Thursday, April 7, 2011

Green palm oil body censures IOI, Unilever keeps supply ties

KUALA LUMPUR: An industry body for eco-friendly palm oil has censured Malaysia's second largest palm oil planter, IOI Corp, saying it has drained peatlands and felled forests on Borneo island to expand and that it could face further sanctions.

The Roundtable on Sustainable Palm Oil (RSPO), a group of planters, NGOs and consumers, said its grievance panel found IOI to have breached its membership obligations, making it the second firm after Indonesia's SMART to face censure.

RSPO said IOI's current applications to certify its PLANTATION []s as environmentally and socially responsible have been suspended but key buyer, consumer goods giant Unilever, said it would keep supply ties with the firm.

"Failure to deliver the required proposal ... will result in the RSPO considering further sanctions, which may include the suspension of (the) IOI licence," RSPO said in a statement on its website seen on Thursday, April 7.

IOI has until May 2 to come up with an acceptable solution to the issues raised, the RSPO said.

The censure follows complaints by green groups over IOI's environmental practices in Malaysia's Borneo state of Sarawak, including a protracted land dispute with a local community.

RSPO's move will invite further scrutiny of the $30-billion palm oil industry that has tried to boost its green credentials in the wake of an aggressive campaign by activists as well as consumers shunning palm oil-based products.

Unilever on Thursday said it would continue to buy palm oil from IOI's mills that have already been certified green, playing down concerns that IOI's customers would sever ties and hit earnings.

"IOI can still trade the oil from mills certified in the past," Jan-Kees Vis, global director of sustainable sourcing development at the Anglo-Dutch consumer goods giant, told Reuters.

Based on RSPO data, IOI has four green certified mills. Another three have been audited and the remaining five mills were scheduled to be audited by the end of this year.

Vis declined to say how much palm oil Unilever sourced from IOI but the firm is one of the biggest buyers of the tropical oil, used in products like Dove soap and Stork margarine.

IOI shares were up 3 percent after the Unilever statement, recovering from losses notched the previous day.

"For now we do not expect the suspension to affect the group's operations as it will merely delay the certification of new estates," Malaysian investment bank CIMB said in a note.

"(But) this is a negative surprise and may tarnish the group's image as a sustainable palm oil producer."



IOI said on its website that the company accepted the RSPO's decision and would work with the industry body to find a solution, especially for the land dispute issue.

But it warned that activists were making unfair and false statements against the planter.

"Merely pressuring one party will not guarantee or facilitate the successful conclusion of the discussion said," IOI said.

U.S.-based green activists Rainforest Action Network welcomed the RSPO statement and called on agribusiness giant Cargill, the largest palm oil importer to the U.S., to scrutinise its relationship with IOI.

"This ruling reinforces RAN's demand that Cargill institute basic safeguards on its supply chain to ensure it is not selling palm oil from stolen indigenous lands to American consumers," said Lindsey Allen, RAN forest programme director.

The spotlight has fallen on IOI as Golden Agri Resources , the parent of Indonesia's SMART, joined the RSPO and pledged to commit to producing green palm oil as both companies raced to win back their customers. [ID:nL3E7F41I0]

Major palm oil consumers, such as Unilever and Nestle , stopped buying from SMART because of environmental concerns, and have yet to resume supply ties, traders said. - Reuters

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