Sarawak's palm oil industry wrestles with concerns over sustainability

Each year, more and more of the trees on Sarawak’s tropical forests and peat land are felled and cleared as companies look to feed rising global demand for both timber and the products of plantations erected in their place. Such lucrative operations have been practised for decades across Borneo, on both the Malaysian and the Indonesian sides. Yet calls are growing louder to turn the industry towards a more sustainable, longterm strategy that will reduce its environmental impact while ensuring profitability for generations to come.

GREENHOUSE GASES: The chief criticism levelled at the industry is that the acreage of large plantation estates has grown exponentially over the past five decades, causing a sizable release of greenhouse gases as older forests and peat lands are harvested to make way for new estates. Cultivation on peat lands is of particular concern, as these carbon-rich ecosystems release higher amounts of unwanted gases than other types of forest do. While there is little doubt that deforestation results in emissions, just how much the industry is causing them is a serious point of contention between pro-palm oil groups and activist NGOs.

NUMBERS DISPUTE: Official figures from the Sarawak Forest Department claim that at least 80% of the state remains forested, citing satellite images from 2012. While this may be true in a general way, the figure can be misleading: these “forested” areas include heavily degraded and plantation areas, including monoculture oil palm and exotic timber plantations.

Studies by third parties suggest that most of Sarawak’s virgin rainforests have been substantially affected by commercialisation, either through conversion into plantations or through selective logging (both legal and illegal). One of these, led by the Carnegie Institution for Science and published in 2013, indicated that nearly 80% of the land area in Sabah and Sarawak was impacted by previously undocumented, high-impact logging or clearing from 1990 to 2009. After analysing high-resolution images with special software, the researchers concluded that, out of Sarawak’s 122,019 sq km of land area, only 20% remained intact forest, while 22% was degraded forest, 15% was severely degraded forest, and 21% was plantation and regrowth forest.

GLOBAL STANDARD: Strong global demand for cooking oil has long ensured a market for crude palm oil (CPO). Yet recently, many larger Western purchasers have become wary of public backlash if they buy inputs from unsustainable sources, and have begun to push for certification as a way to assuage these concerns.

The main scheme for this in the palm oil industry is the Roundtable on Sustainable Palm Oil (RSPO), a comprehensive and internationally recognised credential created partly to counter just such criticism. Set up in 2004, the RSPO is a global coalition of agro-industry firms, NGOs, financial institutions, retailers and producers of consumer goods, whose aim is to support production of sustainable palm oil through certification. The criteria include protocols for managing waste, reducing fertiliser and pesticide use, preserving certain forests, abiding by local laws, respecting community rights and ensuring minimum labour standards. Since the process is voluntary, incentives few and demand for palm oil is high, only about 15% of global output was certified in 2014, though the rate is higher among those selling to large Western clients that have committed to buying only RSPO-certified CPO by 2015.

To hasten the slower-than-expected adoption of RSPO, in 2013 stakeholders rolled out new criteria. The biggest changes were a requirement to report on greenhouse gas emissions from forest conversion by December 2016, and measures urging growers to sow new plantings in mineral soils and low-carbon areas instead of on peat lands. These additions drew criticism from both sides. Producers complained that the cost of implementation would only exasperate already expensive procedures. Environmental groups denounced the measures as ineffective at curbing the conversion of rainforests and peat lands into oil palm plantations.

Such practices have obvious environmental benefits, yet they can also yield substantial economic value. This is key in a state like Sarawak where high logistics costs put exporters at a competitive disadvantage on global markets. By cultivating specialty products with higher value added, companies are able to mitigate these higher costs by selling at a premium. This can even give firms an edge in accessing some of the lucrative but more restrictive Western markets in the EU and North America, which are increasingly erecting barriers to non-certified agricultural imports.

IMAGE MATTERS: Mindful of public opinion and the effects of negative publicity on share prices, many large global food companies are seeking out certified inputs independently of any legal obligation to do so. Unilever, one the largest buyers of CPO and an RSPO founding member, announced in November 2013 that all the palm oil it buys would be traceable to its source by the end of 2014. Ferrero, a confectioner, has made the same commitment. Nestlé, another major buyer, achieved 100% sourcing of RSPO-certified palm oil in 2013.

Western governments, too, are giving palm products increasing scrutiny. France considered a proposal in 2014 to impose a “behavioural” domestic tax on certain foods, including palm oil, as well as to require “without palm oil” labelling on food products. Germany has already issued costly regulations on CPO used in making biodiesel. In the EU Parliament, a draft proposal was submitted in 2013 that would ban imports of palm oil from deforested countries as a biodiesel source. Even China, which is not usually known for quality-control in evaluating product safety, is mulling a ban on the use of palm oil in infant formula on health grounds.

This trend is not lost on other downstream producers, which are often willing to pay a little bit more for a more transparent product in order to ensure minimal environmental impact and safeguard shareholder value. As most end products contain but a small percentage of palm oil, the extra cost for more-transparent feedstock would not be crippling for most downstream producers, although it would pose a much greater challenge for industries that use large amounts of palm oil exclusively, such as biofuels.

HOME-GROWN CERTIFICATION: The costly and time-consuming nature of the RSPO process, borne mostly by farms and estates rather than manufacturers or retailers, has led Malaysia to develop its own certification system, launched in September 2013 and called Malaysian Sustainable Palm Oil (MSPO). Similar to RSPO in many respects but billed as a cheaper and simpler for local producers, the MSPO includes principles that cover management, environmental responsibility, transparency, legal compliance, best practices and new planting techniques. The move will likely be significant, as it is applicable not only to large plantations and palm oil mills but also to independent and organised smallholders, which make up around 40% of cultivated acreage in Malaysia but have largely shunned RSPO certification due to its costs. The first MSPO-certified palm oil is set to be produced and available for export in 2015.