The oleochemical sector produces high value materials from oils and fats. It has made huge contributions to the use of palm oil in product manufacturing.
Oleochemicals are incredibly useful as, for example, additives, emulsifiers and thickeners in food, skincare and paint. But as a recent report from China Dialogue highlighted, the complexity of oleochemical supply chains may be hampering progress on sustainable palm oil. This is true, and I would add, these supply chains would be far less complex if the standards of producer countries were more widely recognised.
A broader acceptance of national programs like the Malaysian Sustainable Palm Oil (MSPO) standard would clean up the industry’s murky supply chains because they can cover many more plantations and facilitate enforcement.
Keeping consumer goods affordable and sustainable
The RSPO standard is considered best-in-class when it comes to producing sustainable palm oil. The multi-stakeholder platform was established in 2004 in response to growing concerns over the negative impacts of the palm oil industry, such as deforestation and poor labour conditions.
RSPO certification generates price premiums for producers and many multinational companies purchase RSPO-certified supplies. But certification by the RSPO hovers at around 19% of global production. This reflects the market reality of global palm oil demand where large consumer countries like India and China have less interest in paying for a premium product.
Companies which use certified palm oil often purchase it through the RSPO’s mass balance supply chain model. This, as one of the cheapest of the RSPO’s schemes, allows palm oil mills to take in fruit from both certified and non-certified growers and mix the two together. The term is used because the amount, or “mass”, of certified fruit that comes into a mill must be equal to, or in “balance” with, the amount of certified oil that leaves it (factoring in oil extraction rates). It is touted as an entry point for sustainability-conscious companies. However, the mixing makes the supply chain murkier, undermining traceability efforts.
For a higher price, brands can use palm oil purchased through the RSPO’s “segregated” model. This offers a higher degree of traceability, and hence assurance that the palm oil is not associated with deforestation because the oil is kept separate throughout the supply chain. Unfortunately, the higher price means the model is not compatible with global demand for affordable consumer products.
Ir Qua Kiat Seng, a senior lecturer in chemical engineering at Monash University Malaysia, knows about the complex infrastructure and costs involved in a segregated supply chain. When he was with ASEAN Oleochemical Manufacturers Group (AOMG), Ir Qua worked with the RSPO to develop the rules that connect businesses using oleochemicals to the RSPO’s certified supply chain systems.
It’s never clear who will cover the cost of the [segregated] volumeIr Qua Kiat Seng, Monash University Malaysia
“It’s never clear who will cover the cost of the [segregated] volume. Where sellers do not have buyers for the remaining volumes of material, they have to absorb the total costs and this is not economically sustainable.” This is made more challenging in the oleochemicals industry where a great deal of palm kernel oil may be needed as a feedstock. For example, it takes 25.5 metric tonnes of palm kernel oil to produce a single tonne of caprylic acid, Ir Qua explained.
While the mass balance model makes sense for companies that want to start using some certified materials, the national certification schemes introduced by producing countries in recent years can offer solutions to remove the murky elements of certified palm oil by enabling much greater coverage of palm plantations.
Are national standards the way forward?
The RSPO has faced criticism for failing to hold member companies accountable for environmental or social issues or skirting commitments to purchase sustainable palm oil volumes. The core problem is that, as a voluntary programme, it doesn’t have the legal backing for full coverage and strict enforcement. This is where government-backed national standards like the MSPO – which covers 96% of Malaysia’s plantations – could bridge uncertainties in the supply chains and offer a new pathway for sustainable palm oil.
The MSPO has been criticised as less robust than the RSPO but these criticisms have largely been based on paper policies, rather than what happens on the ground. Where the RSPO’s strongest punishment is the expulsion of a member, without legal action, the same member can continue to deforest and break the accepted rules on sustainable production.
Malaysia’s national certification standard has teeth because it has the backing of the Malaysian Palm Oil Board (MPOB). This government body has the power to issue or revoke operating licences for palm plantations and mills.
MPOB has taken direct action against companies which break the rules. In late 2020, it ordered an immediate halt to, and suspended the operating licence of, a mill accused of polluting the Sembrong River in south Malaysia. Last year, 56 operators were penalised for manipulating weighing scales and underpaying smallholder farmers for their fresh fruit bunches. Threats of prosecution and fines up to 200,000 Malaysian ringgit (about US$43,000) were issued.
This year, the MPOB updated its standard with requirements for companies to commit to no deforestation, no peat development, and no exploitation policies. Such “NDPE” policies have contributed to reduced deforestation rates in Indonesia. MSPO 2022 also incorporates UN International Labour Organization Convention (No. 29), which concerns forced or compulsory labour. Although the changes do not come into effect until 1 January 2024, MPOB is responding to demand for palm oil products that are sustainable and acceptable on the global market.
As its certification and standards grow more rigorous, Malaysia’s palm oil offers a much-needed opportunity to clear up the industry’s murky supply chains.