The path to sustainable palm oil

Eco-Business editor Jessica Cheam sits down for a chat with Golden Agri-Resources managing director for sustainability, Agus Purnomo, on the company’s sustainability journey thus far.

As one of the largest palm oil companies in the world, Singapore-listed Golden Agri-Resources (GAR) inevitably attracts a high level of scrutiny. The industry has long been a key driver of deforestation in Indonesia as virgin forests make way for the lucrative crop.

Faced with growing pressure from consumers and civil society in recent years, GAR in 2012 was one of the first companies to announce a zero deforestation policy, a move that the firm’s managing director of sustainability, Agus Purnomo, says there’s no turning back from.

The company’s path to sustainability, however, has been marked with twists and turns: NGO groups have along the way called GAR out on falling short of its commitments. The Roundtable for Sustainable Palm Oil (RSPO) has also sanctioned it for violating RSPO rules on community land.

The firm’s suppliers were implicated in the most severe haze pollution that plagued South-east Asia in 2013 and 2015, when smoke from burning forests enveloped the region in a thick smog, disrupting the daily lives of millions of people and causing billions in economic losses for the affected countries – Indonesia, Singapore and Malaysia.

Just last month, a new report by Indonesian green groups Eyes on the Forest found that illegal palm oil was still making its way into Golden Agri’s supply chain – an issue that the company has since acknowledged.

Purnomo says the company’s progress on sustainability is very much a work in progress. To be fair, it has made notable steps such as launching a sustainability dashboard to track progress of its sustainability developments.

The company, which makes annual revenues of US$2 billion, has also last month announced a time-bound plan to make its supply chain fully traceable back to plantations, so it knows exactly where all its palm oil comes from. The company aims to reach this milestone for the mills they own by next year, with independent mills to follow by 2020.

At a recent industry event in Bali, Eco-Business sat down with Purnomo to speak about the company’s sustainability journey thus far, challenges it has encountered along the way and how it is trying to raise industry standards, one smallholder farmer at a time.

Tell us more about this latest move to be fully traceable.

Golden Agri-Resources managing director, sustainability, Agus Purnomo. Image: Golden Agri-Resources

We expect this commitment to spur further change across the industry. GAR is seeking to improve yields while meeting growing demand for information on its impact – GAR sees traceability as essential to engage its wide and increasingly diverse supply chain of thousands of smallholders.

This is in line with our commitment to apply our sustainability policy to our entire supply chain.

Traceability’s real value lies in the process of engagement, of gaining real knowledge and better understanding of our suppliers.

Mapping our supply chain to the plantation will further enable us to reach out to more of our supply chain to bring them along on our sustainability journey.  

We aim to achieve 100 per cent traceability to the plantation for GAR-owned mills by the end of next year.

However, for our 445 third-party mills, we need to have some flexibility. Some of them may only buy from a handful of plantations while others may buy from many middlemen who in turn buy from many independent smallholders.

Different mills will therefore finish their mapping at different times depending on their supplier profile and we will be providing this information on our Sustainability Dashboard. We also have to help our suppliers develop the capability to do this mapping which can be complex and time-consuming. This is why we have set a deadline of end 2020 to complete full traceability for third-party mills.

Overall, how do you rate the company’s progress on the sustainability targets you have set?

We have invested a lot into this, both human resources and money. When I started, we had four people in Singapore working in sustainability, and about 50 others in certification. Today, we have 250 people working on sustainability - 120 are in Indonesia, two are in Singapore and 130 are in the field.

In every group of plantations, we have two to three people solely working on ensuring our sustainability policy is implemented. Their role is to raise the standards of the company, which employs some 180,000 people, including seasonal workers.

We also changed their key performance indicators (KPIs). All our staff now have KPIs tied to achieving our sustainability outcomes. So, we’re not there yet but we are making the right investment to make it happen.

We have no pretension that we can control smallholders that are not part of our direct supply chains, because the mills can pick and choose who they buy from… But mind you, this is not a government that’s telling an industry what to do; this is a discussion between one business entity and another business entity. So if there are people who think since we are the buyer, then we can act like the government, that’s wrong. If those people, the mills, do not want to comply, they have all the rights.

Golden Agri-Resources managing director for sustainability Agus Purnomo

Are you starting to see tangible benefits and improvements as a result of your sustainability strategy?

Things have definitely changed. In the initial years, we concentrated our efforts on forests within our boundary, on issues such as HCV (high conservation value) and HCS (high carbon stock).

Today, we are looking outside our boundaries to deal with the fire issue. We have started a programme in West Kalimantan and Jambi, in 17 villages within five kilometres of our plantation boundary areas that have the biggest fire incidents.

The fires we’ve been implicated in came from outside, and that’s why we are now moving beyond our plantations in dealing with people.

Well, apart from these plantations, how about the fact that some of your smallholder suppliers are also burning forests?

