Cost versus conscience

But now crude palm oil, which with imports into Europe topping 38Mt last year, notwithstanding an unheard-of $800-a-tonne price, threatens to become a victim of its own success. Its swift fall from consumer grace has been due almost entirely to an unfolding story of alleged greed and environmental ambivalence that is driving one of our hairy cousins to extinction in a country few European shoppers could identify on a map. It's a cautionary tale for supply chains.

For years, palm oil's ubiquitous presence in everything from noodles to naan breads and tacos to tapenades went unnoticed as plantations, centred mainly on the ecological hotspots of Indonesia and Malaysia, expanded production to meet exponential demand. Suddenly, the Greens of Europe - where, ironically, a new healthy-eating agenda has driven the biggest increase in per capita consumption - saw red. Palm oil, demonised by media campaigns focusing largely on the plight of fast-diminishing colonies of orangutans in Borneo, became synonymous with the worst excesses of third-world exploitation. And retailers, increasingly sensitive to the new eco-shopper, got a bit twitchy.

Asda, the UK's second biggest grocery retailer, snatched the opportunity this summer to announce a ban on all foods containing palm oil that couldn't be traced to a sustainable source - some 500 lines. It argued that the supply industry needed a "clear steer" from retailers, but created a massive headache for manufacturers who had just 12 months to comply.

"We wanted to make sure the cart was before the horse," says Asda head of sustainable sourcing, Chris Brown. He cites experience with similar eco-friendly sourcing schemes, including Marine Stewardship Council-approved fish, which, he says, "left responsible suppliers at the starting gate. We didn't want anyone turning round this time and saying nobody wants the stuff."

Nevertheless, the move, which followed a particularly intense bout of media criticism, frustrated Asda's fellow members of the European-led Round Table on Sustainable Palm Oil (RSPO). This was set up in 2003 with support from the World Wide Fund for Nature to head off such boycotts.

Correctly anticipating an impending public relations disaster, it acted swiftly to introduce a certification scheme that will grant licences to plantations meeting its 46-point criteria for environmentally, socially and economically sustainable oil production from the end of the year. The first certified product is likely to be delivered to refineries next spring.

But that's where the best intentions and cold economics have failed to emulsify, leaving a question mark over how shoppers and those retailers claiming to represent their interests will warm to the RSPO's proposed greening of the supply chain.

Time to act

In Indonesia alone, cultivation of the world's highest-yielding vegetable-oil plant has grown from 600,000 hectares in 1985 to more than 6M hectares today, with forecasts predicting 10M hectares by 2010.

While much of this industry's expansion is bank-rolled by China - palm oil's largest-volume consumer - growers tend to defer to the high-value, increasingly highly principled European markets.

Plantation owners complain that the palm oil industry has become the "whipping boy of deforestation" - a convenient fall-guy for the loggers that go before it. But they nevertheless take their share of the blame for blatant social and environmental abuses, including ecological degredation and land-rights issues. The problem comes with putting it right.

While the RSPO talks optimistically of world supplies being 100% sustainable by 2012, and however fervently retailers wish to drive the agenda, the reality is that current infrastructure does not allow for identity-preserved, sustainable palm oil to make a fully traceable journey from soil to shelf. And few, if any, processors, are going to swallow the 40% or so premium that would be incurred by introducing a segregated supply chain to facilitate it. That leaves manufacturers caught between their costs and their conscience.

"This is an important raw material for us, but we know that if we don't act, we'll have no forest left," says Sandra Flostrom, quality manager for Swedish ethnic food and spice company Santa Maria. "We're not thinking about banning it because it is important to the exporter countries economically and socially, but we have been thinking about switching to other oils for some production."

Trade-offs

"Many of these environmental issues are about trade-offs," observes UK manufacturer Northern Foods. "GM [in soy], for example, impacted indirectly on palm oil. Palm's still viable, but we want it to be sustainable."

Hence the compromise solution thrashed out by a consortium of palm oil producers and users, whereby retailers and manufacturers can be seen to discharge their moral and environmental obligations without having to purchase any sustainable oil. With the scheme going live next spring, Asda's statement was clearly unhelpful.

"Banning palm oil won't save one orangutan," says Bob Norman, of AAK, the Swedish-owned refiner and RSPO founder-member.

"Asda might not agree, but in relation to this issue, it's a little fish in a big pond. Helping the RSPO will have a better effect than undermining it. Orangutans might present a colourful image, but the environment goes beyond orangutans.

"There are other things the RSPO is trying to achieve to look after the indigenous populations," says Norman.

The RSPO's proposals include three trading options to support sustainable palm. The ultimate goal, not yet attainable, is to buy fully segregated supplies, traceable to the plantation. Second is purchasing palm oil containing a guaranteed, but unquantifiable percentage of sustainable supplies, known as the "mass balance equation". And third is buying Green Palm certificates, modelled on the UK's green energy trading scheme, which allows buyers to invest in sustainable production without necessarily using the product.

Brokered by AAK on behalf of the RSPO,the scheme will add $11-14 to every tonne of palm oil that registered manufacturers buy on the open market, but $7-10 will be returned as a premium to RSPO certified producers. Conscience money, maybe, but Flostrom has a different view. "We want to be part of making palm oil production sustainable. If you buy a certificate and know that that amount of palm oil is produced in a sustainable way, it means the same as it would if you were using it in your product."

For Walter Link, technical director of German margarine manufacturer Walter Rau Lebensmittelwerke, it's only a matter of time before the minority of customers clamouring for sustainable supplies becomes the moral majority. As a processor struggling to contain costs and keen to do the right thing, his opinion is clear. "In terms of cost, full traceability is unacceptable. Mass balance may be a solution, but the third option is the way to support sustainability."

Norman, who devised the web-based trading platform http://www.greenpalm.org - going live at the end of the year - says it's being watched closely by other raw- material industries facing similar pressures.

Commerce and conservation are often uneasy bedfellows, but as the power of the ethical shopper rises, industry must find more inventive ways of reconciling differences. But Europeans can afford to be green, and as Anglo-Eastern Plantations finance director Rollo Barnes points out, principles are a luxury.

"Many people see hypocrisy in some Western statements. A decade ago, we employed 2-3,000 people; now we employ 7-8,000. These are real jobs for real people. The development benefits of these businesses are enormous - and we can't afford to ignore them."

How green palm works

Processors declare their total volume of palm oil consumption, which will be audited by Green Palm. They are then at liberty to buy one Green Palm certificate per tonne from RSPO-audited producers of sustainable palm oil via http://www.greenpalm.org

Producers are free to sell their sustainable palm oil to local or international buyers on the open market, but they are guaranteed to receive a premium of $7-10 for every tonne traded. Processors, meanwhile, are permitted to use labels that declare their support of sustainable palm oil.

While plantations pay an annual audit fee and any costs necessary to meet the criteria set by the RSPO, processors pay the market price for Green Palm certificates, which will be driven by supply and demand, plus a brokerage fee of $3 to AAK and a $1 donation to the RSPO.

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