Unleashing the Potential: The Future of Sustainable Palm Oil

In the past two decades, the demand for vegetable oil has skyrocketed, and leading this charge is palm oil, a versatile ingredient in the food, health and beauty, and energy industries, particularly as a biofuel. The allure of palm oil lies in its unmatched yield and adaptability. With up to four to ten times higher yields per hectare compared to soy, rapeseed, and sunflower, the oil palm crop stands as a clear winner.

Not only does palm oil serve as a healthier alternative to trans fats, it also possesses moisturizing and textural qualities that make it ideal for personal care products. Currently, Indonesia and Malaysia dominate the palm oil market, accounting for 83% of global exports. The palm oil industry brings significant economic benefits to smallholders, agro-industries, and producing countries, driving livelihoods, job creation, and GDP growth.

However, the exponential growth of the palm oil industry comes at a significant environmental cost and disproportionately affects smallholders and workers. Throughout the global value chain of palm oil, particularly in Southeast Asia, where it is primarily produced and exported, pressing issues related to the environment, equity, and the economy demand attention.

Unlocking the Palm Oil Value Chain: A Step-by-Step Journey

The global value chain of palm oil, originating in Southeast Asia and reaching consumers worldwide, can be divided into five distinct stages: production, processing, distribution, manufacturing, and consumption. Production begins with large-scale plantations, owned by companies, where oil palm trees are meticulously planted.

The fruit harvested from these trees, known as fresh fruit bunch, is then collected by smallholders. The processing stage involves transforming the fresh fruit bunch into two primary types of palm oil: crude palm oil (CPO) and palm kernel oil (PKO). Once processed, the oils are distributed to manufacturers.

Powerhouses such as Cargill, Wilmar, and Sinar Mas, known for their vertical integration, cover the first three stages of the value chain. This integration allows them to source directly from their own plantations or mills. The distributed palm oil finds its way into the hands of consumer goods manufacturers and energy companies, such as Nestlé, Unilever, Manuelita, and General Mills, who harness its potential to create an array of personal products, food items, and biodiesel. Finally, these end products are delivered to everyday consumers, fulfilling their diverse needs.

Sustainability Challenges: Addressing the Urgent Issues

The palm oil industry faces pressing environmental concerns, including extensive deforestation of tropical forests, the preservation of peatlands and biodiversity, as well as equitable conditions for smallholders and laborers. In response to global demand, Indonesia and Malaysia have cleared around 6 million hectares of tropical rainforest, home to over 193 critically endangered species like orangutans, Sumatran tigers, and elephants, to make room for palm oil plantations.

The slash-and-burn method employed by many producers in these countries presents further environmental challenges, such as carbon emissions and harmful particulate release, impacting both ecosystems and human health. Additionally, investigations by the Associated Press have revealed widespread labor exploitation within the Southeast Asian palm oil industry.

Foreign workers have fallen victim to human trafficking and coercion, highlighting the lack of protection afforded to these laborers. The environmental and social issues prevalent in palm oil production have prompted extensive involvement from various stakeholders throughout the global value chain, with global NGOs playing a crucial role.

NGO Intervention: Catalyzing Change

In response to the environmental challenges, the Roundtable on Sustainable Palm Oil (RSPO) was established in 2004 by the World Wildlife Fund (WWF), the Malaysia Palm Oil Association (MPOA), Unilever, AAK, and Migros. The RSPO’s primary objective was to develop global environmental and social criteria for sustainable palm oil production, while driving demand and consumption of certified sustainable palm oil.

Certification by the RSPO is awarded to producers who meet stringent technical requirements, minimizing negative impacts on local ecosystems, communities, and wildlife. The RSPO urges consumer goods manufacturers to become members and commit to sourcing Certified Sustainable Palm Oil (CSPO).

The WWF aimed to impact 40-50% of palm oil production by reaching the top 100 companies controlling 25% of the trade. Despite its noble intentions, the RSPO’s certification standards have faced mounting criticism in recent years, with organizations like Greenpeace arguing that certification can be used to greenwash products associated with deforestation.

To address these concerns, the RSPO highlights its advanced production monitoring system, GeoRSPO, utilizing high-quality satellite imagery to observe and combat deforestation and fire activity within member concessions. Studies have shown that certification significantly reduces deforestation and fire activity on plantations, emphasizing the need for wider adoption in Southeast Asia.

Government Intervention: Filling the Gaps

Recognizing the limitations of NGO involvement, national governments have also stepped in to ensure sustainability within the palm oil industry. The Malaysian government, for instance, has prioritized making all production in its Sabah state (which accounts for 6% of global production) sustainable by 2025.

The regional government in Sabah oversees production land licenses to tackle land-grabbing issues, collaborating with WWF Malaysia and Unilever’s Dove to achieve RSPO certification for 70,000 hectares of plantations, preserving forests and restoring elephant and orangutan habitats.

Conversely, Indonesia has established its own internal standard, the Indonesian Sustainable Palm Oil (ISPO) Certification. However, ISPO falls short compared to the RSPO, as it fails to protect secondary forests and has a narrower definition of indigenous people. Recently, ISPO collaborated with the RSPO on a pilot program in Jambi province to increase smallholder inclusion in sustainable production.

Moreover, the Indonesian government imposed two bans on palm oil exports earlier this year due to global supply chain disruptions caused by the COVID-19 pandemic. These export bans aimed to increase domestic palm oil supply and lower prices. However, one consequence was that smallholders faced reduced demand for their fresh fruit bunch, as fewer mills were willing to purchase them.

Furthermore, trust in Indonesia as a palm oil trade partner diminished, prompting consumers to turn to Malaysia for their palm oil needs. Government actions primarily impacted upstream actors in the value chain, while NGOs exerted pressure downstream.

A Collective Path Forward

Given its unrivaled efficiency and low production cost, palm oil remains an almost irreplaceable commodity. While viable alternatives are not yet scalable, some palm oil producers have taken significant strides towards sustainability. Manuelita, an RSPO-certified Colombian agricultural company that recently ventured into palm oil, exemplifies such progress.

Distinguishing itself by exclusively cultivating palm on previously non-forested land, Manuelita actively contributes to Colombia’s ambitious 2050 net-zero goal. Furthermore, the company upholds the UN Convention on Human Rights, ensuring the welfare of its workers. Manuelita showcases the feasibility of a sustainable palm oil supply within an equitable, effective framework.

To minimize the negative impact of palm oil production on the environment and local communities while maintaining a sustainable supply, it is imperative that stakeholders across the value chain collaborate. By joining forces and implementing scalable solutions, we can create a future where palm oil supports both economic growth and ecological harmony.

References

Ryoo, S., Shivkumar, M., Sackleh, S., Maguire, T., Ezeogu, U., & Gleeson, M. (2023, January 25). A better model for the palm oil supply chain. Retrieved from Supply Chain Management Review: https://www.scmr.com/article/a_better_model_for_the_palm_oil_supply_chain

https://www.vectorstock.com/royalty-free-vector/economy-and-government-intervention-vector-2695411

https://www.linkedin.com/pulse/5-steps-ideal-customer-journey-how-make-each-one-work-edoutwest

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