Unilever recently announced a successful pilot project to track sustainable palm oil from its origins, using GreenToken, a blockchain solution from SAP, the business software provider. Food companies are concentrating on tracking palm oil and other high-risk commodities back to plantations using satellite technology to ensure that their suppliers are not implicated in deforestation. This aligns with the requirements of the EU’s proposed regulation on deforestation free products which covers cattle, cocoa, coffee, palm oil, soya and wood. One key requirement is that all products must be linked to the exact plot of land from where they originate. It doesn’t, however, explicitly require that the deforestation free commodities imported into Europe be kept segregated or separate from unsustainable material.
The problem with commodities is that storage, transport and processing involve mixing of materials from different sources, so, without any requirement for segregation, it will be difficult to know the exact identity of any individual batch. Unilever admits that the tracked palm oil is not kept separate. They use the term ‘virtual segregation’ to describe their system.
But NGOs think that the EU’s approach is not good enough. They believe that it opens the door to mass-balance systems which allow free mixing of material. In a letter to the European Commission, a group of NGOs demand that ‘the new law must not allow operators to use mass-balance systems’ as ‘these systems fail to ensure that commodities and products placed on the EU market are not linked to deforestation or forest degradation.’
Consumers are not yet familiar with the concept of mass balance allocation, whereby similar raw materials from different sources are stored and processed together with one end-user being allocated more of one type of content than is physically present in their batch of material. So, in the case of palm oil, a buyer can claim a quantity of sustainable palm oil from a mixture of palm oils from different plantations, via a documented allocation. In the future, there will be much more mass balance accounting as society transitions from using conventional materials to ones that are more compatible with sustainable and net zero production. But is this mixing something the public should accept, or should we be pushing for deforestation-free or low-carbon materials to be kept separate immediately?
Switzerland has taken stronger action. In 2021 the Swiss voted to remove tariffs on Indonesian palm oil, if it has been sustainably certified and kept separate from all other palm oil. The sustainability schemes specified, RSPO (Roundtable on Sustainable Palm Oil), ISCC PLUS (International Sustainability and Carbon Certification) and POIG (Palm Oil Innovation Group) all offer both segregated traceability options. I wrote about Switzerland’s strategy at the time of the vote.
Segregation is likely to add to costs. But as transporters, storage companies, food producers and chemicals companies gear up to keep deforestation free palm oil out of the EU, there will be enough compliant material in supply chains that operators should be able to run their facilities at capacity without accepting non-sustainable material. The new regulation requires operators to minimise ‘the risk of mixing with products of unknown origin or produced in areas where deforestation or forest degradation has occurred or is occurring’. So, whilst not requiring strict segregation, operators will have to take some steps to keep any palm oil from deforested land out of their facilities.
Sustainability schemes can play an important role, which is recognised in the legislation. Because no matter what the traceability system used, be it mass balance, ‘virtual segregation’ or actual segregation, it is no better than the level of assurance of each individual palm oil plantation on the ground. Satellite technology with geo-location and block chain will be an enormous help, but independent third-party verification of material entering the supply chain at the top, and at each stage in the supply chain, provides the strongest protection. A third-party auditor who is trained, authorised and overseen by a sustainability scheme offers the best solution.
So, as Europe explores ways of integrating an increasing flow of deforestation free materials into its existing transport, storage and processing infrastructure, mixing and mass balance allocation are the lowest cost route to implementation. But, in the case of high-risk commodities, regulation on deforestation free products must be strongly enforced, to drive a steady decrease in flows of non-sustainable material into Europe. Strict oversight should render the mass balance system less relevant and eventually obsolete over time.
Published: 27 April 22
