Jakarta Globe, Yuriy Humber & Ranjeetha Pakiam, Mar 13, 2015
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In this handout photograph released by Greenpeace areas of forest cleared
for palm oil plantation are seen in Jambi Province on Indonesia's Sumatra
island on Oct. 20, 2013. (AFP Photo) |
The
sprawling palm oil industry is the destroyer of rainforests and tormentor of
endangered species across Southeast Asia, to hear environmental groups tell it.
And if
there’s one executive who embodies this contentious $50 billion business, it’s
Singaporean commodities magnate Kuok Khoon Hong. He’s the palm oil king,
co-founder and chairman of giant Wilmar International, the industry’s biggest
trading firm. It handles almost half of the global trade in the commodity.
Yet, these
days Kuok is no longer portrayed as a villain by activists and non-governmental
organizations. He’s actually become central to their campaign to prod the
industry into adopting new, eco-friendly business practices that may start to
arrest the environmental damage in the region.
“I would
consider myself an environmentalist today,” Kuok said in an e-mail.
“I changed
a few years ago when I saw the damage climate change had on the environment in
some countries.”
The story
of how Kuok’s position changed is based on an e-mail correspondence with him
and interviews with industry executives, experts and environmentalists familiar
with his thinking.
The portly
65-year-old, who sports a head of jet-black hair, has a warm, avuncular
demeanor and a tendency to wink as he speaks. He’s also a pragmatist and a
member of one of Asia’s most powerful business clans.
Extracted
from the orange pulp of a palm fruit, palm oil is the most ubiquitous edible
oil in the world, consumed every time you brush your teeth, wash your hair,
slurp some ice cream or put on lipstick.
As
commodities go, it’s cheap, versatile and high-yielding. Cultivation of palm
oil ties up more than 17 million hectares worldwide, an area four times the
size of Switzerland.
Europe’s
backlash
The
business has made Kuok a billionaire and lifted many communities in Southeast
Asia and Africa out of poverty. It’s also led to mass deforestation and air
pollution across Southeast Asia.
A consumer
backlash against using palm oil in Europe and other developed economies
threatens the profitability of the industry. Kuok says the solution is not to
shun the fruit, but change the way it’s produced.
Wilmar’s
experience may also offer up lessons to other industries whose expansion and
business practices pose risks to the environment.
A bad year
Back in
2013, Kuok had every reason to believe the world might be conspiring against
him. That year, the world’s biggest sovereign wealth fund, Norway’s Government
Pension Fund Global, disclosed that it had dumped shares in 23 palm companies,
citing environmentally harmful industry practices. The next year that number
rose to 27 companies.
Greenpeace
videos, alleging that consumer industry palm oil buyers including Unilever
contributed to deforestation, had amassed millions of YouTube hits.
Environmentalists confronted the chief executive of Kellogg about palm oil
purchases from Wilmar on investor calls. And Singapore, the home of Kuok and
Wilmar, was covered in ash from plantation fires.
2015 target
Environmentalists
are far less critical now. Wilmar and about 30 other firms including Unilever
and McDonald’s have pledged by the end of 2015 to buy palm oil that’s certified
as coming from sustainable sources. The pledge effectively means no trees, peat
land or orangutans were harmed in making the products.
While most
the goals are not legally binding, Dave McLaughlin, vice president of
Agriculture for the World Wildlife Fund, said the companies are “putting their
credibility on the line.”
Global
firms “really are exposed on the palm oil issue. It’s difficult, the
circumstances and the issues are not easy, but they’re doing it,” he said.
Wilmar’s
decision to back causes as diverse as restoring forests and riverbanks,
protecting wildlife on the edges of plantations from poachers, and education of
migrant workers, have not come about due to the activist pressure, according to
Kuok. Being sustainable is good for business, he says.
Fragmented
industry
Oil palm
trees were introduced to Malaysia at the turn of the 20th century by the
British, who brought the West African variety to pretty up the gardens of
colonial homes. Today, Indonesia and Malaysia dominate supply.
It’s a
fragmented industry consisting of hundreds of large plantations and thousands
of plots tendered to by a single family or community.
Reputational
hit
Wilmar is
testament to one family’s obsession with food. A Chinese immigrant family in
British-controlled Malaya, the Kuoks started with a rice and flour shop before
current patriarch Robert Kuok rose to be one of the world’s top sugar traders.
