Costly criteria, inadequate returns
The Roundtable on Sustainable Palm Oil (RSPO) was established in 2004, in response to attacks on the industry on environmental and social grounds. Members include growers, traders, financiers and end users, as well as concerned NGOs. Its aim is to ‘transform markets to make sustainable palm oil the norm’ and to ‘advance the production, procurement, finance and use of sustainable palm oil products’.
The objectives are admirable, but palm oil certified as sustainable by the RSPO constitutes less than 20% of world production, and users have failed to take up more than half the certified oil. Here, I give an outsider’s view on the RSPO’s development, and what the future may hold for the RSPO.
A set of Principles and Criteria (P&C) was adopted by the RSPO General Assembly in 2007, and has been revised twice since then (this paper was written before the 2018 revision was published). Individual plantations and mills are audited against these criteria and, if they meet the requirements, their annual production is certified as sustainable. RSPO membership is voluntary, but on joining, growers have to agree to a ‘time-bound plan’ to become fully certified. Palm oil users can buy certified oil, and mark their products as ‘containing certified sustainable palm oil’ (CSPO).
In 2009, the RSPO adopted a New Planting Procedure (NPP), which requires social impact, environmental impact, high conservation value (HCV) and greenhouse gas (GHG) assessments to be undertaken before a new development. Free, prior and informed consent (FPIC) by local communities to any development is essential.
For sustainable palm oil to become ‘the norm’ a major proportion of palm oil must be sustainably produced and, if the RSPO is to be the vehicle for this, the majority of producers should be members. The reality is that the certified area peaked at 2.77 million ha in 2015 (just under 20% of the global oil palm area), but has since declined. In 2017, the RSPO had 170 member-growers but only 76 were certified.
When the RSPO was established, growers expected that demand for CSPO would be high, and that it would therefore command a premium price. However, in 2014, the premium was only about US$2 per tonne, about 0.3% of the selling price. In 2016, 12.1 million tonnes of palm oil was RSPO-certified, equivalent to 18.3% of world production; but less than half (5.6 million tonnes, 8.5% of world production) was actually taken up. Thus it appears that more than half of the CSPO would have incurred all the costs of certification, but had to be sold without earning even the very small price premium.
With certified area static or declining, and less than 10% of world palm oil production actually being sold as certified, the RSPO has not so far been very successful in transforming the market. Many companies have not joined because they see certification as a cost, without corresponding benefits. Costs have been estimated at US$4-10 per tonne of oil, much more than the current price premium. Several companies have claimed to see increased yields and improved profitability as a result of adopting the RSPO ‘best practices’. However, these practices could be adopted and the improvements obtained without the costs of membership and certification.
Difficulties for smallholders
Globally some 40% of palm oil comes from smallholders, and smallholder development has been a major contributor to poverty reduction in many countries. The RSPO has developed specific smallholder certification procedures, but these were something of an afterthought to the P&C, and independent smallholders in particular are not well catered for. The RSPO has recognised this, and is working on a simplified standard. Worldwide, a total of 295,000 ha of smallholdings have been certified; the majority are in Southeast Asia but, as Table 1 shows, certified smallholders constitute only 3% of the total smallholder area in this region.
RSPO member-companies involved in ‘nucleus estate’ schemes are obliged to help the associated smallholders become certified, but many smallholders are not in such schemes. In Malaysia, over 40% are independent. In Thailand, the vast majority of the 300,000 smallholders are independent.
Independent smallholders are supposed to be covered by ‘group certification’. This requires the formation of a group or cooperative, with the RSPO specifying that there must be a group manager who is responsible for certification. This adds a significant cost, but the RSPO operates a ‘smallholder support fund’, and companies buying smallholder fruit may contribute. One study found that independent smallholders in Malaysia were keen to participate in a certification scheme, provided that there was a price premium and the costs were reasonable.
Problems with certification for independent smallholders in Indonesia include lack of land titles, difficulty obtaining good quality seedlings, safe storage and use of pesticides, lack of finance for fertilisers and of knowledge about best use, and inadequate documentation.
The NPP is a significant problem for independent smallholders, as it requires social impact, environmental impact, HCV and GHG assessments. The assumption is that smallholders will be in organised groups or in company schemes, in which case the group manager will arrange the NPP, but not all smallholders are organised in this way.
The NPP must be applied to conversion from other crops (e.g. rubber), as well as from forest. This seems quite unnecessary; any adverse effects of replacing a few hectares of rubber with oil palm will be trivial. An area limit could relieve the majority of individual smallholders of the need to follow the NPP.