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.

Following Unilever, Nestle drops Sinar Mas - Will the Greenpeace challenge derail irresponsible palm oil development in Indonesia?

Have a break? from Greenpeace UK on Vimeo.

Greenpeace is in the news yet again in its efforts to put pressure on companies which are seen to proliferate the deforestation and carbon emissions caused by palm oil plantation development in Indonesia.

Greenpeace's report 'Caught Red handed', published on 17 March 2010, revealed that multinational food giant Nestle has been using palm oil from Indonesia in products like Kit-Kat. According to the report, the palm oil is sourced from plantations grown on cleared Indonesian rainforests.

In response to this report, and following the lead of consumer goods giant Unilever, Nestle has announced that it will cease purchasing palm oil from Indonesian palm oil giant Sinar Mas, which is the party accused by Greenpeace of illegal rainforest clearance which is pushing Orangutans to the brink of extinction and accelerating climate change due to the burning of peatlands, which are major carbon sinks.

According to the Greenpeace report, Sinar Mas' past operations and the location of its known land banks mean that the the vast majority of this expansion will involve deforestation, some on protected carbon rich peatlands and in critical orang‑utan habitat. In the face of Sinar Mas’ unacceptable environmental and social practices, Unilever cancelled its $30 million contract with the company at the end of 2009, while Kraft cancelled its contract in early 2010. Sainsbury’s and Shell have also stated that they will not buy palm oil from Sinar Mas.



The "chain of destruction" from Sinar Mas to Nestle is illustrated in the above diagram (source: Greenpeace).

In its "Statement on Palm Oil," Nestle stated that:

"We share the deep concern about the serious environmental threat to rainforests and peat fields in South East Asia caused by the planting of palm oil plantations. The company recently announced its commitment to using only "Certified Sustainable Palm Oil" by 2015, when sufficient quantities should be available.

Because of our commitment, we are taking all feasible steps to impact our suppliers to assure that we don’t buy palm oil which contributes to deforestation.

As a part of this commitment, we have accelerated the investigation of our palm oil supply chain to identify any palm oil source which does not meet our high standards for sustainability. Given our uncompromising food safety standards, we have done this in a deliberate manner as we use palm oil for food products rather than for soap or other personal care products.

Specifically, Nestlé has replaced the Indonesian company Sinar Mas as a supplier of palm oil with another supplier for further shipments. We confirm that Nestlé has only bought from Sinar Mas for manufacturing in Indonesia, and no palm oil bought from Sinar Mas has been used by Nestlé for manufacturing in any other country. "

The latest move by Nestle must be hailed as a victory by Greenpeace and other environmental groups in the war against irresponsible deforestation and unsustainable practices in the sourcing of palm oil. The termination of sourcing of palm oil from Sinar Mas by Nestle and other major multinational giants sends a clear signal that unsustainable business practices will not be tolerated by the community.

Yet, there remain significant hurdles to the deforestation challenge posed by the development of palm oil. Palm oil prices in recent years have been on an upward tear, primarily driven by demand from the booming mega economies of China and India for cooking oil. This demand growth remains strong and looks to be the primary driver of palm oil industry growth in the years to come.

However, judging by the outcomes of the recent Copenhagen summit, these two countries are not known for their leadership on environmental issues and are unlikely to make similar moves like those taken by Nestle and Unilever. Furthermore, intermediate suppliers of palm oil such as commodities giant Cargill say they can’t currently guarantee that one particular company is excluded, due to the mingling of palm oil in a very complex supply chain.

It will take significant pressure not just from the American & Euro multinationals but from the retailers of palm oil products & palm oil derivatives in China and India in order to get the Indonesian palm oil producers to stop their unsustainable business practices. A lack of pressure from these booming emerging economies will give the palm oil producers little incentive to stop their rainforest clearing while there remains profits to be earned. Indeed, the only way to get these businesses to protect the environment is to hit them where it hurts the most: their coffers

The lack of legal enforcement by the Indonesian authorities against illegal rainforest clearing also calls into question the political system of the Indonesian government. Greenpeace reports that

Many new plantations are located on peat that is off limits to development or degradation under Indonesian law. Ministerial Decrees have stipulated that peatlands of three metres deep or more must be protected and should not be converted to plantations. Greenpeace has documented such clearance on concessions belonging to Nestlé’s supplier Sinar Mas and Unilever consultants concluded in their audit that:

‘Sinar Mas has cleared and planted [such] peatlands. The total peatland area could not be determined because the company did not provide insight in its soil maps.’ In 2009, FFI conducted a High Conservation Value assessment in a Sinar Mas owned plantation (PT Kartika Prima Cipta). The results confirmed that the plantation concession contained deep peat (as deep as seven metres in some places – and so protected under Indonesian law), and that clearance of this area was already underway. During a public consultation on the issue, it was revealedthat Sinar Mas had agreed to stop clearance in the concession area following this first field visit by FFI. However, a later field verification mission conducted in August 2009 by FFI and Sinar Mas confirmed that clearance of peat forest had continued since that first visit, and peat drainage channels had been dug.

Questions must be asked why, in the presence of clear evidence of illegal activity by Sinar Mas, has the Indonesian government not taken disciplinary action against the company for breaking the law. Are government officials in cahoots with the business officials in the destruction of the environment?

Ultimately, the Indonesian people themselves must summon the political will to protect their own environment and their own communities. Failing which, there is little that can be done if they want to destroy their own back yard.

"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.