Palm oil as one of today’s main challenges for responsible supply chain management

Palm oil, which accounts for 30% of the total oil market and is found in more than 40% of household products, attracts a lot of attention on social media and from NGOs, institutions, responsible investors as well as consumers.  Why? The palm oil industry is linked to global issues such as deforestation, habitat degradation, climate change, indigenous land grabbing and animal cruelty in the countries where it is produced, of which  Malaysia and Indonesia account for 85% of total palm oil production.

As a way to face this pressing global issue, different stakeholders within the palm oil industry in 2004 established the Roundtable on Sustainable Palm Oil (RSPO) with the specific objective of setting a clear global standard scheme for palm oil cultivation. However, inclusion of smallholder farmers - producers who work on a plantation of less than 50 hectares, globally accounting for 40% of palm oil producers - within the RSPO certification scheme has proven to be difficult. Effectively, only 3.8% of them have been certified under RSPO standards, leaving a huge gap of uncertified plantations. The main challenges for smallholder farmers for adopting RSPO certification are:

• Lack of capacity to transport and within 24 hours, which the commodity requires,.
• Uncertainty associated with the price volatility of palm oil, which does not guarantee a stable income.
• Lack of knowledge about maintaining palm oil plantations, reducing the plantation productivity.

SPOTS Initiative: Partnering for both business and social impact

L’Oréal, together with its value chain partners Wilmar (palm oil firm), Clariant (chemical firm) and Global Amines (global platform for fatty amines) came up with a business solution to phaze out from its supply chain the most talked supply chain commodity risk: production and sourcing of palm oil. The attention that this issue is getting from media, NGOs and institutions is extensive and ever growing, therefore in order to avoid reputational damages as well as leveraging the business opportunities around it, they decided to team up together.

Created in June 2016, the SPOTS initiative is an innovative agreement between the different parties with the ultimate goal of integrating Malaysian smallholder farmers within the RSPO certification, promoting therefore supply chain traceability, certification, sustainable development and environmental protection. In addition to the positive environmental and social impact, L’Oréal, Wilmar, Clariant and Global Amines make sure to be able to source palm oil and have access to existing and new markets.

The SPOTS initiative includes a detailed action plan and framework for the sustainable sourcing of palm oil and all palm-based derivates which the companies involved need to respect. Today, already 500 Malaysian smallholders are part of the SPOTS project; they are trained by the local partner Wild Asia, a Malaysian social enterprise which helps smallholder farmers to effectively move to a RSPO certification scheme. SPOTS has ambitious targets for 2020:

1. Support and certify 500 Malaysian smallholders
2. 20% increase in farmer productivity
3. 70,000mt of RSPO-certified palm oil

The double dimension benefits from SPOTS Initiative

There are many different types of benefits that L’Oréal, Wilmar, Clariant and Global Amines will gain out of this initiative:

1. Business Benefits

All the companies involved are likely to enhance positively their corporate reputation and consequently gain customer loyalty; access to new and existing markets will be ensured since RSPO certification on palm oil products is likely to be a prerequisite in the near future. In addition, cost efficiency and process innovation are likely to be enhanced as well as business innovation.

2. Social and Environmental Benefits

Smallholder farmers’ lives will be impacted positively from many different dimensions: 

• Social Capital: training farmers on business management, building customer relations and networking opportunities.

• Human Capital: enhancement of framers’ agricultural knowledge and skills and therefore raise the plantation productivity.
• Physical Capital: access for farmers to safety equipment to protect their health.
• Financial Capital: smallholders’ income and access to credits will be improved since their financial capital will be influenced positively.
• Natural Capital: conservation of soil and water quality, protection of biodiversity.

Value chain collaborations such as the SPOTS initiative can be seen as an innovative and strategic move that companies can adopt regarding a specific material issue identified as above described for palm oil production and sourcing. By collaborating with the main actors within the palm oil supply chain, L’Oréal has been able to see the palm sourcing issue as an instrument to foster innovation, reshape company’s strategy and leverage it as a business opportunity. L’Oréal and its value chain partners have distilled this challenge into an actionable business issue and created a best practice of a supply chain inclusive business model, leading the way forward to inclusive business strategy and social innovation.

Finch & Beak accelerates your partnering capabilities

Is your company working on fostering alliances with value chain partners and other stakeholders? Using a condensed approach, we help identify the most relevant opportunities for partnering, bring together organizations that share the same challenges and ambitions, and build the business case to facilitate top-level support. Based on a solid business plan, we facilitate progress and build organizational capacity to partner for impact. Please contact us at hello@finchandbeak.com for more information.

Image source: CEphoto, Uwe Aranas/Wikimedia