Digitalisation will create more sustainable smallholders

KUALA LUMPUR: The insertion of smallholders in the global supply chain can be accelerated by digitalisation that enhances sustainability, minimises certification costs and the role of the middleman.

Sumwin Group founder and chief executive officer UR Unnithan said that while 40 per cent of the global palm oil supply comes from smallholders, only two per cent of them are certified.

“There are three million smallholders in Malaysia and Indonesia, but the (number of) certified smallholders are very small. Their insertion in the value chain needs to be looked at seriously, particularly when there is 13 per cent and 11 per cent year-on-year increase in certified sustainable palm oil (CSPO) and certified sustainable palm kernel,” he said during the second day of the virtual Palm Oil Conference 2020 yesterday.

The second session, themed “Impact of Covid-19 and the USChina Trade Tensions on Palm Oil Industry” also discussed on the outlook for palm oil next year.

Unnithan explained that digital solutions would help the smallholders overcome these limitations through low-cost and easily adaptable methods, and at the same time, encourage all smallholders to change from manual processes to automated digital workflows using their mobile phones.

“Digitalisation empower smallholders to follow all the necessary certification guidelines including the Roundtable on Sustainable Palm Oil (RSPO), Malaysian Sustainable Palm Oil (MSPO) and Indonesian SPO and be included in the sustainable supply chain,” he said.

More importantly, it would help the smallholders to minimise reliance on the middlemen for market prices which are usually set at a premium, new farming practices, new schemes, and traceability documentation, he added.

Unnithan emphasised that digitalisation platform allows smallholder to connect directly to global buyers and leverage on these companies’ sustainability incentives and overcome the increasing regulatory, nongovernmental organisation and consumer pressure for CSPO.

“Many large multinational companies are demanding sustainability certified products and by producing and trading sustainable palm oil is no longer an option for smallholders but it is mandatory for them to survive in the challenging global oil market,” he said.

Citing a report, Unnithan said only 8,012 independent smallholders and 152, 284 organised smallholders are RSPOcertified since the introduction of the certification 16 years ago.

“For MSPO, there are 54,609 certified independent smallholders while 231,576 organised smallholders are certified,” he said.

Meanwhile, another panellist, FTSE Russel Global Investment Research associate director Chris Bates said that the Palm Oil Plantation Index has been volatile but has staged a strong recovery from the lows in March.

“The FTSE Bursa Malaysia Palm Oil Plantation Index performance coincided with the declining price of crude palm oil since early this year, and we saw recovery in March, and although the price did not go to the price in the beginning of the year, but the index is still stronger than the FTSE All-World Food Producers,” he said.

Commenting on Malaysia’s economic outlook, Bates said the Malaysian economy has faced a perfect storm of declining crude oil and palm oil prices, as well as the Covid-19 impact, and the country’s gross domestic product is forecast to contract by 3.4 per cent in 2020, and is expected to register a six per cent growth in 2021.