Wednesday, December 22, 2010

Redefining sustainability of palm oil

Sustainability of palm oil production, philosophically speaking, is striking a balance between the three bottom-line factors of economic prosperity, environmental quality and social justice. Such a broad concept has been interpreted in different ways by different parties to serve various interests and agenda.

Sustainability standards and parameters have been the subject of heated debates and adversity among concerned stakeholders, particularly the palm oil industry versus the NGOs.

There is a growing awareness among concerned stakeholders of the need to work together and reach a consensus to share a common set of values and standards in equal partnership.

The palm oil industry and its many actors, including smallholders, company growers, industry consumers and NGOs, is also one of the first industries to undergo the transformation from an adverse relationship into a partnership. This resulted in the Roundtable on Sustainable Palm Oil (RSPO), which many hailed as the forum where many actors with diverse interests got together as equal partners.

However, after some short years of experimentation, the relationship has been tainted by some blind spots from some actors that are preventing the industry from advancing in partnership.

Crane and Matten (2004) have predicted this as a result of the difficulties of managing relations between culturally diverse organizations, especially if they are from developed and developing worlds, and also ensuring consistency and commitment.

One could easily assert that when NGOs and businesses sit at the same table, the businesses will exert more power than NGOs, in terms of resources, political influence, capital, etc. However, we tend to overlook the power of NGOs in terms of their expertise in communicating with the public, exerting its credibility and public sentiments toward business.

The complexity of a multi-stakeholder nature augmented with diverse, sometimes contradictory interests along with suspicion over the power imbalance are seen as the main stumbling blocks toward achieving a more productive result from this mutual partnership. Taking those challenges into account, is there any way for regulating palm oil actors to achieve sustainability?

Crane and Matten identified at least three options: government as regulator, self-regulation by business and regulation involving business, governmental actors and CSOs. The third option is now considered the viable one.

They cited the Netherlands case on how the “covenant” approach was developed. It is a specific and unique approach to a national environmental regulation, by involving business, government, and other stakeholders in the specification, implementation and monitoring of the covenant. The covenant approach focuses on bringing relevant stakeholders together to find consensus on acceptable processes and outcomes.

The government of Indonesia is currently considering establishing a covenant unique to Indonesia, called Indonesia Sustainable Palm Oil (ISPO) to advance sustainable palm oil production in Indonesia. The primary focus of ISPO is to ensure legal compliance as the baseline of sustainability standards.

Elkington mentioned that a covenant usually creates a wider base of support from within the industry. The same goals would not be achieved through legislation, which in many cases, is time-consuming and not necessarily very effective.

The process will entail certification and standardization of palm oil production, in which the palm oil industry is bound to meet the agreed standards. By building the criteria on consensus among all concerned stakeholders in a transparent, fair, accountable and equitable manner, we can expect the palm oil industry to shape a sustainable future.

Certification and standardization of palm oil is one of key factors in shaping the sustainability. Another driving force to sustainability is market demand and public opinion toward sustainable palm oil.

For the past year, there has been some negative campaign targeted at the Indonesian palm oil industry, which hurt the goodwill of the industry to sit together to shape a common future. This is exactly how power imbalance takes place.

Many have tended to assume that among these three dimensions, economic and environmental concerns are the most important aspects of palm oil cultivation, and have largely ignored the third one, social justice.

Michael Porter and der Linde, noted that we need to forge strong links between environmental protection, resource productivity, innovation, and competitiveness. They stated that environmental constraints drive innovation and, as a result, eco-efficiency.

Porter and der Linde stated that the fixed trade-off: Ecology vs economy was a thing of the past. Today and tomorrow, eco-efficiency is one aspect of sustainability. Eco-efficiency in palm oil cultivation is striking a balance between economy and ecology within the sustainability framework of our agricultural operations.

A palm oil estate in general has far higher productivity, 6-10 times more, than any other oil vegetable crop in terms of efficiency in land use and productivity. This is what Porter described it as eco-efficiency.

