PALM OIL ALLOWS MILLIONS TO ESCAPE FROM POVERTY

During my recent trip to Malaysia I visited Solidaridad’s programmes and partners in palm oil. It was an exciting experience that gave me a better insight into the dynamics of Solidaridad’s palm oil programme in the country.

An interesting dialogue with the leadership team of Roundtable on Sustainable Palm Oil (RSPO) revitalized our cooperation. We focused mainly on smallholder inclusion and the national interpretation of new RSPO guidelines across Asia.

In working sessions with the Malaysian Palm Oil Board we evaluated our joint programming on the Malaysian Sustainable Palm Oil (MSPO) national framework. In addition, we were kindly received by the new Malaysian Minister of Primary Industries Teresa Kok, who was very supportive of Solidaridad’s close cooperation with the Malaysian government and the successful implementation of MSPO.

From left to right: Nico Roozen, Minister of Primary Industries Malaysia Teresa Kok, Director of Solidaridad Asia Shatadru Chattopadhayay.

A full day of field visits to smallholder farmer projects showed me proof of concept of a range of innovations in palm oil production. For example, the business case for replanting old oil palm trees with new more productive varieties. Or bridging the unproductive three-year growth period of new planting material with temporary banana cultivation among the young plants. Or mixed farming with livestock, like sheep and ducks, generating a better income for smallholders while serving the needs of local markets. In general, the picture is that good agricultural practices are well implemented and the learning curve for further improvements is promising.

EU regulations: an avoidable source of discontent

What struck me was the broadly shared discontent of our partners with the EU’s position regarding the palm oil sector. This is mainly caused by the incorrect framing of what is, in itself, a well defendable position by the EU on biofuels.

Recently Greenpeace activists tried to prevent a palm oil tanker from mooring in the ports of Rotterdam. The activists chained themselves to the tanker carrying Wilmar palm oil. These efforts, along with previous efforts from activists to block ships, gain a lot of media attention. These actions fuel anti-European sentiments in palm oil producing countries.

Greenpeace messaging does not unite and does not offer solutions

But, as I explained to our partners, the European directive to ban palm oil by 2030 from biofuel just confirms what is happening in the market everywhere, anyhow. As we understand now the diesel engine is an old-fashioned technology causing air pollution in cities and is linked to tamper software corrupting the integrity of EU regulations. But above all, the energy transition to renewable energy for transport is urgent and inevitable. Electrification from renewable energy sources like sun and wind is the future. So mixing palm oil with fossil fuel is an outdated option and on the losing end anyway. But, fuelled by the media success of the Greenpeace campaigns, the debate in Europe has been framed in an unhelpful way as a choice against palm oil instead of a choice for electrification of transport.

China and India are moving to adopt electric transport faster than Europe. They never even considered the use of biodiesel

Fortunately, countries like China and India have opted for the electrification of transport with an even higher ambition than Europe, but without a confusing message on palm oil.  Reading the European Parliament’s long list of considerations to justify the ban, I understand the objections of palm oil producing countries very well. In essence it's ‘Greenpeace talking’. An effective, hard green lobby has created an unbalanced picture, pushing a more evidence-based, scientific approach out of sight. 

New economic perspective needed

The discourse on palm oil is dominated by negative aspects surrounding the ecological and social aspects of its production. For good reasons. A broad range of improvements are urgently needed. But this agenda, mainly being driven by activists and concerns on externalities, will not accelerate the process towards more sustainable and inclusive palm oil production.

Pro-poor CSO's - Pro palm oil

To improve the situation on the ground, the political support of producing countries will be crucial. This starts with the acknowledgement that palm oil is the world’s highest yielding oil crop. Its output is 5-10 times greater per hectare offering a better land use efficiency than other vegetable oils. Combined with competitive prices, relative shelf stability and reported nutritional benefits, palm oil leverages natural advantages that position it as a likely long-term staple of the global diet.  It is a profitable business for farmers too, and contributes significantly to developing countries’ income. In western countries it’s thought of as a luxury product. The reality is that palm oil is the affordable cooking oil of the poorest segments of many countries.

