Welcome

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This coming April, Aidenvironment will have worked on palm oil issues for 20 years. Friends sometimes ask me; how do I keep it up? Well, every month, there is a new report, a new scandal, a new issue, a new court ruling… There is never a dull day in oil palm. Still, it would not be interesting to spend so much of a team’s time and effort on a single crop if that was all that it was. What makes oil palm so interesting is its representation of wider issues: such as democratisation in South East Asia, reducing markets’ impact on global warming, market leverage to promote human rights, voluntary regulation versus laws… But what keeps everyone’s interest in this industry alive is the enormous scale of impact that oil palm has. Positive, most of us eat palm oil daily and many livelihoods depend on the crop; and negative because the rate of destruction remains unacceptably fast, its scale unprecedented. In this newsletter, we briefly elaborate on the question of scale for anyone who doubts whether this industry is still worth your time and effort: it is! There is still a lot of forest and peat land that is set to be cleared for oil palm.

Another reason to keep on it is to see an ever-increasing number of companies adopt these “No Deforestation, No Peat, No Exploitation” policies. We will open with an update by individual company group. In our feature story, we present some background to the traceability agenda. Why do companies spend so much money on this, what are the results and dilemmas involved? Eric Wakker, Aidenvironment Asia

BACKGROUND

So-called No Deforestation, No Peat, No Exploitation (NDPE) policies of main traders and refiners of oil palm are currently driving the transformation of the palm oil industry towards more responsible practices. As of 2016, most larger traders/refiners have adopted a NDPE-policy. But is there progress in implementation? What are the companies doing to minimize climate change, preserve biodiversity and uphold human rights?

This newsletter serves to inform NGOs and grassroots leaders in Southeast Asia-Pacific about the impacts of these policies, and the opportunities they offer to civil society. We welcome inputs and suggestions from our readers. Please email Priscillia Moulin (priscillia@aidenvironment.asia).

Newsletter April 2017

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WHAT’S HAPPENING ON OIL PALM CORPORATE SUSTAINABILITY? NDPE policy signatories In previous newsletters, we mentioned that an increasing number of palm oil companies embrace these so-called “No Deforestation, No Peat, No Exploitation” (NDPE) policies. This development was initiated by Greenpeace, Unilever and Golden Agri-Resources in the 2010-2011 period. Countless other food manufacturers and retailers in Europe, North America and even China followed. When Wilmar International adopted its NDPE policy in December 2013, most other Asian trader-refiners had no option but to fall in line. This was a significant development because trader-refiners are the most influential players in the palm oil value chain. And those that have signed up to NDPE policies jointly trade the bulk of palm oil traded globally:

Hardly surprisingly, the finer wording of some of the NDPE policies remains contested (e.g. Indofood). Moreover, the implementation of these policies remains challenging because their scope extends to plantation practices that are under the signatories’ direct control as well as those of third party suppliers. Still, these policies are having a powerful impact on industry practices. Refiners that have yet to make NDPE commitments include Graphene NanoChem (operating in Sabah), Wings Group, Royal Industries Indonesia and the Middle Eastern Hayel Saeed Anam (HSA) Group whose subsidiary Pacific Inter-Link accounts for 5% of global oil palm trading. These buyers are seen to purchase palm oil from growers that other trader-refiners scrapped from their supply chains because of non-compliance. Quick update by company group Felda Global Ventures (FGV) published a comprehensive NDPE policy in August 2016. FGV is the world’s third largest oil palm estate operator, managing more than 450,000 hectares across Malaysia and Kalimantan. FGV self-suspended from RSPO in March 2016 and is now working to realign with RSPO’s standards. This is a vast amount of work given the size and nature of Felda’s contested land. And yet, rather than to divest from problematic overseas ventures, Felda acquired a significant stake in Eagle High Plantations (EHP) in December 2016. The US$505.4 million question remains exactly what Felda bought because the location and size of EHP’s land bank remains to be clarified.

