Golden Agri Resources - Nestle terminates palm oil contracts with GAR subsidiary SMART following Greenpeace evidence of illegal deforestation

Singapore listed Golden Agri Resources' (GAR) Indonesian plantation subsidiary PT Sinar Mas Agro Resources & Technology Tbk continues to come under pressure from multinational consumer goods giants. Following the lead of consumer good giant Unilever who cease purchasing palm oil from the group late in 2009, food products giant Nestle today announced that it had terminated its palm oil purchases from SMART following damning evidence released by the group Greenpeace that SMART is engaging in illegal and environmentally destructive deforestation.

Given the repeated track record of Sinar Mas businesses in flouting environmental regulations and its notoriety for illegal deforestation, it is not surprising that the GAR subsidiary is receiving similar bad press for its deforestation activities. It appears that Mr Franky Widjaja is following the footsteps of his father in the wanton destruction of rainforests in the pursuit of profits.

Franky Oesman Widjaja has been the Chief Executive Officer of Golden Agri-resources Ltd. since 1996. Mr. Widjaja serves as the head of the Agri-Business and Consumer Food Products Division of the Sinar Mas Group. Franky Widjaja is one of the sons of Eka Widjaja, founder of the Sinar Mas Group, which was one of the largest conglomerates during the Indonesian New Order period.

The Sinar Mas Group also owns Asian Pulp and Paper, a company that has been convicted of being involved in illegal logging in Cambodia, Yunnan Province, China , and the illegal felling of over 50,000 acres (200 km2) of forest in Bukit Tigapuluh national park.

Golden Agri Resources has yet to respond to the decision by Nestle. It earlier claimed that Greenpeace's assertions were "inaccurate and unbalanced allegations." In an announcement dated 15 Dec 2009, the company said:

Greenpeace’s allegations highlighted several issues related to the environmental irregularities and legality issues purported to have been committed by the Company. We regret that the report has published one-sided views using inaccurate, misleading, exaggerated and generalised data and claims. This can result in misconceptions among the general public as well as form an inaccurate basis for decision making by our business partners.

The Company appreciates every effort by all parties that encourage the oil palm industry to always adopt and adhere to the best agricultural practices. It has always been the focus of the Company to comply with all prevailing Indonesian laws and regulations as well as national and international environmental principles.

Since the beginning of its operations and especially during the last 15 years, the Company has committed to base its development on objective of sustainable palm oil production. Indeed, the Company believes that there is strong compatibility between environmental care and agricultural development.

Despite this announcement 3 months ago, it appears that its client Nestle remains unconvinced with the public statements of GAR and its subsidiary SMART. And despite the claims by GAR that Greenpeace's allegations are "one-sided views using inaccurate, misleading, exaggerated and generalised data," independent consultants of UniLever and Nestle have corroborated the Greenpeace claims.

It is highly unlikely that either of Unilever, Nestle, Sainsbury and Shell, who have all ceased buying palm oil from Sinar Mas, would have undertaken such drastic actions if there were poor bases to the allegations made by Greenpeace. Furthermore, apart from releasing press statements claiming that they have been falsely accused, GAR has yet to release a detailed rebuttal to the well constructed arguments and evidence as published by Greenpeace.

For now, the burden of proof remains on GAR to demonstrate that it is indeed taking steps to be socially and environmentally responsible in its business practices. The company's press released are unconvincing in light of all the available information.

"Under the Willow Tree" fully supports socially responsible development of palm oil plantations. Only companies that demonstrate that they produce palm oil sustainably will be endorsed as investments. Hence, in light of recent developments, GAR is not endorsed as an investment by this website. In any case, Golden Agri has not performed well in our recent comparative profitability analysis. In fact, it came in last of all the 5 sgx listed palm oil stocks.