The road to sustainable palm oil: An oily problem

Forget the Southampton Six and grey goo. The food industry, if you read the papers, is not only to blame for spiralling obesity and hyperactive toddlers, but speeding up global warming to boot by cutting down rainforests to grow oil palms.

For once, however, its detractors may have a point. As palm oil the new whipping boy of deforestation is used in 50% of packaged foods, firms that don't have a strategy for securing sustainable supplies face difficult questions.

As the pressure to act has intensified, several retailers and manufacturers have made commitments to sourcing only certified sustainable palm and a flurry of press releases has been issued in recent weeks to this effect.

In practice, however, there is still some debate about the best way of achieving this aim, and who will end up paying for it.

Right now, manufacturers have two choices. The first is to buy certified sustainable palm oil (CSPO) made by plantations adhering to criteria laid down by the Round Table for Sustainable Palm Oil (RSPO). This is segregated throughout the supply chain and is fully traceable.

While this might seem like a simple solution, the problem is that CSPO is only currently available for crude or refined palm oil, which most food manufacturers do not use. Indeed, while straight palm can be used in biscuit dough and some other products, 6070% of palm oil is sold as a derivative: palm fractions such as olein and stearin, fractions of olein and stearin, palm kernel oil (PKO) or PKO derivatives, which are then blended into bakery fats and other products. And certified sustainable versions of these are not available at least not yet.

The second option, then, targeting firms using derivatives, is to buy GreenPalm certificates (trading at www.greenpalm.org at around $5) guaranteeing that a tonnage of oil/derivatives equivalent to the tonnage you use has been produced from sustainable sources. (Approved plantations are allocated one certificate for every tonne produced.) While this means you can't guarantee that the actual oil you are buying is from an RSPO-approved plantation, you know the tonnage you use has been made sustainably.

But why can't big refiners just supply traceable certified sustainable fractions now? In some cases notably that of New Britain Palm Oil (which has a vertically integrated supply chain and only uses oil from plantations in Papua New Guinea) they will. But larger refiners cannot respond quite as easily, primarily because palm oil is a commodity that comes from all over the world, and is intermingled at every stage of the supply chain. Traceability requires physical segregation, and unless there is a market for sustainable olein, for example, it's not very viable to produce sustainable stearin and so on.

Ultimately, says fats and oils firm AAK, GreenPalm should "do itself out of a job" as it should stimulate production of sustainable palm to such an extent that big refineries can supply affordable sustainable fractions. Indeed, AAK will be able to offer traceable olein and stearin this year and more complex bakery fats containing traceable palm blends by late 2010/early 2011.

In practice, however, while firms including Marks & Spencer, Waitrose, Ginsters and Premier Foods have committed to using GreenPalm in the meantime, not everyone has, chiefly because purchasers cannot guarantee that the actual oil they are using in products is from a sustainable source.

Headlines such as: 'Premier defends GreenPalm use' and references to 'the controversial GreenPalm scheme' also perhaps reflect a lack of understanding that GreenPalm is the only practical option for firms such as Premier using derivatives that want to act now rather than waiting until traceable CSPO derivatives are available.

It is against this backdrop that New Britain Palm Oil has built a new £18M refinery in Liverpool scheduled to become operational this April, from which it will offer refined palm oil, palm olein, stearin and kernel oil in the first nine months, and further sub-fractions from 2011.

Director Andy Worrall acknowledges that, today, GreenPalm is the only affordable option for derivatives. However, he insists that "where possible, consumers want products to physically contain palm oil that can be traced to sustainable sources and we're going to do it in an affordable way. Consumers don't want certificated offset schemes for palm oil which although they might give a sustainable producer a pat on the back equating to $5/t also keep the UK market open for unsustainable producers"

The fact that certificates are trading at such a low price is also a concern, he claims: "We're not sure a 1% premium will continue to stimulate expansion of sustainable palm oil supply."

He adds: "One of the greatest incentives for palm oil producers to become more sustainable is actually the EU biofuels rules requiring suppliers to demonstrate that greenhouse gas savings are better than 32% to gain access to the EU biodiesel market. That is worth far more to a palm oil producer than a 1% premium."

However, Judith Murdoch, marketing boss at AAK, says that while the price per GreenPalm certificate has fallen, it still amounts to a "significant amount of money" and a "strong incentive to participate" given that many plantations produce thousands of tonnes of oil.

Retailers, meanwhile, have all taken a different tack, with some such as Marks & Spencer committing to buying GreenPalm certificates to cover all the palm oil used by its suppliers, and others notably Morrisons, making no public commitments at all. Sainsbury, meanwhile, says: "We're not anti-GreenPalm, but customers want our products to physically contain palm oil that can be traced back to sustainable sources."

Asda's head of corporate policy for sustainability and ethics, Julian Walker-Palin, says Asda uses Green Palm "for all of the oil in our restaurants", but believes customers want full traceability. "Green Palm is a good starter to move towards CSPO but we would like to see a scheme to link the oil to the product, rather than a mass balance system like GreenPalm."

While some industry sources argue Asda's 2007/8 pledge to ban palm oil from Borneo or Sumatra in own-label lines was not practically feasible given the way the supply chain works, Walker claims to have achieved 90% compliance: "It did achieve a mindset change and, as such, we consider it was very successful.Our new policy states they must only use sustainable palm oil by 2015 and that they must be able to demonstrate the steps they have put in place to achieve this."

However, a fats and oils buyer at one own-label supplier says: "We've had a chat about it, but we haven't been told to do anything yet by Asda or Tesco. If we are told to use GreenPalm, it goes without saying we will be expected to pay for it. Marks & Spencer and Waitrose are paying for the certificates initially, but ultimately, suppliers always end up paying." Where the retailer does not buy certificates, it is not always clear whether this responsibility lies with manufacturers or ingredients firms, he says.

Waitrose, which has committed to using only CSPO in own-label products by the end of 2012, says "where we can't secure sustainable derivatives we will need to review the use of palm oil in those products". In the meantime, it will use GreenPalm "as an interim measure"

But the World Wildlife Fund, which has launched a scorecard ranking firms based on commitments to sustainable palm, says some are using the argument "but we can't buy sustainable derivatives yet" as an excuse to do nothing. Senior policy officer Adam Harrison notes: "If you want traceable derivatives, it won't happen by magic, you need to put in the legwork now. They will only be affordable when whole refineries are plugged into sustainable palm. In the meantime, you can use GreenPalm."

Depressingly, less than 4% of global palm oil production has been RSPO-certified to date, and only a fraction of the CSPO available has been purchased, although uptake is rising rapidly.

If the game is really going to change, China and India must buy into sustainable palm, says Murdoch at AAK. "To put it in context, the UK uses 450,000t a year; India uses 650,000750,000t a month."

A recent statement by firms operating in China to "support" sustainable palm was encouraging, adds Harrison, "but it must be backed up by concrete action on the ground"