Major Industries Reject Unsustainable Suppliers

Major Industries Reject Unsustainable Suppliers

Oil palm is the most efficient oilseed in the world.  One hectare of oil palm plantation is able to produce up to ten times more oil than other leading oilseed crops. Among the 10 major oilseeds, oil palm accounts for about 5.5% of global land used for its cultivation, but produces 32% of global oils and fats output. This cheap, production-efficient and highly stable oil is used in a wide variety of food, cosmetic and hygiene products, and can be used as source for bio-fuel or biodiesel. Most palm oil is produced in Asia, Africa and South America because the trees require warm temperatures, sunshine and plenty of rain in order to maximize production. Indonesia is the world's largest producer of palm oil and 60% of the output is exported in the form of crude palm oil. The high yield has encouraged wider cultivation, leading to the clearing of tropical rain forests and peat lands (mostly slash and burn technique) and threatening the natural habitats of endangered species like the Orangutan. Also, palm oil plantations have been inextricably and nefariously associated with labor issues and exploitation of indigenous communities.

Sustainability in the Palm Oil Industry 

In 2004, an industry group called the Roundtable on Sustainable Palm Oil was formed to work with the palm oil industry to address these concerns. However the industry's transformation towards sustainability gained traction only in 2013 when major purchaser Unilever engaged South East Asian refiners and traders to embrace 'No Deforestation' policies. As a result, in 2013, Wilmar - Asia's leading agribusiness group - was the first SE Asian refiner/trader to adopt a No Deforestation, No Peat, No Exploitation (NDPE) policy. Many other trading companies in SE Asia, Europe, US and Latin America followed suit. Currently, most large international palm oil traders and refiners have NDPE policies. Following are the NDPE policy clauses.

1. No Deforestation

  • No development of High Carbon Stock (HCS) Forests  
  • No development of High Conservation Value (HCV) Areas
  • No burning
  • Progressively reduce greenhouse gas (GHG) emissions on existing plantations

2. No Development on Peat

  • No development on peat regardless of depth
  • Best Management Practices for existing plantations on peat
  • Where feasible, explore options for peat restoration by working with expert stakeholders and communities

3. No Exploitation of People and Local Communities

  • Respect and support the Universal Declaration of Human Rights
  • Respect and recognize the rights of all workers including contract, temporary and migrant workers
  • Facilitate the inclusion of small holders into the supply chain
  • Respect land tenure rights
  • Respect the rights of indigenous and local communities to give or withhold their Free, Prior and Informed Consent (FPIC) to operations on lands to which they hold legal, communal or customary rights
  • Resolve all complaints and conflicts through an open, transparent and consultative process.

However, a segment of the market continues to produce or purchase palm oil from recently deforested plantations and cleared peatlands, creating a 'leakage market' for unsustainable palm oil. 

Leakage is defined as any activity in the palm oil industry - production, trade and/or consumption- that is not compliant with NDPE policy requirements.

Leakage creates an unlevel playing field and slows and dilutes industry transformation, thereby incurring various financial and reputational risks.

Unilever's Business With Sawit Sumbermas Sarana

SSMSIn early June, Chain Reaction Research, an environment risk advisory firm, reported that Unilever’s  trading relation with Sawit Sumbermas Sarana (SSMS) - one of the large palm oil plantation managing and palm oil milling and processing companies in Indonesia - might damage its sustainability reputation. The report highlighted how SSMS and its subsidiaries have continued to engage in material deforestation and peatland clearance. As recent as in 2015 and 2016, the company has managed to clear 1800 ha of forests and peatland.  The evidence is provided through before-after satellite images. Ironically, SSMS is a member of the Roundtable on Sustainable Palm Oil. 

Acknowledging the findings of this report, Unilever has decided to suspend sourcing from SSMS in line with its Sustainable Palm Oil Sourcing Policy. Unilever is actively engaging with SSMS and non-profits and stakeholders to work together to determine a way forward for SSMS to address and remediate the proven complaints and to demonstrate their commitment to the NDPE Principles, which are part of Unilever’s Sustainable Palm Oil Sourcing Policy.

Other major agro processing companies that have suspended trading with SSMS since 2015 are Wilmar, Apical and Golden Agri-Resources. 

SSMS lost 81 percent of its customer base in 2014 to 2015 because of its non-compliance with buyers NDPE policies. Unilever is among SSMS’ new buyers. Though not one of its large customers (10% or more business), it is definitely a key customer. With a possible Unilever exit in view, SSMS has no choice but to toe the NDPE line such that future business is not affected.

Online Resource Guide for Agri-business Investors 

Ceres - Engage the Chain​Agricultural commodity issues represent fundamental constraints on supply chain security and consumer acceptability. Ceres,a Boston based sustainability nonprofit has created  a new peer-reviewed online resource guide - Engage the Chain - that helps investors better understand and evaluate the social and environmental impacts of eight commonly-sourced commodities (beef, corn, dairy, fiber-based packaging, palm oil, soybeans, sugarcane and wheat). The interactive guide also clarifies actions investors and companies should take to reduce agricultural supply chain risk exposure.