Robert’s
nephew, Khoon Hong, set up Wilmar with a partner in 1991, growing it to be one
of Singapore’s biggest firms with $45 billion in revenue.
Wilmar’s
reputation took a hit when the Norwegian sovereign wealth fund sold its stake
in the company in 2012. It didn’t specify a reason.
However, in
its 2012 annual report, the fund explained the sale of Wilmar and other palm
stocks by noting the industry’s role in continued deforestation in Malaysia and
Indonesia and its view that some companies “by our reckoning produced palm oil
unsustainably.”
Number-one
target
Matters
turned worse in the spring of 2013. Winds carried record volumes of smoke from
land-clearing fires at Indonesian plantations. The miasma that visited
Singapore set records for air pollution in the city state and blanketed cars
with ash, forcing people indoors.
The
government wanted answers.
Wilmar
stated its case, according to Jeremy Goon, Wilmar’s chief sustainability
officer. The company told government officials it had a zero-burning policy. It
monitored fires and knew none of these were on its own land, though it couldn’t
speak for others, Goon said.
Voice from
TV
Amid the
public questioning in Singapore about those culpable for the fires, Kuok turned
on the television news and saw one activist lay the blame squarely on Wilmar.
The company was closing its eyes to murky industry practices, instead of using
its clout to enact change, the man argued.
The speaker
was Glenn Hurowitz, executive director of Catapult, and one of the strategists
behind a year-long attack by a broad collective of NGOs including Climate
Advisers and Forest Heroes on the palm industry, with Wilmar as their
number-one target.
“I asked
myself what we did wrong for us to be so wrongly accused,” Kuok said. Because
of Wilmar’s industry position “we were made to look like the biggest villain.”
Wilmar
bends Kuok tracked down the activist he saw on TV and fired off a defensive
letter. The two began an e-mail exchange and within weeks the tycoon had
invited Washington-based Hurowitz to his Singapore office.
Kuok spent
the first 15 minutes ranting about NGOs.
“I couldn’t
believe I’d flown 24 hours across the world to listen to that,” Hurowitz
recalls. Then Kuok calmed down and “treated me like a Chinese uncle.”
The new
mood of respect deepened when Wilmar’s chief discovered over a meal in a local
Chinese restaurant that his “angry” critic was a vegetarian.
Conversing
in English and “rusty”
Mandarin
Chinese first picked up as a kid at a Minnesota summer camp, Hurowitz explained
that he had quit meat because of the strain rearing animals has on the planet.
“He thought
it was an indicator that I was a sincere environmentalist,” Hurowitz says.
According
to Kuok, that’s a person who wants to help the planet without ignoring positive
aspects of palm development.
Being
sincere
Scott
Poynton, the founder of environmental group The Forest Trust, soon joined the
talks. The activists pushed Kuok to use his industry clout to force all Wilmar
suppliers to cease forest cutting, cultivation on peat land, and to champion
labor and indigenous tribes’ land rights.
In
principle, Kuok agreed, Hurowitz said. After all, Wilmar was already
implementing much of the advice at its palm estates. The harder task was
getting outside suppliers — including the more than 800 mills that send crude
palm oil to its refineries and the thousands of farmers who sell its agents
fruit — to do the same.
Already
Kuok was starting to feel resistance from “some of the big plantations,”
Hurowitz said.
Few of
Kuok’s peers shared the tycoon’s fear that NGO campaigns could provoke a
consumer pushback and government interventions, factors that would limit palm
oil use and hurt prices.
Kuok
gathered industry peers in the fall of 2013 to urge everyone to take the plunge
together. The talks were joined by Unilever’s chief executive Paul Polman, the
world’s biggest palm oil buyer.
Unilever,
the maker of Dove soaps and Ben & Jerry’s ice cream, had been through its
own NGO heat.
Greenpeace
had run public and social- media campaigns that scored millions of YouTube
views for videos such as “Dove Onslaught(er),” depicting an Indonesian girl
amid tree stumps.
A Unilever
spokesperson, without discussing the details of the 2013 talks, said that the
company believes governments, business and civil society must work together to
enact change.
Unilever is
pursuing such an approach in palm, soy, paper and beef and plans to widen the
focus, the spokesperson said.
“We are
working with our key supplier partners, including Wilmar, to drive market
transformation,” the spokesperson said by e-mail.
