Tuesday, July 14, 2009

Let the good things flow


Errol Oh feels that plantation industry should focus on raising ‘green’ palm oil production, not sales.

DOES business always have to be a tug of war between lucre and the greater good? We know the answer to that. It’s ridiculous to suggest that profits and altruism are mutually exclusive. We have seen time and time again that companies can be caring and competitive at the same time.

And there’s stark logic in the argument for sustainable business practices – if businesses continue gobbling up natural resources and harming the environment, there will eventually be nothing to sell or worse still, nobody to sell to.

This is the reality today. No industry can afford to ignore its social, economic and environmental impact. The palm oil industry recognises this. That’s why the Roundtable on Sustainable Palm Oil (RSPO) was set up in 2004. Says the organisation’s website, “RSPO is a not-for-profit association that unites stakeholders from seven sectors of the palm oil industry – oil palm producers, palm oil processors or traders, consumer goods manufacturers, retailers, banks and investors, environmental or nature conservation NGOs (non-governmental organisations) and social or developmental NGOs – to develop and implement global standards for sustainable palm oil.”

Such an initiative cannot take off the ground without the support of the plantation companies. Fortunately, the Malaysian Palm Oil Association is a RSPO member and so are large local players such as Felda, Sime Darby Bhd, Kuala Lumpur Kepong Bhd, IOI Corp Bhd and United Plantations Bhd.

Malaysian companies are among the first to be certified by independent bodies for conformance with RSPO’s principles and criteria, either on a company-wide basis or for parts of their operations.

These include United Plantations (the first, in August last year), Kulim (M) Bhd, Sime Darby, PPB Oil Palms Sdn Bhd and IOI Corp,

It has been a decent start for what is obviously a long journey towards the broad production and use of sustainable palm oil.

Yet, there has been some noise lately about the lukewarm market response to palm oil certified under RSPO’s audit programme, the so-called ‘green’ palm oil. The chief complaint is that the buyers in the West, who have clamoured for sustainable palm oil, are not willing to pay more for green palm oil.

When United Plantations shipped its first batch of green palm oil to Europe last November, the commodity was said to have been sold at a premium of US$50 per tonne. The premium has since narrowed to US$20. According to a WWF report in May, only 1% of the sustainable palm oil available on the market had been bought.

On Tuesday, Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron came out swinging in an interview on the subject.

“We have been led down the path of false hope in selling environmentally certified palm oil, and now the buyers are not keen on paying for the premium,” he told Reuters.

“It’s clear that all these demands from the NGOs to be environmentally sustainable, which we obviously have been for many years and decades, are just trade barriers in disguise.”

He had more fighting words to offer: “The market signal is very clear. We can supply at a premium but if buyers are clearly not interested, the palm oil suppliers will have to change tack. This is still a business, after all.”

He is right; palm oil cultivation is a business. But it’s also a business that’s accustomed to 25-year planting cycles. In other words, the industry should know a thing or two about adopting a long-term view.

It has been less than a year since green palm oil began flowing into the market. Isn’t it too soon to even think about giving up on the RSPO? Yes, the consumer goods manufacturers may be dragging their feet in backing up their commitment to sustainable palm oil, but at this point, what they do or don’t do is secondary.

This is a time for the plantation players to step up to the plate and keep their end of the bargain. The ability to sell palm oil at a premium is a nice carrot, but we should be focusing on the stick. The palm oil industry stands to lose the most if it prematurely abandons the RSPO certification systems.

Palm oil has been the whipping boy of NGOs because of allegations that the industry’s expansion contributes to global warming, the death of orangutans, dislocation of indigenous people and other ills. The protests and bad publicity threaten to turn into a political and consumer storm that will depress demand for the commodity.

The plantation industry has all along claimed that most of its players already employ sustainable practices, but that won’t fly when there’s a groundswell of scepticism. An independent certification mechanism is necessary and that’s precisely why the RSPO was formed.

Boosting green palm oil sales shouldn’t be an industry priority right now; it should be looking at increasing green palm oil production. The aim ought to be to have nothing but green palm oil in the market. Is that a sure-fire business strategy? Maybe not, but it’s unquestionably the right thing to do.

As cynical as he often is – it’s a job hazard – deputy business editor Errol Oh still believes that good things happen to those who do good things.

Undergoing MyBlogLog Verification

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