Consumer demand for palm oil is growing fast. It ends up in food products, cosmetics and biodiesel, with demand set to double by 2030. With this expansion leading to large-scale deforestation, how do we reduce the forest footprint of commodities like palm oil, and increase demand for ‘deforestation-free’ ones?
There are a number of measures available to reduce deforestation and limit the forest footprint of commodities. Some of these include: legislation to restrict illegally-sourced imports, improving private sector supply chains, including voluntary moratoria on sourcing products from, for example, natural forests, and consumer-directed campaigns, such as when Greenpeace targeted toymaker Mattel over its use of cardboard made by a company known to destroy Indonesian rainforests.
Another is multi-stakeholder commodity “roundtables” that set standards and certification schemes for sustainably produced products. A key challenge to enacting all these measures is market demand. For example, while over 15% of palm oil globally is reportedly certified by the Roundtable on Sustainable Palm Oil, with certified sustainable palm oil increasing by 70% in volume between 2011 and February 2013, less than half is sold at a premium price. This reduces the incentives for producers to run more sustainable farms or forest enterprises. Meanwhile, the cost for participation in certification schemes and demand for producers to provide constant supplies of sufficient quality and volumes, can act as a barrier for smallholders. Below I’ve outlined what I think are four actions needed to reduce the ‘forest footprint’ of commodities.
1. Reduce costs to help boost demand for sustainably-produced products
Achieving cost savings is central to stimulating greater demand for deforestation-free commodities, such as palm oil. In general, markets appear unwilling to pay the price premium associated with implementing certification schemes, resulting in a much smaller market share and confinement to niche markets. To date, voluntary standards and certification schemes with global reach have achieved less than 1% to 15% market share.
That’s why there is a fundamental need to review entire commodity supply chains and identify options for cost savings, while not compromising social and environmental integrity. While progress may have been made in improving the efficiency of business operations and reducing the upfront costs of certification, there may be unexplored opportunities to reduce the costs that growers, producers and traders face to obtain finance through preferential terms attached to loans and capital or to receive fiscal incentives (such as tax concessions and subsidies)
2. Better support to sustainable commodity suppliers
Addressing demand is, of course, just one part of the armoury in halting deforestation. Equally important are initiatives to support the sustainable ‘supply’ of forest and agricultural commodities within any given landscape.
Boosting demand for sustainable palm oil products is inter-linked with supply side initiatives. For example, growers and producers will only invest in changes necessary to adhere to certain standards and increase traceability within their supply chains if they can see long-term financial gains for their hard work. From a grower perspective, this may mean that they need to see sustained demand for sustainable products and begin to see the trickle down financial benefits from price premiums.
Companies further down supply chains need to act more as partners with those in their supply chains, helping their suppliers to deliver certified, sustainable products. This inevitably means working more with trade associations and smallholder groups, and developing their capacity along the way.
3. Understand and engage with emerging markets
Asian markets are increasingly driving global demands for products, such as palm oil and timber, while land availability in Africa is driving investment in production. Moreover, domestic and intra-regional markets are driving trade dynamics in these emerging economies and less-developed countries, and targeted efforts are required to support locally controlled, forest-based enterprises.
Understanding these dynamic global trade patterns and supply chains and better engaging emerging markets are the greatest challenges to overcome when considering how to reduce commodity-driven deforestation.
We need to move fast to catch up to this changing situation as many existing measures were originally developed to fit the major consumer centres and corporations within Europe and North America.
4. Frame sustainability as an opportunity
‘Sustainability’ has an image problem. When people hear the word they think about risks and money; it’s generally interpreted as involving a set of risks that require social and environmental safeguards, whose implementation inevitably results in increased costs. This discourse needs to shift from risks to opportunities if we want to provide people with incentives to engage.
Definitions of sustainability generally depend on who is ‘selling’ the idea of sustainability – and to whom. Consumers, investors, businesses and producers all have their own interpretations, resulting in a mixed set of expectations from measures that address demand. We need to develop and test frameworks for measuring sustainability that are acceptable to all the different actors engaged in measures to increase demand in deforestation-free commodities. Framing the discourse on security of supply, markets and tenure may be one route forward, providing proxy indicators of sustainability, such as long-term production, economic viability and social protection respectively.
But money talks and we still have a long way to go to make the business case for avoiding deforestation, as many speakers at a recent meeting of forestry and trade specialists organised by IIED, the Carbon Disclosure Project, and The Prince's Rainforests Project pointed out.