By: Suresh Thamotharan -- Senior Analyst, Agro Commodities
01 January, 2017
The palm oil sector in Indonesia has seen the adoption of zero deforestation commitments by larger companies in the form of various pledges around No Deforestation, No Peat, and No Exploitation (NDPE). Major global players have committed to produce, source, and invest in sustainable palm oil.This is likely to bring about a shift in the supply of palm oil, where increasing demand for sustainably sourced palm oil will increase the prices of palm oil and its derivatives. This article focuses on the impact ofNDPE, highlightsorganizations that have embraced the policy,and discusses the competitive advantages that suppliers are developing for the future.
Increasing concerns of global warming and destruction of natural resources have spread awareness toward sustainability measures to ensure that we do notgloballydeplete the available natural resources. One such measure is the “No Deforestation,No Peat,No Exploitation”(NDPE) sourcing policy.The palm oil industry’s transformation toward sustainability gained traction in 2013,when major Southeast Asian palm oil refiners/traders began to implementNDPE sourcing policies in their organizations. Through such policies, these firmsrequire their suppliers/plantationsto refrain from clearing forests and peatlands for new oil palm plantations.
Since 2013, when the first corporate NDPE policy was launched by Wilmar International, at least 365 palm oil refiners and traders, including Musim Mas, and consumer goods companies, such as Unilever and Kraft Foods, have pledged for No Deforestation, No Peat, No Exploitation policies. Via these policies, companies demand their palm oil suppliers to stop clearing forests or developing plantations onpeatland and uphold labor and community rights.
Most companies are intending to apply these NDPE policies by 2020 and have given themselves a transition period. As many refineries make NDPE commitments, plantation companies will have to follow within a few years to retain access to the market. However, when asupplier is in violation of a refiner or trader’s policy, the trader or refiner can cease purchasing. Many of these oil plantation companies have lost substantial revenues due to the violation of NDPE policies.
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