27/10/2011 (Financial Times) - Global efforts to put the $50bn palm oil industry on a sustainable footing are under threat because of lack of support from fast-food chains and other end-users, according to GreenPalm, a supporter of the initiative.

Palm oil is used in soap, margarine, cakes and chocolate. But growing demand and spiralling prices – which have swung between $950 and $1,300 a tonne in the past 12 months – mean plantation owners are clearing forests to plant more palm trees.

To reverse this trend, the industry-backed Roundtable on Sustainable Palm Oil promotes practices to increase yields from existing palms, including the use of fertilisers. Plantations signing up to these standards are certified by the RSPO and big European food producers have committed to using only certified sustainable palm oil by about 2015.

But despite these commitments, signed by companies including Unilever, the world’s biggest end-user, and Nestlé, the food group, only 43 per cent of the sustainable palm oil produced is being bought.

Entire sectors of end-users are “avoiding the issue completely”, according to GreenPalm, which runs the RSPO-backed offset certificate trading programme. These include food services companies, ranging from big chains to local fish and chip shops, through to producers of animal feed.

The latter uses an annual 650,000 tonnes of palm oil kernel expeller, the mass left after oil from the kernel is crushed out, or substantially more than the UK’s entire imports of crude palm oil.

In the food services sector, Bob Norman, general manager of GreenPalm, said McDonald’s was among the few to commit to supporting sustainable production by 2015. “But it’s a drop in the ocean,” he said. “The food services sector in volume terms is bigger than retailers and branded manufacturers added together. It’s a massive sector.”

Others claim that even supportive buyers are putting the scheme in jeopardy by buying GreenPalm certificates rather than physical oil. On a global basis, 70 per cent of the sustainable palm oil is bought this way. Certificates offset buyers’ consumption against the production of an equivalent amount of sustainable oil.

Critics claim the price of the certificates is too low to create an economic incentive for plantation owners to make the investment required for more sustainable production: they are now trading around 25 cents.

“The market is valuing them at 25 cents because nobody wants to buy them,” said Alan Chaytor, executive director of New Britain Palm Oil, a sustainable producer.

Users counter that the complex derivatives required – and convoluted supply chain from Asian plantation to the final refinery – make it too difficult to secure segregated sustainable oil that can be traced back through the system.

Unilever last year bought virtually all its sustainable oil via GreenPalm certificates. The Anglo-Dutch maker of Flora margarine and Dove shampoo says the complex supply chain and the fact it requires a variety of processed oils make it harder to buy sustainable oil physically.