Is segregation coming to sustainable palm oil?

Sustainability schemes for commodities used by food, chemicals and biofuels producers have not brought the promised reductions in deforestation of tropical countries. So companies and regulators are looking for other solutions. Different measures have been proposed in the past few weeks that try to address some of the problems associated with sustainability schemes.  From the beginning of these initiatives, mixing of sustainable and ‘non-sustainable’ commodities during processing, storage and transport has been allowed, to avoid the extra costs of keeping the two types separate (or segregated). A ‘mass balance’ accounting system, checked by auditors, ensures that quantity of sustainably certified material sold by a company does not exceed what they have bought. However, the system is not suited to tracking certified material as it passes from one company to another, which allows fraud to creep in undetected.  Schemes offer segregated chain of custody options and in-house tracking systems to counteract this problem. Sophisticated supply chain technology solutions such as blockchain are also available.  But all of these need the big players to get behind them, which may now be happening.

Unilever recently announced that it is piloting the use of geolocation data to identify the individual farms and plantations that are supplying specific palm oil mills.  Satellite data to identify previous forest destruction, together with this new tracking system, will help the company eliminate palm oil associated with deforestation from its supply chain.  To make this work however, Unilever will have to purchase directly from these approved mills, with their own dedicated transport and storage, to avoid the inevitable mixing of different sources of palm oil further down the supply chain. This entails moving away from the accepted mass balance system to a degree of segregation. 

Voluntary action such as Unilever’s is a good start but it is not enough. Palm oil is widely used for chemicals and biofuels as well as food and personal care products. The European Commission is currently deciding how it will keep all but low ILUC (indirect land use change) risk palm oil out of European biofuels, when so much palm oil is imported for other uses. The decision will be taken against the backdrop of some fraudulent substitution of palm oil for used cooking oil in Dutch biofuel. An EU wide database for tracking biofuels is planned, but additional options currently being discussed will go further and may prevent the mass balancing of different categories of biofuels. Switzerland already has such a system in place. Only segregated biofuels derived from waste materials are supported by tax breaks.  

Regulatory action in the food and chemicals sectors is also needed to force or incentivise companies to buy responsibly produced commodities. Currently sustainable palm oil goes unsold, as many companies don’t want to pay the extra demanded by suppliers. The UK has just announced a consultation on a new law to require larger businesses to ensure that the ‘forest risk’ raw materials they purchase and use have not been produced on illegally deforested land. The legislation will encourage short traceable supply chains and some de-facto segregation based on the deforestation risk of different sources of the same commodity. The EU is also trying to reduce its impact on the world’s forests by encouraging the consumption of food products from deforestation-free supply chains and ensuring that development projects to not contribute to deforestation.  A strategy has been published but it relies on food labelling and other voluntary measures. NGOs have demanded more ambitious measures.

Segregation of responsibly produced commodities is common in higher margin products such as fruit, tea and coffee. Bringing extra scrutiny and some separation to the supply chains of palm oil, soy, beef, rubber, cocoa and other high risk crops will increase costs, which is why the UK is focussing on large companies. But in the end, consumers will have to foot the bill, or pay the price for the consequences of deforestation. 

Published: 26 August 20

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