by Michael Guindon
Where is palm oil produced?
Indonesia and Malaysia are the largest producers of palm oil – producing more than 80% of the world’s supply. With demand for palm oil growing rapidly, production is increasingly shifting to both Africa and Latin America – the new frontier areas for palm oil production.
The problem is that palm oil production has resulted in the large scale destruction of natural forests and peatlands that are critical for the protection of endangered species such as the orang-utan and Sumatran Tiger. In Indonesia alone, nearly 1.6 million hectares of forests were converted to oil palm plantations between 2000 – 2015.
Protecting these habitats is important not only to preserve biodiversity, but also because they help regulate climate, improve water quality, and support the livelihoods of indigenous and local communities, among other benefits.
How are palm oil companies performing?
Global Canopy’s Forest 500 identifies and ranks the 250 most influential companies that have the power to eliminate tropical deforestation – including the world’s largest palm oil companies. In our most recent assessment, palm oil companies were found to be leading the way, with the most robust commitments.
Two thirds of the 165 companies assessed in 2017 had a commitment to source palm oil sustainably, with the majority committed to sourcing Roundtable on Sustainable Palm Oil (RSPO) certified palm oil.
But a policy is not enough to guarantee sustainable palm oil. Recent analysis by CIFOR highlights that the majority of these companies are falling short on their implementation – with many companies lacking detailed implementation plans or inadequately investing resources across their supply chains to help their suppliers meet their commitments.
So what is preventing companies from implementing their commitments?
Palm oil supply chains are complex, with many suppliers involved in the production, processing, and manufacturing of products containing palm oil. A supermarket for example sells multiple products containing palm oil – each with its own unique supply chain and suppliers. This makes it difficult and costly for companies to trace the origin of their supply and guarantee the sustainability of the products they sell.
Sustainable palm oil is also more expensive to source than conventionally produced palm oil and companies must make sizeable investments to meet their sustainable palm oil targets.
This is especially challenging given the low demand for sustainable palm oil and the limited price premium available for these products. Demand for sustainable palm oil comes largely from European and North American markets – while in India and China, which account for almost 25% of global palm oil demand, demand is limited.
This market split limits incentives for sustainable palm oil production, as poor performing producers can simply sell their products elsewhere rather than increasing the sustainability of their production practices to meet commitments from companies further downstream.
The path forward
Companies need to follow through on their commitments with strong implementation plans and adequate investment in implementation.
Upstream companies such as Wilmar and Golden Agri Resources should invest more heavily in improving production practices on the ground and develop robust and credible traceability systems to track palm oil to the plantation level in order to verify that their products meet their sustainability commitments.
While downstream companies such as M&S and Tesco should develop strong monitoring systems to verify compliance with their sustainability commitments. At the same time, they need to collaborate with, engage, and invest in their suppliers to help them meet their sustainability commitments.
Given the role of smallholders in palm oil supply chains, increased action is needed by all companies to ensure that supply chains are more inclusive to smallholder suppliers - whether that be by providing them with training, technical support, or financial incentives.
Monitoring tools such as Trase and CIFOR’s Deforestation Atlas, and frameworks on setting and implementing commitments such as the Accountability Framework can help companies identify where there are problems in their supply chain and the best course of action to source more sustainable palm oil.
The transition to sustainable palm oil production is a shared responsibility and requires collaboration by all stakeholders. Companies, civil society, and governments need to work together to both incentivise the transition to more sustainable palm oil – through both market and regulatory mechanisms – and act with greater urgency to develop and implement solutions to move the sector forward.