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Palm Oil Action Australia | March 30, 2017

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RSPO – it’s hard to live with it – Business News | The Star Online

  • On June 15, 2016

thestar.com.my
RSPO – it’s hard to live with it – Business News | The Star Online
by hanim adnan

But you cannot do without it

IT is never an easy ride for oil palm growers to be members of the Roundtable on Sustainable Palm Oil (RSPO), the world’s first palm oil certification body.

Many plantation companies subject themselves to the rigorous RSPO principles and criteria (P&C) process to obtain the voluntary RSPO certification, which validates the oil palm produced as certified sustainable palm oil (CSPO).

In recent years, the CSPO criteria is heavily demanded by importing palm oil nations such as the European countries and the US, and other consumers in the Western countries as well as the NGOs.

Despite complaints that the CSPO offtake is still low and its premium price dipping to about US$25 per tonne versus the non-CSPO oil, the number of individual planters from Indonesia, Papua New Guinea, Latin America and Africa are still growing for the coveted RSPO certifications.

To date, RSPO has certified about 21.90 million tonnes of CSPO which represents 21% of the total world palm oil production.

The RSPO-certified palm oil comes from Indonesia 51%, Malaysia 42%, Papua New Guinea 5% and Brazil and Colombia with 1% each.

Why RSPO?

An industry player tells StarBizWeek that the RSPO strength lies in its multi stakeholder members – from oil palm growers, palm oil processors and traders, retailers, consumer goods manufacturers, banks and investors as well as environmental and social NGOs worldwide.

This is unlike the national-led palm oil certification bodies like the Indonesian Sustainable Palm Oil (ISPO) and the Malaysian Sustainable Palm Oil (MSPO), which holds little credence in overseas markets.

“Oil palm grower members only represent about 17% of the RSPO’s total members.

“The role of oil palm growers in the RSPO is also fast diminishing. Growers are outnumbered by the increasing number of RSPO retailers and processors that are in the supply chain and also the NGOs which are not in the supply chain.

“For a grower’s point of view, I think the Western retailers and food manufacturers and the NGOs are the ones who dictate the hard and fast rules for oil palm growers/exporters who want to gain easier access into their markets,” adds the industry player.

He says this resulted in the unprecedented moves by two top Malaysian plantation companies IOI Corp Bhd and Felda Global Ventures Holdings Bhd (FGV) which recently took matters into their own hands to address the loopholes in the stringent RSPO P&Cs issues.

But ironically, both IOI Corp and FGV still wish to remain as an RSPO member, hence indicating the signifiance of RSPO-certificates in their CSPO trading abroad.

For IOI Corp, the temporary suspension by RSPO of its certifications due to alleged non-compliance by its subsidiaries in Indonesia to the RSPO P&Cs bears negative impact on the group’s overall CSPO trading in Europe.

The suspension saw top multinational brands such as Unilever, Kellogg’s, Colgate-Palmolive, Johnson & Johnson, Procter & Gamble, SC Johnson, Yum! Brands and Nestle which are also RSPO members announcing that they would temporarily stop sourcing palm oil from the IOI group.

Maybank Investment Bank says in its recent report: “IOI Corp has established EU customers and MNCs who may not view the suspension favourably even though IOI Corp is also ISCC (International Sustainability and Carbon Certification) certified.

Of IOI Corp’s RM11.6bil revenue in 2015, 36% was derived from the EU and 15% from the US, it adds.

To counter the impact, IOI Corp last week announced that it had filed a challenge proceeding with the Justice of Peace (JP) in Zurich where the RSPO is based.

Under Swiss law, an action to challenge the decision of an association must be filed within one month after the decision was made. A conciliatory hearing will be held before the JP, who will act as a mediator between the two parties.

However, IOI states the challenge proceeding is a “separate matter” from its ongoing implementation of the concrete actions as required by the RSPO.

An industry observer said: “The issue here is for IOI to get its RSPO certification suspension lifted. It is not fair for RSPO to suspend its entire certifications when the alleged breach of P&Cs is in Indonesia.”

FGV withdrawals

In the case of FGV, the voluntary suspension of its RSPO certificiations for its 58 mills nationwide has taken RSPO by surprise.

“FGV is willing to forego the CSPO premium it has enjoyed so far because it wanted to address the sustainability issues of its palm oil produced by Felda settlers/smallholders,” says its new group president and CEO Datuk Zakaria Arshad.

The re-certification will take place in stages over the next three years.

By end of this year, FGV’s 15 mills will be re-certified.

To date, about 60% of Felda’s 102,100 smallholders have been certified under the RSPO. The CPO production from smallholders account for about 30% of FGV’s total CPO production.

An industry source says: “The decision behind could be linked partly to the alleged breach of labour conditions at FGV plantations in the treatment of workers, leading to the suspension of the Pasoh palm oil mill in Negri Sembilan, which was filed under the RSPO complaint case trackers.”

It is a smart move by FGV management before the top planter gets reprimanded by the RSPO for alleged breach of RSPO P&Cs, adds the source.

So far, there is no provision in the RSPO constitution that says an RSPO member can voluntarily seek suspension in certification and still remain as a member of the grouping.

Kenanga Research says in its report that the withdrawal of FGV’s mill certificates could also lead to loss of high-end business, particularly in Europe and the US.

“Similar to IOI Corp’s recent suspension resulting in a loss of business from several MNC clients, we think the same could be in store for FGV, although the earnings impact should be less severe given its smaller revenue base from Europe and the US (7%) compared to IOI Corp (51%),” it says.