Palm Oil and Sustainable Trade Finance

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I like how we like to think we are doing something about this world and trade bankers are as guilty as the rest of us. We now have this movement to sustainable finance. Heck, Global Finance magazine just gave Commerzbank an award for sustainable trade finance.

And then I watched an episode of Vice on Palm Oil titled “Indonesia is Killing the Planet for Palm Oil." It was downright dreadful and full of greed. Indonesia is being deforested faster than any other country in the world, and it has everything to do with one product: palm oil. Palm oil goes in hundreds of products. Unilever is the world's biggest consumer of palm oil, using 1.36 million tons of the ingredient a year to make products such as Dove soap, Magnum ice cream and Vaseline lotion.

These firms, like Kraft and Unilever, sign these sustainable sourcing statements that are just as good as my dinner napkin. Because they have no way of verifying. As Vice says, "in an age of sprawling and outsourced supply chains, companies can have trouble determining the conditions where the materials they use are produced." There aren’t many controls. Local governments all the way to the top look the other way as fields are burned.

Though illegal, huge swaths of Indonesia is burned each year to clear forest for plantations, drastically increasing the release of carbon dioxide. And what makes this so bad is Indonesia’s peat moss, which is great for capturing C02 emissions, is very bad for releasing them when burned.

From a supply perspective, production is concentrated in Southeast Asia, with almost 88% in Indonesia and Malaysia. Palm plantation area has grown continuously in the tropical areas (Colombia, Thailand, PNG) due to continued demand for palm oil in both food and industrial applications. It is expected that palm oil consumption is expected to grow from 63 million MT in 2015 to 77 million MT tons in 2020.

Why is palm oil so attractive? It’s cheap. Palm oil produces 4-5 tons of oil per hectare which is 8-10 times higher than other oil seeds such as rapeseed and soybean.

There is a lack of available land in Malaysia as restrictions on deforestation are imposed and in Indonesia cultivation permits become increasingly more difficult to obtain

The only real way to push back is from the consumer side. Palm oil can be found in roughly half the manufactured goods in any supermarket or drug store. We need to push back on palm oil period. Heck, it’s pretty crappy for our body as well in its processed form. Once the oil is oxidized, it poses health dangers, such as reproductive toxicity and organ toxicity, impacting organs such as the kidneys and lung- see Influence of palm oil on health.

So while the awards are nice, according to VICE, sustainable finance, at least for Palm Oil, seems like a long way off.

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First Voice

  1. Robert Hii:

    If we can remove the blinkers on palm oil and look at the global need for vegetable oils.By 2020, the demand is expected to grow by 30% to feed the needs of the booming human population.

    Now, lets say Malaysia and Indonesia agree to save their remaining forests to save the rest of the world because they’re good global citizens and quite content to have their citizens live in thatch huts. On top of that, nations in Africa and India and the Phillipines which are planning to develop millions of hectares of palm oil plantations to feed their own needs and the in the case of Africa, huge potential for cleaner air in Europe’s biofuel use, in favor of soy or rapeseed/canola.

    What would happen to the biodiversity or forests in countries like Brazil, Argentina if soy, as a relatively poor yielding crop, was planted instead? We would need 4-5 times the acreage of land as you mentioned. What would happen to the caribou in Canada or the bison in the US if these countries stepped in to fill the need with soy? Will the recovery of wildlife in Europe which has benefitted from the region’s transferred environmental footprint survive a few million hectares of new soy/rapeseed plantations?

    Over the past two years, I have seen great efforts put into play by responsible investment institutions in the US and EU, to pressure palm oil producers to adhere to sustainable development goals on a global basis. This is what we need, unless if your definition of sustainability is confined strictly to countries and not globally.

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