Palm oil producers can derive a wide array of direct economic benefits, including premium prices, improved market access and favorable consideration for loans, upon obtaining sustainable certification, a recent study shows.
World Wildlife Fund (WWF) Indonesia deputy director for market transformation, Irwan Gunawan, said Tuesday that palm oil firms that were already certified by the multi-stakeholder auditing body, the Roundtable on Sustainable Palm Oil (RSPO), could get premium prices paid by their international buyers.
“Price premium differs depending on sales types. According to our study, the price premium can range from 50 US cents to US$50 per ton of palm oil,” he told reporters during a discussion in Jakarta.
Along with rising premiums, certified palm oil producers also saw its access improve in overseas markets with a 25 percent increase in market penetration taking place in Europe, Irwan added.
In addition to these direct benefits, certified firms also enjoyed indirect benefits, such as bankability, he added.
“The banks will choose firms with RSPO certification rather than those without because the risk of potential default is lower. This is due to the fact that management applied in firms with RSPO certification is much better,” Irwan explained.
The study was jointly carried out by non-governmental organization WWF, the Dutch development bank FMO, and CDC, the United
Kingdom’s development finance institution, from July to September last year.
It examined eight palm oil companies in two Southeast Asian countries — Indonesia and Malaysia — and West Africa, which together supply around 54 percent of the sustainable palm oil certified by the RSPO, including state-owned PT Perkebunan Nusantara (PTPN) III and private firm, London Sumatra.
Apart from the economic benefits, the firms also enjoyed other benefits, such as the minimal risk of labor disputes and more conducive work environments, promoted by the higher social standards required, plus increased productivity by plasma growers under major plantations.
RSPO advisor Bungaran Saragih said that due to the benefits, Indonesia’s domestic palm oil industry should continue its transition toward sustainable palm oil production.
“In the future, the demand for sustainable palm oil will come not only from international buyers but also from local buyers due to an ongoing paradigm change. This is inevitable,” he said after the discussion.
According to Bungaran, the government, which derives a significant revenue from palm oil-export taxes, should help smallholders — which constitute the majority of palm oil growers in Indonesia — to comply with standards of sustainability.
Sustainable production has been a key issue in the local palm oil industry in recent years as international buyers are demanding higher sustainability standards. In 2010, several large buyers, such as Nestlé and Unilever, suspended their purchase contracts due to allegations of deforestation by major plantations in their expansion programs.
Local growers have tried to comply with the requirements by joining the consumer-driven certification scheme developed by the RSPO.
As of the first quarter of this year, Indonesia became the world’s largest producer of certified sustainable palm oil (CSPO), overtaking Malaysia, with total output of 2.71 million tons.
The country’s CSPO is estimated to rise by 52.83 percent to 3.5 million tons this year, increasing its contribution by 9 percent, to 50 percent of the global CSPO output.