We are starting to engage them this year. There are 489 mills supplying our refineries, and we have to deal with them one by one. In the last three months, we visited a number of mills that we consider as high risk and engaged them.

We will first verify and communicate with them, and ask them to do some corrective [action]. If they continue [to be problematic], we can stop buying from those in heavily-burnt areas, but that’s the last resort.

For those that feed our mills, we have some direct control. And there should be no fires. 

But you have to understand that we focus on mills, not smallholders, because they are the entities that we have business transactions with. If the smallholders are submitting their food bunches to the mills that we buy from, then our leverage is through those mills.

We have no pretension that we can control smallholders that are not part of our direct supply chains, because the mills can pick and choose who they buy from. If they have the policies in place and are implementing it, we’ll continue doing business with them.

But mind you, this is not a government that’s telling an industry what to do; this is a discussion between one business entity and another business entity. So if there are people who think since we are the buyer, then we can act like the government, that’s wrong. If those people, the mills do not want to comply, they have all the rights.

But surely this means they will lose business.

Well, yes, but 40 per cent of traded palm oil does not go through the refineries of the six major palm oil companies. So these people can sell to others.

Never assume that if they don’t comply, then they are dead. No, there are many other outlets that they can use. And therefore, putting so much expectation that traceability will solve the problem is actually misleading.

So what should we place our hope on then?

We need to place them in education – the process of bringing everybody together, and sharing the burden. Some of our buyers, they are not willing to do this. Some others are more willing, and they support our programmes for smallholders.

But at the moment, a lot of the demands being made are being put on growers – both companies and smallholders – without a corresponding willingness to pay for more sustainable products.

So what do you think is the solution? Is it consumer awareness issue? Or is it among your buyers? 

Well, it has to be both. The buyers will have to be willing – but you see that instead of paying the premium, they are boycotting. So if the end, consumers are boycotting [palm oil products], there is no incentive to sustainability.

If they are still price sensitive, changing from certified to non-certified palm oil, there is no commitment. So I think the big brands will have to campaign more to educate their consumers, so they can get them to share the cost. But right now, they are not paying.

So it’s down to the consumer, it seems?

Well, right now, the cost is from the pockets of poor growers. Is this fair? Who is consuming? Consumers like to say “yeah, palm oil is bad” but they are consuming a lot of palm oil products.

So how much of Golden Agri’s palm oil now is certified sustainable?  

We produce about 6 million tonnes of traded palm oil, and half of this is coming from our own plantations which we are confident is sustainable. About 70 per cent of our oil is RSPO certified.

Why not 100 per cent?

Well, because there is a change in RSPO rules, which require us to obtain a certificate called HGU (The Cultivation Right on Land or Hak Guna Usaha). But our challenge is that we have smallholders who do not want to be RSPO certified.

Why is that?

They see a lot of obligation, additional cost and no benefit. It requires a lot of extra work and costs, and who can they charge it to? And we cannot force them, because if we do, then we’re violating the FPIC rule – which stands for free prior and informed consent.

So we keep on communicating with them. The key thing is there needs to be a burden-sharing arrangement.

Last year, the RSPO requested you and your subsidiary PT Kartika Prima Cipta (PT KPC) halt operations on a controversial concession in Indonesia – what’s the progress on this?

The challenge we face with such issues is that the regulation is very new. In this case, it’s regarding customary land concession.

The problem is they are complaining about a practice that was used by the industry seven or eight years ago, but using current standards. At that time, there was no clear standard. So now, we try our best to remediate the problem.

You’re saying it’s hard to retrospectively apply the higher standards now to what you did previously, so how do you resolve it?

We keep having discussions, Every two to three months, we meet and we make progress. And we will continue to do so until it is resolved.

Finally, tell us more about the Innovative Financing Programme you implemented in 2014, how is that going?

This is an oil palm rejuventation programme with a financing scheme that helps independent smallholders increase their productivity without opening new land.

Many of them are reluctant to replant with better seeds as it takes four years for the palm oil tree to begin producing fruits. The key element in this scheme is farmers receive a compensation fund of Rp 500,000 per ha per month during the first four years of the plant immature period, when they can’t sell any crops and therefore struggle for income.

What sort of targets do you have for this scheme?

The programme provides high-yielding seeds and help transfer knowledge of best practices. Sinar Mas launched this in Riau in 2014, we have about 700 farmers in the scheme now and we hope eventually to reach 1 million farmers to replant 2 million ha of plantations with the help of other businesses.

By mid-May this year, the scheme will have the support of the government, KADIN (Indonesian Chamber of Commerce and Industry) and PISAgro (Partnership for Indonesia Sustainable Agriculture).  

But these farmers must be planting on legitimate land. We cannot help those who have planted in illegal forest land. That would make us complicit in the illegal activity. 

I must emphasise that this is not charity, this is a real business model that can make a difference.

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