Sunday, June 11, 2006

An interview conducted with Andrew Ng, Secretary General of the
Roundtable on Sustainable Palm Oil.

This interview was conducted as part of a study into the possible
introduction of genetically modified crops into the Australian grains


Key questions discussed include:

1. How does the Palm Oil industry operate?
2. What is it doing about supply chain integrity?
3. How is it addressing questions to do with traceability of product
in the supply chain?
4. How does it engage with stakeholders?
5. What can the Australian grains industry learn from the Palm Oil

MP3 File


Thomas Murrell said...

Here is a transcript of the above interview:

Interview between Tom Murrell (TM) and Andrew Ng, Secretary General of the Roundtable on Sustainable Palm Oil (RSPO) (AN) conducted on Friday 19th May 2006 in Kuala Lumpur

TM: This is Tom Murrell in Kuala Lumpur, and I'm with Andrew Ng, Secretary General of the Roundtable on Sustainable Palm Oil (RSPO), and you've got a supply chain project developing a mechanism for palm oil traceability from plantation to end use. Now this is pretty interesting because there's a lot of talk in Australia about traceability for genetically modified crops and, in particular, canola where there's a moratorium on any growing of GM crops in Australia at the moment. Andrew, could you just tell me a bit of a snapshot of the palm oil industry, how big it is, and how important it is to this part of the world?

AN: Okay, palm oil is one of the 11 edible oils in the world. I think palm oil probably is the 2nd largest treated edible oil in the world after soy. In terms of world production, Malaysia and Indonesia probably cover about 90% of the world production. Then you’ve got other countries like Nigeria, Columbia, Brazil, these countries make up the rest of it. It's a tropical crop. It's a perennial crop, not an annual crop as opposed to things like canola and soy. I think if you look at it from a comparative perspective, productivity perhaps I think palm oil is probably the highest productivity factor, lowest cost production factor as well. So it's an extremely attractive crop in developing regions like Indonesia or other parts of the world.

TM: Just to clarify, you produce 90% of the world's palm oil from Malaysia and Indonesia?

AN: And Indonesia. Yes.

TM: And what would be the role or the mission then of the Roundtable on Sustainable Palm Oil?

AN: Okay. Well I'll give you the background. The palm oil industry has traditionally had some issues with stakeholders, whether it’s environmental, social stakeholders. You’ve probably heard of the issues surrounding Orang-utans here and the link to the palm oil industry in Indonesia and Borneo especially. There’s also been links to things like labour disputes and unlawful dismissal of workers, etcetera, taking land off of indigenous communities. What happened was in 2002, there was a business initiative between mostly manufacturers in Europe who saw the importance of maintaining palm oil as an ingredient in many of their products and also trying to work in a way so that stakeholder concerns and NGO concerns regarding the environment and social issues were being addressed. So other initiative is to bring WWF into the discussion and they moved it from being a business sort of a platform to being a multi-stakeholder sort of platform. So the Roundtable basically represents producers, the rest of the people in the supply chain, the manufacturers, the pressers, retailers, banks, as well as social and environmental NGOs. So we’re currently a multi-stakeholder platform, looking at some of these other issues. One thing is very clear. We’re looking at it from the point of view of the trade is very important. I mean getting palm oil as one of the 11 oil crops in the world is important but at the same time we’re actually trying to find if we can get stakeholders from our other input services so that you can actually produce palm oil in a way that is far more sustainable you know, than what is presently available out there. So that’s how we’re formed. We’re a membership-based organisation. We try and operate as transparently as possible. If you go to the website you can see minutes of meetings there. We work in an inclusive nature so for RSPO, from the perspective of membership, we’ll accept anyone from the most radical NGOs to the most dirtiest of corporations. So we work on that basis and we’re sort of trying to be action oriented so if you have someone who comes in and is a really bad boy but you know, world like to do something about it, We also are having this student platform.

