Getting our act together: Sustainability in the Malaysian palm oil industry

Sustainability is a concept that is making waves in many diverse industries and markets. Companies now report on their sustainability initiatives apart from their operations and profits and losses in their annual reports. This provides accountability and showcases efforts undertaken in ensuring that economic growth goes hand in hand with social and environmental safeguards and improvements. In other words, it is no longer enough to generate huge profits. Investors and stakeholders are interested in how companies integrate people, planet and profits into a triple bottom line.

Consumers also are increasingly aware of the environmental and social impacts arising from business operations. They now hold companies responsible, pressuring them to take immediate action to dampen any adverse effects that occur as a direct or indirect outcome of their commercial activities.

Palm oil is by no means excluded from all this. As part of the agricultural sector, the palm oil industry is facing unprecedented scrutiny from governments, regulators, NGOs, investors, and consumers in terms of how its business practices impact the environment and the wider world.

Since Malaysia is the number one trader and second largest palm oil producer in the world, this scrutiny definitely hits close to home. Ensuring that the world’s most widely consumed edible oil is produced in a responsible manner should be high on the agenda of all palm oil producers in the country

Without question, the issue of sustainability in palm oil production is one of the greatest challenges of the coming decades. More than two billion people will be joining the human race by 2050, at which time 70 to 80 per cent of the population will be living in cities and consuming more edible oils and fats.

Since Malaysia is the number one trader and second largest palm oil producer in the world, this scrutiny definitely hits close to home. Ensuring that the world’s most widely consumed edible oil is produced in a responsible manner should be high on the agenda of all palm oil producers in the country.

Currently, we anticipate increasing criticisms against agro-based industries due to relatively new issues such as perceived lack of transparency with respect to land use change, rights of indigenous people and local communities, deforestation, peat land conversion, loss of biodiversity, greenhouse gas emissions, waste management, and so on.

But how do we ensure that sustainability is practiced properly and is not merely entangled in idle talk?

Enter RSPO or the Roundtable on Sustainable Palm Oil, the first global multi-stakeholder initiative as a response to this call for palm oil sustainability. RSPO, a voluntary organisation comprised of almost 1,500 members covering the entire supply chain, promotes the production and uptake of sustainable palm oil through cooperation and open dialogue with its stakeholders. The ultimate goal is to transform markets and make sustainable palm oil the norm.

The RSPO has a robust standard referred to as the RSPO Principles & Criteria that stretches across the environmental, human rights and governance agendas. This ensures the industry subscribes to best management practices.

But because the RSPO is a large multi-stakeholder organisation, it operates under great constraints and pressure. Decision-making is only achieved through consensus. Oftentimes, it is a battlefield among stakeholders that differ in opinion while focused on similar goals. On one hand, there are stakeholders who feel the RSPO places too much pressure on them with the perception that sustainability demands are very Euro-centric. On the other hand, other stakeholders have expressed and vociferously stated that not enough is being done. They have questioned the relevance and credibility of the RSPO standards and devised their own higher standards or RSPO++.

The RSPO today is nonetheless turning sustainability from prattle to practice. Certification by the RSPO is already at par with that of Fair Trade International (FTI), Forest Stewardship Council (FSC), Better Cotton Initiative (BCI), Round Table on Responsible Soy (RTRS), Ethical Tea Partnership (ETP), Marine Stewardship Council (MSC), 4C Association for coffee, Bonsucro for sugarcane, RA-Cert by Rainforest Alliance and other stewardship councils.

As an industry, we now have two choices. The first is that we accept that our customers have the right to insist on sustainably produced palm oil… The alternative is ostrich-like, which is to hide our heads in the sand and refuse to change our production standards

The transformative effect that RSPO has had on plantations and mills is quite evident. Improved staff morale and reduced turnover, better yields, more consistency, improved community and government relations – these are all increasingly the norm. Within the foreseeable future, investors, buyers, and traders, together with the large markets of China and India, will all converge around the concepts of sustainability and traceability. Indeed, the major importer of edible oils into China is already committed to importing only sustainably produced palm oil, and the same goes for another very significant importer of vegetable oils in India.

