Debate over ‘High Carbon Stock’
There is no doubt that one of the highest-profile policy issues confronting global palm oil producers is that of ‘high carbon stock’ (HCS). Producers and NGOs are currently devoting resources, expertise and money towards pinning down what HCS is, and how or what it can contribute to the sustainability profile of palm oil.
HCS is now a key inclusion in NGO demands, particularly in relation to ‘no deforestation’ campaigns. Consequently, it has become a part of the sourcing policies of many purchasers and processors. However, this has taken place without a basic definition of what HCS is. Greenpeace and other campaign groups have previously described the HCS approach as ‘no deforestation in practice’. This underlines the key goal of the TFT/Greenpeace HCS approach, which is to ultimately prevent all deforestation in relation to the production of commodities. While this would be considered by many to be a noble goal, it does need to be contextualised in relation to the drivers of deforestation. Agriculture – i.e. food production – is the largest driver of global deforestation.
Across the globe, and particularly in emerging and developing economies, major commodities that are used to both feed the planet and grow economies are the largest contributors to deforestation. Smallholder agriculture – a significant part of many of these economies – also makes up a substantial part of these sub-sectors. It is at this point that HCS and ‘no deforestation’ policies may clash with national development policies. The question then becomes who or what determines how much land a country can allocate for food production, or for forest area, or for conservation. Malaysia provides an illustrative example. Approximately 62% of its land is forested. Of this, 70% is considered as part of the permanent forest estate, and 23% is set aside for conservation and protection. So, around 30% of Malaysia’s forest area can be used for either urbanisation or agriculture. This is roughly 18% of its remaining land mass. Currently, 24% of the land is used for agricultural production. This is a relatively small percentage compared with say, France, which has 50% of its land under agriculture. Malaysia’s national development plan, published in 2010, laid out significant aspirations for both agriculture and the palm oil sub-sector. It noted that about one-quarter of the bottom 40% of the population works in agriculture. It stated that it would seek to increase productivity among smallholders, strive for a broader uptake of better agricultural practices, and increase output and contract farming for smallholders. Similarly, it called for significant increases of the palm oil subsector to both export earnings and GDP.
At the same time as highlighting the importance of a growing economy, and the need for the palm oil industry to continue its commitment and contribution to that goal, the national plans on sustainability and conservation recognise the importance of well-governed national parks and conservation areas. Analysts and commentators have observed that stringent environmental policies are likely to create stratification in the palm oil market, and this is already becoming apparent.
The ‘no deforestation’ and HCS model is about having certain points in supply chains adopt particular policies that will exclude palm oil that is not produced to strict environmental management standards. Malaysia’s smallholders are an example of those who cannot meet these criteria of their own accord. The ‘greener’ palm oil is supplied primarily to Western or developed markets; the conventional oil is supplied to larger emerging markets. The ‘greener’ oil is more expensive to produce and in theory is supposed to attract a price premium, yet this has not emerged under certification schemes such as that of the RSPO. Instead it appears as though we are seeing stratification of suppliers who are choosing production methods to suit their markets.
Smallholders and SMEs, who for the most part cannot afford certification or meet higher standards, are being shut out of the ‘greener’ markets. While this seems formidable and certainly hypocritical given the rhetoric from many Western companies on sustainability, it does provide an opportunity for these growers. The ‘HCS’ companies have stated that they will effectively not expand plantings on forested land, or accept oil from new plantings on forested land. But the non-HCS companies – and there are many – will see the opportunities in available forested land. The risks of higher production costs and opportunities from available land will be amplified somewhat in the near- and medium-term. No palm oil producer is oblivious to the significant falls in price over the past 12 months.
Producers who have adopted more expensive techniques under the ‘no deforestation’ policy are likely to find their margins being squeezed; in parallel with this they will be unable to increase planted areas on existing landholdings due to ‘no deforestation’ policies. While the larger producers have stated that they aim to improve yields, there are limits as to what can be achieved. In this regard, the ‘no deforestation’ policy seems to achieve its objective: lower supply and lower demand. This is not a positive outcome for the industry – only for the anti-palm oil movement.