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Increasing Transparency in Malaysia’s Palm Oil Sector

  • Date: 23 August 2016
  • Author: Dave McLaughlin, WWF
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From ice cream to cold cream, many of the processed foods, cosmetics and other consumer goods in our supermarkets contain palm oil. This ingredient is the world’s most popular and efficient source of vegetable oil, yielding several times more oil per acre than soybeans or canola. Yet its popularity is also its vulnerability; palm oil plantations are expanding rapidly, encroaching on wildlife habitat, destroying rainforests, and contributing to climate change.

For companies buying and using palm oil, it’s critical they trace the products all the way back to the plantation where the oil-yielding palm fruit is grown. This is the only way to be certain their supply is produced responsibly and free of deforestation. It’s also the best way to help producers improve their environmental and economic performance.

Davem1

P&G staff joined NGOs and other officials to find ways to develop more transparent supply chains in regions like Johor.

Fortunately, some of the world’s largest food companies are making their supply chains more transparent and sustainable. P&G’s efforts have given them significant visibility into their supply chain, all the way to the plantation level, and they are working to increase that even further. Some regions are inherently difficult to oversee, however, including Johor province in Malaysia, where the plantations are numerous, landowners are often disconnected from their operations, and experienced workers are in short supply.

On a recent trip to Johor, which straddles the Malay Peninsula just north of Singapore, I talked to a taxi driver who owned a 12-acre plantation being managed by others. He represents a trend: the more urbanized citizens are capitalizing on demand for palm oil and buying parcels of land. And, because there is a shortage of qualified workers, they are hiring people without much experience to manage their farms.

Davem2

Ganoderma is a fatal fungus that rots the trunks of oil palm trees. It is present on an estimated 70% of farms.

Fragmentation is another challenge. Unlike in other regions where large, vertically integrated processors either own or have relationships with plantations, in western Johor, a large number of the growers are independent. They are not part of a formal institutional arrangement but rather sell their palm oil fruit to a variety of mills for processing. This structure adds complexity and inhibits knowledge sharing, which keeps independent and isolated producers from learning how to improve production.
At a collection center where fruit is delivered, I immediately could see evidence of inexperienced workers and the dramatic room and need for improvement. About half of the fruit harvest was either overripe or under-ripe. This is problematic due to when fruit is picked too late, it separates from the bunch and gets lost in the field. And when it’s picked too early, it can’t be processed.

Davem4

Local smallholders often operate independently of processors, which obscures the supply chain and creates production challenges.

On the plantations themselves, disease was the most glaring issue I saw. It is estimated that 70 percent of the farms in Johor have cases of ganoderma, a fatal fungus that rots the trunks of the palm trees. It is difficult to identify cases in its early stage, and spreads easily, again highlighting the value of having experienced people managing farms.

I also saw that few, if any, people were analyzing the trees’ leaves, the soil, or even fertilizer use, missing an opportunity to catch nutrient deficits and optimize plant health and productivity.
Working with large traders and buyers is one of the best ways to engage and influence growers. And the first step is a traceable supply chain. Along with other NGOs, supply chain experts, and technical advisers, WWF is working with P&G to draw clear lines to its plantations in Johor province. Through field visits like this and additional research, we’re mapping out the smallholders, profiling the growers, and providing technical advice and initiating pilot programs to demonstrate how better environmental practices and information sharing can translate into higher yields and more profits.

While it was clear there is more work to do, I left Johor in good spirits. This is the first time that many growers and local traders have been offered this type of assistance, and the first time they have ever engaged a company like P&G at the opposite end of the supply chain. As a result, enthusiasm on the ground is high.

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