After a seven-year discourse, Aidenvironment and IOI Group finally settled their Ketapang (Indonesia) complaint case early in December. Today, IOI is still suspended by many buyers because the company group still struggles to resolve a long-lasting land conflict with longhouse folks in Long Teran Kanan, Sarawak. Amidst the turmoil of losing customers, IOI released a renewed sustainability policy and implementation plan in August 2016. It also issued a Policy Annex on third-party supplier requirements (Feb 2017) which opens by stating that it will impose the same sanctions that it has itself been slapped with: “If there are suppliers who are unwilling to transform or prove to continuously miss the targets in their time-bound plans, we will cease to do business with them” opens IOI’s statement. In December, Kuala Lumpur Kepong finally removed its land clearing equipment from Collingwood Bay in Papua New Guinea. This followed an effective lawsuit, campaign and RSPO complaint by landowners and their supporting NGOs that exposed the gap between KLK’s sustainability commitments and the company’s actual intentions on the ground. Some 40,000 hectares of community land, rainforest and mangroves will now be spared from the palm oil axe. KLK’s plans to expand into Sepik also appear to have been stalled indefinitely. Rainforest Foundation Norway and partners published an update on Astra Agro Lestari one year after the company released its NDPE policy. The good news was that there was no real news. AAL had halted all land development and thus no evident non-compliance was identified. However, not all news was good news. Thousands of hectares of undeveloped peat in Astra’s land bank burnt during the 2015 fires. After Wilmar and Musim Mas suspended trade contracts, the South Korean group Korindo committed to land clearing moratoria and an NDPE policy. NGOs, including the Korean Federation for Environmental Movements and partners viewed these commitments with a good dose of scepticism. Indeed, Korindo was found to violate its own moratorium as soon as it was declared in early December 2016. Musim Mas stated that it will again engage with the company. Over the 20 years that Aidenvironment has documented sustainability issues in the oil palm industry, labour issues received limited attention from civil society. No longer! Starting in 2014, Rainforest Action Network, Sawit Watch and partners raised concerns over KLK’s labour relations followed by a formal RSPO complaint against Indofood’s London Sumatra in 2016. The year 2016 ended with a big splash when Amnesty International released a hard-hitting report on labour practices in Wilmar’s supply chain. The company responded with releasing an internal review and invited stakeholders to address the labour issue.

NDPE palm oil refiners & traders

• Wilmar International (2013)

• Musim Mas (2014)

• Golden Agri-Resources (2011-‘14)

• AAA / Apical (2014)

• Cargill (2014)

• Sime Darby (2014)

• Kuala Lumpur Kepong (2014)

• IOI (2014-2016)

• ADM (2015)

• COFCO Agri (2015)

• First Resources (2015)

• AAK (2016)

• Bunge (2015)

• BASF (undated)

• Wahana Citra Nabati (undated)

• Olam (2015)

• Kencana Agri (2015)

• Louis Dreyfus Company (2016)

• Felda Global Ventures (2016)

• Indofood (2017)

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STRANDED LAND NGOs working on the ground find it hard to get across to the outside world just how massive the land use change has been in their areas. Overseas visitors who come to the ground are often overwhelmed by the seas of oil palms that are found in places like Riau, Johor and Sabah. But how bad is it really? Is there anything left to fight for? These were some of the underlying questions that Aidenvironment tried to answer last year. Jointly with Profundo and Climate Advisers, we published a paper on ‘stranded land’. We at Aidenvironment recall that back in the mid-1990s, there was considerable concern – if not outrage – over the Indonesian government’s plans to expand oil palm plantations to 5.5 million hectares by 2000, compared to the 1 million hectares that were planted in 1990. How naïve we appear to have been back then. Our study found that as of 2016, the Indonesian government has leased out more than 21 million hectares of land, three times more than previously planned. The figure of 21 million hectares is shocking because it represents 10% of Indonesia’s total territory that was leased out within merely 25 years! Consider that most of this land comprises fertile lowlands and bio-diverse and carbon-rich tropical lowland forests and peat swamps, and that government legislation and law enforcement favoured investors over local people, we should no longer be surprised why public outcry over oil palm expansion remains so vivid. However, not all is lost. A good portion of the land allocated for oil palm has not yet been cleared. Our study identified 6.1 million hectares – almost one-third of all land leased out – that remains forested and undeveloped peatland today. This land, we argue, cannot be developed anymore because of NDPE-purchasing policies. Furthermore, the Indonesian government under President “Jokowi” has banned further plantation expansion on peat and it is preparing a moratorium on oil palm development in “good forests”. Stranded land in oil palm concessions, West Indonesia

Of course, oil palm companies do not get stuck with stranded land in Indonesia alone. Everywhere oil palm is grown expansion is increasingly limited by NDPE policies. For example, the Asian companies that planned expand in Liberia big time, find that their original expansion plans were completely unrealistic:

• KLK subsidiary Equatorial Palm Oil expected in 2010 that from 50,000 to 100,000 ha would be productive in the near-term. By 2015, it had planted only 7,474 ha.

