Insight: Can "Big Brother" technology clean up palm oil's image?

Golden Agri-Resources

11/02/2019 06:00

* Consumer Goods Forum has 2020 zero net deforestation
target
    * Companies using satellites to bolster monitoring
    * Risks driving unsustainable palm oil to other markets
    * Graphic on growing palm oil demand: https://tmsnrt.rs/2HTZwLf

    By Ana Ionova and Martinne Geller
    LONDON, Feb 11 (Reuters) - Some of the world's major palm
oil users, including Nestle  NESN.S , Unilever  ULVR.L , and
Mondelez  MDLZ.O , are trying out new satellite technology to
track deforestation, as pressure grows on them to source the
ingredient responsibly.
    They say the monitoring systems allow them to target people
felling trees in producing countries like Malaysia and
Indonesia, where forests are shrinking, more efficiently than
policing supply chains on the ground. 
    "They say you're Big Brother," said Benjamin Ware, global
head of responsible sourcing at Nestle. "It's not Big Brother -
it's today's reality...there is nothing secret anymore."
    Interviews with leading brands, commodity traders and
plantation owners show the systems have limitations and opinions
on them vary, reflecting tension within the industry over how to
tackle an issue with no easy answer.
    Some say the technology is not enough to stop deforestation
- that monitoring is not preventing. Others worry boycotting
unsustainably made palm oil just drives bad practices elsewhere.
    "Dividing the supply chain into the good versus the bad
fundamentally does not solve deforestation," said John Hartmann,
global sustainability lead for agricultural supply chains at
commodities trader Cargill  CARG.UL , which sells palm oil to
firms like Nestle and Unilever.
    Palm oil buyers have toyed with satellite imagery for years,
but have now ramped up their use as they rush to meet a pledge
of zero net deforestation by 2020, set by global umbrella body
the Consumer Goods Forum.  urn:newsml:reuters.com:*:nL5N200520
    The oil is in nearly half of all packaged goods from
chocolate to soap, and is also used as a cooking oil and in
biofuel.
    As sustainability becomes more of a buzzword, multinational
brands are trying to keep shoppers from switching to independent
start-up brands, which often tout green credentials.
    "There's more awareness," said consumer analyst Robert
Waldschmit from Liberum. "People want a sustainably-sourced
product."

    BIG BROTHER
    Palm oil contributes less to deforestation than beef or soy,
which are responsible for much of the destruction in the
Brazilian Amazon. But it has garnered attention because it
thrives in biodiverse regions, threatening endangered species
and exacerbating global warming.
    The big players, including consumer brands, commodity
traders like Cargill and Wilmar International  WLIL.SI  and
plantation operators and processors, have supply chains that
span millions of smallholder farmers as well as many middlemen.
    "They are trying to take it into their own hands on how it's
monitored...Because they haven't gotten their supply chains
under control at this time," said Phil Aikman, campaign director
at environmental pressure group Mighty Earth.
    Nestle, target of a 2010 video by Greenpeace International
depicting a stick of KitKat bar as an orangutan finger, was
briefly suspended by the Roundtable on Sustainable Palm Oil
(RSPO) last year for not sharing time-bound plans for how it
would boost purchases of certified palm oil.
    The RSPO, which is backed by the World Wildlife Fund and
other NGOs, sets varying levels of sustainability criteria that
members must meet to certify their oil; the most stringent level
involves ensuring it is separated from the rest and can be
traced to a single certified source.
    RSPO-certified oil comes with extra costs, which buyers are
not always willing to swallow. Of the 11.9 million tonnes of
RSPO-certified oil produced in 2017, only 52 percent was sold as
such, the group said.
    But the RSPO has itself faced criticism that it allows some
deforestation as well as development on valuable peat lands: in
November, it responded by tightening its rules.
    Nestle says a quarter of its palm oil is RSPO-certified and
all of it will be by 2023, but 100 percent will be "responsibly
sourced" by 2020, partly with the help of satellites.
    From next month, it plans to publish data online from an
Airbus-developed  AIR.PA  satellite system called Starling, to
"put responsibility on the mill" that extracts oil from palm
fruit. 
    Nestle says that once a Starling deforestation alert is
verified, it will ban the offending supplier after 60 days of
engagement unless it cleans up its act, although the firm has
not yet suspended any since rolling out this new model last
month.
    "The challenge is figuring out how do we act on that
information, who are the right people in the organisations to
interact with to address deforestation," Emily Kunen, Nestle's
global responsible sourcing leader for palm oil and seafood,
told Reuters at a plantation under Starling's watch in Bahau,
some 125 km south of Malaysia's capital Kuala Lumpur.
    Unlike cocoa or coffee, palm oil is often not marked as
sustainably or responsibly sourced even though Nielsen data
suggests sales of products with environmental claims often fetch
higher prices and grow faster than their peers.
    "The image of palm oil is very bad," said Nestle's Ware.
"So, for the time being, we really struggle to see how we could
market it positively."
    
