Jakarta Globe, Michelle Yun, Ranjeetha Pakiam and Eko Listiyorini, July 1, 2013
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| A car drives past fire from burning trees planted for palm oil, during haze at Bangko Pusako district in Rokan Hilir, Riau on June 24, 2013. (Reuters: Photo/Beawiharta) |
Singapore/Jakarta/Kuala
Lumpur. Wilmar International, the world’s largest palm oil trader, plans to cut
ties with Indonesian suppliers that clear land with illegal fires after blazes
engulfed Singapore in a record haze.
Wilmar,
which bans burning on its own plantations, relies on third parties for more
than 90 percent of the crude palm oil for its refineries. Sime Darby, the
biggest publicly traded palm oil producer, also prohibits burning at its own
plantations and relies on other sources for supplies, buying as much as half
the commodity for its plants from others.
Palm oil
refiners are being pushed to enforce their no burning policies to suppliers
after hundreds of illegal blazes raged last month in Indonesia, the world’s top
producer of the commodity. Unilever, buyer of 3 percent of the world’s palm
oil, said the haze is a reminder of the need to accelerate sustainability
efforts.
“We need
the money to speak,” said Scott Poynton, founder of The Forest Trust, which
worked with Nestle SA and Golden Agri-Resources on sustainability policies.
If companies
“made a no-deforestation commitment that says to these communities, ‘you can’t
burn because we won’t buy your oil,’ that’s money directly speaking to the
people,” he said.
Palm oil is
the world’s most-used edible oil. It’s in Unilever’s margarine, ice cream and
soap. The London- and Rotterdam-based company made a commitment to buy
sustainable palm oil and wants all its supplies to be from certified, traceable
sources by 2020.
Burning
banned
“What the
industry has realized is that they can’t be simple bystanders in an ecosystem
that gives them life in the first place,” Unilever Chief Executive Officer Paul
Polman said June 27 in Jakarta.
While
Indonesia and Malaysia ban burning to clear or manage acreage, 17 timber
concession and 10 palm oil plantations had land affected by fires in Indonesia,
according to June 24 data from the non-government World Resources Institute, or
WRI.
Indonesia
is investigating a number of companies suspected to be involved in illegal
fires and will announce those names once the probe is completed, Environment
Minister Balthasar Kambuaya said last week.
Wilmar
deals with some of the companies identified by WRI on the assurance they don’t
burn, the company said in an e-mailed response to Bloomberg News.
Buying
policy
“Should
they be found to be involved in burning to clear land for cultivation, we will
stop doing business with them,” Wilmar said. The company’s buying policy states
suppliers must comply with all local and national laws and regulations.
Indonesia’s
disaster management agency said June 28 that in general people start fires on
peatlands to fertilize the soil ahead of planting crops.
Kuala
Lumpur-based Sime Darby said in a June 28 statement it had found fires on land
at one of its units, though the blazes were in an area where local communities
plant crops such as corn and sugar and not in areas planted by the company.
The company
buys from palm oil growers in Indonesia that participate in plans run by the
company and that adhere to a strict zero-burn policy. Part of its efforts to
promote no burning is to continuously educate third-party suppliers on the
benefits of complying with RSPO principles, Sime Darby said in a separate
e-mail.
Fire and
haze are common during Indonesia’s July-to-September dry season because local
villages and farmers have long favored cheaper, slash-and-burn land clearing,
according to Wilmar. Using machinery to clear costs more than $250 a hectare,
while fires cost almost nothing, it said.
Sustainability
efforts
Wilmar,
based in Singapore, as well as Sime Darby, Golden Agri and Cargill all prohibit
burning at their own plantations. That’s in line with the Roundtable on
Sustainable Palm Oil criteria which include a commitment to avoid clearing land
with fires. The RSPO was formed in 2004 to promote sustainability in an
industry that’s been dogged by concerns about deforestation, pollution and the
environment.
“It is
inconceivable that any listed plantation companies is willing to risk open
burning to clear their land, not after years of battling the non-government
organizations on issues pertaining to deforestation, orangutans and native land
rights,” Malayan Banking said in a June 24 report.
No big
plantation group would be involved today with deforestation, Wilmar said. Many
of the problems are caused by small farmers, which makes it difficult to
control, it said.
Malaysia
had 183,774 small palm growers as of May, while Indonesia has more than 2
million. The Indonesia Palm Oil Farmers Association has a “zero burning” policy
for its members, and other crop farmers may be responsible for the blazes, said
Secretary General Asmar Arsjad.
Investor
concern
For some
investors, concerns about deforestation remains. Norway’s sovereign wealth
fund, the world’s largest with assets of $737 billion, sold investments in 23
palm producers including Wilmar, Golden Agri and Kuala Lumpur Kepong, in the
first quarter of 2012 citing concern about deforestation, according to its
annual report released in March.
Golden
Agri, the second-biggest palm plantations operator, is “absolutely” against
burning and “would also encourage best management practices to all
stakeholders,” the company said in an e-mail.
It buys
less than 10 percent of its fresh fruit bunches from outside suppliers. Cargill
gets 95 percent of its third-party crude palm oil in Indonesia from RSPO
members.
“Those
suppliers have signed on to the RSPO criteria which includes a commitment to
not to use burning for land clearing,” Cargill said by e-mail.
“It is one
of the reasons why we target RSPO member for our third-party out supply.”
The number
of Wilmar’s suppliers that are RSPO certified is still small, though steadily
increasing, it said.
While the
haze has lessened in Singapore, it will return, according to The Forest Trust’s
Poynton.
“Singapore
will choke again because globalization demands it,” he said from Geneva.
“These
fires are happening to clear the way to grow a commodity for the global supply
chain.”
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