• Golden Veroleum aims to develop more than 200,000 ha in Liberia. By 2012, the company had frozen expansion plans at the request of the RSPO after community complaints. Expansion started again in 2013, but by the end of 2015, only around 12,000 ha had been planted, of which 4,684 ha was newly planted.

• Sime Darby’s plans to develop 120,000 ha by 2020 no longer seem realistic today. Land rights issues and a self-imposed moratorium on new deforestation contributed to the delay, resulting in only 10,518 ha planted.

Will all this put an end to destructive oil palm expansion? Likely no, and temporarily, at very best. Palm oil buyers can and do instruct their suppliers to suspend non-compliant land clearing but once a grower realizes that it cannot develop any more land, what will happen to this land? It is our view that NGOs’ vigilant engagement of palm oil buyers and government agencies and donor support is needed to secure these stranded lands.

“How?” That is subject to debate. For Indonesia, AMAN has since long argued that indigenous peoples are the best custodians of the tropical forest. Their case and cause is valid across the world and offer solutions for whole plantation concessions that have become stranded (such as in Papua) as well as partially developed plantations. In the latter situation, co-management partnerships should be considered because plantation companies such as Bumitama Agri are willing to support local communities with the use and management of retained and restored forests and peat. Ideally, co-management is flanked by supporting government legislation and certification standards.

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FEATURE STORY: TRACEABILITY Palm oil is used to produce noodles, biscuits, chocolate, soap, shampoo; even your pet’s food... palm oil is in so many products! Yet it is an often-invisible ingredient. Concerns over sustainability and food safety have therefore driven the traceability agenda. In this newsletter, we offer some background to this subject and explore some of the dilemmas involved. Palm oil is also from everywhere In 2010, Greenpeace launched a genius fake commercial ad, directly linking the KitKat brand of the Swiss food processing company Nestlé to the destruction of orangutan habitat. In less than eight weeks, Nestlé committed to ‘no deforestation’ and to trace its palm oil supply back to its source. Other manufacturers, retailers, and trader-refiners soon after embraced similar traceability commitments.

The palm oil industry would soon realize that it knew very, very little about the source of palm oil that is uses. Buying, selling, re-selling, spot-markets, processing, mixing, manufacturing, retail… this is just the beginning if one wants to know who grew the original Fresh Fruit Bunches, and how. Lists of supplying mills Wilmar International, Archer Daniels Midland (ADM), Asian Agri/Apical, GAR, Musim Mas and IOI Group publish lists of the palm oil mills they procure from. This was quite a feat, considering that basic information about which company trades with what company is still treated as “top-secret” in most industries. It still is in many ways. For example, none of the buyers of the palm oil trader-refiners listed above, such as Nestlé or Unilever, have disclosed the names of their palm oil suppliers. The available supplier lists contain the names of their refineries which buy Crude Palm Oil and Palm Kernel from literally hundreds of different palm oil mills scattered throughout the tropics, obviously mostly in Indonesia and Malaysia. The supplier lists offer the public, i.e. NGOs, opportunity to comment or file complaints and grievances. Most trader-refiners publish lists of the grievances received and the

