GreenPalm certificates representing 2016 production ceased trading on 31 March 2017. Any certificates for 2017 claims should be traded through PalmTrace from 1 January 2017.

 

GreenPalm: Encouraging independent smallholders to work sustainably

Abstract

Whilst many major palm oil producers are now working sustainably and in line with RSPO (Roundtable on Sustainable Palm Oil) guidelines, smallholders and independent producers in Malaysia, Indonesia, and Thailand are yet to make the transition to sustainability. This is because of the nature of palm oil supply chains, export markets, and domestic economics in the major palm oil producing countries. GreenPalm is now working to encourage independent palm oil producers across Asia to operate under RSPO guidelines by facilitating access to the financial benefits of sustainability through the GreenPalm certificate trading programme.

Keywords: sustainable production, independent producers, global production, Thailand, Malaysia, Indonesia, smallholders

Background situation

GreenPalm is an RSPO-approved alternative supply chain option which allows purchasers to directly support certified sustainable palm oil production. A certificate trading programme enables palm oil users to offset their use of palm oil products by funding the production of an equivalent volume of oil by RSPO-certified producers. Producers receive a premium for their produce, which then helps to encourage an increase in sustainable production at source.

Unlike alternative RSPO-approved methods—the purchase of segregated sustainable materials, and mass balance—GreenPalm can be implemented without any changes to existing palm oil supply chains; therefore, companies working towards sourcing sustainable palm oil can express their support by directly rewarding producers for implementing best practices for the production of sustainable palm oil, wherever it is used or sold.

The current situation
Many large oil palm growers, collectives, and farming companies are already producing certified sustainable materials, in line with industry and national guidelines set out by associations like the RSPO, ISPO (Indonesian Sustainable Palm Oil), and MSPO (Malaysian Sustainable Palm Oil).

However, these groups do not represent the entire global production of palm oil, as a significant proportion of the world’s palm fruits are grown by independent smallholders. This is a big challenge to the movement towards sustainability as, currently, no independent smallholders hold accreditation with the RSPO, only those associated with larger companies under such schemes as the Indonesian Plasma Scheme. With smallholders in Thailand (the world’s 3rd largest producer at 1,700,000 MT annually) managing over 70% of the land cultivated for palm oil, encouraging independents to work sustainably is vital to the wider success of sustainable palm oil.

This is not just a problem in Thailand; independent producers across Malaysia and Indonesia have been similarly reluctant to join the sustainability movement due to the complex nature of the supply chain and export markets as well the difficulty of accessing the start-up capital required to cover the cost of certification.

Despite rising global demand for sustainable materials, the vast majority of oil produced by independents is consumed domestically rather than exported; therefore domestic palm oil markets in producing countries are very competitive and entirely price focused. With no strong local demand for sustainable materials, there is little incentive for producers to work sustainably (which is more expensive), as it would place them at a severe commercial disadvantage.

Another problem faced by independent producers is that even when they have access to export markets, often they don’t produce oil in large enough volumes to be sold in segregated batches. So even if they were to produce sustainably in low volumes, this material would need to be mixed with potentially non-sustainable materials from other producers to produce the volumes required for trade, in turn removing the value added return that they would have received if they had sold segregated sustainable palm oil.

Options and action

If independent producers are to move towards sustainability, there needs to be a real financial incentive for them to do so. This is where the GreenPalm option has a big part to play, because it rewards producers for each tonne of sustainable material they produce. Even if the product is not sold on the market as sustainable palm oil, the producers still receive a premium for working sustainably.

GreenPalm is actively trying to encourage independents to get on board and is already working with a group of producers in Thailand in conjunction with a German Federal Ministry for the Environment initiative led by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). Under this initiative, GIZ implements the RSPO certified smallholder project on the ground to support smallholders and help them work towards meeting RSPO requirements.

As part of this process, smallholders will be shown how to grow oil palms to improve yield and lessen the impact on the environment in order to meet the RSPO criteria, at which point they will be able to charge a premium for their sustainable product by selling GreenPalm certificates.

Our hope is that this will demonstrate the financial benefits of working sustainably to other small producers in Thailand and across the world, encouraging them to improve their environmental and ethical working practices and to seek RSPO accreditation.

Outcomes and conclusion

It is likely that in the next few years, the global demand for sustainable palm oil will increase as emerging economies such as India and China begin to engage with the issue.

When this happens, complexities within the supply chain will make it prohibitively difficult and costly for food manufacturers, retailers, and end users in India and China to obtain the volumes of segregated sustainable materials they need to meet demand. Whilst supply chains are being re-engineered, companies that want to support sustainability will be able to offset their use through the purchase of GreenPalm certificates, which will stimulate supply at the source.

We want to ensure that independent smallholders are in the best position possible to take advantage of the rising global demand for sustainable palm oil. Over the next few years, our efforts will be focused on encouraging independent smallholders across Asia to gain RSPO certification, in order for them to increase their yield, improve profits, and protect the environment.

Further information on palm oil and the benefits of sustainability can be found at www.greenpalm.org. Alternatively, visit the RSPO (Roundtable on Sustainable Palm Oil) website at www.rspo.org.

Prepared by: Bob Norman
Position: General Manager
Organisation: GreenPalm
Email: bob.norman@greenpalm.org
Date: August 2012