Palm oil is a vital ingredient in many food products and generates high economic value for global companies and for small family farms in Asia. The sector faces major challenges when it comes to ecology. Sustainable change is required in the entire chain, from the plantation to the supermarket shelf. You can’t imagine a western supermarket without palm oil. Some sources state that over 50% of food products contain palm oil. It’s used not just as a cooking oil and butter substitute, but also in sweets, washing powders and cosmetics.
The world’s most challenging crop
Industry analysts have predicted that global demand for edible oils will quadruple between now and 2050, and that palm oil will meet 60% of that demand. So palm oil is set to become increasingly important. In Indonesia alone, some 10 million hectares of plantation have been created, some of it at the expense of rain forest. In ecological terms, palm oil is currently one of the world’s most challenging crops. One of the biggest issues is stimulating the demand for fully traceable sustainable palm oil. Pressured by western markets, producers increased the volumes of sustainably produced palm oil, but this did not generate a rise in global demand. Consequently, considerable amounts of sustainably produced oil were sold at the price of conventional palm oil. Although the sector has made major progress in recent years, there’s still a long way to go in the battle for sustainability.
It’s clear that palm oil is a crop with great economic impact. Supermarket chains such as Wal-Mart, Carrefour and Ahold, make money on products containing palm oil. Their supplies include international companies such as Unilever, Coca-Cola, Proctor & Gamble and Mars. Closer to the source, palm oil also has a huge economic impact: thousands of small family farms (smallholders), mainly in South East Asia, produce over 40% of all palm oil. Cultivating oil palms can be very attractive. The yield is impressive: oil palm yields (in tonnes per hectares) are ten times higher than soybean, eight times higher than sunflowers, and six times higher than rapeseed.
The palm oil sector faces many challenges, due in part to its huge economic potential, but also to the diversity in the chain, with global players and local smallholders active in the chain. 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. Ownership and exploitation of palm oil plantations is often contested due to poor registration of land rights.
- Deforestation, habitat destruction, illegal immigration and associated slave labour all are real risks connected to land rights. These days, however, there are mechanisms for national and supra-national checks-and-balances in place to protect forests with high conservation value and forest-dependent communities.
A sustainable and healthy palm oil sector requires the engagement of key international players and opportunities for the local smallholder communities. The Round Table on Sustainable Palm Oil (RSPO) brings together major producers, traders, NGOs, retailers and financial institutions With more than 2,000 members in 70+ countries, the RSPO represents the entire palm oil supply chain.
A sustainable and healthy palm oil sector requires the engagement of key international players
The Round Table on Sustainable Palm Oil plays a key role in tackling the ecological and social issues. It focuses on safeguarding sustainable production, taking 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.
Rabobank has integrated this Round Table approach into its palm oil supply chain policy, which has been set up to manage risks. Clients with palm oil production must 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.’
100% sustainable palm oil in 2020
Production of sustainable palm oil has not risen substantially in the past few years but sales have. Leading global traders and producers have made a commitment to ‘100% sustainable palm oil in 2020’ for their entire supply chain. Some national governments have done the same. Rabobank analyst Pawan Kumar explains: ‘Over half the world’s processors and refiners are now committed to the sustainable route, and over half the world’s traders have now joined them. This is largely thanks to the lobbying activities from RSPO and its members.’