‘BUYERS UNWILLING TO PAY’
Sime Plantation can only sell about 50pc of its certified variety at a premium
THE world’s biggest producers of palm oil say they are stepping up efforts to produce the contentious commodity more sustainably, but consumers are unwilling to pay more for environment-friendly supply.
Production of sustainable palm oil has jumped to a record 13.6 million tonnes a year, about 20 per cent of global output, according to the industry body that certifies the commodity.
But only half of that is sold as sustainable oil. That is because it is more expensive to produce and hardly anyone is willing to pay a premium, says Sime Darby Plantation Bhd (Sime Plantation), the top planter by acreage.
“Buyers don’t want to pay for it. There is increasing resentment among growers that the other actors in the supply chain are not stepping up,” said Sime Plantation chief sustainability officer Simon Lord.
Palm oil is increasingly controversial, particularly in Western countries, as images of deforestation and dying orangutans turn popular opinion against the ubiquitous commodity. But producers are hitting back, saying consumers aren’t willing to put their money where their mouths are.
The certified oil typically sells at a premium of about US$30 (RM122.80) a tonne to the noncertified kind, though this can vary significantly depending on amounts purchased and negotiations between buyers and sellers.
To gain certification, it cost producers at least US$8 to US$12 a tonne, and there were additional expenses like audit fees, logistics and environmental assessments, said Sime Plantation, the biggest producer of certified sustainable palm oil (CSPO).
It said it could only sell about 50 per cent of its certified variety at a premium, with the rest being offloaded into a pool of noncertified oil without achieving any added value.
Companies were having to sell their CSPO below cost and would rather do that than stockpile it, said Oscar Tjakra, a senior analyst for grains and oil seeds at Rabobank International.
So who isn’t buying? According to the World Wide Fund for Nature (WWF), demand for CSPO in major consumers India, China, Malaysia and Indonesia remains low. Some companies in Europe also had not adopted “ambitious, time-bound commitments to procuring 100 per cent CSPO” though uptake from the European Union was the highest, said WWF global palm oil lead Elizabeth Clarke.
Mondelez International Inc, maker of Cadbury chocolates, said it was working with suppliers to ensure its palm was fully traceable. Nestle SA said buying the certified variety was one way of pushing the industry towards a sustainable future and it aimed to use 100 per cent RSPO-certified oil by 2023.
“Consumers today want to know what is in their food, where the ingredients come from and how it is made. In many cases, companies do pay higher prices for responsibly produced palm oil.”
The body that certifies the oil is also disconcerted by the muted response from consumers. Set up in 2004, the Roundtable on Sustainable Palm Oil is responsible for assessing the product, with the costs depending on plantation size, how far auditors have to travel and whether it is a high risk area.
Market commitment and uptake of CSPO would be the defining factor when it came to spurring adoption of sustainability standards, said RSPO.
While retailer members were almost all buying certified oil, processors, traders and consumer goods manufacturers had significant room for improvement, it said.