By Richard Edwards
Some of the world’s largest companies have committed themselves to the ethical sourcing of palm oil – but critics have argued that the latest sustainability push has done little to improve the image of one of the world’s most controversial crops.
 
UK retail giant J.Sainsbury, alongside Dutch supermarket group Ahold and Unilever have all pledged to source 100% of their palm oil requirements from fully traceable sources by 2015.
 
However, the global financial crisis has dictated that other high profile companies have been loathe to follow their lead.
 
The farming of palm oil has been blamed for widespread deforestation in countries such as Indonesia and Malaysia by environmentalists. And despite the formation of a Round Table for Sustainable Palm Oil (RSPO) in August 2003 – and the launch of a new certification scheme in November 2007 – doubts persist over the group’s long-term sustainability goals.
 
“Palm oil doesn’t have a good image and it’s not likely to be improved by this sustainability push, it doesn’t seem to make any difference,” said Ernesto Zamudio, trading manager at Swedish oil and fats manufacturer AarhusKarlshamn. 

At present, certification can add an extra $50 per tonne of palm oil on the wholesale market. And as food retailers continue to cut costs, it seems that many are questioning if it’s a price worth paying.
 
Unilever, which currently buys around 1.6m of tonnes of palm oil and its derivatives each year – a total that equates to 4% of global consumption – made its palm oil sourcing commitment in May 2008.
 
“Palm oil is an important raw material for us and the whole consumer goods industry,” the company’s CEO Patrick Cescau, told a climate change summit in London. “Suppliers need to move to meet the criteria, by getting certified both the palm oil from their own plantations and the palm oil they buy from elsewhere.”
 
While even Unilever’s harshest critics welcomed the company’s pledge, the uptake of sustainably sourced palm oil has continued to disappoint.
 
According to RSPO president Jan Kees Vis, around 1.5m tonnes of palm oil production capacity is currently sustainably produced, with around 100,000 tonnes now available each month.
 
He did though, estimate that just 100,000 tonnes of certified palm oil had been traded so far – a figure far lower than the 750,000 tonnes originally forecast.

Richards Edwards

The High Street’s biggest names still need to place a focus on ethical sourcing – despite coming under pressure to cut costs as the economic downturn continues.

A number of high profile investigations have brought ethical sourcing sharply into focus, while discount retailers recently came under fire from Stuart Rose, executive chairman of Mark’s & Spencer.

“How can you sell a t-shirt for £2 and pay the rents and pay the rates and pay the buyer and pay the poor boy or girl who is making a living wage? You can’t. I don’t care what anyone says about margin structure, about the efficiency of the business, or about a low-cost business. You can’t do it,” Rose told the Daily Telegraph.

Julia Hawkins from the Ethical Trade Initiative (ETI), however, argues that retailers need to continue to place ethical considerations at the forefront of their sourcing strategies, despite procurement being placed under huge pressure to cut costs.

“The pressure is on for companies to squeeze their suppliers on cost but I would say that there are an increasing number of companies who realise that the value of the product goes beyond cost,” Hawkins tells Procurement Leaders.

“Obviously price is an issue but it would be too simplistic to say that all cheap companies are bad because there may be retailers selling more expensive clothes who are not sourcing as ethically as they should be.

“What we’re seeing is that companies are now taking responsibility for workers in their supply chain – ten years ago that wasn’t happening.”

Discount retailer Primark, which recorded an 18% rise in profits in the fourth quarter of 2008, has been the subject of a number investigations into its labour practices on the Indian subcontinent in the past 12 months and recently came under fire when it was revealed that workers at its Manchester-based knitwear factory TNS, were being paid less than the minimum wage.

The company has though, announced a series of appointments aimed at repairing its battered reputation.

Katherine Kirk, former head of accessories at Gap, has been appointment as the company’s ethical trading director – a first for the firm – while Primark is also thought to be considering a number of other ethical trading posts in its major sourcing markets of India, China and Bangladesh.

Richard Edwards

Wal-Mart may have welcomed a new CEO on February 1, but when it comes to the company’s environmental policies it’s very much as you were.

Mike Duke, who took over from the outgoing Lee Scott, has already said that he will expand the company’s drive to follow ethical sourcing guidelines – whatever the cost.

Addressing suppliers over the internet, Duke said that sustainability needed to be a priority, and issued a warning that following the company’s policies was “not optional”.

Duke’s comments come after a widespread effort by one of the world’s largest retailers to force their suppliers to clean up their act. It’s estimated that as many as 80% of the company’s current suppliers are based in China, and the Far East has become the frontline in Wal-Mart’s sustainability push.

In October 2008, Scott addressed over 1000 of those suppliers at a conference in Beijing and, in an astonishingly frank address, left them in doubt that Wal-Mart meant business. Scott declared that 20,000 of its direct suppliers in China would, as of this month, be required to meet stringent new environmental standards, while the company’s 200 top suppliers in the country would have to cut their energy usage by 20% over the next four years.

Duke’s stance appears to be equally uncompromising. “It’s not something of the past. This is all about the future,” he said.

Wal-Mart, however, face a serious challenge in implementing ambitious environmental targets at a time when the Chinese economy is enduring its biggest slump in a generation.

“At the moment there’s 20 million migrant workers losing their jobs – it’s a real meltdown,” says Richard Welford, chief executive of CSR Asia. “Factories are going to be in cost-cutting mode and, doubtless, short-cuts are going to be taken when it comes to the environment.”

“Wal-Mart is right to set down these guidelines, but getting hard-pressed suppliers to adhere to them is going to be a massive challenge.”