TM: What would be the five biggest issues then facing the industry?

AN: Right. Biodiversity and I think that’s the largest one. Biodiversity it’s really land. Competition for land in tropical areas like in this region. What else? I think the other big issue really is the issue regarding social issues of land, again, land and taking people’s land etcetera. There’s also another issue regarding pesticide use - community and pesticide use where the workers of communities are being affected by pesticide use. Workers’ rights are another one. Beyond that I think there are also trade issues that many producing factories are concerned about regarding excess palm oil to the EU. So I didn’t come up with five. I’ve got about three or four there but I think those are the main sort of issues that concern the palm oil industry.

TM: So what’s the supply chain project developing a mechanism for palm oil traceability for plantation end use? What are the aims and objectives of that particular project?

AN: There have been two initiatives. One is an initiative that’s purely on the supply chain itself. That’s sort of being run independently but in close consultation with RSPO. The object of that particular supply chain project is to try and get a feel from the members of RSPO which is the most preferred supply chain mechanism whether it’s from simple booking system we supply to one in which you have full control and full traceability over the product. The jury’s still out on that one and I think it’s mainly because there’s quite a divergent-- divergent because it’s got very divergent members with varying objectives. For instance, most of the traders would like something very simple like a booking tracing system you know, so actual traceability of physical oil is more difficult. But you know, in a booking system it’s more efficient. Other stakeholders, like perhaps some of the producers and some of the social and environment stakeholders want high level traceability and high level of profit, so they’re looking at full traceability, there are dedicated storage tanks and all that. I’m sure if you look you’d know the basic issues. Liquid commodities are so difficult to trace. If you were to have separate storage facilities, separate docking facilities, the implications of costs are obviously there. Whether or not those implications would still sort of make the trade viable if you have a full dedicated-- it’s really difficult to say. The other thing that’s happening is within the RSPO itself we’ve got a verification working group that’s basically made up of stakeholders and experts who are coming together again to provide a kind of input to develop a verification protocol. So that’s on the certification end, to actually do a certification. We’re in that stage currently where you’ve got to set principles and criteria out, and the principles and criteria they basically cover sustainability from environment, the social, the productivity aspects. So we anticipate that by the end of this year we’ll probably have a verification protocol, just a draft one out that everybody can read and look through. As far as the trade, there is already a trade in sustainable palm oil. Mostly it’s producers. There are probably some people out there who are buying palm oil and basically saying we’d like to have the producer meeting the principles and criteria then they get someone in to interpret and then to audit it. So that’s how it’s-- that’s basically where we are right now.

TM: Could you just explain the most basic one? You said that the book and--

AN: Claim.

TM: -- claim. The book and claim system. Basically in a nut shell and in a simple explanation, how does that work?

AN: That one’s like really I think in the green electricity where what you do is you pay a premium obviously to buy the green energy and in the same context you pay to buy RSPO palm oil. A higher premium. The oil that you get, this is necessarily same oil that you’re paying for. You know, it’s just like electricity. You still get the same amount of energy it’s just that you know, where it comes from it’s better from the fact that there is that particular type of palm oil being produced. So you don’t have that traceability but you’re basically covering that cost so that that producer can produce that palm oil and a premium is given for that.

TM: And why would an end user want to buy palm oil from your Roundtable?

AN: I think basically there’s really green consumer demand for products that are produced sustainably. Palm oil and soybean oil as well are just two new products or commodities that are being scrutinised for their sustainability. Green and ethical they call it. The demand was from Europe and basically what happened is it’s been driven a lot by I guess consumer groups, NGOs, social groups in Europe predominantly who have raised issues regarding their Orang-utans there and how palm oil is being linked to the destruction of forests and how those products are being used in things like cooking, shampoos, cosmetics, you name it etcetera. So I think it’s difficult to look at how the demand is because like all edible oils, you never actually see this is made from palm oil or soy bean oil or canola oil or whatever the oil. They’re usually blends. All these oils are blends and it’s a component part of everything so probably you won’t see the sort of demand like say you know, we want our cooking oil to be RSPO and have that stamp there. I think what’s going to happen is you’re going to have manufacturers basically making that commitment to say that you know, publicly all the palm oil that we buy for our products, that’s palm oil that is certified it’s RSPO palm oil. And that’s how they’re probably going to have to communicate to the consumers. It’s less easy than say organic.

