Palm Oil Monitor – Weekly Update 24th August 2018

Investors lobby RSPO: Why didn’t they just join?

A group of investors sent a letter to RSPO last week, calling on the certification body to implement tighter standards on deforestation.

More specifically, they wrote to the Principles and Criteria Review Task Force, calling on it to recommend implementation of HCSA assessments for new plantings under RSPO. This is something that Palm Oil Monitor has covered previously. This measure will be voted on at this year’s Roundtable meeting, which will be taking place in Malaysia later this year.

However, there’s something amiss in the letter. The NGO coordinating the letter – CERES – isn’t a RSPO member. It also appears that not one of the investors that have signed off on the letter is a RSPO member.

This warrants some simple questions.

First, if the investors care that much about palm oil, why aren’t they RSPO members? This would give them the opportunity not only to have input into the P&C review process, but also the opportunity to vote at RT16 later in the year.

Second, the letter states:

“Our investment portfolios include companies that have significant exposure to deforestation risks and therefore, have made robust no-deforestation polices and strong commitments to sourcing sustainably certified palm oil. As such, both investors and companies rely on the RSPO to ensure reliable supplies of verified sustainable palm oil. We strongly support the RSPO’s mission and the central role of RSPO certification in the industry.”

These investors state they have ‘significant’ exposure to deforestation risk, which they have mitigated with their existing policies. If they are unhappy with this level of risk mitigation, aren’t they in a position to strengthen their own policies, and/or divest any holdings that have any deforestation risk? Why are they calling on another organisation – which relies on a potentially unpredictable voting procedure — to mitigate that risk for them?

CERES has received several grants to undertake advocacy on palm oil.  But this strikes us as being particularly unconstructive for sustainability objectives. CERES is shouting from outside the tent, when they could be participating meaningfully.

Greenpeace opts for emotion

Speaking of being unconstructive, Greenpeace UK head John Sauven made some alarming comments to Marketing Week recently:

Greenpeace hopes taking a “heart over head” approach to its latest campaign will engage consumers at an emotional level rather than just hitting them with “cold hard facts”…. Sauven says too often people get lots of statistics thrown at them regarding biodiversity and environmental concerns that can come across as “quite cold” … “I don’t think people can really use that information. If you want people to take action, you need to find a way to motivate them to take action,” he says.

The latest campaign is a broad online media campaign that puts orang-utans at the heart of the palm oil debate.

Like most participants in the palm oil debate, Palm Oil Monitor believes that a good part of the industry is working closely with NGOs and governments to provide robust solutions. But we also believe that making blanket and emotive statements on the relationship between palm oil and orang-utan conservation is particularly unconstructive.

This includes Greenpeace’s latest tweets, which simply show an orang-utan and a burning forest, with the caption, “They’re burning it for palm oil,” as well as a slick animated video with messaging along similar lines.

There are two reasons this is unconstructive.

First, because marginal falls in consumer demand for palm oil, European markets will not make any meaningful impact on orang-utan conservation outcomes.

Second, despite the fact that Greenpeace is calling on “big companies to drop dirty palm oil”, the messaging comes across as distinctly anti palm oil.

Greenpeace likes to maintain that they support palm oil – as long as it follows their preferred production methods, i.e. the High Carbon Stock Approach.

But, as Sauven says, emotion is what Greenpeace is pursuing. And emotional arguments don’t provide room for a nuanced discussion about production techniques.

Members of the High Carbon Stock Steering Group should be somewhat alarmed; this campaign isn’t doing them any favours.

Analysis: Are RSPO and RED intertwined on HCS?

In the past few weeks, there has been a clear ramping up of activity from campaign groups aimed specifically at palm oil.

Anyone looking at the policy landscape a few months ago may well have assumed that once the RED trilogue had been completed it would have died off.

The exact opposite has been true. Campaign activity has been accelerating, and there are two clear policy events on the horizon.

The first is the RSPO’s vote on incorporating the HCSA approach into RSPO Principles and Criteria at the Roundtable event in November.

The second is the European Commission putting forth its report on ILUC and HCS as required by the revised Renewable Energy Directive.

These events are not entirely independent of one another. HCSA is gaining traction with RSPO, and at the same time RSPO members will be used to lobby the European Commission to incorporate or include the HCSA methodology into any regulations.  RSPO would likely be supportive of any such moves as, like RSPO RED, it will assist its members access to the European biofuel market going forward.

Snapshot: The palm rollercoaster

For anyone observing palm trade and demand, the last few weeks have been nothing less than a roller coaster. To make it simpler for the casual market observer, we’ve lined up all the factors impacting the current price and outlook.

  • India’s currency. The rupee has taken a major hit over the past few weeks along with the Turkish lira, with the rupee reaching a historical low against the US dollar. This means that imports of all commodities – including palm oil – are coming under pressure, hence weakened demand out of India, which remains Malaysia’s largest market. According to one estimate, demand in July fell by 33 per cent.
  • US-China trade policy. China has hit US soybeans with a 25 per cent tariff. This would seem like an opportunity for palm given that the US is China’s largest source of soybeans. However, the policy uncertainty appears to be dragging everything down, not just soybean and palm. Most traders are hopeful that there will be a bounce in the next few weeks as Chinese buyers switch away from soybean.
  • European drought. Drought conditions across the EU have curtailed the region’s rapeseed crop and put considerable price pressure on the entire oils and meals complex in the EU. This is impacting prices for biofuel feedstocks – and making palm look particularly attractive at this stage.