Sustainable Palm Oil Production in Thailand

Palm Oil – sustainability is possible! Promotion and certification of smallholders helps sustainable palm oil production Place and date of publication: Eschborn, October 2010

Authors: Melanie Seegräf, Daniel May, Thomas Breuer, Philipp Schukat

Contact Daniel May Project Director Sustainable Palm Oil Production in Thailand E [email protected] I www.gtz.de/sustainablepalmoil

Design: creative republic // Thomas Maxeiner Visual Communications, Frankfurt am Main/Germany T +49 69-915085-60 I www.creativerepublic.net

Photos: © GTZ/Watcharapong Jarupun © shutterstock & iStock Background 3

Expanding world population and rising Despite these favourable characteristics, energy prices, not to mention changes in the points of criticism should not be un- eating habits, mean that demand for vege- derestimated. Destruction of rainforests, table oils around the world can be expected extinction of endangered species, displace- to grow in the coming decades. Inevitably, ment of small farmers and giant monocul- therefore, demand for palm oil as one of ture plantations – all of these are reasons the world’s most important vegetable oils for the poor reputation of this agricultural will also increase. commodity. The often justified criticism is directed at the pro­duction method and Compared with the other major oil crops not against palm oil itself. Palm oil has a – rapeseed, soy and sunflowers – the oil future, provided it is produced sustainably. palm is the highest-yielding provider of vegetable oil worldwide. Oil yields per Whether in soaps, cosmetics, pizza, ice hectare are almost ten times higher than cream, candles or washing powder, palm those of soy, which is mainly grown to oil can be found in half of all foods and produce protein-rich animal feed. Oil many household products sold in super- palms can produce 4.3 tonnes of oil per markets. In addition to its use in food hectare, while soy achieves oil yields of production and the manufacturing of only 0.5 tonnes, but between 1.5 and cleaning agents and detergents, palm oil 3 tonnes of vegetable protein. Palm is also increasingly being used in Eu- oil cultivation also has positive ef- rope and in the producer countries fects on the incomes and liveli- as a renewable raw material for hoods of farming families and generating electricity and heat, hence on development in and as a biofuel. rural areas. Promotion and certification of smallholders helps sustainable palm oil production

4 Rural development plays a fundamental The demands on the palm oil sector are role in the global fight against hunger and particularly high. Making the change to poverty: sustainable palm oil production presents smallholders with major financial and three out of every four people in devel- organisational challenges. Individual farm- oping countries live in rural regions ing practices have to be documented 2.1 billion people have to manage on transparently and in full. For the oil palm less than two dollars a day farmers, this initially means extra work 880 million people have less than one and it presupposes a relevant level of know­l­ dollar a day at their disposal. edge, which they often do not possess. Although smallholders generally have to The majority of people in rural regions live fund the costs of auditing in advance by from agriculture or depend on it in some themselves, sustainable and certified produc- way. For the bulk of the population in tion of palm oil pays off for them percep­ de­veloping countries it is the sole source of tibly in the long term. Improved methods income. If poverty and hunger are to be of cultivation and harvesting help to in- reduced, development of the agricultural crease yields. As the quality of the fresh fruit sector is absolutely essential. bun­ches improves, the oil palm farmers can negotiate higher prices. Smallholder farms have a key role to play in global agriculture. Smallholders need Thanks to its excellent market prospects targeted and practical support helping them and the high profit per unit area, oil palm to access expanding markets, financial ser­ offers exceptional income-generating vices and quality and management consult­ op­por­tunities in rural regions and hence ancy services so that they can respond to also for smallholders and their families. the growing challenges they are facing. Sustainability certification paves the way This know-how enables the smallholders for access to international markets. This to supply sufficient agricultural prod- ensures long-term opportunities for em- ucts and commodities sustainably ployment and income generation in rural and to secure their incomes. areas of the producer countries. Sustainability initiatives in the palm oil sector

