Creating demand for sustainable palm oil in the biggest importing nation is vital for greening global supply chains.
Arokia Samy owns a small eatery in southern India’s Chennai and uses a lot of palm oil. He buys it at around INR 90 (US$ 1.22) a liter from the market and chooses it over other cooking oils because it is cheaper and lends itself to the varied dishes his restaurant prepares.
The Tamil Nadu state government also provides his family with a liter every month at a subsidized rate of INR 25 (US$ 0.34). The government supplies palm oil and other essentials like rice and lentils to 19.72 million people as a food security measure.
Millions of consumers like Samy sit at the end of the global supply chain.
They are often unaware that unsustainable palm oil production is responsible for environmental degradation, biodiversity loss, the exploitation of indigenous people, and deforestation of tropical rainforest that is threatening iconic species like orangutans with extinction.
Several organizations are trying to create awareness of these issues and increase demand for sustainable palm oil in India, the world’s biggest importer of palm oil.
The situation may not change drastically any time soon, but some in the sector are taking small steps to green their supply chains.
Why a boycott won’t work
Growing demand for palm oil has led to calls for a boycott.
However, scientists and environmental organizations warn that since palm oil has a higher yield and requires fewer pesticides than alternative oils, replacing it could worsen harm to natural habitats and biodiversity.
They advise sustainable cultivation and production instead.
“Eliminating palm oil and switching to alternatives won’t solve the problem,” said John Buchanan of non-profit Conservation International.
“It will simply mean that ‘bad’ palm oil gets shipped to markets that are unaware of those challenges and are not encouraging palm oil producers to solve those challenges.” So raising awareness and creating demand for sustainable palm oil in markets like India is essential.
Sustainable palm oil
In the early 2000s, several international organizations in the palm oil sector agreed that a multi-stakeholder alliance could drive sustainability voluntarily.
AAK, a Swedish producer of specialty vegetable oil products, played an important role in getting the alliance – known as the Roundtable on Sustainable Palm Oil (RSPO) – off the ground in 2004.
RSPO members have to comply with a set of social and environmental criteria that include not clearing forests, protecting local wildlife and not using child labor.
One of India’s first two companies to gain RSPO certification in 2014 was Kamani Oil Industries Pvt Ltd.
AAK and Kamani joined forces in 2015 to create the new entity AAK Kamani. In the same year, AAK stated that by 2020 all the own-brand palm oil it handled and supplied would be certified sustainable, including in India.
It didn’t manage to achieve this, although the company had said the aim was “subject to availability and demand”.
AAK Kamani focusses on specialty oils, and most of its customers are multinationals with considerable knowledge of sustainability issues compared to the mass edible oil section of the market.
“We wanted to be ready when the demand for sustainable palm oil rose in India with increase in awareness,” said Dheeraj Talreja, AAK Kamani’s president.
India as a catalyst
The vegetable oil industry body Solvent Extractors’ Association of India (SEAI) has also turned its attention to promoting sustainable palm oil in India and elsewhere in Asia. In 2017, it released the Indian Palm Oil Sustainability Framework.
B.V. Mehta, executive director of SEAI, said: “We have a council for matters related to sustainable palm oil and we are trying to create awareness about sustainable palm oil on production as well as consumption.”
SEAI’s members and top importers such as Adani Wilmar, Emami Agrotech and Gokul Agro Services are also RSPO members, with sustainability commitments, as is AAK Kamani.
There is huge potential here given the size of the market and the low usage of sustainable oil. At the moment only an estimated 3 per cent of India’s palm oil imports are RSPO certified, according to Kamal Prakash Seth, country head of RSPO India.
India has a huge role to play to make the palm oil industry more sustainable.
-Kamal Prakash Seth, country head, RSPO India
“India imports about 9.3 million metric tonnes, which is 19 per cent of global palm oil imports. We spend nearly US$5.5 billion to import palm oil,” said Seth.
“With the increase in economic status of many Indians, and with the trend in buying processed food increasing the use of edible oil, this trend of high imports [is likely to] continue for a minimum of 10 years.”
