"Buyers don't want to pay for it," Simon Lord, chief sustainability officer at Sime Darby, said from Kuala Lumpur.
The world's biggest growers of palm oil say they're stepping up efforts to produce the contentious commodity more sustainably, but consumers are unwilling to pay more for environmentally friendly supply.
"Buyers don't want to pay for it," Simon Lord, chief sustainability officer at Sime Darby, said from Kuala Lumpur. "There is increasing resentment among growers that the other actors in the supply chain are not stepping up."
The certified oil typically sells at a premium of about $30 a ton to the non-certified kind, though this can vary significantly depending on amounts purchased and negotiations between buyers and sellers.
To gain certification, it costs producers at least $8 to $12 a ton, and there are additional expenses like audit fees, logistics and environmental assessments, says Sime Darby, the biggest producer of certified, sustainable palm oil (CSPO). Benchmark futures traded at 2,175 ringgit ($531) a ton in Kuala Lumpur on Monday.
Sime Darby says it can only sell about 50 percent of its certified variety at a premium, with the rest being offloaded into a pool of non-certified oil without achieving any added value. Companies are having to sell their CSPO below cost, and would rather do that than stockpile it, says Oscar Tjakra, a senior analyst for grains and oilseeds at Rabobank International.
So who isn't buying? According to the World Wildlife Fund, demand for CSPO in major consumers India, China, Malaysia and Indonesia remains low. Some companies in Europe also haven't adopted "ambitious, time-bound commitments to procuring 100 percent CSPO," though uptake from the EU is the highest, WWF's global palm oil lead Elizabeth Clarke said.
Mondelez International Inc., maker of Cadbury chocolates, said it's working with suppliers to ensure its palm is fully traceable, and at the end of 2017 about 96 percent of what it uses was traceable to the mill.
Nestle SA, where about half the tropical oil it sourced in 2017 was traceable to the plantation, says buying the certified variety is one way of pushing the industry toward a sustainable future and it aims to use 100 percent RSPO certified oil by 2023.
"Consumers today want to know what is in their food, where the ingredients come from and how it is made," Nestle told Bloomberg by email. "In many cases, companies do pay higher prices for responsibly produced palm oil."
Market commitment and uptake of CSPO will be the defining factor when it comes to spurring adoption of sustainability standards, the RSPO said. While retailer members are almost all buying certified oil, processors, traders and consumer goods manufacturers have significant room for improvement, it said.
"The solution is for big brands to only buy palm oil from responsible growers that protect rainforests," Diana Ruiz, a senior palm oil campaigner for Greenpeace in the U.S. "And it is available."
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