In order to be able to meet the growing Economic criterion: continuous efficien- 5 demand for palm oil while at the same cy improvements; documentation on the time improving the unfavourable surround- improvement of production conditions ing circumstances associated with its pro- and continuous increases in yield which duction, it is essential that internationally lead to work and employment applicable sustainability standards are fol- Ecological criterion: rainforest or other lowed. The Roundtable on Sustainable areas of high conservation value may Palm Oil (RSPO) is the most important not be destroyed to make way for new international initiative on sustainably cer- plantations tified palm oil established to date. Social criterion: working conditions must be consistent with industry The RSPO was formed in 2004 as a joint standards and minimum wages must initiative by WWF and companies in the be paid. The RSPO also addresses palm oil sector, food companies, banks health and safety at work. and representatives of civil society with the aim of ensuring sustainable production of In July 2010 there were already two palm oil. The RSPO has over 350 ordinary million tonnes of RSPO-certified members. A large number of international palm oil available on the world mar- non-governmental organisations, including ket, with an upward trend. The mem- WWF, Oxfam International, Sawit Watch bers of the RSPO are working hard and others, are represented in the RSPO. on developing the standard further. The members of the RSPO account for This includes taking account of improve- roughly 50% of global palm oil produc- ments with greater involvement of small- tion and also include the most important holders, calculation of greenhouse gas buyers and the processing industry. RSPO emissions etc. Experience shows that certi- members commit themselves to transpar- fication can contribute to lessening the ency and the release of information, and problem of deforestation, but is not able to the compliance to local, national and to solve it completely on its own. This international laws and regulations. RSPO calls for cooperation between governments certification is based on economic, social and the palm oil sector. The RSPO repre- and ecological criteria: sents a good platform for this purpose. Palm oil for bioenergy

6 The use of palm oil for producing energy The energy industry is currently making in the producer countries as well as in Eu- efforts to procure sustainably produced rope has been growing in importance for and certified vegetable oils. Two certifica- many years. tion systems have already been recognised in Germany as issuers of standards for In the European Union, under the sustainability certification: International Renewable Energy Directive (RED) of Sustainability and Carbon Certification 23 April 2009, only those vegetable (ISCC) and REDCert. The first certificates oils that have been verifiably certified under the ISCC and REDCert systems have as sustainable can receive state support already been issued. RSPO and ISCC have for energy use and may be counted to- applied for recognition at EU level. wards national renewable energy targets. Along with the United King­dom and the Only about eight per cent of global palm Netherlands, Germany is a pioneer in the oil production is used for energy purposes. implementation of the EU-RED, and as of More than 90 % of production goes to 1 January 2011 only certified vegetable oil the food, cosmetics, cleaning agent and – and therefore also palm oil – will receive detergent industries. The energy sector is support. therefore demanding that all areas of use should be covered by the state sustainabi­ lity requirements.

What has this got to do with us?

Palm oil on the shopping list: According to esti- The EU-RED coming into effect: As of 1 January mates by WWF, half of all foods contain palm 2011, the EU Renewable Energy Directive EU- oil. German consumers are not aware of this, RED on sustainable production of bioenergy because palm oil is not explicitly named in the will apply in Germany. For operators of com- list of ingredients. Labelling alone, however, is bined heat and power (co-generation) plants, not the solution. Consumers should be informed the petroleum industry and energy suppliers, about the sustainability of the products. Non- this means that they have to use certified palm governmental organisations and the energy oil (or other vegetable oils) to be entitled to industry are demanding proof of sustainability state subsidies or – in the fuel sector – to meet for the food and cosmetics industries too, and their obligatory biofuel quotas and be able to for the manufacturers of cleaning products and benefit from energy tax relief. detergents. By demanding certification and buying sustainably produced products, con- sumers could make an important contribution to the sustainable production of palm oil. The example of Thailand

With support from the Thai-German pro­j­ For example, choosing the right har­vesting 7 ect Sustainable Palm Oil Production pro- time determines the oil content in the moted by the German Federal Ministry of fruit bunches. The smallholders and their Environment and it’s International Climate workers benefit from the rules on health Initiative, the palm oil sector in Thailand and safety at work, such as keeping pesti- is in the process of introducing interna­ cides in locked stores and not on the kitch- tional sustainability standards such as the en counter alongside cooking oils. RSPO. Working closely with palm oil mills ensures To ensure that these standards for palm that further processing of the oil is carried oil production can be successfully main­ out sustainably too. During the production strea­m­ed in Thailand, the situation of process large volumes of wastewater are run smallholders is taken into account through off; this is subsequently fed into ponds, intensive agricultural advisory work, there- where it ferments and releases methane. by laying the foundations for certification. Capturing the methane and using it to ge­n­ Roughly 80% of the palm oil produced in e­rate power with the aid of biogas plants Thailand comes from smallholders, by prevents climate-damaging emissions, while contrast with the major producing coun- at the same time producing renewable en- tries Malaysia and Indonesia, where large- ergy. The use of biogas technology enables scale plantations dominate. the palm oil mills to achieve very good greenhouse gas balances, which are crucial The project is currently working with four for attaining the greenhouse gas mitigation palm oil mills and about 1,000 smallhold- targets set by the EU-RED. ers, who are undergoing training in sustain- able farm management. Improved cultiva- tion methods and the selective use of fertil­ isers and pesticides have an important role to play here. The project also focuses on optimising harvesting practices and coop- eration with mills and middlemen in order to increase the oil content of the fruits. 8 At the national level, the project initiates a consulting process is taking place regard- dialogue between the various actors from ing promotion of sustainable palm oil pro- politics and business in the palm oil sector. duction, with the emphasis on good prac- At the private-sector level, the RSPO sus- tice. The project is being implemented in tainability standard will be established and close collaboration with the Thai Office of institutionalised after being adapted to the Agricultural Economics (OAE). Thai context. At the government level a The role of GTZ

