Sustainable palm oil battle has to be won

Palm oil is an important ingredient for foods and consumer goods, generating high economic value for global companies and for small family farms in Asia. Ecologically oil palms are one of the most challenging crops in the world. Rabobank is involved in solutions, from the plantation to the supermarket shelf. ‘As a food and agri bank, it is in our interest that the sectors in which we are strong are also healthy.’

You can’t imagine a western super market without palm oil. This ingredient features in many supermarket goods, some say in more than 50% of the products. Not only as a cooking oil and butter substitute, but also in sweets, washing powders and cosmetics.

No need to say that palm oil has great economic impact. Downstream supermarket companies, such as Wal-Mart, Carrefour and Ahold, realise business with palm products. They are supplied by international companies such as Unilever, Coca-Cola, Proctor & Gamble and Mars. Upstream in the palm oil chain the economic impact is huge too: thousands of small family farms (smallholders), for example in South East Asia, produce over 40% of the palm oil. For them oil palms are a very attractive crop. The yield is impressive, up to ten times more tonnes per hectare than soybean, eight times more than sunflowers, six times more than rapeseed.

Banking for Food approach

Rabobank, as a food and agri bank, is involved in palm oil too, from smallholders to globally operating traders and consumer good companies. Rabobank’s Banking for Food approach means stimulating sustainability in supply chains, financing businesses (from the most elementary micro-financing to tailor-made forms of crop financing), sharing know-how, and supporting ecological and social aims, including tailor-made ownership structures for farmers’ co-operatives.

The palm oil sector faces many challenges, also caused by the huge economic potential and the diversity in the chain, with global players and many local smallholders. Key challenges are:

  • Many of the smallholders lack proper access to knowledge, finance and markets, and require support in realising certification.
  • Development of previously wild or locally managed land. Due to the weak registration of land rights, ownership and exploitation of palm oil plantations is often contested.
  • Deforestation, habitat destruction, illegal immigration and associated slave labour all are real threats connected to the land rights. Nowadays national and supra-national check-and-balance mechanisms are in protect forests with high conservation value and forest-dependent communities.

A sustainable and healthy palm oil sector requires engagement of global traders and consumer good companies and energy in local communities of smallholders. This vision of Rabobank is practiced by the Round Table on Sustainable Palm Oil (RSPO), where major producers, traders, NGOs, retailers and financial institutions (Rabobank included) meet. With more than 2,000 members in 70+ countries, the RSPO represents the entire palm oil supply chain.

Involving all links in the chain

The Round Table on Sustainable Palm Oil plays an important role in tackling the ecological, social and other sustainability issues. It adopts a full-chain approach, from the smallest farmer to the largest trader, and from the plantation to the supermarket shelf. By involving all links in the chain, by sharing knowledge and by confirming a common commitment to transform the industry, the Round Table is a serious and valuable factor in enforcing improvements.

Care for the well-being of future generations

Rabobank has integrated this Round Table approach into her palm oil supply chain policy, which has been set up to manage risks. Clients with palm oil production have to commit to the principles and criteria of the RSPO. Geraldine Lim, Rabobank Relationship Manager says: ‘As a food and agri bank, it is in our interest that the sectors in which we are strong are also healthy. We care deeply for the well-being of future generations and their communities.’

Rabobank has integrated this Round Table approach into her palm oil supply chain policy.

Further growth is envisaged

Many sustainability improvements have been achieved in recent years, but there are still battles to be won, especially because the importance of palm oil will increase in the coming years. Industry analysts have predicted that global demand for edible oils will quadruple between now and 2050, and that 60% of that demand will be met by palm oil. ‘In Indonesia alone, some 10 million hectares of plantation have been created, some of it at the expense of rain forest, and further growth is envisaged within the next decade. The bottom line: palm oil currently counts as one of the ecologically most challenging crops in the world’, says Rabobank’s Karel Valken.

Global demand for edible oils will quadruple between now and 2050.

Demand for sustainably produced palm oil stayed behind

One of the biggest issues to tackle, is stimulating the demand for fully traceable and segregated sustainable palm oil. Pressured by western markets, producers had increased the volumes of sustainably produced palm oil, but the global demand stayed behind. As a consequence considerable amounts of sustainably produced oil were sold as conventional palm oil.

100% sustainable palm oil in 2020

It seems that 2014 was a turning point. Sales (rather than production) of sustainable palm oil were up 65% vis-à-vis the previous year. Leading global traders and users have committed themselves to ‘100% sustainable palm oil in 2020’ for their entire supply chain, just as some national governments. Rabobank analyst Pawan Kumar explains: ‘At present, over half the world’s processors and refiners are committed to the sustainable route, and now over half the world’s traders have joined them. This is, to a considerable degree, the result of lobbying activities from RSPO and its members.’ 

Infographic palm oil