status of supplier engagement. This assumes that NGOs are familiar with the names of the palm oil mills and the owners, as well as the plantations that supply these mills. You get it: few know the mill named “PT Sawit Selalu Sejahtera” but more people would be familiar with the parent company name, for example Cargill or Jaya Tiasa. Since the management of these parent companies is ultimately responsible for plantation expansion and management and sustainability, most supplier lists present the company group name. This is known as “traceability to decision-maker”. It may be hard to believe, but there are numerous empty boxes where parent company names are supposed to be named because the buyer still often does not know with whom a trade deal is ultimately concluded. After several years of work, most palm oil is traceable from refinery to back to the mills that produced the oil. And most trader-refiners with NDPE policies publicly report the number and percentage of mills identified. From these mills, the next step is to identify the plantations that supplied these mills. This is known as “product traceability”. Third-party suppliers Traceability work ultimately aims to promote responsible practice, usually the palm oil grower. There are many kinds of growers: independent and tied smallholders, government owned plantation companies, publicly listed companies and family owned corporations. Trader-refiners have one or several of these within their own groups: Archer Daniels Midland (ADM), Asian Agri/Apical, GAR, Musim Mas and IOI are all significant shareholders in plantation companies as well. These in turn also run tied smallholder programs. So these are first or second party suppliers which are fairly easy to identify. They can be relatively easily instructed to adopt certain sustainability practices too. Relatively easily… There is case where it took over six months for a significant minority shareholder to convince the majority shareholder to embrace NDPE policy and stop forest clearance. Third-party suppliers are yet another ballgame. They can be of any category listed above but the buyer holds no ownership leverage over the supplier. The relationship is limited to trading: sale and purchase. For Indonesia alone, there are some 900 palm oil mills owned by possibly 150-200 different company groups. The clear majority of these represent third-party suppliers to any buyer. You can imagine the amount of work required to identify the right decision makers and to determine the plantations from which fruit is procured. Supplier engagement Most trader-refiners have (repeatedly) organized information sharing sessions with their suppliers. Although

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not all suppliers may have been invited initially, very few suppliers could credibly claim to be unaware of the requirements that come with NDPE-policies. Another approach is to conduct so-called mill assessments, whereby the buyer forms a team of experts that determines key supplying mills in a high-risk landscape (high risk could be: active deforestation or lots of reported land conflicts). The team subsequently conducts an assessment in a selected number of mills and the associated plantations, including third-party suppliers to the mill. The assessment results in an advisory and agreement to conduct studies or training. NGO reports and complaints help buyers identify the sore

spots in their supply base and trigger more frontal supplier

engagement. The complainant is usually not brought in

although the outcome of engagement is normally

published on the trader-refiner’s website.

Although these engagement trajectories take time and may

not always result in ideal outcomes, they deliver outcomes

faster than do lawsuits and external complaint procedures,

such as RSPO’s.

Concession boundaries

When the concession boundaries of oil palm companies are

known, it is easier to monitor them and hold them

accountable for non-compliant practices. Unfortunately,

maps held by government agencies are either inaccurate,

incomplete and/or kept secret. Therefore, the RSPO

General Assembly adopted by large majority RSPO

Resolution 6g at the 10th General Assembly GA10, making

it mandatory for grower members to publish their existing

concession boundaries in digital format (shapefile) via the

RSPO website. The data had to be provided by each grower

member by mid 2015.

In October 2016, the RSPO published an update. It is still

negotiating with the Indonesian and Malaysian authorities,

which throws in legal obstacles for RSPO and companies to

publish maps of plantation land bank on, ultimately, public

land. The RSPO Secretariat has collected maps for 42

members in Indonesia and 20 in Malaysia. The Secretariat

will start making the concession maps for Sabah available

in February 2017.

Unfortunately, these maps will contribute little to the

sustainability discourse because they will only show the

boundaries of land where plantations are established well

after the actual land acquisition and land clearing. The

collection and analysis of concession maps thus remains

fundamental to realizing NDPE-policy commitments.

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TRANSPARENCY: WHAT ABOUT SMALLHOLDERS? Some companies have set targets to achieve 100% traceability in 2018, 2019 or 2020. This implies that their smallholder suppliers are also fully identified. If it is indeed true that some 40% of all palm oil is produced by smallholders, then one can imagine the consequences. Tracing back oil palm products to the few hectares of smallholders is technically doable but costly. More importantly, what purpose would such traceability serve? What benefit would the smallholder gain? In November 2016, Wilmar, WildAsia and Geotraceability announced their new smallholder traceability system. This enables mills to map their smallholder supply base and trace smallholder fresh fruit bunch (FFB) deliveries from the mills back to their farms. A key innovation in this project is the ability to provide smallholders with agronomic recommendations from mills and supporting organisations for increasing productivity, as part of their participation in the traceability system. For Wilmar tracing smallholder FFB supply is critical in ensuring compliance by its third-party mill suppliers, and their independent smallholder suppliers with its NDPE policy.