Furthermore, palm oil cultivation promotes social development in otherwise abandoned and marginalized areas. Palm oil plantations play a critical role in the advancement of social development, including poverty alleviation, food security, employment creation, human rights observance, community development toward improvement in the quality of life, distribution of wealth, and providing an alternative source of energy (biofuel).

John Elkington noted that eco-efficiency is a necessary condition for fully sustainable development, but it is not sufficient. Genuine sustainability also means that we seriously look at social justice.

Social justice is often overlooked in the discourses on sustainability of palm oil among stakeholders. There are two conflicting mainstreams of environmental consciousness brought by market and civil society against the economic profitability of business.

The socio-economic benefits of palm oil plantations must be taken into account and treated with equal importance as financial profitability and environmental conservation in the development of standards and building public opinion.

The sustainable future of palm oil is to be shaped by placing the social dimension of palm oil cultivation on a par with economic prosperity and environmental quality. Only when the three dimensions of sustainability are proportionately accounted for and treated equally, then common and generally accepted terms and a definition of sustainable palm oil plantations can be achieved.

Edi Suhardi is Head of CSR, PT Agro Harapan Lestari

Indonesia Plantation

Capitalism and Confrontation in Sumatra's Plantation Belt, 1870-1979Soils in the Humid Tropics and Monsoon Region of IndonesiaIndonesia: Strategic Vision for Agriculture and Rural DevelopmentInforming natural resources policy making using participatory rapid economic valuation (PREV): the case of the Togean Islands, Indonesia [An article from: Agriculture, Ecosystems and Environment] 

Monday, December 20, 2010

Palming Palm Oil Profits

14/12/2010 (Money Show) - A London-listed operator of plantations in Papua New Guinea looks cheap given the soaring prices of its main product, writes Peter Shearlock in The IRS Report.

Next time you fill up a supermarket cart, check how many items contain palm oil. If your shopping includes soap, detergents, bread, pizzas, and other processed foods, you will probably see palm oil listed among the ingredients. Where only “vegetable oils” are listed, chances are that palm oil is among them.

The growth of demand for palm oil over the past decade has been dramatic. In part, that’s because of its newfound use as a feedstock for biodiesel. But it is the food industry worldwide that accounts for the lion's share of the near-50 million tons of the stuff currently being produced.

La Nina Pumps up Prices
According to the publication Oil World, global demand for eight key vegetable oils will exceed supply this year for the first time in eight years. A La Nina climate event has resulted in excessive rain in Indonesia and Malaysia, which produce 90% of the world palm oil crop. Estimates for production of soybean oil—a competitor to palm oil—have also been cut.

Given this backdrop, it is not surprising that the price of crude palm oil recently pushed back over the $1,100-per-ton mark. That compares with a pre-crisis high of close on $1,400 per ton in 2007 and a low of $435 in 2008.

While the shares of the world's leading palm oil producers have all performed strongly this year, one still stands out as offering real value: New Britain Palm Oil (London: NBPO). After a big acquisition earlier this year that expanded its plantations by about a half, it now has more than 75,000 hectares, or 185,000-plus acres, of plantations, largely in West New Britain, which is part of Papua New Guinea (PNG).

The Grower with the Greenest Thumb
NBPO is a high-quality producer in every sense. First, it is among the most efficient. The yield on plantations that have been within the company's ownership for any length of time is an industry-leading 28.4 tons per hectare. That compares with returns of less than 20 tons per hectare for the two most recent acquisitions. NBPO is also expected to become one of the most efficient upstream producers in the industry.

All told, NBPO is set to generate the highest earnings growth of any of the leading palm oil producers over the next few years. One reason is the company's position as the largest producer of certified sustainable, segregated and traceable, palm oil in the world. NBPO is reaping dividends from its investment in sustainable production.

In the first nine months of this year, NBPO lifted production by 22% and revenue and profits before tax by 49% and 42% respectively. The company has been making forward sales of palm oil at prices ranging between $820 and $863 a ton but is likely to achieve significantly more for the bulk of its 2011 output. It also produces a small amount of sugar, whose price has been generally strong in the past year.

