October 5, 2022
JAKARTA – The controversy over palm oil has not ended, despite efforts by crude palm oil producers to address prevailing sustainability issues. Interestingly, the global COVID-19 pandemic and the war in Ukraine have not halted the smear campaigns of palm oil detractors.
The sustainability standards for palm oil production, governance and trade continue to heighten uncertainty in the industry. The multiple attacks on palm oil still center around environmental and social issues related to the commodity’s production, which are the key principles in the ethical palm oil sourcing policy adopted by multinational companies.
Ethical sourcing means that products and services from each point in the supply chain are obtained in an ethical and sustainable way.
The most common accusation of deforestation has not receded, despite strong evidence from various studies and surveys that oil palm estates are not the main culprit of deforestation, and that sustainability commitment among palm oil producers has strengthened. Allegations of rights violations concerning workers and indigenous peoples have cast a shadow over the industry.
Worse still, the industry has become an easy target, even in Indonesia, where it was blamed for the cooking oil debacle that lasted from January to June. This is despite the important role palm oil has played in the economy of the world’s largest palm oil producer as a major employer and a source of tax revenue and foreign exchange earnings.
Even though the cooking oil fiasco was caused by the skyrocketing global prices of edible oils following Russia’s invasion of Ukraine, both major producers of sunflower oil, the government hampered domestic palm oil producers with a spate of inconsistent trade regulations, including a draconian measure that completely banned palm oil exports.
Palm oil producers thus lost an opportunity to make windfall gains during the resulting palm oil boom. By the time the government finally revoked the export ban in May, international palm oil prices had fallen as the commodity entered the bust phase.
Now that most analysts are predicting the steady weakening of the international commodity market steadily due to widespread concerns of a global economic recession, and that the tight supply of edible oil has eased, advanced countries seem to have again tightened their scrutiny of palm oil. Multinationals are again facing increasing pressure from consumer organizations and green campaigns to clean up the palm oil supply chain in line with the global drive to solve climate change.
The latest victim of the unsubstantiated allegations of deforestation and human rights violations is the palm oil subsidiary of the Astra International Group, a highly respected conglomerate listed on the Indonesian bourse.
Reuters reported last week that food giant Nestle planned to stop sourcing raw materials from the subsidiaries of Astra Agro Lestari, a major Indonesian palm oil producer that environmental groups have accused of land and human rights abuses. Nestle’s announcement certainly sent a shock wave across Indonesia’s palm oil industry.
The move comes as multinationals face increased reputational and legal pressure from consumers and governments demanding ethical sourcing and that they clean up the global supply chain in the fight against climate change.
The boycotting of the Astra group’s palm oil follows the trade embargoes imposed on Malaysian palm oil companies. The United States Customs and Border Protection (CBP) issued on Dec 30, 2020 a Withhold Release Order for palm oil and derivative products from the Malaysian operations of Sime Darby Plantation Berhad (SDP), over allegations that the company’s palm oil products were manufactured using prison inmates as forced labor. A separate embargo was also imposed on Felda Global Ventures Holdings Berhad (FGV) in September.
Allegations and embargoes are not the only trade barriers facing the commodity. Palm oil and its derivative products are among those goods targeted by the “deforestation-free” policies that several developed countries will be implementing soon. These policies include the regulation on deforestation-free products in the European Union (EU), the United States’ Fostering Overseas Rule of Law and Environmentally Sound Trade Act of 2021 (FOREST 2021) and the United Kingdom’s Environment Act 2021.
These policies are certainly not fair, are unilateral and will be almost impossible to enforce due to the varying definitions for forest and deforestation that apply in different countries. The differences in understanding and context have led to uncertainty in defining and implementing these deforestation-free policies. Countries around the world have adopted hundreds of definitions for forest and deforestation that combine tree density, tree height, land use, legal standing and ecological function. The question, then, is which definition of deforestation is used.
We get the impression that the EU, the US and the UK issued their deforestation-free policies primarily due to public pressure from NGOs and civil society organizations. These deforestation-free policies are to be enforced on all agricultural commodities, such as soybean oil, beef, cocoa, coffee, rubber, wood products and pulp, and corn.
But we believe that such policies as well as sustainability standards are often used specifically as nontariff trade barriers and restrictions against palm oil, which is seen as a threat to the competitive edge of edible oils produced in subtropical countries. Producing countries have also been struggling with the ingrained prejudice against the commodity among European and American consumers.
Producing countries should therefore strengthen unity and cooperation in fighting against the perpetual bashing of palm oil, and must engage in mass media and social media campaigns to remove the root of all misinformation on palm oil. The negative campaign against palm oil will only continue to erode any confidence in the sustainable production of palm oil until it is resolved via social media.
We understand that a system of ethical trade should be designed to correct and improve the palm oil industry so it focuses more on upholding workers and human rights while adhering to the environmental, social and good governance principles across the supply chain. But an ethical trade system must also be based on full compliance with environmental sustainability and social responsibility principles to help producers achieve sustainable and equitable trade relationships.
The writer is a sustainable palm oil analyst.