TM: So would you say that this is a pull strategy from consumers or a push strategy from producers?

AN: I think a lot of it is pull. There’s a lot of pull in it. I think it’s far less pushed by the producers. Having said that, the producers are very confident that they can really meet the majority of the requirements of the RSPO because when you look at the palm oil industry and how it’s being run, a lot of their practices are pretty advanced in terms of reducing environmental impact taking care of their social bottom line and their workers. So--

TM: Corporate social responsibility.

AN: Yep. Yep. Here in Malaysia and probably Indonesia as well, probably the palm oil industry are quite far ahead in terms of social responsibility. Whereas India, their existing company culture so they’re--

TM: Are many of them public listed companies on the stock exchange outside of accountability to shareholders, stakeholders?

AN: Yep. Yep. And a lot of these companies, especially the people and that move downstream. So they’re actually not just in the upstream planting. They move down the processing and manufacturing and they’re buying for those sorts of businesses as well. Yeah.

TM: And in terms of marketing the end products, are you seeing any sort of marketing messages or branding that it is you know, from the Roundtable or, you know, a green product or anything like that?

AN: That’s probably something that we’ll keep in mind for the future. Probably next year. We’re only two years old. We only started in 2004. First year was spent just setting up the association. Second year we started looking at the principles and criteria. We’re looking at verification and traceability criteria. Once we have everything set out, which is probably 2007, by which time we’ll probably then look at the whole marketing aspect of the oil as well.

TM: Just to delve a bit deeper into the study and the possible options, what’s the framework or the methodology that’s going to be used for that?

AN: For?

TM: The study you were looking at. I think you announced that in October 2004 for the supply chain.

AN: Oh okay. Methodology is quite basically we made a call for volunteers or we made a call for interested parties to basically register and tell us with the group of people that consultancy who are actually running the project. The acceptability and traceability which we drew up briefing papers and sort of framework of the different schemes that were out there, and they went through a series of consultations with the people who were volunteering for this project. Then after we consolidated all the comments and then they provided a presentation of the different things and another sort of consultation at our last Roundtable Conference in November last year in Singapore. Then from there they developed a next set of options. And they’ve gotten to the point where through the consultation and through the consultation with the people on feasibility and acceptability - those were the two sort of main focuses - they’ve actually now started ranking the different types of methods of traceability in supply chain you know, and--

TM: Any early results on feasibility?

AN: The results are not out yet. I mean they’re not out yet. I anticipate that probably some time probably later this year. I think maybe in the third quarter we’ll probably get something. It’ll be on the website once we’ve got that.

TM: And the other issue you mentioned? Feasibility and--?

AN: Feasibility and acceptability. How acceptable it is with stakeholders. There was some resistance to the book and claim because nobody issued a traceability and accountability and transparency in the process and all that. So it’s going to be a negotiated process. For the most part, these people are just keen to make sure that it’s a practical thing. That it’s really something that the trade can easily adopt and it does not cost too much and it doesn’t throw your costs way over what should be. But I think that this extra layer of making sure that stakeholders are also happy and accept and support the mechanism that you have in place. So that’s another level of negotiation that we had to go through. That’s probably holding things up a bit as well right now because it’s always a delicate thing when you have people’s sensibilities and all that.

TM: What about government involvement? Is there any push from government?

