Palm oil body to wield stick to get consumer goods giants to go green

KUALA LUMPUR, Oct 16 (Reuters): A palm oil industry watchdog will adopt rules next month that will impose fines on consumer goods companies like Unilever and Nestle if they don't start buying more green palm oil to help curb deforestation in Southeast Asia, the regulating body said.

Producers of palm oil, a commodity used in everything from ice cream to lipstick, are blamed for destroying millions of hectares of forest in Southeast Asia, in part by using slash-and-burn techniques that blanketed Singapore, Malaysia and Indonesia in smog in September.

The growers, though, say palm oil buyers like Unilever, Nestle, Procter & Gamble Co and PepsiCo share responsibility because they don't buy enough sustainably produced oil, undermining efforts to reward those who adopt greener practices and reduce deforestation.

Last year, growers produced around 13.5 million tonnes of green palm oil - which costs more to grow and process - but only about half of it was sold at premiums to conventional palm oil.

"We are not seeing new demand for sustainable palm oil," said Mohd Haris Mohd Arshad, downstream managing director of Sime Darby Plantation (SIPL.KL), the world's biggest producer of the environmentally friendly variety.

"How do you get others to move towards (sustainable methods) when there's not even an incentive for it?"

Planters received premiums of up to $50 a tonne for green palm oil right after certification was launched in 2004, but now they get as little as $1.0 to $30 over conventional palm oil prices of around $500 a tonne.

That makes it hard to cover the extra costs of sustainable palm oil, which, according to Simon Lord, chief sustainability officer at Sime Darby, amount to $8-$12 a tonne, not including staff expenses.

Cark Bek-Nielsen, chief executive of United Plantations, said the consumer goods companies are not doing their part: "When push comes to shove the only thing holding them back is their fear of having to pay a slight premium."

To force the issue, the Roundtable on Sustainable Palm Oil (RSPO) - a regulator whose members include consumer companies, retailers, traders and palm growers - will for the first time make it mandatory for buyers to increase their purchases, according to new draft regulations.

The rules, to be implemented in November, will require RSPO members who buy palm oil to increase the proportion of their sustainable purchases by 15 per cent every year or face fines and possible suspension from the green initiative body.