Sustainable palm oil: Nearly 500k smallholders to become compliant with platform that traces transactions
30/10/2023 (New Straits Times), Kuala Lumpur - Nearly 500,000 smallholders in the country is expected to be connected to a platform that will trace transactions, helping them to comply with the criteria and traceability requirements for sustainability certification.
This is thanks to a new traceability platform that will soon be laucnhed by the Malaysian Palm Oil Board (MPOB).
The traceability platform is for a data collection system that records and tracks transaction details of palm oil products and is also in preparation for compliance with European Union (EU) legislation.
"We are currently in the final stage of developing this new traceability system to streamline the palm oil industry," MPOB director-general Datuk Ahmad Parveez Ghulam Kadir said.
The system involves distinct licences tailored for key players, including mills and dealers, all mandated to furnish it with comprehensive reports.
"These essential data points will be seamlessly integrated into the new system framework," he added.
As smallholders engage with dealers during transactions, the latter will employ a dedicated app on the system platform. This innovative approach ensures that all smallholder-to-dealer sales are funneled through the app.
"For instance, information such as 'I procured this palm oil batch from smallholder A, complete with this licence number' will be meticulously logged into the system," he further explained.
Once the FFB or palm oil reaches the mills, each mill must document the specific dealer source.
Considering that a dealer may have got oil from numerous smallholders, perhaps as many as 10 or 20, keeping these records is important to make sure everything runs smoothly in the system.
Each group of players, from millers to dealers, must perform their respective roles and undertake responsibility to enable traceability of all activities throughout the palm oil supply chain.
MPOB helps to display the information of related companies throughout the supply chain, starting from the source of suppliers such as FFB to exporters of palm oil.
"This is why we built this system, to facilitate accurate data capture of FFB. Each dealer is equipped with their own device to record information and ensure the details are accurate and correct as they move through the various stages of the supply chain," Ahmad Parveez told Business Times in a recent interview.
The Ministry of Plantation and Commodities is investing nearly RM10 million in this traceability system that will oversee the entire supply chain for the 500,000 smallholders in the country.
The new system is scheduled to be launched by Prime Minister Datuk Seri Anwar Ibrahim on November 8.
Ahmad Parveez said such meticulous record-keeping is essential in meeting the European Union Deforestation Regulation (EUDR)'s demands, as they need data and traceability throughout the supply chain.
"This effort will particularly support smallholders and estates that might struggle to provide this information," he added.
In the past, most oil palm smallholders did not practice consistent and accurate farm record-keeping. Thus, it was difficult to provide effective extension services without knowing the actual production of the smallholders in relation to cost and profit.
But now, this new system will be developed to capture FFB transactions by smallholders using dealers as intermediaries.
"We will do all we can to assist smallholders in producing sustainable palm oil, and we believe this system will improve the industry too," he said, adding that, however, the process is not an easy task.
For instance, he said: "If you're exporting 100 tonnes of palm oil to the Netherlands, the importer must provide information on the origin of this batch. This involves tracking the supply chain right back to the plantation, down to the smallest detail, including refinery processes."
Achieving this data is not simple. It requires a robust traceability system to trace the palm oil's journey, starting from the export batch, moving through the refinery, mills, dealers, and even the individual smallholders.
This complexity is magnified when considering the vast palm oil industry of Malaysia alone, let alone the challenges in Indonesia.
With around 5,000 estates and almost half a million smallholders, including those under Felcra and Felda, the Malaysian palm oil landscape is vast and intricate.
The array of stakeholders, each with their unique certifications and supply chains, adds another layer of complexity, Ahmad Parveez noted.
He said the new system will also be linked to the latest Malaysian Sustainable Palm Oil Supply Chain Certification Standard (MSPO) 2022 certification. This new certification entails the latest requirement of the EUDR.
Under the EUDR, there is a requirement to demonstrate that the palm oil product players dealing with has not contributed to deforestation or forest degradation.
The challenging part of this is providing the origin of the oil palm and supplying satellite data for the areas involved.
"For plots measuring four hectares and below, the precise location needs to be given, whereas areas exceeding four hectares need a polygon, and these details are mandatory," said Ahmad Parveez.
By next year, the EUDR plans to list countries by their risk level.
"If your country is deemed high-risk, there's a nine per cent possibility that your EU-bound product will undergo due diligence."
In the standard risk category, it is three per cent, and in the low-risk category, just one per cent.
This means fewer demands for extensive due diligence reports.
Consider Malaysia as an example: If Malaysia is classified as low-risk, an EU company importing palm oil from Malaysia would only have 1.0 per cent of their product subject to due diligence.
Recognising the vital role of smallholders and the barriers they face, MPOB has undertaken the task of assisting them.
With limited staffing and an extensive smallholder network of about 250,000, this endeavour is not without its challenges.
"Nonetheless, it is an essential step to ensure that smallholders are not left behind in the changing landscape of the palm oil trade," said Parveez.
An additional effort by MPOB involves the meticulous mapping of farm locations for smallholders. This initiative not only aids in meeting EUDR traceability requirements but also offers cost-effective solutions for compliance.
"Falling short of EU demands could jeopardise palm oil sales to the region, making these proactive measures all the more vital," he adds.
Starting January 1, 2025, this revised MSPO 2022 standard, which was launched in March last year, will bring about crucial changes.
Ahmad Parveez said palm oil producers, including smallholders, are given an 18-month grace period extending across plantations, mills, and refineries to adopt and adhere to MSPO 2022.
Smallholders play a vital role in the oil palm industry, which is one of the main sectors that generates economic growth for Malaysia.
They contribute 3.0 per cent to the gross domestic product (for the first quarter of 2023) and generate an export value of RM137.89 billion in 2022 for the country.
Nearly 28 per cent of the country's total oil palm cultivation area is managed by 500,000 smallholders operating either independently or under the guidance of federal and state government agencies.
Ahmad Parveez emphasised the importance of fortifying the role of smallholders, which entails a dual focus, enhancing their productivity in a sustainable manner and fostering their participation in the downstream sector.
Poverty negatively impacts smallholders' productivity and ability to meet minimal sustainability standards because, with few resources at their disposal, these farmers find it difficult to sell their palm oil fruit.
The new traceability system is one of the initiatives to amplify the production of oil palm products. This is set to not only bolster the income of smallholders but also enhance their overall well-being.
Other MPOB initiatives include helping smallholders comply with MSPO certification through the effectiveness of sustainable palm oil cluster management, strengthening the implementation of good agricultural practices among smallholders, and empowering the smallholders to grab the opportunity to get premium exports by complying with EU standards.
The MSPO Supply Chain Certificate Standard (MSPO SCCS) covers management requirements and traceability of production throughout the supply chain, from the raw materials to the processing and manufacturing of palm oil and palm oil-based products.
The MSPO SCCS is designed to deliver confidence and credibility to customers and end users that the palm oil raw material originates from sustainably managed oil palm planted areas.
Ahmad Parveez said that while larger players wield more control over their production processes, smallholders often find themselves in a vulnerable position.