There is a new move initiated by major consumer goods and retailer groups to completely avoid using palm. Norway’s $710 billion sovereign wealth fund has pulled out of 23 Asian palm oil companies

Tuesday March 12, 2013

Market access poser for palm oil, new move by major consumers to completely avoid using palm oil

Commodities Talk – By Hanim Adnan

There is a new move initiated by major consumer goods and retailer groups to completely avoid using palm.

THE market access for palm oil has become a growing debate of late, especially since global palm oil inventories from major producers are bursting at the seams.

In the European Union (EU), there is a new move initiated by major consumer goods and retailer groups to completely avoid using palm oil on the stale grounds of deforestation and biodiversity often championed by non-government organisations.

The biggest fear now is that big names like Unilever, Carrefour, Sainsbury, Wal-Mart and Kraft in the EU could also influence and jeopardise stronghold markets like China, India and Asean in the near term, given their big presence there.

Ironically, these Western companies are mostly members of the Roundtable on Sustainable Palm Oil (RSPO) grouping, which supports the production of certified sustainable palm oil (CSPO).

In fact, the RSPO Western consumer goods and retailers group is believed to be demanding stricter standards on crude palm oil (CPO) under the RSPO principles and criteria, which is being reviewed at present.

Even the United Nations’ Food and Agriculture Organisation (FAO) in a recent report had warned that certification schemes could serve as “indirect trade barriers if not properly managed”. It could also threathen oil palm smallholders from participating in the global biofuel market.

It also raises concerns that certification schemes like the RSPO are being used as trade barriers by Western biofuel producers to restrict trade with competitive biofuels entering the lucrative European market.

For Malaysia, this could have a devastating impact on its oil palm smallholders, who contribute about 40% of the country’s total palm oil cultivation.

The FAO report also found that many certification schemes, which are voluntary and largely privately-operated, might exclude small-scale farmers because they are dominantly designed for the large-scale agro-industry.

Therefore, these structured schemes may tend to favour big players and provide incentives for scaling up production to absorb certification costs.

Palm oil biofuel can be economically viable without direct subsidies, unlike European biofuels produced from domestically grown crops which require subsidies to improve market competitiveness.

Palm oil also, by far, is the most efficient source of biodiesel alongside sugarcane. Its yield per unit of land far exceeds alternatives like rapeseed, sunflower or soybeans 10 times the amount of biodiesel can be produced from one ha of oil palm as from soybean.

Even Dr Robert Shapiro, the former Undersecretary of Commerce for USPresident Bill Clinton, concluded that palm oil could generate between 58% and 64% of greenhouse gas savings, compared with assessments done by the Malaysian Palm Oil Council, which found palm oil could reduce emissions by at least 62%.

Unfortunately, wealthy and low-income communities throughout the world may not be able to enjoy this low-cost, low-emission food and energy source if small-farmer production is limited by cumbersome and costly certification systems.

Another interesting observation is that the RSPO is now encouraging smallholders to produce CSPO, with its showcase being Thai smallholders heavily subsidised by German financial aid.

Malaysia and Indonesia also have a large number of smallholders.

The situation would be unviable if these smallholders are not able to sell the CSPO since there is simply no effective economic demand for the oil out there.

A recent WWF study showed that only 38% of the palm oil production by the RSPO members has been certified sustainable, while the remainder is still bidding its time to get certified.

  Deputy news editor Hanim Adnan thinks that despite all the hard work involved in getting CPO certified, it is rather sad to see that CSPO is not fetching a premium over the non-certified version.

Norway Drops Asian Palm Oil Firms in Show of Green Credentials
Joachim Dagenborg & Alister Doyle | March 09, 2013

Oslo. Norway’s $710 billion sovereign wealth fund has pulled out of 23 Asian palm oil companies after accusing them of causing deforestation, winning praise from environmentalists.

It said it sold stakes in the firms after a review of companies that have cleared forests for palm oil plantations in Malaysia and Indonesia. Palm oil is used in many foods and consumer goods such as soaps, lipstick and peanut butter.

The fund is one of the world’s biggest investors, underpinned by Norway’s oil and gas assets. Last year it expanded its investment guidelines to include deforestation as a threat to future growth.

Stakes in firms including Wilmar, KL Kepong and Golden Agri-Resources Ltd were sold during 2012, according to the fund’s annual report released on Friday.

Of these, the biggest holding had been in Singapore-listed Wilmar, worth 382 million crowns ($67.29 million).

“In the first quarter of 2012 we sold our stakes in 23 companies that by our reckoning produced palm oil unsustainably,” the fund said, without naming any firms.

Norway has given more than any other developed nation to help slow deforestation, partly as a way to avert climate change. Indonesia is home to the world’s third-largest expanse of tropical forests and is the top producer of palm oil. Malaysia is the world’s second largest producer.

The companies deny that they are a threat to forests.

Golden Agri’s website, for instance, says: “we aim to be the leader in sustainable palm oil production.” Wilmar and KL Kepong similarly say that they support best practices and standards to protect the environment.

Double standards

The Rainforest Foundation environmental group has long accused Norway of double standards by investing billions of dollars in palm oil or soya farmers while also giving cash to nations from Brazil to Indonesia to slow deforestation.

“We are very happy with this development in the palm oil sector,” said Nils Hermann Ranum, of Norway’s branch of the Foundation.

Still, he said that Norway should do more to pull out of other sectors that cause deforestation, such as logging companies, oil and gas firms, soya and meat producers.

By the Foundation’s estimates, Norway had investments totaling $13.2 billion in companies damaging rainforests at the end of 2012, against $14.4 billion a year earlier. “They need a more coherent policy,” he said.

Norway has programs to slow deforestation worth $1 billion each for Brazil and Indonesia, as well as smaller projects in nations from Guyana to Tanzania.

Many companies, including Anglo-Dutch consumer group Unilever and Swiss food group Nestle, have cracked down on palm oil suppliers in recent years because of worries about deforestation.

Deforestation accounts for up to about a fifth of greenhouse gases from human sources. Forests soak up carbon dioxide as they grow and release it when they burn or rot.

Yngve Slyngstad, head of Norway’s fund, told Reuters that Oslo was trying to invest more in palm oil producers whose policies did not damage forests that are home to endangered animals such as orangutans and absorb greenhouse gases.

“We have sold many of the small companies and concentrated investment in larger companies who often have a better practice,” he said.

Among palm oil firms, the fund more than quadrupled its holdings in Malaysia’s Sime Darby to a value of 688.8 million crowns at the end of 2012 from 150.7 million crowns a year earlier.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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