Golden Agri-Resources (GAR) says that its 44 own mills have achieved 100% traceability back to the source plantation for its palm oil supply. The company uses supply chain mapping methods and technology to track suppliers of its own mills – which account for more than 39% of the company’s total supply of palm oil – and plans to have finished mapping the supply chains of its 427 independent mills by the end of 2020.
The goal is to have 100% Traceability to the Plantation (TTP) for all of its palm oil.
But beyond saving the world’s forests, what is the business case for companies to pay such attention to the source of their palm oil? Companies that fail to manage their environmental performance, including deforestation, expose themselves to business risks, according to a report published last fall from Ceres. As consumer and investor awareness rises about the harmful impacts of deforestation, companies sourcing commodities from deforestation hotspots are under pressure to ensure that their products are not sourced with illegal or questionable environmental practices. Companies that ignore this scrutiny subject themselves to potential regulatory action or loss of customers, which can translate into negative financial consequences, Ceres said.
Besting the Challenge
Tracing the supply chain of agricultural products is a challenge for companies that work with more than a handful of suppliers, and one that many companies are struggling with. How did GAR get started?
The first phase involved tracing fresh fruit bunches purchased from independent traders and smallholders as well as GAR’s own estates and plasma smallholders. With full TTP for GAR mills, it can now reach out to more than 70 dealers/brokers who buy from 11,000 smallholders managing over 44,000 hectares of estates.
After achieving 100% TTP in 2015, the company began its efforts “to trace more than seven million tonnes of palm oil through 471 mills all the way to the point of origin at the grower’s plantation,” says Franky Oesman Widjaja, chairman and CEO of GAR. Widjaja says the company is making strong headway in engaging thousands of farmers and independent suppliers, and is set to achieve its 2020 ambition.
As GAR engages with farmers, the company is offering appropriate support and intervention strategies to help them implement responsible practices while improving yield.
Palm Oil Industry Plagued by Problems of Image
The company’s initiative is one of many from companies hoping to build a more resilient palm oil industry – an industry rife with social and environmental issues, including deforestation and forced labor. But switching to sustainable palm oil can add 10% to a company’s operating costs, according to members of the Southeast Asia Alliance for Sustainable Palm Oil (SASPO). Still, the number of companies that have made commitments to purchasing sustainably grown palm oil is increasing. As of 2016, more than 60% of palm oil traded globally was covered by such commitments, according to the Union of Concerned Scientists (UCS). As companies continue to make deforestation-free commitments, “they will influence decisions made further up the supply chain by traders and producers,” UCS says.
Unilever is a company with a major stake in making palm oil a more sustainably sourced resource. The company, which first launched a sustainable palm oil sourcing policy in 2013, announced recently that it will become the first consumer goods company to publicly disclose the suppliers and mills it sources from — directly and indirectly.
Solving the Problems of Traceability
The difficulty of tracing palm oil back to the source – when a large company may have hundreds of suppliers buying from tens of thousands of farms and plantations – is part of what keeps the palm oil industry from becoming more sustainable more quickly. But GAR is working with a network of partners to support independent suppliers to establish tracing and verification processes, providing the foundation to later ensure compliance with GAR’s standards.
GeoTraceability is a company that utilizes its software solutions to assist suppliers, including small and medium sized mills, in compiling traceability information. GAR and GeoT have developed an inclusive approach to improve supply chain transparency, which allows all suppliers to join regardless of their current level of supplier knowledge.
Pierre Courtemanche, CEO of GeoTraceability, points out that traceability and supplier engagement is a continuous process of improvement. The company’s supporting tools continue to be developed, tested and enhanced as it works with the over 250,000 smallholder farmers in its database. “These producers are not just statistics but active participants in dynamic, traceable supply chains,” Courtemanche says. As he has witnessed in other sectors, “the most progressive palm producers are now sending a message that in the near future, non-transparent sourcing will not be acceptable. The mills that engage with buyer support programmes now will be the ones who see maximum benefit later.”
Why Not Switch Oils?
While it is true that palm oil farming has been responsible for significant deforestation, the crop is more productive than other vegetable oil alternatives and more oil can be produced per hectare than other crops. Therefor, “…discarding palm oil would further increase the arable land required to offset the growing global vegetable oil demand, putting even more pressure on natural areas around the world,” according to an article from Phys.org.
Vendors mentioned in this article
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