Hidden Value on the Books
Despite this good news, NBPO has been trading at a discount to most of the big Malaysian producers. Macquarie recently lifted its price target to 933 pence, which compares with a current share price of 835p. Liberum Capital, NBPO's other broker, forecasts a rise in earnings from around 37p this year to 46p next and 52.5p in 2012. That puts the shares on a 2011 price/earnings ratio of 18.

However, the figures assume an average palm oil price of just $820 a ton next year. And NBPO shares are better value than these numbers would suggest.

The last accounts show net worth of around £330m, but taking the price per hectare paid for the last acquisition puts a value of well over £400m on the company's plantation land alone.

At the time of its latest acquisition, which was financed with around £130m of borrowings, the company said it was to suspend dividends for a year. They will recommence in the second half of next year. NBPO has about £170m of debt, which is easily manageable.

Clearly, much depends on the future price of palm oil. Demand from China and India, two of the biggest markets for palm oil, shows no sign of slackening. Western food producers are using more and more vegetable oils, palm oil included, and are being pressed to show that those oils are responsibly sourced.

The recent price action looks soundly based, while NBPO's credentials as a “green” producer leave it ideally positioned at the fastest-growing end of the market.

Vegetable Oil
Greasy Rider: Two Dudes, One Fry-Oil-Powered Car, and a Cross-Country Search for a Greener FutureFrom the Fryer to the Fuel Tank: The Complete Guide to Using Vegetable Oil as an Alternative FuelVegetable Oils in Food Technology: Composition, Properties and UsesIndustrial Uses of Vegetable OilVegetable Oils in Food Technology: Composition, Properties, and Uses (Sheffield Chemistry and Technology of Oils and Fats)

Wednesday, December 15, 2010

Opinion Piece Defends Palm Oil Biodiesel

14/12/2010 (Domestic Fuel) - A decision by Hawaiian Electric Co. (HECO) to build a biodiesel plant that will convert palm oil into biodiesel to be used by the utility to produce electricity has garnered the ire of some environmentalists, who decry the use of palm oil for the green fuel.

But this opinion piece in the Honolulu Star Advertiser defends the plant. Tom Tanton, president of California-based T2 & Associates, an energy technology and economic development firm, points out that the palm oil will come from Malaysia, a country that has committed to conserving 50 percent of its forests … much more than the 10 percent average under United Nations agreements:

Contrary to claims from the German environmental group leading the campaign against the HECO plan, palm oil is the most sustainable biofuel on the planet. More fuel can be produced on a smaller footprint from the oil palm than alternative biofuels such as corn-based ethanol or German rapeseed oil.

Palm oil is a perennial crop that can be converted to biodiesel, while other vegetable crops like soya that can create biodiesel are annual. Palm oil requires less tillage, resulting in much fewer greenhouse gases released into the atmosphere. It also requires considerably fewer energy inputs to grow and maintain.

In a recent statement, HECO correctly stated “biofuels are a part of Hawaii’s clean energy future. Biofuels allow us to switch from ‘black’ to ‘green’ fuel in our existing generators, reducing dependence on and vulnerability to imported oil.”

Of all possible biofuels, palm oil is king for its affordability, efficiency and eco-friendliness. Denying the HECO agreement would hamper wider adoption of sustainable practices worldwide.

The piece goes on to point out that some domestic sources of biodiesel feedstock, such as jatropha, aren’t scalable for a plant like this one. And, right now, Hawaii doesn’t have enough other renewable energy sources, such as wind, solar and geothermal, to be cost-effective. Tanton concludes that this palm-to-biodiesel plant will help the Aloha State meet its energy needs, while providing jobs for an impoverished part of Malaysia.

