Growing demand for Land hamper the Palm oil Industry

Growing demand for Land hamper the Palm oil Industry



Malaysia’s biggest plantation company, Sime Darby, leased 220,000ha of lush forest in northwest Liberia in 2009, executives said they had found a much-needed new frontier in global palm oil development.

Undulating hills, a tropical climate and plenty of untouched land made the West African country’s interior ideal for palm oil growers running out of room in Southeast Asia.

Nine years later, however, Sime Darby Plantation has planted only 10,000ha in Liberia and has not laid a seed in two years, stalled by uncertainties over new environmental standards.

“We are losing money. We have to balance our books or there is no future,” said David Parker, the head of Sime Darby Plantations in Liberia.

In its earnings report for the financial year ending in June 2017, Sime Darby said it had filed a 202-million ringgit ($51.3m) impairment — a permanent reduction in the value of the asset — on its Liberia operations.

The operations were “affected by a number of factors, including the Ebola outbreak and more stringent environmental plans that have stalled expansion since 2014”, it said.

The $62bn palm oil industry is considering whether to adopt new “no deforestation” rules for an oil found on supermarket shelves across the world, from cooking oil to snack food and soups to soaps.

The rules mark a more environmentally friendly form of palm oil development, but leave producers with a major conundrum: how to meet growing demand and make money with so much land now potentially off limits.

Planting pause

The debate is unfolding at the Roundtable on Sustainable Palm Oil (RSPO), an industry watchdog that consists of planters, companies and nongovernmental organisations (NGOs).

While awaiting those rules, Sime Darby has stopped planting palm in Liberia, Parker said.

Singapore-listed Olam International in Gabon has also paused development on all but grassland areas until the rules are published, said Ranveer Chauhan, its managing director of edible oils.

But back at corporate headquarters in Kuala Lumpur, Sime says it is trying out a new method using satellite data to measure a forest’s carbon content so it can tell exactly how much land it can and cannot develop.

“A new plan for land development in Liberia is currently being prepared following the completion of these trials,” Sime’s chief sustainability officer Simon Lord told Reuters.

Darrel Webber, CEO at the RSPO secretariat in Malaysia, said he could not comment with the review under way “and no conclusive decisions on the changes have been made yet”.

The rules are expected to come to a vote at RSPO’s annual meeting in November.

Concerns about the amount of forests and peatlands cleared for plantations — and the greenhouse gases that are then emitted into the atmosphere — have plagued the palm oil industry for years.

Over the past decade, consumer activist groups have pressed big palm oil buyers such as Pepsico, Unilever and Nestle with supermarket boycotts and other protests over palm oil’s perceived links to climate change.

Many companies are willing to pay a premium price for palm oil labelled with a valued RSPO sustainability certificate.

The new rules will decide if land can be cleared for palm based on its carbon content. A dense forest might hold up to 150 tonnes of carbon per hectare, grassland about 35 tonnes.

If the RSPO decides an area holding above 100 tonnes an hectare is off limits, then Sime Darby may be unable to develop most of its Liberia concession, said Ahmad Rifqi, Sime Darby’s manager of plantation sustainability in Liberia.

“Almost all here is over 100 tonnes per hectare. The only low-carbon areas are farmlands already cultivated by local communities,” he said.

Few ‘greenfield’ expansions

Sime Darby boasts of being the world’s biggest producer of sustainable palm oil. It has an online “dashboard” displaying information about its supply chain and compliance with RSPO rules.

It’s land bank of nearly 990,000ha, an area larger than Puerto Rico, makes it the world’s largest palm plantation firm by land size. The Liberia concessions account for over a fifth of that.

With governments and companies under increasing pressure to adhere to higher deforestation standards, “greenfield” expansions in Southeast Asia have become uncommon, says Ivy Ng, regional head of plantations research at CIMB Investment Bank in Kuala Lumpur.

“In recent years, company expansion is largely via buying stakes of other companies,” Ng said.

Sime Darby’s only major expansion in Southeast Asia since its 2007 merger with two other large plantation firms has been its acquisition of New Britain Palm Oil in Papua New Guinea in 2015.

Oil palm originated in West Africa and was used there for thousands of years. And with global demand growing by an average 5% a year, growers had looked to Africa to expand.


Yet production in Africa has grown by less than 4% since 2012, compared to around 18.5% for Southeast Asia and globally. Latin America is now the number two producing region.


No comments

Leave a Reply

Video of the day