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Sustainable palm oil shift is cheaper than bad publicity impact

By Nicola Cottam , 15-Apr-2014
Last updated the 18-Apr-2014 at 11:55 GMT

The cost of moving towards traceable and sustainable palm oil is marginal compared to the long-term effects of negative publicity, says Euromonitor.

Major food companies have set challenging targets for themselves in a bid to secure sustainable palm oil contracts as they attempt to shake off the stigma from bad publicity on deforestation. Pressure from environmental groups and ‘green’ consumers have forced global food manufacturers to tighten their ethical policies on palm oil amid mounting concern over deforestation and sustainability.

Estimates from Euromonitor suggest only 15% of the 50 million tonnes of palm oil harvested is certified by the Roundtable of Sustainable Palm Oil (RPSO), which promotes the use of palm oil from eco-friendly sources. Illegal plantations are a huge problem but have thrived as a result of poor local monitoring systems, making traceability difficult and significantly minimising the choices available to food manufacturers.

Food analyst, Lauren Bandy said: “Large amounts of land were given over to palm oil plantations by regional governments, but complicated local laws and land disputes with indigenous communities have made it difficult to keep track of developments making traceability almost impossible.

“Nobody really knows what proportion of palm oil is being produced illegally.”

The palm plan has backfired

Manufacturers started using palm oil in good faith as a healthy alternative to trans fats and its cultivation was encouraged as a way of generating revenue for local communities in developing countries. In Indonesia, for example, palm oil now accounts for 4% of annual gross domestic product.

However the level of illegal deforestation has backfired onto food manufacturers and they are now paying the price.

According to Euromonitor, the amount of palm oil used in packaged food is relatively small and ranges from 1% in bread, 2% in ready meals, 4% in chocolate and 14% in biscuits.

Nevertheless, manufacturers are keen to limit any damage from the bad press on the environmental damage and as such most major brands, including Nestle, Pepsico, Danone and Unilever, have set themselves ‘sustainable targets’ to source 100% of their palm oil through RSPO.

Kellogg’s has set its own target and will only accept palm oil that has full traceability.

‘Comparatively cheaper’

The cost of moving towards traceable and sustainable palm oil is marginal compared to the long-term effects of negative publicity,” explained Bandy.

If just 1% of Kellogg’s consumers were to stop buying its products, company sales could fall by US$200 million, making sustainable palm oil a comparatively cheaper option for the company.”

The downside to the move towards sustainable palm oil is that it will put pressure on supply, adds Bandy, and companies who are slow on the uptake could risk being left behind.

“Manufacturers will not realistically stop using palm oil, despite the limited supply.It has the right technical properties and is more productive than either sunflower or rapeseed oil – both of which would require more land for cultivation,” she said.

We do not anticipate any change to product formulations because there is no viable alternative.”

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