Bangladesh and Nepal. The Finnwatch report, “Law of the Jungle – Responsible Palm Oil Purchasing in Finland”, says that IOI confiscates workers’ passports and restricts freedom of association.

“The employment contract encourages workers to work up to 10-12 hour workdays,” said the executive director of Finnwatch, Sonja Vartiala. “Wages are based on the amount of palm oil bunches gathered, and workers do not receive compensation for overtime. Many workers do not earn even the statutory minimum wage.”

IOI Loders Croklaan’s new sustainability commitment has not been made by the entire IOI group, but Vreeburg says the pledge applies to all suppliers, so does apply to the group. “The group believes it is doing everything required by our policy. It might be good that they undersign the policy, but that’s a group decision.

“I know IOI. I know their mills and plantations, and they are fully compliant with our policy. We know where the improvements are needed; the Finnwatch report has pointed some out so we are working on that.” An action plan would be presented to Finnwatch in a few weeks’ time, Vreeburg said.

Vreeburg says the IOI group has made a commitment to no-deforestation on HCS land. “We have 250 mills in our supply base; 12 of them are IOI and they are all RSPO-certified. They are not my worry. I have to focus on the other mills to make them compliant with our policy. That’s my challenge.”

Certified supply exceeds demand

Vreeburg says that IOI Loders Croklaan’s goal for 2013 was to increase the volume of certified sustainable palm oil to 30 percent of its European sales. “We are excited to see that we have reached and even exceeded our goal. We expect a continuous increase of RSPO-certified palm oil in 2014.”

Vreeburg says there is a growing belief that sustainable palm oil is the right thing to buy. He thinks new EU labelling legislation and a growing demand for traceable supply chains are other key factors that will boost take-up.

The supply of sustainable palm oil continues to outweigh demand, however. Because of the lack of buyers willing to pay the premium for Certified Sustainable Palm Oil (CSPO), 49 percent of it is being sold as conventional oil or what is being termed “sustainable biofuel”, which is certified using the additional International Sustainability and Carbon Certification (ISCC) system.

Marcello Brito said: “We know that we cannot reach full traceability to all plantations right now, but, in countries like Malaysia, there is enough oil that is fully traceable back to plantations. So why are all the users of palm oil in Malaysia not using segregated palm oil right now?”

There are concerns that a two-tier market is being created, with Europeans and the United States receiving segregated, certified palm oil and India and China receiving an inferior product.

“There is the fear of creating a two-tier market,” Tan said. “As long as the majority of users in markets like India and China are not requesting certified traceable palm oil, it is very difficult for a company like Unilever to then make inroads.”

Implementation

Tan says there needs to be a change of focus to place emphasis on the implementation of company commitments. “I urge my colleagues in the NGO community to work on ensuring that there is implementation. That is the transformation we are looking for.”

Baer agrees that the focus now needs to be on implementation. Scorecards are very important, she says, “particularly for highlighting the lowest performers who aren’t even making commitments, and are flying under the radar”.

Full traceability is a lofty aim, and, globally, it may seem far from reachable, but there continue to be positive developments. The Forest Trust announced recently that the global confectioner Ferrero – which works with 37 mills and 184 plantations across Brazil, Malaysia, and Papua New Guinea – had gone beyond certification in order to achieve full supply chain traceability.

The trust, which helps companies and communities deliver their products responsibly, worked with Ferrero to map its entire supply chain, and the company has achieved 92 percent traceability back to plantations.

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