Cargill looks to smallholders for sustainable palm oil

Sensemaking / Cargill looks to smallholders for sustainable palm oil

A major US agribusiness has joined forces with non-profit Solidaridad and Malaysian environment group Wild Asia to boost sustainable palm oil production through certification. Oliver Balch reports.

By Futures Centre / 24 Jul 2013

Sales of face masks have spiked in Singapore and Malaysia over recent months. The reason is simple: Sumatra’s forests are burning, and the resulting ash cloud has proved stifling for those downwind.

This year’s spate of wild fires has brought the role of palm oil production in the region, and especially the practice of slash-and-burn for forest clearance, into sharp focus. Around one fifth of the fires occur on palm plantations. The majority of these are associated with small, non-certified producers, according to the Roundtable for Sustainable Palm Oil (RSPO), a multi-stakeholder certification body that sets standards for good farm practices, including fire prevention and responsible forest management.

“Companies that are certified manage this process much better than those that are not”, insists Darrel Webber, Secretary General of RSPO.

Palm oil is found in half of all grocery goods, including bread, body lotion and lipstick, according to the RSPO. And global production is growing: total capacity increased 128% over the last decade to 58 million tonnes per year, with demand expected to double to 100 million tonnes by 2050. At present, only 15% of globally produced palm oil is RSPO-certified, though the organisation has made headway among large palm oil producers since it was established in 2004. Its impact among smallholders has been minimal, however. And given that in Malaysia, the world’s second largest palm oil producer, smallholders farmers are responsible for between 35%-40% of total volumes of crude palm oil, that’s something that needs to change. Fast.

Cargill, a major US agribusiness, is seeking to turn this around. It has launched a three-year pilot to encourage greater uptake of sustainable certification by smallholders, in conjunction with Dutch agricultural non-profit Solidaridad and Malaysian environment group Wild Asia. The project will initially focus on 2,500 independent producers based in Port Klang, close to the Malaysian capital of Kuala Lumpur.

These producers will be trained in sustainable agricultural management techniques, as well as good financial and organisational practices. The organisers also intend to encourage the farmers to form cooperatives, which would increase their negotiating power with buyers of their crop. Wild Asia will provide technical support and help to certify the independent smallholders to RSPO standards through its Wild Asia Group Scheme (WAGS).

At the smallholder level, big improvements can actually be made. Farmers can, relatively easy, produce more palm fruits with less damage for the environment ", says Marieke Leegwater, the programme manager at Solidaridad. "But, usually it requires effort to introduce these changes and someone needs to invest in this. This is where Solidaridad sees its responsibility: to stimulate and facilitate market players to drive positive change in their supply base."

It makes sense to start with Cargill. According to the company’s Vice President of Corporate Affairs in the Asia-Pacific Region, Bruce Blakeman, the company’s customers are increasingly requesting certified palm oil (Unilever aims to buy all its palm oil from certified suppliers by 2015).

Their support counts. If a big buyer like Unilever starts asking refiners for sustainably certified palm oil, they have an incentive to request certified fruits from independent producers. Yet, given the volatility of commodity prices, Blakemen is anxious not to promise participating smallholders a premium for their produce. A more convincing business case focuses on productivity, he argues. Certified smallholder farms generate on average 25-30 tonnes of palm fruit per hectare, compared to 18-19 tonnes under traditional, non-sustainable conditions. And more fruit per hectare means more cash in their pocket.  

Blakeman cites an existing pilot in Hindoli, in neighbouring Indonesia, where Cargill assisted 8,800 smallholder families to become certified back in 2011. Bambang Gianto, a participant in the Hindoli programme, confirms that he’s become more aware of how to care for his land, while also increasing its long-term productivity, “so that our children will continue to be provided for”.

Cargill operates four refineries in Malaysia and plans to expand the pilot scheme to these areas if it proves successful. The country has 161,000 independent smallholder farmers, and as many as 400,000 more smallholders, who are contracted by a particular mill or supported by a government body, and so the potential for scale is enormous. And not only in Malaysia or Indonesia, where 85% of global production is currently concentrated. Other markets are quickly opening up to palm production too, such as Thailand, where 100% of palm oil farmers are small-scale operators.

Substantial smallholder participation is also likely to be the case in the Amazon, Congo and Borneo, which stand at the frontier of palm oil’s global expansion. For example, Wah Seong Corp plans to spend $744 million over the next 10 years to develop palm oil plantations in Democratic Republic of Congo (DRC), planting palm trees on almost half a million acres of land. The biodiversity of the DRC and other regions earmarked for palm oil production emphasises the importance of developing a robust certification system that works for small producers, not just the large ones.

Much will depend on market dynamics. Nearly half (48.3%) of the certified palm oil produced over the last 12 months has failed to find a buyer, instead it was sold as conventional palm oil without a price premium. Blakeman admits that other big buyers will need to get on board if that’s to change. In the meantime, RSPO has developed an offsetting system of Green Palm certificates. If growers can’t sell their product, they can convert it into a certificate (one tonne of certified crude oil converts into one certificate). Companies that use palm oil in their products are then able to place offers for these on the Green Palm Market, offsetting their physical oil usage with the certificates.

This allows them to claim they support the production of RSPO certified palm oil, while the value of the certificate presents smallholders with a potential interim revenue stream. It’s not an ideal solution. For small-holders, the only real long-term incentive for sustainable production will be mainstream demand for sustainable palm oil. But, for now at least, it’s one of the best ways for independent farmers to earn a premium for their RSPO-certified produce.

Oliver Balch is a freelance journalist specialising in the role of business in society.

Photo Credit: Solidaridad

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