Unlocking the economic potential of palm oil is a more uniting agenda than the hard green criticism which overlooks the economic relevance of palm oil for combating poverty. Of course, the extension of the sector at the cost of forests or peat land is not a climate smart solution. But instead of banning palm oil all together, the better option is to realize palm oil’s economic potential by directing growth to degraded areas of land, reclaiming it for agricultural production. Or improving the productivity on existing plantations and replacing the cultivation of low-income generating crops into more lucrative alternatives like palm oil. For sure we can organize this transformation in a responsible way.

The unplanned growth over decades not only has an ecological downside, but could have a negative economic impact too. Recently prices of palm oil have been decreasing because of oversupply potentially killing the business case for farmers. Following the same path as coffee, cocoa or tea, with persistently low prices for decades, is not a smart option. Deforestation-free palm oil could not only mitigate unsustainable growth, but will maintain profit-making prices in the long term too. So there is a business case for sustainable development.

Palm oil is a profitable business, so social injustice on large estates is basically a distribution issue. Low income generating crops, like tea and cocoa, are a different story: almost nothing to share there

The end game: Going post certification

The history of certification is an interesting one. It started with consumer labels like ‘Organic’ and ‘Fair Trade’. Certification was driven by the necessity to differentiate sustainable products from non-sustainable ones to allow customers to make a choice. In doing so a premium in the market was created to improve terms of trade for farmers and to raise awareness about the ‘true price’. Even with the second generation of labels, the so-called ‘corporate social responsibility’ labels like Utz Certified and Rainforest Alliance, the concept of a producer premium was not fully abandoned. Utz Certified aspired to a premium generated in the market through improved market functions. Premium generation happened initially but was later undermined by a policy of creating oversupply of certified volumes by certifying three times more than the market could absorb. The required flexibility of traders was leading the agenda. With a disbalance between supply and demand the Utz market premium disappeared.

Sector standards like RSPO continued on this track. Certification no longer transformed market functions empowering farmers, offering better access to markets or generating premiums but gradually became an assurance or risk management model for traders and brands. The investments and costs were made at producer-level by farmers without a direct return or benefit. Farmers are becoming more vocal of this issue. Who pays and who benefits, is the question? Public money filled the gap, funding rapidly growing farmer support programmes. These programmes, run by NGOs and sometimes even by certification bodies in a close cooperation with traders, had the undesired effect of reinforcing companies’ purchasing power at the expense of the producers. Solidaridad is still more careful in its design of farmer support programmes. Working directly with farmers from a public interest serving public goods with a direct funding to them, empowering farmers in their market performance and demanding engagement and match funding of private partners instead of channeling public money through private partners.

Of all roundtables RSPO is one of the best performing, creating a market segment of close to 20% certified palm oil. It showed the power of RSPO as a first mover community of change with the power to raise the bar, meeting even more challenging sustainable standards while growing in markets. However, as RSPO is a voluntary standard, it is likely that its standards will never reach the full palm oil production volume. And, as the business case for certification is often best in areas and estates that already perform well, it is likely that it will not address the worst and most pressing issues.

RSPO is about raising the bar among a community of first movers. Raising the floor through policies is the next step to reach transformative change

In discussions with governments in various Asian countries Solidaridad sees a reluctance to get on board with mainstream certification. Huge markets with relatively poor consumers struggle to absorb the system cost of certification and prefer to absorb the cost of sustainability. Moreover there is a strong political reservation in accepting an external market regulator from international private - public partnerships. A positive development is our actual practice in Malaysia, working together with MSPO, showing that already first steps in cooperation with government can be successful. In this coalition Solidaridad Asia is working with more than 30,000 smallholder farmers to improve their sustainability performance. What helps us is that Solidaridad’s teams and leadership is fully Asian, showing the strength of our network structure building local ownership and capacities.

Asian powers will not accept an external market regulator. National sustainability frameworks will be the end-game after a successful piloting role of RSPO"

In summary, transformation requires a business case; a new economic paradigm and perspective. Unlocking new potentials for development and growth in countries in development serving the bottom of the pyramid while addressing sustainability issues. Time for a solution oriented approach uniting forces for change.

Source: Palm Oil Production in Malaysia: An analytical systems model for balancing economic prosperity, forest conservation and social welfare. In: Agricultural science, 2016. Nickson E Otieno e.o.

Source: https://www.rea.co.uk/markets/cpo-price