Kuala Lumpur, July 7 (Dow Jones) - At odds for years over environmentalissues, palm oil industry players and conservation groups have joinedhands to set standards that will dictate future production and usage ofthe commodity.Teoh Cheng Hai, secretary general of the newly formed Roundtable OnSustainable Palm Oil, or RSPO, said that in recent years, the palm oilsector has been increasingly linked to global concerns about deforestationand loss of biodiversity.In what the industry is touting as a breakthrough, major palm oilplayers and non-governmental organizations agreed late last year to putaside their differences and work together.The co-operation has yielded the RSPO, an association set up in Aprilto lead the combined efforts to promote sustainable, environmentallyfriendly development of the palm oil industry."The logic of (sustainable, environmentally friendly development ofthe industry) is slowly filtering through. We hope that with thisplatform, people can see eye-to-eye on this issue," Teoh said in aninterview."Previously, the industry and the NGOs were not talking. At least now,they are talking."The RSPO, established under Swiss law but with its secretariat in theMalaysian capital, will have members representing all segments of the palmoil supply chain, including oil palm growers, processors and traders,consumer goods manufacturers, retailers, banks and environmental NGOs.A membership drive began this month, with 13 confirmed members so farand many other players expected to follow, Teoh said. Founding members ofthe RSPO include major names such as Aarhus United UK Ltd., Unilever NV,Karlshamns AB, the Worldwide Fund for Nature, or WWF, and the MalaysianPalm Oil Association.

DEFINING SUSTAINABLE, ENVIRONMENTALLY FRIENDLY DEVT OF PALM OIL INDUS

The setting up of the RSPO comes at a time of increasing globalconsumer pressure for goods produced in an ethical and environmentallyfriendly manner.Concerns about the palm oil industry's impact on the environmentintensified in 1997 and 1998, when Southeast Asia was blanketed in thicksmog because of massive land-clearing fires set by oil palm growers inMalaysia and Indonesia.Oil palm, the world's second largest edible oil crop, is grown mostlyin Malaysia and Indonesia.The WWF has, in recent years, been instrumental in rallying Europeanconsumers to demand that palm oil be produced in an environmentallyfriendly manner.While NGOs have criticized the palm oil industry for damaging theenvironment, producers have insisted that they have adhered to soundpractices.The differing viewpoints over what is and isn't environment-friendlywould be the first hurdle for the RSPO to overcome."There have been variations as to what constitutes sustainable palmoil (development). We have to start to define the criteria for sustainablepalmoil, and at this moment, this is the very first task of the roundtable,"Teoh said.The RSPO is now setting up a working group to come up with a draft onthe definition of sustainable palm oil development.The draft will be presented at the next roundtable meeting in Jakartain October, with further fine tuning to follow in subsequent months."It will take about a year to develop the criteria. It's a verypainful process and long, but people will have ownership for the processitself," Teoh said.

INDUSTRY SEEN UNDER PRESSURE TO SET STANDARDS

The nascent co-operation between the industry and environmentalconservation groups is expected to change the way palm oil is produced andused in the future.As calls for environmentally friendly palm oil increase, particularlyin Europe, demand for edible oil in future is unlikely to be driven byprice alone.Industry players that aren't members of the RSPO may have littlechoice but to comply."If somebody in Malaysia or Indonesia is not part of this process,people in Europe will ask them 'are you following the criteria forsustainable palm oil?' It's a question of the market driving it," Teohsaid.About 17% of global palm oil output is exported to Europe, he said.The pressure also extends to oil palm smallholders, who are typicallyless concerned about environmental issues."In practice, a lot of smallholders sell the crop to a largerplantation company because they don't process their own crop. So this putsthe responsibility on bigger companies buying from smallholders to teachthem good practices," Teoh said, adding that smallholders would also begiven a seat on the RSPO Board.Demand for environmentally friendly palm oil may not be confined todeveloped countries.Teoh said price-sensitive countries such as China may also have to buysustainably produced palm oil because the oil is used as raw material inthe production of food products and consumer goods, which are thenexported."(Chinese manufacturers) will be asked the same questions, like wheredid the oil come from and do you know whether it's being producedsustainably," he said.The RSPO would also be responsible for ensuring that the industryimplements the standards it is setting.How the RSPO will do that, however, will only be determined later."The roundtable will facilitate (implementation). But it is an earlystage yet for us to do that," Teoh said."First, we need to have a credible definition of sustainable palm oilthat is acceptable to everyone."