Culture Shock! Malaysia: A Survival Guide to Customs and EtiquetteMalaysia - Culture Smart!: the essential guide to customs & cultureMalaysia & Singapore Handbook, 6th: Travel guide to Malaysia & Singapore (Footprint - Handbooks)The Rough Guide to Malaysia, Singapore & Brunei 6 (Rough Guides)Diving Southeast Asia: A Guide to the Best Dive Sites in Indonesia, Malaysia, the Philippines and Thailand (Periplus Action Guides)Wild Malaysia: The wildlife and landscapes of Peninsular Malaysia, Sarawak and Sabah

Shaping the future of the palm oil industry

06/12/2010 (The Jakarta Post) - The pros and cons regarding the role of the Roundtable on Sustainable Palm Oil (RSPO) have been discussed in an on and off manner since the group’s inception. Similar debate arose ahead of its recent eighth meeting in Jakarta from Nov. 8 to 11 and the sixth Indonesian Palm Oil Conference, held in Bali, which concluded on Dec 3.

Considering the diverse backgrounds and interests of RSPO members, it is little wonder that they found have it very difficult to find a middle ground that benefited all. But perhaps it is now time to remind everyone again that the world has been changing from the “muscle era” to the “mind era”, which requires the use of soft power, such as creative thought, as suggested by John Elkington.

Palm oil plantations have been tainted by a series of negative campaigns. There are blind spots as a result of the negative campaigns against Indonesian palm oil industry players, who then are unwilling to sit together to shape their common future under the RSPO.

I believe that the blind spots originated from a mixture of facts, myths and conflicting viewpoints surrounding palm oil cultivation.

First, there is a conviction among environmentalists that palm cultivation emits carbon and carbon emission is a new driver of environmental consciousness. However, some researches suggest that palm oil cultivation, particularly in the process of growing, is actually absorbing more carbon from older trees.

Thus, from some perspectives palm oil cultivation is deemed as a carbon sequester.

Another issue associated with palm oil cultivation that is vaguely recognized and sometimes lost in the fray is the socio-economic aspect.

It is a fact that palm oil contributes to food security as the most productive and highest yield of edible oil, and is a development driver for poverty alleviation through small-holder development.

Second, many misunderstandings have been attributed to legal uncertainty in Indonesia. Many accusations toward palm estates are sourced from different interpretations of conflicting laws and regulations concerning forestry, environment, agriculture, regional autonomy and land concessions.

Some parties, for example foreign NGOs, accuse growers of violating the environmental law, while the goodwill of the growers to comply with certain laws is not viewed impartially.

So how to straighten out the mess? I believe that firstly, the government should provide tacit support for sustainable palm oil development by eliminating all overlapping regulations and potential loopholes from different areas.

The overarching objectives should capture the spirit of sustainable development with a three-pronged approach, namely economic prosperity, environmental quality, and social justice.

Second, the spirit of partnership in building new understanding should be reached among the many actors in the palm oil industry. This could be achieved through a global campaign, public education and a global forum on palm oil.

Third, certification and standardization of palm oil is inevitable and indispensable to meeting the agreed standards. However, the criteria should be built on consensus among all stakeholders in a transparent, fair, accountable and equitable manner.

Fourth, RSPO is one of the means to up the ante of palm oil quality and performance, which should be used effectively by all stakeholders, including the government and growers, to further advance sustainability in the palm oil industry.

However, on the other hand, the government and growers are mulling an alternative certification regime under the Indonesia on Sustainable Palm Oil (ISPO), which has been seen by some parties as contradicting the whole purpose of RSPO.

It is also noted that certifications do not prevent black campaigns. Thus, tangible incentives for certifications should be in place. Otherwise, disincentives may also be applied to non-sustainable products in terms of discount prices or trade barriers.

Promotion of sustainable palm oil should involve all value chains within the industry. Therefore, it is necessary to further differentiate the sustainability of palm oil by adopting several types of certifications in different schemes.

Some suggest that RSPO is an ideal venue to shape the sustainability of palm oil, however the forum faces growing challenges from both members and non-members for different reasons. The Indonesia Sustainable Palm Oil (ISPO) is seen as an alternative certification standard introduced by the government along with concerned stakeholders.

Such alternative certification schemes are intended for palm oil growers, but can also be applied for other value chains on the basis of palm oil uses, processes or products. Despite its noble intention, the alternative certification is facing daunting challenges in terms of institutional credibility and product acceptability.

The process will draw certification and standardization of palm oil, which is inevitable and indispensable for the palm oil industry to meet the agreed standards.