As a federally owned organisation working the farmers in developing the necessary ca- 9 in the field of international cooperation pacities and advises them on the associat- for sustainable development, the Deutsche ed learning processes and processes of Gesellschaft für Technische Zusammenar- change. In relation to the issue of palm beit (GTZ) GmbH provides forward-look- oil, this includes concepts and instru- ing solutions to address these complex is- ments at all levels of the production and sues. The example of Thailand shows that value chain, beginning with the cultiva- it is perfectly possible for palm oil pro- tion of oil palms, i.e. the planting of oil duction to be sustainable, and palms by smallholders or mill that smallholders can ben- owned plantations, through to efit from it while at the the palm oil industry, in same time helping to other words collection develop and to con- points (“ramps”), palm oil serve a diverse agricul- mills and refineries, and tural landscape. transport. In this way we promote sustainable devel- A core competency of opment in rural regions, GTZ is capacity develop- contribute to higher incomes, ment. Capacity is the ability of improved living conditions and people, organisations and societies to better natural resource management, and shape development on a sustainable basis. make sure that consumers in Europe are This entails identifying problems and then able to share in this positive development. developing and successfully implementing strategies to reach solutions. In the case of Sustainable Palm Oil Production in Thai- land, GTZ together with palm oil mills and oil palm smallholders has developed a model showing how all stakeholders in- volved can benefit from improved coop- eration and the certification of sustainab­ ility. GTZ supports both the mills and Palm oil production in South-East-Asia

10 Item / country Indonesia Malaysia Thailand Papua NG

Total land area (Mln Ha) 181.16 32.85 51.29 45.29

% Forest area 46.78 62.73 28.19 64.39

% Agricultural area 26.77 23.95 38.66 2.30

Oil palm harvested area (Mln ha) 5.00 3.90 0.45 0.096

% Oil Palm to Agricultural area 10.31 49.56 2.28 9.23

Yield (Mln.tons) FFB 85 83 9.27 1.4

Yield (Mln.tons) CPO 16.9 17.7 1.3 0.4

Productivity (tons/Ha) 17.00 21.28 20.08 14.58

Area under smallholders (%)* 44 41 76 42

Source: FAOSTAT (2008), * Worldbank (2010) World Consumption of Oils & Fats

11 5% 7.2% 27.7% 5.8% 12.9% 10.3%

10.7% 39.7%

22.1% 13.9% 19.6% 25.1%

Palm Oil Others/An.Fats Soya Oil Rape Oil Sun Oil PKO&CNO

World oil consumption from 82 million t in 1990/91 to 163 million t in 2008/09

8.5 m 12.8 m (5%) (8%) 1,000,000 t

16.1 m 750,000 t (10%) 500,000 t

122.5 m (77%) 250,000 t

0 t

2008/2 2009/1 2009/2 2010/2

Food Use Chemical Supply Use Energy Other Source: www.rspo.eu Source: GTZ 2009: Study on the market potential for sustainable palm oil produced in Thailand. ISTA Mielke GmbH, OIL WORLD, May 2009 Source: GTZ 2009: Study on the market potential for sustainable palm oil produced in Thailand. ISTA

Oils & Fats: World Consumption by Category – Supply and Sales of RSPO-certified sustainable palm oil in January to December 2008 in total: 159.9 million t million tons per half-year between 2008 and 2010 Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH

- German Technical Cooperation –

Postbox 5180, 65726 Eschborn, Germany T +49 61 96 79-0 E [email protected] I www.gtz.de