The Wall Street Journal-20080118-Firms Back a Plan to Put The Green in -Green Gold-
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Firms Back a Plan to Put The Green in 'Green Gold'
Jakarta, Indonesia -- Global food and consumer goods companies are backing a plan to certify palm oil -- the vegetable oil used in products ranging from margarine to cosmetics, and, increasingly, biodiesel -- to ensure that its soaring production doesn't spur greater destruction of tropical rainforests.
The push for "green" palm oil has been joined by Unilever, Johnson & Johnson, Nestle SA and H.J. Heinz Co. The companies have signed up with a consortium of 200 oil producers, commercial buyers and environmental groups to improve the industry's image and avert a consumer backlash. Almost 90% of all palm oil is produced in Indonesia and Malaysia, which have seen widespread deforestation in recent years, much of it from illegal land-clearing and logging. The development of oil-palm plantations is causing the loss of forests in Indonesia, putting the survival of animals like the orangutan at risk, the United Nations Environment Program said in a report last year.
Environmental groups fear destruction will accelerate as the price of crude palm oil -- called "green gold" by some producers -- hits records. Palm-oil futures on the Malaysia Derivatives Exchange hit a high Monday of 3,420 Malaysian ringgit ($1,044) a ton amid surging demand from China and tight global supplies of other vegetable oils. More and more, palm oil is also being sought as a feedstock for biodiesel, pushing its price even higher in line with crude oil's increase above $100 a barrel in early January. By some industry estimates, Indonesian and Malaysian palm-oil exporters took in about $20 billion in 2007 from global sales.
But palm oil's increasing popularity has a dark side in the eyes of many retail consumers, especially in the West. In Europe, there are already signs of a backlash against palm oil grown on deforested areas. European Union officials on Wednesday will propose a new law on renewable energies that would ban the import of biodiesel derived from plants grown on recently destroyed forests. The law must be approved by EU governments before taking effect.
In July, ASDA Group Ltd., a subsidiary of Wal-Mart Stores Inc. that is one of Britain's largest food retailers, announced it wouldn't accept products made from Indonesian palm oil until the consortium of producers and buyers launches its new green certification plan. Some gasoline retailers, such as Sweden's OKQ8, a unit of Kuwait Petroleum Corp., have recently ditched plans to sell biodiesel using palm oil. Instead, the company is looking at animal fats or rapeseed oil.
Under pressure from retailers and environmental groups, U.S. and European consumer goods and food companies have been leading the push for higher standards in the palm-oil industry, say palm-oil producers and traders.
To improve palm oil's tarnished image, the Malaysia-based Roundtable on Sustainable Palm Oil -- as the industry consortium is known -- plans to introduce a system soon to certify palm-oil operations that meet strict environmental criteria. The RSPO, which was created in 2003, hopes newly certified palm-oil refiners will start selling oil produced from "sustainable" plantations this year. The RSPO's more than 200 member companies account for about 40% of the annual global trade in palm oil. "Our customers are saying we want sustainability," says Bruce Blakeman, a spokesman for Cargill Inc., the huge U.S. commodities trading company. Cargill, an RSPO member, is a major buyer of crude palm oil, which it refines into various products and sells to food and consumer-goods makers.
Only operations that can prove they don't harm the environment will get its seal of approval, the RSPO says. And plantations growing on forested areas destroyed after November 2005, the month when negotiations toward the certification system began, will be excluded from certification altogether.
Checks to ensure compliance will be carried out by independent survey companies such as Switzerland-based SGS Group, with the inspections paid for by producers.
Jan Kees Vis, head of Unilever's sustainable agriculture program and president of the RSPO, believes certifying companies could help deflect some of the criticism leveled at the industry. "We are under scrutiny," he says in an interview. "We need to defend on a daily basis why we are putting palm oil in our products."
