Will ‘sustainable’ palm oil sell in China?

/ Mongabay.com

Owing to the high yield of the African oil palm tree, palm oil is today the cheapest commercial source of edible oil. But oil palm expansion in recent decades has at times had high indirect costs, including destruction of biologically diverse rainforests and further marginalization of forest-dependent people, especially in southeast Asia. Concerns over the environmental and social impact of palm oil production in the spurred a group of palm oil producers, processors, and buyers to team up with conservation groups to form the Roundtable on Sustainable Palm Oil (RSPO) in 2004. But a big question looms over all certification efforts: will the world's largest importers of palm oil — India and China — buy it?

Owing to the high yield of the African oil palm tree, palm oil is today the cheapest commercial source of edible oil. But oil palm expansion in recent decades has at times had high indirect costs, including destruction of biologically diverse rainforests and further marginalization of forest-dependent people, especially in southeast Asia.

Concerns over the environmental and social impact of palm oil production in the early 2000s spurred a group of palm oil producers, processors, and buyers to team up with conservation groups and other organizations to form a multistakeholder body to establish criteria for ‘greener’ palm oil. The body, known as the Roundtable on Sustainable Palm Oil (RSPO) was officially established in 2004 and now counts more than 700 members, affiliates, and associates, including some of the world’s largest producers, retailers, and NGOs.

Shipments of RSPO-certified palm oil first reached Europe in 2008 and the United States last year. Many companies are supporting the initiative through purchases of Green Palm certificates which represent physical palm oil certified under the RSPO, when they aren’t actually able to source certified palm oil directly.

Sales and production of RSPO-certified palm oil have accelerated in recent months, although production still exceeds demand, largely eroding the price premium producers had hoped to see by improving their environmental stewardship. The lack of a price premium has made it more difficult for environmental members of RSPO to push for stronger certification standards. Some NGOs outside RSPO remain very critical of the initiative.

Nonetheless RSPO represents the first industry-wide push to set minimum standards for palm oil. Malaysia and Indonesia have recently launched their own certification standards, which seem to be inspired by the RSPO, although both focus on compliance with national laws.

palm oil imports

RSPO advocates — especially among civil society members — hope that competing systems could eventually raise standards and the price of certified palm oil, incentivizing wider production.

But a big question looms over all certification efforts: will the world’s largest importers of palm oil — India and China — show the same preference for certified palm oil that is beginning to be seen in Western Europe and the United States? The failure of India and China to embrace certified palm oil in the long run, could relegate RSPO to a niche market, thereby limiting the effectiveness of the initiative to encourage more responsible palm oil production.

To explore this issue, mongabay.com reached out to Teoh Cheng Hai, a consultant who formerly worked for Golden Hope Plantations Berhad, which is now owned by Sime Darby Berhad, the world’s largest palm oil company. He was the first Secretary-General of the RSPO and served as Honorary Advisor to the World Wide Fund for Nature Malaysia (WWF-Malaysia) from 2001 to 2004.

mongabay.com Is there much interest in RSPO from Chinese buyers? If so, why is there interest?

Oil palm plantations near Lahad Datu, Malaysia. Photo by Rhett A. Butler

Teoh Cheng Hai: At present, there is a very low level of awareness of RSPO and CSPO from Chinese buyers. In fact, buyers and consumers have little knowledge on palm oil itself as an edible oil even though China has been a major consumer for many years and is currently is the world’s second largest importer, accounting for about 13 percent of the global production. As palm oil has low cold stability, it is usually blended with other vegetable oils such as soyoil, sunflower and groundnut oil but palm oil is not included as a constituent of blends on the labels of consumer packs.

Although WWF China and CFNA (China Chamber of Commerce for Import/Export of Foodstuffs, Native Produce and Animal By-Products) have in recent years made effort to promote RSPO and sustainable palm oil in China, interest from Chinese companies has been low. A major reason is the lack for a convincing case for companies, as well as the Government to respond to the global call for sustainable production and consumption of palm oil. It should be borne in mind that the edible oil market is highly price sensitive and any additional costs for sustainability could have an impact on the companies’ economic bottom-line.

At present, there are only 3 Chinese companies which are members of RSPO; however, their uptake of CSPO is quite limited.

mongabay.com Is the Chinese government supporting RSPO or is most of the interest from private companies?

Teoh Cheng Hai: Although the Chinese government has a strong national commitment to sustainability and has in recent years been working towards a Low Carbon Economy, there is no particular agenda or interest on palm oil sector. At the Ministry level, the Ministry of Commerce has shown initial interest in sustainable palm oil through its support of a recent policy study on challenges and opportunities for sustainable palm oil in China that was undertaken by CFNA together with DEFRA/DFID of UK.

mongabay.com How is palm oil typically used in China? Does it go into export-oriented products, or mostly for domestic consumption?

Teoh Cheng Hai: Of the 5.8 million metric tons of palm oil consumed by China in 2010, about 80-85 percent has been used for food applications while the remaining portion is mainly used for oleochemicals. Almost all of the palm oil imported is for domestic consumption and there negligible outflow if manufactured palm-based products. The lack of opportunity for leverage by the supply chain for uptake of CSPO is one of the difficulties in developing a good business case for promoting sustainable palm oil in China.

mongabay.com Do you expect China to use palm oil for biodiesel production?

Teoh Cheng Hai: Yes, as according to the national development plan, annual consumption of biodiesel is expected to be about 2 million tons by 2020. But at present the comparatively high price of crude palm oil makes it uneconomical to produce biodiesel from palm oil.

NOTE: Although I have been involved in the effort on promotion of sustainable palm oil in China since 2006 through my work for WWF China and CFNA, the above views are my personal responses and do not necessary reflect those of the organizations cited.

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