Imports into the United States and Europe are a fraction of India’s, so the country “has a huge role to play to make the palm oil industry more sustainable, not only in India but globally, specifically in South and Southeast Asia,” said Seth.
“We were convinced that the conventional system of promoting a sustainable supply chain would not work as far as palm oil was concerned,” said Rijit Sengupta, CEO of CRB. “We decided to present a unified voice.”
A hard road ahead
The RSPO puts palm oil into four sustainability categories: non-certified oil; “mass balance” (a mix of certified and non-certified oil); “segregated” (from multiple certified sources but kept separate from non-certified oil); and “identity preserved” (from a single certified source).
The complexity of refining palm oil increases for companies when they move from buying mass balance to segregated and identity preserved because different infrastructure is needed.
“But it is very much possible, if there is a proper structural plan,” according to Virendra Jain, sales manager for special nutrition and key accounts at AAK Kamani.
Many buyers still prefer non-certified palm oil as it costs less, though the difference is getting smaller. One of the reasons sustainable palm oil has a premium is that it involves guarding and monitoring plantations.
GG Patel, the founder of GGN Research, an agriculture research firm, said that sustainable palm oil used to be about US$5 more expensive per tonne, but is now almost equal with non-certified palm oil.
Seth said sustainable palm oil may now cost only US$0.04 more per liter.
The RSPO also has a book-and-claim system on its traceability and trading platform called Palm Trace for those who do not buy sustainable palm oil.
The platform enables companies that are conscious of their environmental footprints to purchase credits and offset non-certified oil procurement.
External evaluations of operations have revealed shortcomings and difficult challenges ahead for companies trying to be more sustainable.
On WWF’s 2019 Palm Oil Buyers scorecard, AAK scored a mediocre 14 out of 22. WWF awards points for, among other things, the percentage of certified oil bought, and the support given to smallholder farmers and conservation projects.
In the Sustainability Policy Transparency Toolkit’s (SPOTT’s) environmental, social and governance transparency assessment of 2019, AAK scored 53 per cent, faring poorly on water, chemical and pest management, commitment to restoring deforestation and biodiversity conservation.
There are no specific scorecards for Indian companies, according to the RSPO’s Seth.
Economic sustainability and environmental sustainability go hand in hand; the faster companies realize this fact, the easier the journey to sustainable palm oil.
-Dheeraj Talreja, president, AAK Kamani
As per SPOTT’s report, many companies, despite their commitments, do not disclose how they monitor deforestation and other commitments in their operations or those of their suppliers.
“While palm oil companies have made progress in setting clear commitments to tackle deforestation, many 2020 zero-deforestation targets will not be met,” said Eleanor Spencer, palm oil technical advisor at the Zoological Society of London, which developed SPOTT.
“These deadlines cannot be extended if we are to meaningfully tackle the climate and biodiversity crises.”
On the question of a specific scorecard for Indian companies, Seth said: “We are running a consumer campaign in collaboration with The Better India, an Indian digital media platform, encouraging consumers to ask their favorite brands if their products contain certified sustainable palm oil.”
Despite the failure to meet the 2020 deadline for their NDPE (No Deforestation, No Peat, No Exploitation) commitment, AAK has made good progress according to its April 2020 report.
Though the figures are lower in India, globally the company’s traceability to mills is 98 per cent, and to plantations it is 53 per cent for palm oil and 62 per cent for palm kernel oil.
To further its efforts, AAK developed a supplier scorecard in 2019 to track whether its suppliers are following sustainability standards, and work on any gaps.
Some AAK units are moving towards 100 per cent RSPO certified palm oil.
While the company’s RSPO palm oil is 54 per cent in the US and 45 per cent in Europe, it is 2 per cent in Asia where demand for sustainable oil is much lower. It is this disparity that AAK Kamani is trying to address.
At I-SPOC, AAK Kamani is working to engage government and end-users to bring about changes in perspectives and policies.
Talreja said that there is a business case for companies to switch to sustainable palm oil, as it will boost shareholder value, consumers’ perception and social impact.
“We as a company are driven by the UN’s sustainable development goals,” said Talreja.
“Economic sustainability and environmental sustainability go hand in hand; the faster companies realize this fact, the easier the journey to sustainable palm oil.”