What will this mean for major producers? Indeed, we stand at a crossroad. We know the potential of oil palm: the incredibly high yields, the carbon sequestration, and the mass employment of the rural poor. As an industry, we now have two choices. The first is that we accept that the world – our customers – have the right to insist on sustainably produced palm oil, which is to the ultimate benefit of both producers and consumers.

The alternative is ostrich-like, which is to hide our heads in the sand and refuse to change our production standards, and be shunned and attacked worldwide for our intransigence. This will endanger the plantation industry as we know it, putting our national resources at risk.

The choice for our industry now is either to realise the sustained economic benefit or pursue a short-sighted position.

RSPO-compliant plantations provide greater benefits to Malaysian smallholders, such as improved working conditions and a better way of life: Image: Solidaridad

It is therefore essential that we make the right decision: that is, forego the misperception that responsible and transparent production based on international standards does not generate returns for companies or our economic development. In fact, it is quite the opposite. RSPO-compliant operations are simply more profitable – both for the estate operations and the environment the plantation is in. In the case of the estate, for example, research has noted employee benefits such as improved working conditions, and better housing and amenities.

These standards also generate broader social benefits for our people and preserve the key natural resources that underpin the wealth of our nations. The extra costs of compliance for sustainability is simply a small price that palm oil producers must pay.

Currently, consumers in developed nations are calling for such safeguards, but it is only a matter of time before consumers in developing countries make similar calls as well.

Indeed, the establishment of the RSPO has not yet completely resolved the issues faced by the palm oil sector. Still, it has certainly come a long way in driving change and innovation. It has made an excellent start with its unwavering commitment to rally its members forward to achieve palm oil sustainability. 

As of late 2013, there are 14 Malaysian plantation companies with 105 RSPO-certified palm oil mills. The total certified plantation area is almost one million hectares, or nearly 20 per cent of the total land bank under oil palm cultivation in the country, producing 4.3 million tonnes of Certified Sustainable Palm Oil (CSPO) and 1.1 million tonnes of Certified Sustainable Palm Kernel (CSPK).

Indeed, the establishment of the RSPO has not yet completely resolved the issues faced by the palm oil sector. Still, it has certainly come a long way in driving change and innovation

Many others have also decided to jump on the bandwagon, resulting to multiple palm oil standards in the industry, such as the International Standard for Carbon Certification (ISCC), Indonesian Sustainable Palm Oil (ISPO) and the newly introduced Malaysian Sustainable Palm Oil (MSPO).

This makes it important for governments to legislate sustainable practices in the oil palm industry to further strengthen these standards and any similar guidelines that may materialize in the future. The last two national-based organisations will particularly ensure that producers in the respective countries will achieve a basic level of sustainability in their operations, which can help facilitate the way to full RSPO certification later that gives it a degree of international recognition not available elsewhere so far.

However, whatever the standard adopted, whether RSPO, ISCC, ISPO or MSPO, the entire industry must be prepared to address new issues and keep on developing higher standards for continuous improvement.

Since palm oil, palm kernel oil and their derivatives constitute essential ingredients for food, fuel and oleo-chemical products worldwide in many different industries, the sustainability of palm oil has become a global issue that requires an equally international standard. RSPO uniquely provides this platform.

We must all remember that RSPO enhances the acceptability of palm oil not just in Western markets, but worldwide.

 

M. R. Chandran has over 50 years of experience in the agro-commodities industry, particularly in the palm oil sector, retiring as the director of Franco-Belgian multinational Socfin Company Berhad after 35 years of service. He now serves as an advisor to the RSPO Board of Governors and the Secretariat, after having been one of those instrumental in the establishment of the RSPO in 2003.

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