    PALM-OIL FREE? 
    Italy's Ferrero Group, which only buys RSPO-certified palm
oil that has been separated from the rest, has tried Starling,
but the Nutella maker said it is still assessing results of its
pilot to decide whether to keep using it.
    "One of the questions we would like to look at is whether
there's an early warning system," said Giulia Di Tommaso,
Ferrero's chief communications and sustainability officer. "Are
you able to address it before deforestation happens, or does it
only allow you to understand when the damage is already done?"
    Unilever says it is on track for all of its "core volume"
purchases, the bulk of its usage, to be certified by the end of
2019 and is also using satellite technology.
    Along with others, including its suppliers Cargill and
Wilmar, it is piloting a satellite tracking tool called Global
Forest Watch (GFW) Pro, which will launch this summer.
    Wilmar, which was among RSPO members recently 'named and
shamed' by Greenpeace, said from January it started immediately
suspending purchases from mills with links to GFW Pro-identified
deforestation.
    "In the past, we have tried to engage, engage, engage," said
Ginny Ng, global conservation lead at Wilmar, which handles 35
percent of global palm oil supply.
    "Some suppliers are taking advantage of that. So now we're
going to suspend first, and then we will chat."
    GFW Pro will be free, to encourage everyone to use it, but
producers say low benchmark palm prices and the difficulty in
securing a premium price make it difficult to offset the costs
of taking action based on data from such platforms.
    Benchmark palm oil futures  1FCPOc3  are just 19 percent off
a three-year low they hit in November, at $563 per tonne.
RSPO-certified oil can cost from $2 to $40 more per tonne
depending on the level of sustainability, according to Carl
Bek-Nielsen, chief executive director of United Plantations
 UTPS.KL  and RSPO co-chair.
    Palm oil is still cheaper than alternatives but several
supermarkets have cut back or stopped using it, including SPAR
in Austria and Coop in Italy, citing health and environmental
concerns. Italy's Barilla is also challenging Ferrero's Nutella
with a chocolate spread without the oil.  urn:newsml:reuters.com:*:nL8N1XQ6GW
    European Union lawmakers are set to phase out palm oil in
transport fuels from 2030, angering producing countries, which
see the export as key to economic growth and poverty reduction
and have threatened retaliation.  urn:newsml:reuters.com:*:nL3N1ZO124  urn:newsml:reuters.com:*:nL8N1XW1PI
    But world demand is poised to continue expanding fast https://tmsnrt.rs/2HTZwLf
 as incomes climb in developing nations.
    Some in the industry say "dirty" palm oil expelled from big
players' supply chains is finding other buyers in booming
markets in Asia and Africa, where price often trumps
sustainability.
    "If oil is produced, it finds a way to market," said
Jonathan Horrell, director of sustainability at Cadbury
chocolate maker Mondelez International  MDLZ.O . Mondelez buys
RSPO credits to cover its palm oil volumes rather than sourcing
only physically certified oil, while also piloting GFW Pro.
    It says engaging with producers to improve their practices
is more effective than cutting "dirty" oil out. "I don't think
exclusion from supply chains is the way forward."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
FACTBOX-New systems pinpoint palm oil deforestation in real
time, almost     ID:nL5N200520 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (additional reporting by A. Ananthalakshmi in Bahau, MALAYSIA,
Emily Chow in KUALA LUMPUR and Francesca Landini in MILAN;
editing by Philippa Fletcher)
 ((mailto:mariana.ionova@thomsonreuters.com; +44 207 542 9497;))