AN: We have always been like a business initiative working together with other stakeholders mainly social and environmental NGOs. Government have let us run and have not sort of been in the way of RSPO’s work for the most part. And I think what we really need to do is act sort of like a private NGO kind of a set up to engage each government and then you have to look, governments in producing regions, we have to engage them at different levels in a different community. And governments in countries where they’re buying and they’re using the palm oil is going to be a totally different thing that we’re looking at first engaging them. So it’s something that I think we need to as an association or an organisation sort of search out and see what we want to do. There is probably a need to but what, how--

TM: So just to clarify that. Different pressures from the governments that are buying palm oil versus the governments that are producing palm oil.

AN: Okay. I guess in the producer regions they just want to make sure that they can sell as much palm oil with the least amount of hindrance. As it is, you know, most producer governments in this region actually already complaining about things like the WTO rules. They are sort of not creating a level playing field as part of trade. And I guess for many of the countries that are buying palm oil or consuming palm oil, their concerns revolve around sustainability and safety. They make sure the products are safe. So very different perspectives. And of course they’ve got to protect probably some of their own domestic crops or feed crops as well. That’s the natural thing to do.

TM: So in terms of this traceability and supply chain, have you looked at other industries around the world to perhaps model or see what’s world’s best practice?

AN: Yeah we actually looked at-- The studies I think have taken quite a comprehensive look. We’ve actually looked at many of the organic ones. Coffee, timber. Those have been the main ones that they’ve looked at. I think we’ve covered most of the big ones that sort of are roughly commodity-related things like that. And the one I think that we paid particular attention to - not just from the point of view of point of source verification but from how we set up our association between effort team, where the effort team where basically they’re looking at sustainability in the timber industry and their model as a business NGOs or partnership. And so they’ve sort of taken the same kind of attack I guess or approach to it where we have NGOs involved in it. So but we’re making a far more level playing field between the sort of two competing producers and NGOs so everyone else in the middle you know, banks, manufacturers, etcetera and all that. So that’s, you know, the key ones.

TM: What about genetically modified palm oil? Is that on the horizon at all?

AN: That’s assuming it’s 15, 20 years from now at best. It’s a perennial crop so these things take a lot of work, perennial crops. When you stick the palm in the ground you’re talking about 20, 25 year you know, cycle. So you’re seeing at least 15, 20 years. Trials are going ahead but they’re laboratory trials. They’re not field trials at all. And even then it’s still, from what I understand, ‘cause I don’t quite understand the whole field of genetics and all that, they are very preliminary. They are not at the level where, you know, they are available or field testing yet. They’re just looking at very specific traits of the oil if it increases all year. They’re looking at very specialised areas. So we’re far away.

TM: So in summary, what do you think the Australian cropping industry in particular can learn from the palm oil industry here in Malaysia and Indonesia?

AN: Good question - laughs. I think the key thing that we believe that we’re doing right is the engagement process. And I think it’ll be a lot easier for the Australian industry because there probably is really better dialogue and there’s a stronger presence. At the moment, a presence by NGOs and by producers is there. I think a major lesson that I perceive is the fact that engagement is key. If you want to market your product, if you want your products to be seen in the right light, the engagement process is absolutely essential. How you go about doing it, making sure that you don’t over-claim how good your product is. Stay safe in a sense. Have a level of honesty but always maintain a very positive engagement with stakeholders, keeping it constructive and also picking the right kind of partners to work with. There are NGOs and there are NGOs, but there are those in our experience at RSPO who want nothing to do with the palm oil industry, even though it’s got sustainability they’re still not happy and they’ll never be happy anywhere. The best we can engage them is to acknowledge that they exist. And then there are other NGOs who are playing ball and they are willing to work with even the worst of companies because they think enagagement. So that’s the key message we get.

TM: Andrew, thank you for sharing your insights and your knowledge about the Roundtable on Sustainable Palm Oil here in Kuala Lumpur. You’re obviously doing some great things and getting some great results.

AN: We hope so. Yeah, we hope so. Yeah thank you very much. Yeah.


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