Q+A -World Bank's Latest Palm Oil Move To Spur Industry Expansion?

06/04/2011 (Reuters) - The World Bank last week lifted an 18-month global ban on lending for new palm oil investments after a review, a move that may spur some expansion in the $30 billion industry. 

The poverty-fighting institution suspended investments in September 2009 after an independent body found that it did not have a concrete strategy for dealing with the palm oil sector despite social and environmental concerns raised by activists. 

The ban and review followed complaints in 2007 by smallholder and indigenous groups in the world's top palm oil producer Indonesia relating to investments by the World Bank's private sector lender in Singapore-listed Wilmar's units. 

Here are some questions and answers on the latest move by the World Bank, which now plans to focus on supporting small farmers that make up at least 40 percent of global output:

WILL SCRAPPING THE BAN SPUR MORE LENDING TO PALM OIL SECTOR?

To an extent, the World Bank's move to lift its ban and issue new lending guidelines that favour smallholders may help boost the palm oil sector's credentials as an eco-friendly, poverty fighting industry that attracts global finance. 

The World Bank's own financial investments into the sector before the ban are relatively small at $132 million, equal to a third of funds allocated for 2011 capital expenditure for Singapore listed Golden Agri Resources , an Indonesian analyst said. 

Banks like Standard Chartered and HSBC have similar guidelines already in place and Norway's oil sovereign fund has an ethics council that scrutinises investments. 

Green groups say there needs to be more rigorous enforcement of these guidelines as palm oil firms like Wilmar, Malaysia's Sime Darby and Golden Agri Resources are looking to expand and tap booming demand. 

WHICH PLANTERS, COUNTRIES WILL WORLD BANK LENDING GO TO? 

It is too soon to say which palm oil firms will take up lending although the World Bank has said it will restart talks with companies over possible investments it delayed when the ban was enforced. 

Companies that have a proven track record with passing on technical skills and engaging in contract farming with smallholders will likely be given lending. Smallholder co-operatives will be another target. 

And the main focus will be Indonesia and Africa as well as South American regions that show the greatest potential for land expansion, have low palm oil yields and belong to developing or low-income nation status. 

HAS THERE BEEN ANY PRICE IMPACT FROM THE WORLD BANK MOVE?

No. It is too soon to forecast how much oil palm expansion will come from the World Bank and boost production of the tropical oil. 

Analysts say global palm oil output will rise about 4 percent to 47 million tonnes this year on bigger maturing acreage in top producers Indonesia and Malaysia as well as favourable weather patterns. 

World Bank Lending