Malaysian conglomerate IOI Group faces fresh troubles as American commodities giant Cargill announced on Monday that it will immediately stop doing new business with the palm oil giant until it cleans up its act.
In June, Cargill had given the IOI Group till July 15 to issue a responsible sourcing policy which ensures that palm oil is not tainted by the clearance of high conservation value land or peat soil, and the violation of community rights to give free, prior and informed consent for development.
By the same day, Cargill also asked IOI Group to deliver a detailed sustainability plan and a programme to track its delivery.
But in a statement released on Monday, the company noted that “IOI Group has yet to deliver a responsible sourcing policy or a detailed sustainability implementation plan to meet our requirements”.
“Cargill will suspend business by not entering into any new purchase contracts until IOI Group can meet our requirements and comply with our sustainable palm oil policy,” it added.
However, Cargill noted that the suspension was not necessarily permanent, provided IOI Group improved its practices.
Allan Willits, chairman of Cargill Asia Pacific and group leader of Cargil Agricultural Supply Chain Asia Pacific, told Eco-Business that “we strive to stay engaged with suppliers who do not initially comply with our policies in order to help them improve and change practices, rather than walk away and disengage them from the global palm oil supply chain”.
This latest blow to the company compounds months of trouble after it was suspended from the Roundtable on Sustainable Palm Oil (RSPO) — the industry association for environmentally and socially responsible palm oil cultivation practices — in April over complaints from several green groups including Dutch-headquartered non-profit Aidenvironment.
The groups had accused IOI Group of failing to follow RSPO rules on not clearing forests with a high conservation value and developing plantations without proper government permits, a complaint which RSPO upheld.
By suspending IOI’s membership, the industry body effectively prevented it from selling its palm oil as “certified sustainable” under the RSPO trademark.
IOI Group reacted to this decision by suing RSPO —an organisation which it is a founding member of — over the severity of the punishment, a move which prompted non-government organisations to call for a widespread boycott of the company. IOI eventually dropped the lawsuit in June.
Cargill, whose suspension is effective immediately, is the latest to cut ties with IOI Group.
Cargill gave IOI every opportunity to reform and IOI failed to meet their expectations. The market has spoken. IOI is not a source of responsibly produced palm oil.
Deborah Lapidus, campaigns director, Waxman Strategies
Since April, more than two dozen consumer goods firms and palm oil processors have stopped purchasing palm oil from IOI Group. These include agribusiness giants Wilmar and Golden Agri-Resources, as well as food brands Dunkin’ Donuts, McDonald’s, Kellogg, Hershey’s, and Nestle. The company’s share price has also dropped by 15 per cent since then, according to reports.
Green groups and observers welcomed Cargill’s disengagement with IOI, noting that the decision underscores the need for IOI and other unsustainable palm oil companies to quickly change tack.
Kiki Taufik, a forest campaigner from Greenpeace Indonesia, said in a statement that IOI “can implement sweeping reforms to meet the market’s demand for responsibly produced palm oil, or it can continue trying to swim against the tide – and drown”.
Cargill should also pledge to phase out IOI as a supplier for existing contracts as well if it fails to comply with its policy, he noted.
Deborah Lapidus, campaigns director at United States consulting Waxman Strategies, added that “Cargill gave IOI every opportunity to reform and IOI failed to meet their expectations”.
“The market has spoken,” she said. “IOI is not a source of responsibly-produced palm oil”.
Lapidus acknowledged that while IOI is expected to release an improved palm oil sustainability policy in the coming days, it needs to go beyond a commitment on paper.
“IOI can’t just issue another paper commitment and wipe its hands clean of its many violations,” she said.
“It has serious work to do to implement a moratorium on new forest and peat clearing, demonstrate verified progress on the ground, and make up for past damage to ecosystems and communities.”