TRACEABLE TO ILLEGALITY Traceability work generates many new insights in the way the global market impacts the grassroots. Of course, a good portion of palm oil growers do not engage in large-scale deforestation, peat drainage, exploitation of labour and so forth. Other suppliers are clearly non-compliant and are requested to correct their practices, usually successfully so. In some instances, however, a reality surfaces that makes everyone scratch their heads.

Some of the extremes are found in landscapes where oil palm was introduced quite a few years ago, when the industry was essentially unregulated by government or private sector initiatives. One example is Tesso Nilo National Park, in Riau province. Established in 2004, this park was home to the Sumatran tiger and Sumatran elephant. To date, large parts of the park have already been cleared, burnt and planted with oil palm: only 18% of primary forest cover remains. The problem goes well beyond Tesso Nilo. In 2014, Indonesia’s former Minister of Forestry admitted that 50% (or two million hectares) of all oil palm plantations in Riau province is illegal or has no permit. Hardly surprising, the fruit from these plantations ended up in the supply chains of several trader-refiners with strict NDPE-policies, as Eyes on the Forest has repeatedly documented. But what are buyers supposed to do when they trace their palm oil back to smallholders who have since long illegally occupied forest reserves and other protected areas, sometimes facilitated by corrupt government officials? Banishing such smallholders from the supply chain could create landlessness and trigger indirect land-use changes whilst continued purchasing sustains illegal practice… So what should buyers do? What can they reasonably do? It appears that traceability also leads to situations that can only be solved if all parties involved sit down to jointly discuss and agree on possible solutions. There is currently a massive movement of initiatives being developed that may or may not successfully bring about such dialogue.

Did you know? The costs of tracing FFB to plantation

The cost of tracing back to plantations for one mill is estimated between 10,000 and 15,000 euros depending on the scale of the supply base. This is especially true for the independent smallholder's crops that sell through multiple layers of agents. The agents will then deliver the FFB to multiple palm oil mills. The traceability to plantation will involve tracking of layers of middleman/ agents, and then to the farm. Assuming a 45 ton/hour mill running at 80% capacity with 100% crop from independent small farmers, it will require around 6,000 farmers (2 ha/farmer) to supply the mill. In most of the cases, the agent will send to multiple mills as a business practice. Assuming 50% of FFB is sent, it will require double the number of farmers, thus double the cost.

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THE JURISDICTIONAL APPROACH There is only so much that civil society and the industry can do to promote responsible sourcing and sustainable land use. Most land in Southeast Asia is ultimately claimed by the State, and as such solutions will ultimately have to involve government. The jurisdictional approach aims to find consensus between the government and the private sector, resulting in a wider commitment to good practices in the palm oil industry. The industry’s interest is obvious: it is far more convenient to negotiate “do’s and don’ts” with one government than it is with hundreds of individual suppliers. The goal to achieve 100% traceability could be achieved far more easily! And for NGOs, the approach may enable them to raise concerns and the solutions that matter to them most. Jurisdictions A jurisdiction must be understood as a government administrative area, selected based on their authority to address plantation related matters.

In Indonesia, district governments have such leverage, along with some support from higher institutions such as ministries. The situation is slightly different in Papua or Aceh, among other, where the provincial government has greater authority. In Malaysia, the effective jurisdiction is the level of the state. Sabah’s Forest Department is the first state-level authority that has embraced the jurisdictional approach. Sabah intends to only produce RSPO-certified palm oil by 2025. If such a target is to have any credibility, then recent non-compliance by individual plantation companies needs to be effectively addressed now, not after 2025. A variety to the jurisdictional approach is the landscape approach. The latter may or may not actively involve governments: much depends on the initiators and their objectives. We will elaborate on some of these initiatives in a future newsletter.

In spite of Sabah Forest Department’s commitment to the jurisdictional approach, some obscure plantation companies cleared mangrove forest for oil palm in the Kuala Muarap forest reserve in Sabah between 2013 and 2016. The illegal development was raised with the Forest Department through NGOs and the plantation company that operates a certified plantation nearby. If the jurisdictional approach is to be meaningful, then the Forest Department would reclaim this land for restoration and prosecute the developers.

Further information:

Aidenvironment Asia

Jalan Burangrang No. 18

Bogor 16151

West Java, Indonesia

www.aidenvironment.org