Unilever, which is a founding member of the RSPO, uses huge amounts of palm oil to make margarine brands like Flora. The Anglo-Dutch company is the largest single buyer of palm oil in the world, purchasing about 2.5% of the 40 million tons produced last year. In total, European companies buy 16% of annual production. Indonesia is a particular focus of concern over the impact of palm oil on the environment. The future of the country's rainforests was a key topic at the U.N.'s climate-change meeting in Bali last month. Indonesia is the third-largest emitter of carbon dioxide in the world behind the U.S. and China because of forest destruction. Forests store CO2 through photosynthesis, but fires set to clear forest land to make way for oil-palm plantations emit huge amounts of the greenhouse gas into the atmosphere. As a result, large portions of Southeast Asia have been covered in a blanket of haze during the dry season from May to October in recent years.
With palm-oil prices rising, Indonesia's government plans to more than double the area of land planted with oil palm by 2011. That would mean an additional 7 million hectares, or 17.3 million acres, in new plantations, an area the size of Ireland. Although there is plenty of already denuded land available, plantation developers prefer to cut down mature rainforests and sell the valuable tropical hardwood to cover development costs, the U.N report says.
The U.S. uses more soybean oil -- cultivated mainly in the U.S. and Brazil -- than palm oil. But imports of palm oil tripled between 2003 and 2006 to 630,000 tons, amid a dearth of soybean oil, according to the U.S. Agriculture Department. Demand for biofuels in the U.S. has pushed up corn prices -- a feedstock for ethanol -- prompting farmers to switch out of soybean cultivation.
In addition, many U.S. companies are buying more palm oil. While it's high in saturated fat, it doesn't contain trans-fatty acids, which can increase cholesterol levels, says Tod Gimbel, a spokesman for Kraft Foods Inc. Kraft, which buys its palm oil from RSPO members, including Cargill, uses the oil in its Cool Whip brand dessert topping and in cookies.
Pressure from big companies with operations in Europe is already pushing some palm-oil companies with spotty track records to change their behavior, says Unilever's Mr. Vis. "It's important for Indonesian and Malaysian producers to have access to Europe as a marketplace," he says.
Singapore-based Wilmar International Ltd., one of Asia's largest agribusiness companies and a supplier to Unilever, has ordered a halt in new plantation development at three of its Indonesian units after a report last year by the environmental group Friends of the Earth Netherlands found they were destroying natural forest on the Indonesian portion of Borneo island. The RSPO is now investigating the matter. A spokesman for Wilmar, which is partly owned by U.S. agribusiness giant Archer-Daniels-Midland Co., says it is taking "corrective actions" to rectify the situation and remains committed to getting its operations RSPO-certified. Under RSPO rules, the body can terminate Wilmar's membership if it fails to address the complaint by Friends of the Earth.
Still, some environmental groups criticize the RSPO's plans as unworkable. One problem, they say, is that palm fruit is typically collected by traders from a number of different plantations, large and small, and sold in bulk to companies. That makes it difficult to tell what portion is from sustainable sources.
"Buyers are simply using the RSPO as a front to cover up the fact they don't have control over their purchasing," says Pat Venditti, head of Greenpeace International's forest campaign. He wants companies to boycott all palm oil produced from areas of Indonesia where rainforests are being destroyed.
Another concern is that plantation owners with poor environmental records could get one palm-oil operation certified while continuing to raze forests elsewhere. This is considered a risk because major buyers like China and India are largely interested in low prices and not in maintaining environmental standards, according to producers. China and India together buy about a third of annual palm-oil output.
The RSPO will start by certifying specific palm-oil operations to get a flow of sustainable palm oil on the market, says Vengeta Rao, the group's secretary general. But producers must submit plans to show they are working toward sustainability for all their operations. Failure to do so will lead to the revocation of all certificates. "The world has had enough of angelic statements" about sustainability, says Mr. Rao, whose parents once tapped rubber on plantations in Malaysia. "The world wants to see evidence."
