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ANALYSIS: The palm oil battle heats up as food manufacturers start to throw punches

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According to Reuters several major US food manufacturers have instructed their global buyers not to source products from either FGV Holdings or Sime Darby Plantations, two of Malaysia’s biggest producers of crude palm oil (CPO).

 

Reuters quotes one of the companies, General Mills, as saying in an email that it has "instructed all of our suppliers globally to remove both Sime Darby and FGV from our supply chain; and have issued ’no buy orders’ on both."

 

This follows the decision last December by the US Customs and Border Protection (CBP) agency, a federal authority, to ban imports of CPO from Sime Darby Plantations, over allegations of forced labour. Earlier last year a similar ban by the CBP was imposed on CPO imports from FGV Holdings, and the latex glove producer Top Glove.

 

Yet Sime Darby is the world’s biggest producer of CPO certified as sustainable by the RSPO (the Roundtable on Sustainable Palm Oil). To be thus certified requires meeting RSPO standards of production which, according to its website, comprises "legal, economically viable, environmentally appropriate and socially beneficial management and operations."

 

A drop in the bucket

 

So far this move is just an irritant to Malaysia. In the last fiscal year, 1 October to 30 September 2020, the US imported CPO worth some $410m from Malaysia, a drop in the bucket considering Malaysia’s total CPO exports are valued at almost $17bn.

 

But it is a further step in the growing PR war over CPO per se. CPO is an ingredient in many different products, from pizzas and lipstick to biodiesel. It is at the epicentre of a struggle between environmentalist activists and the world’s two biggest CPO producers, Indonesia and Malaysia.

 

The flexibility of CPO plus its intense competitiveness - it requires just 20% of the land to produce one tonne of CPO that other oilseeds need - means that it will be difficult to eliminate from supply chains.

 

Ridding CPO from the supply chain could be a quixotic battle, rather like trying to remove all Xinjiang-derived cotton from the world’s cotton supply chain; the CBP imposed such a ban on Xinjiang-produced cotton in January this year on allegations that the local Uighur population is being used as forced labour. Yet Xinjiang produces around 20% of the world’s cotton - its cotton is everywhere.

 

The Council of Palm Oil Producing Countries (CPOC) has said it will start a pan-European pro-palm oil campaign this year on behalf of Indonesia and Malaysia.

 

Yet General Mills has considerable market clout. Its 2019 report states it had almost $17bn in net sales, with manufacturing in 13 countries and sales in more than 100. Its decision to shun palm oil from Sime Darby and FGV Holdings is a straw in the wind. General Mills no doubt feels it is responding not just to the ban by the CBP but also consumer pressure.

 

Malaysia’s labour problems

 

Malaysia’s CPO plantations are in part a casualty of the Covid-19 pandemic. They rely on migrant labour for as much as 80% of their workforce, and much of that labour has been absent in 2020 due to movement restrictions. Last September Malaysia said it was scouring prisons and drug clinics for workers willing to volunteer. The suspicion is that pressure could be applied to prisoners to serve in CPO plantations.

 

The battle hitherto has been over hearts and minds. If General Mills’ attitude towards Malaysia’s labour practices takes a wider grip then the future for its CPO could darken - consumer pressure backed by government policy can be a powerful force - as the decline of tobacco smoking shows.

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