As the US government’s 30% tariff on Chinese tyres looks set to spark off a trade war with the republic, the ongoing battle between the palm oil industry and civil society groups intensified over the last two weeks.

On Sept 9, Advertising Standards Authority (ASA) in the UK upheld a complaint filed by Friends of the Earth and two other complainants that a print advertisement placed by the Malaysian Palm Oil Council (MPOC) was misleading. In a blow to the MPOC, the ASA concluded that the ad must no longer appear in its current form. The ad had appeared in The Economist.

The MPOC responded by labelling the ASA ruling as an attempt at censorship and said the ASA was acting as an interested party rather than a neutral and objective arbiter. Its CEO Tan Sri Yusof Basiron commented that the ruling would affect low-income consumers in Britain and the poor in the developing world.

“Palm oil is the cheapest vegetable oil available to European consumers and the growth of the industry in Malaysia and other developing countries has been a major driver of the reduction in poverty,” a press release by the MPOC said.

On the same day, the International Finance Corporation (IFC), the World Bank’s private-sector lender, was reporting as saying it was suspending investments in the palm oil business pending a review of its internal operating procedures and due diligence requirements for investments in the sector. This was after an internal audit by the Compliance Advisor Ombudsman (CAO) of the World Bank found IFC’s investments in two subsidiaries of Wilmar International Ltd — the world’s largest palm oil trader — violated IFC’s own procedures.

The catalysts for the internal audit were complaints in 2007 by community groups and civil society organisations in Indonesia. The complaints focused on disputes between Wilmar and local communities over land acquisition and IFC’s application of its own standards and requirements. IFC emphasised that the audit “did not evaluate Wilmar’s performance nor any environmental and social impacts of IFC’s projects with the company”.

The World Bank’s president Robert B Zoellick had written a letter to the complainants on Aug 28, saying IFC will not approve any new investments in palm oil until it had a new strategy in place.

“I have also asked IFC to review the environmental and social performance of all portfolio investments in palm oil. We are committed to ensuring that positive development outcomes, including environmental and social sustainability, remain at the core of IFC’s development business,” he wrote.

IFC said on its website that Wilmar had supported the CAO process and that land acquisition issues with the local communities had been resolved through mediation.

According to the CAO report, IFC had invested in Wilmar Group between 2003 and 2008. From searches on IFC’s website, the lender had, as recently as 2008, funded the expansion of Delta-Wilmar CIS Ltd’s refining and manufacturing facilities.

In response to enquiries from The Edge, Wilmar issued a statement last week saying that the funding from IFC constituted less than 1% of the company’s overall borrowings.

“The CAO report does not directly concern Wilmar, does not evaluate Wilmar’s operations and has no impact on our financial and operational performance,” the company pointed out.

It added that the World Bank had mentioned in its Aug 28 letter that the company did not resort to burning to clear land and that it had adhered to the principles of the Roundtable on Sustainable Palm Oil (RSPO) — a body set up by the industry, users of palm oil and other stakeholders to promote the growth and use of sustainable palm oil — in its operations. 

Interestingly, in the week the ASA ruling was announced, the Indonesia National Commission on Human Rights jumped on the bandwagon, alleging violation of human rights and environmental degradation by Malaysian and Singaporean plantation companies.

An officer with a major public listed plantation company says while not all planters are above board, steps are being taken to improve their social and environmental track record. Chief among these is the move towards certification by the RSPO.

However, demand for RSPO palm oil is not commensurate with efforts taken by plantation companies to get their operations certified, the officer says.

Earlier in May, the World Wildlife Fund (WWF), which is a member of the RSPO, said of the 1.3 million tonnes of certified palm oil produced, less than 15,000 tonnes had been sold. It is not clear if the take-up rate has improved as the RSPO and WWF officers were travelling and did not respond to enquiries from The Edge.

“Companies have spent a lot on certification but the efforts are not being recognised. At least in the beginning, you must incentivise the industry to get certified,” says the officer.

He does not disagree with a widespread view, here at least, that the move to discredit palm oil is part of a bigger protectionist agenda employed by producers of other oilseeds, namely rape and soya bean, and notes that it will be a challenge to counter the negative perception, given strong emotions attached to environmental and social issues.

At press time, Friends of the Earth had not responded to questions from The Edge on this widespread perception.

The officer says while all agricultural crops generate green house gases, the focus has been on palm oil despite it being more cost-competitive and versatile.

“It is difficult. These people are well funded and sophisticated. The problem with us is we’re not well coordinated and sophisticated to handle these campaigns well. There’s also a need for strong and clear leadership within the industry in addition to cooperation with Indonesia,” he adds.

Wilmar, meanwhile, says it is taking a long-term and responsible view of its approach to business.

“We have reviewed and improved our practices in line with global standards, such as the RSPO and United Nations Global Compact. The first of our units obtained RSPO certification in December 2008 and we have an ongoing time-bound plan for full group certification. We are committed to continual improvement and will persist in our efforts towards sustainable development,” it adds.

This article appeared in The Edge Malaysia, Issue 773, Sep 21-27, 2009.