Despite falling palm oil price, premium for 'sustainable' product rises

Rhett A. Butler, mongabay.com
February 12, 2014



Deforestation for oil palm in Riau Province on the island of Sumatra. Photo by Rhett A. Butler.Deforestation for oil palm on peatland in Riau Province on the island of Sumatra. Photo by Rhett A. Butler.

Despite a sharp drop in the price of palm oil since 2011, premiums for certificates representing palm oil produced under the Roundtable on Sustainable Palm Oil (RSPO) standard have risen due to increased demand for greener palm kernel oil (CPKO), reveals data released by GreenPalm.

The average premium for PKO certificates more than tripled to $21.08 per ton in 2013, representing a 2.3 percent markup over conventional palm kernel oil (PKO). The overall amount of CPKO sold worldwide amounted to $10.9 million, a new record, generating more revenue than certified palm oil ($8.2 million) for the first time.

The CPKO increase was a sharp contrast to the trend for certified palm oil (CPO), which fell for the sixth consecutive year, from a high of $44.49 in 2008 to $2.76 in 2013. The premium for CPO stands at 0.3 percent.

Certified palm oil premium on a per-hectare basis

Certified palm oil premium on a percentage basis


The CPKO price surge means that it now generates about $11 of premium per hectare, or nearly the same as CPO, which yields eight times the volume. Together, the premium for certified oil amounts to about $22 per hectare, up about 14 percent over 2012, but below where it stood in 2011.

Chart: Total premium for certified palm oil premium on a per-hectare basis

Graph: Certified palm oil premium on a per-hectare basis


While the 1.2 percent premium is far short of the 10 percent sought when the first certified palm oil began shipping in 2008, research by WWF — a strong backer of the RSPO — has found that producers benefit beyond the markup through efficiencies gained by following best practices.

Nonetheless RSPO supporters say that supply is still outpacing demand for certified palm oil.

"The supply of RSPO certified sustainable palm oil has been growing across all supply chain options," said Simon Chrismas of Greenpalm. "However, the increase in demand has not matched the increase in supply. There has been an increase of 4 million tons of CPO from 2010 to 2012 but, during the same period, sales of CPO via all supply chain options increased by just 2.2 million tons."

RSPO uptake was only 52% at the end of 2013


More robust demand would translate to a higher price, providing a stronger incentive for producers — especially smallholders who cause a disproportionate amount of damage by the industry due to lower yields and production standards — to participate. Such incentives are needed to push for stronger RSPO criteria, according to Chrismas.

On the supply side, WWF and the RSPO have been working with groups of smallholders to reduce the cost of adopting eco-certification standards. Last year the Amanah Association in Riau Province became the first independent smallholder association in Indonesia to achieve RSPO certification. Now WWF and others are prodding major consumer products companies to stick to commitments to buy certified palm oil — a report card [PDF] released last year by the group found less than half of firms source palm oil that meets RSPO standards.

Still the standard itself isn't without controversy. Some environmentalists say the RSPO is too weak and suffers from loopholes, while some producers claim the premium is too low to justify compliance.

GreenPalm has also been targeted by some activists, who argue that companies should source certified palm oil directly, rather than using certificates that represent an equivalent volume of RSPO-certified palm oil. GreenPalm says its system aims to serve as a bridge until segregated palm oil becomes more readily available.

"GreenPalm remains, in many cases, the only supply chain option available for RSPO certified growers to earn a premium for their CPO and, in particular, their CPKO," Chrismas told mongabay.com. "This is especially true for independent smallholders."

Palm oil is used in a variety of products, including cooking oil, packaged foods, soaps, and cosmetics. It is also increasingly employed as a biofuel feedstock.




Palm oil production is one of the biggest drivers of deforestation in Southeast Asia. Vast swathes of wildlife-rich rainforest, including key tiger and orangutan habitat, and carbon-dense peatlands have been converted for oil palm plantations in Indonesia and Malaysia over the past 30 years.












AUTHOR: Rhett Butler founded Mongabay in 1999. He currently serves as president, head writer, and chief editor.






CITATION:
Rhett A. Butler, mongabay.com (February 12, 2014).

Despite falling palm oil price, premium for 'sustainable' product rises.

http://news.mongabay.com/2014/0212-palm-oil-price-premium.html