Failure to
agree
At the
talks Unilever pushed for higher standards, but stopped short of offering to
pay more for sustainable products, according to the account of three
participants, who asked not to be named because of the closed-door nature of
the meeting. Palm companies objected to calls to stop all new plantation
development.
The
negotiations yielded a Sustainable Palm Oil Manifesto, which was denounced by
Greenpeace as worthless. Wilmar didn’t even sign it.
Though the
talks failed to win widespread industry support, Hurowitz said Kuok was still
looking for solutions — ones that would not put him at a disadvantage with
competitors.
“He talked
a lot about how upset he was at the haze in Singapore and in China,” Hurowitz
said. “He just needed to be given a business rationale to go ahead with this,
to show that this was a commercial decision.”
The deal
By early
December, the momentum seemed to falter and Kuok threatened to call the whole
thing off, according to Hurowitz.
On Dec. 4,
2013, Hurowitz and Poynton, Kuok and other Wilmar executives went for dinner to
the Szechuan Court & Kitchen at Singapore’s Fairmont hotel, a five-minute
drive from Wilmar headquarters.
Seated
around a table with a Lazy Susan rotating tray, the party’s mood was tense and
the conversation at times descended into shouting, Hurowitz recalls.
Hurowitz
and Poynton warned Wilmar palm oil would lose market share as demand for the
product in the West crumbled under NGO criticism.
They even
threatened to renew all attacks on the industry — but focus on Wilmar alone.
And they promised to bring competitors aboard later if Kuok made the first
step.
Kuok, said
Hurowitz, offered a deal:
Get me
Unilever and I’ll sign. If the biggest seller and buyer could make the jump
together it would make a splash. And Kuok wouldn’t be alone.
The two
campaigners penned an e-mailed letter to Unilever chief executive Polman in the
hotel lobby. “We thought this deal could change agriculture,” Hurowitz said.
No reply
came. The next morning, the pair received a last- minute invite to visit
Unilever’s Four Acres office in Singapore. Resigned to another fruitless run
through the issues, they didn’t even bother with jacket and tie.
The
UK-Dutch firm’s chief procurement officer at the time, Marc Engel, sat across
from them and simply said: We’re in. I’ll call Khoon Hong.
The
Unilever spokesperson, who asked not to be named, did not reply to questions
about this episode.
Domino
effect
In a domino
effect, big-brand food and household goods companies from Dunkin’ Donuts to
Procter & Gamble and Kellogg joined the movement to buy oil from sources
certified as sustainable or, at least, offset purchases with so-called green
certificates that compensate the “good” suppliers.
Rival traders
Cargill and Golden Agri-Resources made similar pledges to prevent deforestation
by their suppliers.
Amid the
euphoria, there is a need to remain watchful against backsliding, says Daniel
May, a senior manager at the German sustainable palm oil industry group. Myriad
production and monitoring challenges must be overcome. Another challenge:
Consumers are largely in the dark about the issue. “There is still a long way
to go.” May says.
Unilever’s
vision is that “the entire industry will move to 100 percent sustainable palm
oil” by 2020, the firm’s spokesperson said.
“In a world
of finite resources, it makes absolute business sense to source sustainably so
we can continue to serve consumers in decades and centuries to come, whilst
preserving environments and livelihoods.”
Expansion
from palm
Norway’s
sovereign fund, which sparked the exodus from palm stocks, is keeping tabs on
events.
“To the
extent we find that companies improve their practices we may choose to
reinvest,” said Marthe Skaar, a spokesperson for Norges Bank Investment
Management, which oversees the sovereign fund.
Palm’s
makeover bodes well for the whole of agriculture, says Hurowitz.
Cargill
vowed in late 2014 to start spreading the lessons learned in palm to all its
products.
For Kuok,
however, the focus is still firmly on palm oil. In fact, he has argued that
production of alternative oilseeds requires even more land and result in more
forest clearing.
Wilmar has
devoted vast resources since making its pledge in 2013 simply to “educating”
its suppliers “that sustainable development is an irreversible trend in the
world today,” he says.
Business-minded
to the end, he fears palm oil prices will crash if his new alliance with his
former critics doesn’t hold.
“If the
industry continues business as usual, NGOs will continue to tarnish the
reputation of palm oil and governments and consumers will be pressured to
restrict the use of palm oil in food, biofuel and so on,” the palm oil king
warns.
Bloomberg