By building the criteria on consensus among all stakeholders in a transparent, fair, accountable and equitable manner, we can expect the industry to reach positive new development in the near future.

At the very least, the current plan aims to: First, differentiate the sustainability of palm oil by adopting several types of certifications; second, promote alternative certification schemes, including specific certification on the basis of its uses, process or products; and third, develop the best certification mechanisms, including a clearing house mechanism to resolve conflicts and disputes.

These processes, if conducted consistently, will help us achieve what Elkington calls sustainability as a result of long-term maintenance of systems according to environmental, economic and social considerations.

Further, in shaping the future of sustainable palm oil, the RSPO should be used as a platform for development of sustainability certification, either by government-driven, market-driven or other multi-stakeholder-driven standard setting on sustainable palm oil.

Taking into account the sensitivity and complexity of sustainable standards and certifications, RSPO is considered ideal for playing a role as a clearing house to reconcile conflicting interests and views on sustainable palm oil. However, its roles should go beyond its members to also accommodate other parties, such as the government and consumer groups.

Future Palm Oil Industry
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Monday, December 13, 2010

Sarawak to increase oil-palm landbank

11/12/2010 (The Star Online), Kuching - The Sarawak Government will continue to add to its existing 1mil hectares land bank earmarked for oil palm plantations, once more native customary rights (NCR) land titles are issued.

Chief Minister Tan Sri Abdul Taib Mahmud said “hundreds of thousands more hectares” of oil palm estates was possible, pending the settlement and issuance of more NCR titles.

Speaking Saturday at Sarawak United National Youth Organisation (Saberkas) event, Taib reiterated that oil palm would be the main generator of wealth in rural areas and among the Bumiputra community.

In saying that however, he also acknowledged the industry and NCR had attracted controversy from some segments of the public. The problem lay in the lack of precision in old methods of land ownership.

“It is not a question of the law, but the lack of precision in the old style of owning land when converting into modern land laws,” Taib told the gathering, in his speech about bridging urban-rural income gaps.

“Old style of land ownership was based on marks between one rock and another rock, or between one tree and another tree. For decades, this state has been ‘forced’ to overcome such matters in courts. But in this kind of matters, litigation is not always best.”

Taib, a qualified lawyer, called on disputes to be settled via negotiation.

For the state to transform, what was most important was a change in mindset, he said.

“The process of using common sense and to open up the mind, so to speak, is what this state needs. We have to harness that thinking power to do whatever we have to do in the best way.”

Part of the problems faced in Sarawak on oil palm development, he added, was because large-scale estates were new to many. “In Sarawak, until recent history, we’ve never had estates.”

He also said the educated segment concentrated in the urban areas should advise and encourage their rural counterparts to be more progressive.

“You know that even with just 1mil hectares, it will spur on so many other industries, from transportation to marketing, from exports to research. We’ve got to harness the pioneering spirit for people to able to begin small, grow their incomes and businesses, and create a chain reaction.”

In recent years, Sarawak has emerged as the fastest state in Malaysia to open up new palm oil estates. Presently, there is already 920,000 hectares compared with 840,000 hectares just a year ago.

Last month, Land Development Minister Datuk Seri James Masing told The Star the state’s plan was to double its plantation area to two million hectares by 2020, making Sarawak the biggest producer in the country.

Masing said there was an estimated 1.5 million hectares of NCR land, mostly under-utilised and without titles, and that the Sarawak government had identified several large tracts of state land for plantation projects.

Masing said Sarawak’s crude and processed palm oil exports were worth RM4.56bil last year, adding that industry had emerged as the state’s third-largest foreign exchange earner, after petroleum and liquified natural gas. 

Sarawak, Malaysia
Wild Malaysia: The wildlife and landscapes of Peninsular Malaysia, Sarawak and SabahTraumas and Heroism: The European Community in Sarawak During the Pacific War and Japanese Occupation 1941-1945Sarawak: People of the Longhouse and JungleBorneo Log: The Struggle for Sarawak's ForestsA Soul You Can See: The Life and Times of Chief Minister Abdul Taib Mahmud of Sarawak